Grant funding has its benefits and is typically how Colorado water managers pay for wildfire resilience or watershed health projects. But grants are competitive, opportunistic, and limited in available dollars. Grants also often require municipalities to contribute local matching funds. Further, the costs of investing in wildfire resilience or watershed health projects will likely exceed the amount municipalities can cover with grants or pay from annual revenues without experiencing rate shock.

Leveraging capital dollars, i.e., bonds and loans, allows municipalities to generate the funds needed to meet match requirements and pay for larger-scale investments.

Debt financing provides intergenerational equity ensuring that both current and future ratepayers bear the burden of the cost because current and future ratepayers both enjoy the benefits. Thus, debt, when incurred responsibly and appropriately, can be a path towards accelerated investments in resilience while avoiding unaffordable rate impacts.

Debt financing investments in wildfire resilience or watershed health projects is appropriate from a policy perspective. It matches the benefits with costs. Because these projects have long-term benefits, the costs of those projects are appropriately paid for over the long-term.

Nature-based resilience projects are also most appropriately characterized as capital assets and financed alongside other capital assets according to the Generally Accepted Accounting Principles. GAAP specifies that: assets meeting the definition of capital assets and a government’s capitalization policies…should be accounted for and reported as such. According to the Government Finance Officers Association guidance: Capital assets are assets that (1) are used in operations and (2) have an initial useful life in excess of one year. Wildfire resilience or watershed health projects meet these definitions.

Colorado broadly authorizes public water providers, whether cities, towns, counties, or special metropolitan water districts, to issue revenue bonds to finance projects that extend or add to water supplies. Specifically, Colorado’s revenue bond statute empowers public water providers to issue bonds for the “improvement, betterment, or extension of any water facilities.” 

For purposes of Colorado’s bond statute, the term “water facilities” is broadly defined and includes improvements used as a part of the collection, treatment, or distribution of water and all extensions, improvements, additions, and alterations to those improvements. Beneficial uses of water these projects can support include domestic and municipal uses.

Accordingly, so long as Colorado water providers can demonstrate that nature-based wildfire resilience and watershed health projects are part of the operation of their overall water system and:

• protect water quality, 
• reduce risk to water infrastructure ensuring distribution systems function properly, and/or
• can help secure water supplies

they likely fall within this definition of “water facilities” and can be financed with proceeds from the sale of a revenue bond.

A related consideration is whether bond proceeds can be used for projects that are situated on property the utility does not own or control. In particular, the question is:

Does Colorado law require that public water providers have an ownership interest in the property where the nature-based wildfire resilience and watershed health projects occur?

From a state law perspective, Colorado’s bond authority statute likely does not require an ownership interest. The focus of the statute is on whether an improvement is used as part of the system for the beneficial uses for which the water has been appropriated. Thus, it appears that Colorado’s state bonding authority is flexible enough to allow financing for nature-based wildfire resilience and watershed health projects on property the water provider does not own or control.

The next consideration is whether a Colorado water provider’s local bonding authority is similarly flexible. The section below explores how to find your local bonding authority and what to look for to assess a particular municipality or utility’s feasibility of bond financing nature-based wildfire resilience and watershed health projects.

For more information about the water quality and water supply benefits of nature-based wildfire resilience and watershed health projects and how to value them jump to the “How to Value Co-Benefits” section. Curious about the types of nature-based wildfire and watershed health interventions may qualify for revenue bond financing? Check out this list of Wildfire Resilience Interventions.

Colorado state law authorizes public water providers to issue revenue bonds for a wide range of water infrastructure projects. Given this flexibility, from a state law perspective it should be feasible for Colorado water providers to bond finance nature-based wildfire resilience and watershed health projects, including on property they do not own or control. 

Water providers will also need to assess the feasibility of bond financing these projects based on their local bonding authority. There are a few places water providers may find the policies and rules that govern their local bonding authority:

• Local ordinances and municipal codes
• Charter 
• Prior bonds
• Master bond resolutions
• Capital asset policies
• Debt policies

Case studies from Greeley and Denver Water provide examples of where to find local bonding authority. Greeley’s authority can be found in the city’s Municipal Code and the city’s local bond ordinance. Denver Water’s bonding authority is set out in the utility’s Charter and its Debt Management Policy. Jump to the Greeley and Denver Water case studies below for more details. 

The section below provides guidance on what to look for once a community has found their local bonding authority to determine whether its possible to bond finance upstream watershed health interventions.

Once a water provider has found the policies and rules governing their local bonding authority, the issues to look for to determine whether its possible to bond finance nature-based wildfire resilience and watershed health projects include:

• How the water provider bonding authority defines “water system.”

Consider: does the definition of “water system” include projects that improve, extend, or better the system? 

For example, a water provider whose local bonding authority defines “water system” as: “improvements used as a part of the collection, treatment, or distribution of water and all extensions, improvements, additions, and alterations to those improvements” should have the authority to bond finance nature-based wildfire resilience and watershed health projects. 

In contrast, if a water provider’s local bonding authority limits the definition of “water system” to built infrastructure, e.g., pipes and treatment plants, then that water provider may not have the flexibility to bond finance nature-based solutions.

• Whether the water system needs to be owned or controlled by the water provider.

Consider: does the definition of “water system” specify that improvements to the system need to be owned by the water provider? Does the definition specify that water system improvements need to be on property owned by the provider?

For example, a water provider whose local bonding authority defines water system as: “water facilities now owned or hereafter acquired” by the utility will likely need some ownership interest in the nature-based project. This interest can be secured through legal instruments such as contracts, liens, easements, and/or rights-of-way. Outright ownership of the property where the nature-based project is located is likely not required. 

In contrast, if a water provider’s local bonding authority defines water system as projects that improve, better, or extend the system, the water provider likely does not need to have an ownership interest in the property where the nature-based project is located.

Explore the Greeley and Denver Water case studies for examples of how these two Colorado providers define “water system” for purposes of local bond financing authority. 

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

Greeley, Colorado, is situated between the South Platte and the Cache La Poudre Rivers, about 60 miles north of Denver. The City provides drinking water to just under 150,000 people. As with much of the Intermountain West, Greeley’s watershed and the infrastructure located there is vulnerable to wildfire. For example, in 2020, the Cameron Peak fire had a significant impact on the City’s watershed, affecting drinking water quality and reliability. This vulnerability is why Greeley invests in nature-based watershed health and wildfire resilience solutions, including low-tech process-based restoration, aerial mulching, and erosion control. Many of Greeley’s projects are implemented in partnership with the Coalition for the Poudre River Watershed. While Greeley does not yet bond finance its watershed health projects, it is likely possible for the City to take this financing path.

Section 20-31 of Greeley’s Municipal Code specifies that the city can issue bonds to pay for improvements to the water “system” when such bonds are approved by ordinance adopted by the city council. 

The city’s most recent bond ordinance adopted by city council defines the water system as: “All of the City’s water facilities now owned or hereafter acquired, whether situated within or without the City boundaries, including all present or future improvements, extensions, enlargements, betterments, replacements or additions thereof or thereto.” Further, the ordinance specifies that capital improvements that are eligible for bond financing include: “the acquisition of land, easements, water rights, … other acquisition of improvements, betterments and extensions, for use by or in connection with the System; including, without limitation, any of the foregoing which are constructed, reconstructed, acquired or owned on a cooperative basis with any other entities.” 

The lynchpin of when a project is part of Greeley’s water system for bond financing purposes is thus when it is “owned or acquired” by the city. These projects can be outside of the city boundary and do not need to be on city owned property, but Greeley does need to acquire some ownership interest in the project for it to be considered a capital project that is part of the water system.

In other words, under these definitions, Greeley could potentially use bond revenues to pay for nature-based wildfire resilience and watershed health projects so long as they are part of the system and the city has acquired some interest in them. Greeley recognizes that the 18,560 acres of mostly forested land where the city’s drinking water comes from is part of the water system. Accordingly, the City has implemented a number of nature-based interventions in the Poudre River Watershed in partnership with the Coalition for the Poudre River Watershed. Greeley has also worked with Northern Water on nature-based projects in the Colorado Basin and Laramie Basin, among others. But Greeley does not own or control the majority of this land. Within the Poudre River Watershed, the majority of the land is owned by the federal forest service, some is owned by the Bureau of Land Management, the National Park Service, or the state forest service, and less than 10% is privately owned. In sum, Greeley owns very little of the watershed land.

To acquire an ownership interest in nature-based watershed health interventions, Greeley has options depending on the type of property where the project will be located to secure an easement, lease, or right-of-way. For projects located on privately owned property, Greeley has the option to secure an easement from the property owner. This is the approach Milwaukee Metropolitan Sewerage District uses when installing green infrastructure on property it does not own to acquire the needed ownership interest for bond financing purposes. For projects located on federal forest service land, e.g., the Arapaho National Forest and Roosevelt National Forests through which the Poudre River flows, Greeley could apply for a right-of-way as authorized by the Section 1761 of the Federal Land Policy and Management Act. This federal law allows the forest service to issue rights-of-way on public lands for “… facilities and systems for the impoundment, storage, transportation, or distribution of water.” Because nature-based watershed health interventions are facilities and systems for the transportation or distribution of water, installing these practices on federal forest lands may qualify for a right-of-way. This interest in the land may be sufficient for Greeley to demonstrate it has acquired an interest in the installations for purposes of its bonding authority. For state owned lands, Greeley may have a similar option to obtain a right-of-way from the State Land Board to the extent the land is held in trust by Colorado. 

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

Denver Water is Colorado’s oldest and largest water utility and provides drinking water to 1.5 million people in the Denver area. The utility directly depends on healthy forests and watersheds. Roughly half of Denver Water’s 2.5 million acre system is forested land. 

Moderate and severe wildfires in these areas are the greatest threat to Denver’s raw water supply. In the last 30 years, two of Colorado’s largest wildfires burned over a combined 230 square miles, or 150,000 acres, in the South Platte River watershed. Rains following these storms caused over a hundred thousand cubic yards of sediment into the utility’s Strontia Springs Reservoir, critically threatening Denver Water infrastructure. In sum, these fires cost Denver Water nearly $30 million in water quality treatment, sediment debris removal, and operational challenges. Climate change brings the threat of increased frequency and intensity of wildfires in Colorado.

To mitigate these risks, Denver Water launched its Forest to Faucets program in 2010 and expanded it in 2017. Forest to Faucets is a long-term proactive and adaptive approach to manage source water watersheds implemented as a partnership between Denver Water, the U.S. Forest Service, Colorado State Forest Service, National Resource Conservation Service and the Colorado Forest Restoration Institute. The program aims to restore forest health and reduce the risk of high-intensity wildfire by deploying a combination of targeted forest and post-wildfire management practices such as fuels reduction, prescribed fire, revegetation efforts, and watershed sediment management projects. Between 2010 and 2023, the program completed over 120,000 acres of forest restoration projects and planted over 1.4 million trees in wildfire burn scars. Since its inception, the program partners have committed over $96 million in forest management projects in critical water supply areas. 

To date, Denver Water has used annual rate revenues and grants to fund its watershed health investments. But while Denver Water only owns about 2% of the land in its watershed, it is likely possible for Denver Water to bond finance these investments. This long-term financing approach would match the long-term benefits the Forest to Faucets program provides and help keep rate impacts down. 

Denver Water’s authority to use bond proceeds for water infrastructure investments is governed by the utility’s Operating Rules and the Debt Management Policy. Denver Water’s Operating Rules broadly authorize the governing board to issue revenue bonds “for water works purposes.” As the Forest to Faucets program exemplifies, watershed health investments that protect water quality and mitigate wildfires are projects that fall within the purposes of Denver Water’s “water works.” 

The Debt Management Policy specifies that the utility’s debt will “primarily be used to fund Capital Improvements” and that “[o]nly costs that may be capitalized under generally accepted accounting principles are eligible for debt financing.” Nature-based watershed health interventions likely meet these requirements.

Generally Accepted Accounting Principles specify that: assets meeting the definition of capital assets and a government’s capitalization policies…should be accounted for and reported as such. According to the Government Finance Officers Association guidance: Capital assets are assets that (1) are used in operations and (2) have an initial useful life in excess of one year. Nature-based resilience projects are capital assets; they are used in the operation of Denver Water’s water system and have a useful life of more than one year. 

Further, the utility defines capital improvements as: 

the acquisition of land, easements, facilities, water rights and equipment (other than ordinary repairs and replacements), and the construction or reconstruction of improvements, betterments and extensions, for use by or in connection with the system

For Denver Water, “system” means “water works system and treatment plant under control of the board.” The board has control over “… extending and adding to, maintaining, conducting and operating a water works system and plant for all uses and purposes, and everything necessary, pertaining or incidental thereto…” Watershed management is a key part of Denver Water’s system and nature-based resilience projects “improve,” “better,” and “extend” that system.

Given this broad authority, Denver Water should not need to own or control the property where the watershed health projects are located to use bond proceeds to pay for those investments. In contrast with Greeley’s bonding authority, the rules authorizing Denver Water to issue revenue bonds does not mention that the utility needs to own, acquire, or control the investments.

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

Investing revenue bond proceeds in nature-based watershed health and wildfire mitigation strategies located on property water providers do not own or control raises unique legal questions. To provide technical assistance for water providers grappling with these questions, WaterNow’s TiR Pilot Community Program provides up to 300 hours of hands-on technical support. 

TiR communities have access to legal, policy, finance, and accounting expertise over a 6-12 month period, free of charge, to help them strategize the full scale financing of their particular localized infrastructure project. Types of support include:

1. Tailored research and analysis on using debt financing mechanisms to pay for localized infrastructure. 
2. Facilitation of stakeholder meetings to build consensus on localized infrastructure financing options.
3. Support on developing bond packets, capital improvement plans, city council resolutions, ordinances, or other materials to advance full scale localized infrastructure financing.
4. Guidance on best practices for communicating with customers about localized infrastructure.
5. Become a national leader on sustainable water management.

To find out more about becoming a TiR Pilot Community fill out this short form.

Check out the additional resources linked below to learn more about how to use revenue bonds to finance nature-based watershed health and wildfire resilience interventions. In depth guidance on navigating questions that arise when investing water infrastructure on property that utilities do not own or control can be found in WaterNow’s Tap into Resilience Toolkit.

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

FAQ Scaling Investment in Localized Water Strategies

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A Water Leaders Guide to Financing Localized Solutions

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Financing the Future: How to Pay for Turf Replacement

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Bond Financing Distributed Water Systems

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Go Green: Muni Bond Financing for Distributed Water Solutions

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Debt Funding for Water Conservation Programs

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Environmental Impact Bonds: How do they work?

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Green Bond Principles

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How to Issue a Green Muni Bond

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Pathways for Localized Water Infrastructure

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Eligible Borrowers. Public water providers, e.g., cities, towns, and metropolitan districts, in Colorado are eligible applicants for Water Pollution Control Revolving Fund loans. In addition, public water providers can receive a WPCRF loan and pass those funds on to local watershed groups or other non-governmental organizations if those NGOs will be the on-the-ground implementers. This ability to pass through WPCRF dollars may be particularly helpful given that watershed health projects are often carried out in partnership with NGOs and other stakeholders. 

Eligible Projects. Projects eligible for the Water Pollution Control Revolving Fund loans include: 

• Source water protection
• Streambank restoration, forest thinning, and forest health projects related to surface water intake structures and source water protection to promote more resilient systems
• Green infrastructure and nature-based approaches that preserve, restore, and stabilize natural features such as forests, meadows, floodplains, wetlands, and receiving waters to allow for wildlife habitat and passage

These are directly aligned with the types of nature-based interventions Colorado water providers can and are implementing to build resilience and protect water resources. These nature-based solutions protect and improve water quality by reducing sedimentation. They build resilience by mitigating risks to water quality caused by wildfire, drought, and other climate change impacts. Thus, so long as water providers are making these investments for water quality purposes these project types are eligible for WPCRF loans. 

These projects are eligible even if they are on property the water providers do not own or control. Public water providers can use WPCRF loans to finance nature-based resilience projects on federal and state as well as privately owned land. There is no requirement that the installations go on property the water provider owns or controls. WPCRF borrowers are required to follow Generally Accepted Accounting Principles (GAAP) and to use GAAP standards relating to the reporting of infrastructure assets.

GAAP specifies that assets meeting the definition of capital assets and a local government’s capitalization policies should be accounted for and reported as capital assets. According to the Government Finance Officers Association guidance: Capital assets are assets that (1) are used in operations and (2) have an initial useful life in excess of one year. Nature-based wildfire resilience and watershed health interventions meet this definition.

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

In 2010, the Schultz Fire burned more than 15,000 acres of steep, forested slopes of the Coconino National Forest surrounding Flagstaff. 

Subsequent rains caused catastrophic flooding from the burn scar, taking the life of a child, destroying neighborhoods, devastating a thriving recreational resource, and impairing local water supply resources. In response, the city spent the next ten years building the Flagstaff Watershed Protection Project. 

Forest management through forest thinning is a key strategy the City is using to avoid another catastrophic wildfire event. To help fund this investment, the City and the Water Infrastructure Finance Authority of Arizona worked together to issue a $6 million Clean Water State Revolving Fund loan to the City. The loan has helped fund 3,285 acres of tree marking, hand-thinning or mechanically harvesting of 4,918 acres involving helicopter and steep-slope, and traditional processes, among other components. 

Additional financing for Flagstaff’s Watershed Protection Project comes from a $10 million bond authorized by the city’s voting public in 2012. Financing these watershed health interventions alongside other water infrastructure was the first time Flagstaff included wildfire mitigation efforts designed to protect water quality in its capital budget. 

Flagstaff’s example not only demonstrates that watershed health and wildfire mitigation projects are eligible for Clean Water State Revolving Fund loans, but also that these investments are capital investments that can be financed just as other water infrastructure investments are. That these investments were made on federal forest service property and paid for by a municipality was not a barrier. An essential element of success were partnerships between the City, the State, and the Coconino National Forest. Demonstrating the measurable, multiple benefits of watershed health projects was also essential to success.

Check out the resources below to learn more about Flagstaff’s Watershed Protection Project and how the city is financing the program.

Protecting Source Water with the CWSRF

EPA fact sheet explaining how the CWSRF can be used to finance nature-based source water protection projects.

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CWSRF Forest Thinning and Restoration Program

Report featuring Flagstaff's watershed protection program and how it is funded by the CWSRF.

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Source Water Protection in Arizona

Presentation on how CWSRF loans can be used for source watershed protection projects.

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WaterNow Alliance provides pro-bono assistance to communities seeking Colorado State Revolving Fund loans for environmentally-sustainable, distributed water infrastructure projects. Please fill out this form if you would like to learn more and speak with WaterNow Alliance staff about your project.

You can also find more information about WaterNow’s technical assistance offerings for the Colorado DWRF and WPCRF programs, and the types of projects we support through this program, visit our website here.

*WaterNow Alliance is an independent non-profit organization supporting communities in applying for these loans. WaterNow is not affiliated with the agencies that administer the State Revolving Fund Loans, Colorado Water Resources and Power Development Authority or Colorado Department of Public Health and Environment.*

Check out the additional resources linked below to learn more about how to use WPCRF loans to finance nature-based watershed health and wildfire resilience interventions. In depth guidance on navigating questions that arise when investing water infrastructure on property that utilities do not own or control can be found in WaterNow’s Tap into Resilience Toolkit.

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

CWSRF Forest Thinning and Restoration Program

Report featuring Flagstaff's watershed protection program and how it is funded by the CWSRF.

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Protecting Source Water with the CWSRF

EPA fact sheet explaining how the CWSRF can be used to finance nature-based source water protection projects.

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A Handbook for Understanding Natural Capital

From our partners at Earth Economics, check out this guidance manual for understanding relationship between economics and natural systems.

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A Water Leaders Guide to Financing Localized Solutions

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Debt Funding for Water Conservation Programs

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FAQ Scaling Investment in Localized Water Strategies

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Eligible Borrowers. Public drinking water providers, e.g., cities, towns, and special districts, in Colorado are eligible applicants for Drinking Water Revolving Fund loans. In addition, nonprofits are eligible for DWRF loans. This eligibility for non-profits may be particularly helpful given that watershed health projects are often carried out in partnership with NGOs and other stakeholders.

Eligible Projects. Projects eligible for the Drinking Water Revolving Fund loans include: 

• Source water protection, including nature-based watershed health projects that have a clear nexus to protecting drinking water quality
• Projects that establish a protective zone to address potential pollution as a result of wildfires in burn scar areas
• Source water protection plan development

These are directly aligned with the types of nature-based interventions Colorado water providers can and are implementing to build resilience to protect drinking water resources. These nature-based solutions protect and improve drinking water quality by reducing sedimentation. They build system resilience by mitigating risks to drinking water supplies caused by wildfire, drought, and other climate change impacts. Thus, so long as water providers are making these investments for drinking water quality purposes these project types are eligible for DWRF loans. 

These projects are eligible even if they are on property the water providers do not own or control. Public water providers can use DWRF loans to finance nature-based resilience projects on federal and state-owned as well as privately owned land. There is no requirement that the installations go on property the water provider owns or controls. 

DWRF borrowers are required to show that the investments are primarily used in connection with the publicly owned water system. Nature-based wildfire resilience and watershed health interventions installed to protect drinking water supplies meet this definition.

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

WaterNow Alliance provides pro-bono assistance to communities seeking Colorado State Revolving Fund loans for environmentally-sustainable, distributed water infrastructure projects. Please fill out this form if you would like to learn more and speak with WaterNow Alliance staff about your project.

You can also find more information about WaterNow’s technical assistance offerings for the Colorado DWRF and WPCRF programs, and the types of projects we support through this program, visit our website here.

*WaterNow Alliance is an independent non-profit organization supporting communities in applying for these loans. WaterNow is not affiliated with the agencies that administer the State Revolving Fund Loans, Colorado Water Resources and Power Development Authority or Colorado Department of Public Health and Environment.*

Check out the additional resources linked below to learn more about how to use DWRF loans to finance nature-based watershed health and wildfire resilience interventions. In depth guidance on navigating questions that arise when investing water infrastructure on property that utilities do not own or control can be found in WaterNow’s Tap into Resilience Toolkit.

Ready to assess the feasibility of bond financing nature-based resilience projects? Use the Water Provider Decision-Tool to evaluate the threshold factors influencing whether your water provider can debt finance investments in nature-based wildfire resilience.

Protecting Source Water with Drinking Water SRF

EPA fact sheet explaining how Drinking Water SRF loans can finance source water protection projects.

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A Handbook for Understanding Natural Capital

From our partners at Earth Economics, check out this guidance manual for understanding relationship between economics and natural systems.

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A Water Leaders Guide to Financing Localized Solutions

A water leader's guide to finance distributed infrastructure.

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Generally Accepted Accounting Principles (GAAP) allow utilities to borrow to pay for “capital expenditures,” i.e., expenditures for fixed or capital assets. Under GAAP, capital expenditures must, among other things, result in the acquisition, improvement or creation of an “asset” of the utility. Applied to public borrowing to support nature-based watershed health interventions, this means that these programs may need to generate a public asset of some kind. 

If a water provider’s local bond authority specifies that projects that the provider “owns or controls” can be debt financed, then the water provider will need to create a public asset by meeting the requirements of GASB Concepts Statement No. 4 (GASB 4)–conventional accounting. 

To meet the GASB 4 requirements, a water provider will need to secure an ownership interest in or control over the nature-based intervention. As a general matter control results from the water provider’s ability to determine the nature and manner of use of the investment. Easements or contracts can usually establish the requisite level of control.

A Water Leaders Guide to Financing Localized Solutions

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FAQ Scaling Investment in Localized Water Strategies

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Generally Accepted Accounting Principles (GAAP) allow utilities to borrow to pay for “capital expenditures,” i.e., expenditures for fixed or capital assets. Under GAAP, capital expenditures must, among other things, result in the acquisition, improvement or creation of an “asset” of the utility. Applied to public borrowing to support nature-based watershed health interventions, this means that these programs may need to generate a public asset of some kind. 

If a water provider’s local bond authority specifies that projects that benefit the water system can be financed, or the bonding authority is silent about whether the provider must own or control a project for it to be debt financed, then the water provider can create a public asset by following GASB Statement No. 62 (GASB 62)–Regulated Operations accounting. 

Under the Regulated Operations approach, business-type activities become “regulatory assets” that public entities can borrow against. The “asset” under GASB 62 is not the physical thing being capitalized (e.g., wetland restoration or prescribed fire); it is instead the agency’s promise to repay the debt. GASB 62 is thus a complete alternative to conventional accounting.

GASB 62 is available to any public entity with a governing board legally authorized to: 

• Set rates;
• Set those rates at levels to cover the cost of the specific programs to be financed; and
• Commit to setting rates in the future to pay for the cost of these programs.

Virtually all Colorado cities, towns, and metropolitan water districts can meet these criteria.

GASB 62: How Does It Work?

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Go Green: Muni Bond Financing for Distributed Water Solutions

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FAQ Scaling Investment in Localized Water Strategies

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Nearly every state has some form of a constitutional prohibition against “gifts” of public funds for private purposes. 

These provisions are distinct from the rules regarding the use of public debt, but can give rise to negative perceptions or concerns about the use of public funds for projects and technologies deployed on private property. Constitutional gift prohibitions are generally not a barrier to investment in nature-based watershed health interventions.

As with most states, Colorado allows expenditures that incidentally benefit private interests, as long as they primarily serve and fulfill a public purpose. Article 5, Section 34 of the Colorado Constitution authorizes the appropriation of public resources for the benefit of individuals, corporations, communities, institutions, or associations not solely owned and operated by the State for “discrete and particularized public purpose[s].” Appropriations that have incidental private interests still pass constitutional muster where the public purpose outweighs those incidental private interests.

Accordingly, it appears that Colorado’s gift prohibition does not bar local water providers from using bond proceeds, or other public financing, to pay for watershed health interventions on private property.

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Using municipal bonds or State Revolving Fund loans to finance nature-based wildfire and watershed health interventions will likely be a new concept for many, if not most, water providers in Colorado. Because of the novelty, water managers’ bond counsel and finance staff may have questions about whether this is an appropriate use of debt proceeds, as well as the legal and accounting implications.

To begin to engage in these conversations, water managers will want to be prepared with information that:

• establishes that nature-based wildfire resilience and watershed health projects are part of the water system,
• shows interventions are assets that are used in operation of the water system and have an initial useful life of at least one year, and
• demonstrates benefits to ratepayers and the system.

Water managers can also assess the feasibility of bond financing nature-based resilience projects via the Water Provider Decision-Tool. The tool is designed to help evaluate the threshold factors influencing whether a Colorado water provider can debt finance investments in nature-based wildfire resilience.