Affordability Discussions at WPCA Meeting
At our last WPCA meeting on Tuesday evening February 10, 2026 we had a lengthy discussion regarding project costs to the membership. Much of the contention centered around uncertainties related to future prices and contingencies.
Our attorney, Norbert Church, succinctly summarized in his closing comments (and I paraphrase), “The association membership voted favorably to spend $22.7M on this project to comply with the State of Connecticut’s Consent Order. Your duty as members of the Water Pollution Control Authority and Board of Governors is to deliver the project under those terms.”
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Restating the Facts of Our Sewer Project Funding
Many numbers were bandied about during the discussion, but the only numbers that truly matter are those which our membership authorized in our bond resolution. Because the bond resolution caps total sewer spending at $18.7M without further voter authorization, this analysis uses that ceiling to show the most any homeowner could be asked to pay under the current approval.
With that in mind, let’s review the facts and assumptions:
- We are subject to a Consent Order with the State to implement sanitary sewers
- OLSBA authorized $18.7M of the $22.7M bond total for sanitary sewers (internal and shared) and roads, carving out $4M for other purposes, such as the storm drainage
- We have 193 participating equivalent dwelling units in our Association
- Clean Water Funds (CWF) offers a 25% grant subsidy for eligible costs
- Clean Water Funds (CWF) offers 2% 20 year financing on loan obligations, which represent the residual costs after applying the CWF grant subsidy
- The State found $15M in “loan forgiveness” funding available to our shared project, of which OLSBA is entitled to 30% (193/640 EDU)
- Based on design phase funding, 90% of our costs should be CWF funding eligible
- Current market rates for municipal bonds for an entity like OLSBA are estimated at 6%
- Financing at the CWF 2% rate significantly reduces the interest we would otherwise pay
- Spreading out principal payments over 20 years reduces our present value cost
This spreadsheet captures the application of these facts to show the real costs to each homeowner in our association.
Analyzing the Cost Cap
Having crunched the numbers and analyzed the state-provided subsidies for our internal and shared sewer infrastructure, the story these numbers tell illustrates the significant funding that the State of Connecticut is committing to us in underwriting the project.
The bond resolution allowance of $97,000 ($18.7M/193EDU) in total cost per homeowner to comply with the Consent Order appears shocking on its face. However, the state subsidies go a very long way to relieving us of an otherwise unbearable cost burden. Let’s take a look at how that happens.
Baseline Assumptions
We can start with Scenario A, in which we make the following assumptions:
- We utilize the entirety of our bond cap amount ($97k/EDU)
- The CWF grant gets applied to the nominal cost of the project, taking 25% off the top, and then the loan forgiveness get applied against our resulting 75% loan balance
An alternative discussion centered on Scenario B, in which we alter our assumptions to be:
- We utilize the entirety of our bond cap amount ($97k/EDU)
- The $15M in loan forgiveness gets applied before the CWF grant is apportioned
Eligible vs. Ineligible Cost Basis
During the design phase, our sewer and road related costs were 92% eligible for CWF reimbursement. For this illustration, we will conservatively round this down to 90% eligible costs and 10% ineligible costs for the upcoming construction phase. That means that ~$10k/EDU would be what DEEP terms Local Share and would be excluded from CWF reimbursement. That leaves a balance of $87k/EDU as reimbursement eligible.
Loan Forgiveness Value
In both cases, the CWF Grant and the Loan Forgiveness amounts occur at the front end of the project (T0) and immediately reduce our resulting loan obligation. In either case, Old Lyme Shores receives ~30% of the $15M in loan forgiveness, which amounts to ~$23k/EDU and is independent of the eligible vs. ineligible cost designations.
CWF Grant Value and Ongoing Order of Operations Discussions
The order of operations (whether loan forgiveness or CWF grant gets applied first) does impact the CWF grant subsidy amount. In Scenario A, 25% of $87k ~$22k, whereas in Scenario B 25% of $64k ($87k eligible – $23k loan forgiveness) amounts to only $16k. This is the $6k difference referenced at the WPCA meeting on Tuesday evening February 10th.
It’s important to note that the order of operations discussion remains an open topic with the various State agencies. The three beaches are making the argument that loan forgiveness must be applied to the resulting loan balance – and not to the total project cost. Having additional sources of funding, such as loan forgiveness, has never been done before by the State. We face a first of a kind (FOAK) challenge with this arrangement. The contention seems to come from the interpretation of certain regulatory compliance requirements on application of funds.
We continue to press the State agencies to share these regulatory references with us and to explore common sense interpretations to achieve the best outcome for our members. We must be cognizant of the generosity of the State in making these funds available in a highly competitive political environment – especially when in doing so, they have made their own jobs harder.
Baseline Loan Principal
Since both the CWF Grant and Loan Forgiveness occur at the front end, we can simply add them and deduct them from the total spending cap to determine the baseline loan principal for each scenario. For Scenario A, our net capped cost per EDU after front end subsidies would be ~$52k. For Scenario B, our net capped cost per EDU after front end subsidies would be ~$58k.
Impact of CWF Loan Terms (2% / 20 years)
The one thing that gets drilled into all MBA Finance students is how to analyze streams of discounted cash flows to account for the time value of money. Science fiction author Arthur C. Clarke’s Third Law (1968) states “Any sufficiently advanced technology is indistinguishable from magic.” So, if the following analysis feels like magical thinking to you, rest assured that it is not. These are the foundational building blocks on which fortunes in the world of finance have been built. The linked spreadsheet provides access to all of the details of my calculations and is open to peer review.
This applies to the loan terms for two reasons:
- Paying the principal balance in pieces over 20 years means that each chunk paid in the future is actually worth less than it is today. Can you calculate how much deferring those principal payments is worth today?
- The CWF interest rate of 2% falls significantly below the 6% market rate for bonds that we would otherwise pay by obtaining funds from a bank. This results in lower interest payments for the life of the loan, but these too must be discounted. Can you value today how much interest you are saving at this lower rate?
The answer to each of these questions can be found by using discounted cash flow calculations. We have all the necessary information – principal amount, terms, payments per year, and interest rates. With that information, we can see that the CWF loan terms actually translates to today’s dollars such that Scenario A saves ~$19.5k and Scenario B saves $22.2k. We save more in Scenario B, because the starting principal is slightly larger and magnifies the discount impact. That extra $2.7k in savings offsets the earlier observed $5.8k in principal increase for Scenario B, so that the net increase of changing the order of operations falls to about $3.1k.
Real Costs & The True Value of State Subsidies
It’s important to distinguish between what homeowners will actually pay over time and what those payments are worth in today’s dollars
After applying the CWF grant and loan forgiveness subsidies, each household’s remaining loan obligation falls to approximately $52k (Scenario A) or $58k (Scenario B). This is the nominal amount you will pay back in principal and interest over the 20-year loan term — it represents your out-of-pocket commitment and should be the figure you use for household budgeting purposes.
However, because the CWF loan offers a 2% interest rate — well below the estimated 6% market rate for municipal borrowing — and because principal payments are spread over two decades, the economic value of that obligation in today’s dollars is meaningfully lower. Using standard discounted cash flow analysis, the net present value of your total cost comes to roughly $32k (Scenario A) or $35k (Scenario B), reflecting the genuine economic benefit the favorable loan terms provide.
In practical terms, this means that while you should plan for annual loan payments based on the full $52-58k obligation, the state’s subsidized financing saves you the equivalent of $20-22k in today’s dollars compared to what you would owe under conventional municipal borrowing.
These savings are real, but they materialize gradually over the life of the loan through lower monthly payments — not as an upfront reduction in what you owe. Taken together, the CWF grant, loan forgiveness, and below-market financing reduce the effective burden of the original $97k bond cap by roughly two-thirds, a substantial commitment of state resources toward making this mandated infrastructure project financially manageable for our community.
Selection of Municipal Bond Rate
Old Lyme Shores Beach Association is a chartered municipal beach association under the Connecticut State Legislature. An entity like OLSBA would almost certainly be unrated by the major credit agencies. According to BlackRock, 70% of bonds in the high yield municipal index are unrated, and a key reason is that small issuers may forgo a rating because it is too expensive or because the expected benefits don’t justify the expense.
If OLSBA were to borrow independently on the open market rather than through CWF, it would borrow as an unrated, tiny, special-purpose issuer. The Bond Buyer 20-Bond Index (which tracks 20-year GO bonds rated A or better) ended 2025 at 4.83%, with a range during 2025 from a low of 4.06% in January to a high of 5.27% in May.
However, these are yields for investment-grade rated issuers such as cities, counties, and states with diversified tax bases and credit ratings. An unrated, 193-home beach association would face a significant premium above these benchmarks. Unrated small municipal issuers typically pay 100-200+ basis points above rated comparables, depending on credit features, security, and market conditions. That would put a realistic borrowing range for OLSBA at roughly 5.5% to 6.5% or possibly higher on the open market for a 20-year term.
Sensitivity Analysis
If the assumed market rate for bonds drops from 6% to 5%, the present-value savings from the CWF’s 2% loan terms shrink, because the spread between what you’re paying and what you’d otherwise pay narrows from 4 percentage points to just 3. In practical terms, the $20-22k in discounted savings per household cited in the document would decrease — roughly by a quarter — pushing the net present value of each homeowner’s cost up from the $32-35k range closer to $37-40k. The nominal out-of-pocket obligation ($52-58k) wouldn’t change at all, since that’s determined by the subsidies and loan principal, not the discount rate. In that scenario, the effective cost lands closer to 40% of the original $97k figure rather than 35%. This illustrates why the choice of discount rate is one of the most sensitive assumptions in the analysis and deserves transparent justification cited above, rather than simply an assertion.
Open & Available Data
The table below summarizes the above exposition. You can also take a look at the actual spreadsheet to explore the raw data, assumptions, and calculations here. Should any of the assumptions change or errors be found, we will update this document. Up next, watch for a parallel analysis of the storm drainage project numbers.
| Scenario A
CWF Grant Applied First |
Scenario B
Loan Forgiveness Applied First |
Difference | |
| Maximum Authorized Under Bond Resolution | $ 96,891 | $ 96,891 | $ – |
| CWF Grant Subsidy | $ 21,801 | $ 15,972 | $ (5,829) |
| Loan Forgiveness Subsidy | $ 23,316 | $ 23,316 | $ – |
| Total of Front Loaded State Subsidies | $ 45,117 | $ 39,288 | $ (5,829) |
| 47% | 41% | ||
| Net Capped Cost per EDU | $ 51,774 | $ 57,603 | $ 5,829 |
| 53% | 59% | ||
| Savings on Low Interest and Deferred Payments | $ 19,456 | $ 22,150 | $ (2,695) |
| Real Cost (Net Present Value) | $ 32,318 | $ 35,453 | $ 3,134 |
| 33% | 37% |
John Cunningham
OLSBA President
10 February 2026