Correspondence between

Please see the attached document. xxxEND_PAGE:treasury01_b39_6977_7316_061 Department of Environmental Quality Flint Funding February 11, 2016 2016 Budget Supplemental 1: PA 143 of 2015 City of Flint Emergency Water Services * $ 6,000,000 Drinking Water and Environmental Health Staff 2 $ 300,000 Laboratory Services $ 1,000,000 Supplemental 1 Total $ 7,300,000 Supplemental 2: PA 3 of 2016 Water System Infrastructure Needs $ 2,000,000 Utility Payment Relief $ 3,000,000 Lab and Testing Costs $ 250,000 Corrosion Control Procedures $ 36,500 Infrastructure Integrity Study $ 500,000 Supplemental 2 Total $ 5,786,500 Supplemental 3: TBD City of Flint Water Bill Relief $ 30,000,000 Utility Assistance $ 25,000,000 City of Flint Emergency Water Services (Jul - Sept) $ 3,900,000 Water System Needs (KWA) $ 2,200,000 Response Team $ 2,250,000 Supplemental 3 Total $ 63,350,000 Total 2016 Supplemental Funding for DEQ $ 76,436,500 2017 Budget City of Flint Emergency Water Services (Oct - Dec) $ 3,900,000 Drinking Water Technical Expertise 10 $ 1,500,000 Total 2017 General Fund Request for DEQ $ 5,400,000 * The DEQ paid $6 million to the City of Flint for water connection services through June 2016. The total cost for the connection services was $12 million of which the Mott Foundation paid $4 million and the City of Flint paid $2 million State of Michigan Totals Supplemental 1 - PA 143 of 2015 $ 9,350,100 Supplemental 2 - PA 3 of 2016 $ 28,028,500 Supplemental 3 - As Introduced $ 156,690,000 2017 Budget - As Introduced $ 38,730,900 Total State of Michigan Funding for Flint $ 232,799,500 xxxEND_PAGE:treasury01_b39_6977_7316_062 Stanton, Terry A. (1 reasury)

There have been two deals for KWA. The first deal was done in 2013 by Genesee county at $35 million to finance the intake at Lake Huron. The other deal was done by KWA with Genesee, Lapeer and Sanilac Counties in 2014 at $220.5 million. The team on both deals were Miller as Bond Counsel with Dickson Wright as Underwriters Counsel. Stauder who is now with PFM was FA. [ believe they are currently working on a S60 million deal as well. Let me know if you need anything else. Thanks John xxxEND_PAGE:treasury01_b39_6977_7316_047 Stanton, Terry A. (T reasury)

Just to keep you in the loop re: Flint media inquiry DEQ

| am not sure if you were on the call Steve mentioned, but | wanted to pass along Steve’s e-mail. Steve is the EPA contact | talked to last fall.

Tom, Below is the link to the Detroit News article from yesterday regarding Rep. Kildee push to forgive the DWRF loans. | have also attached is the information sent to EPA (Steve Marquardt Region 5) DEQ on Friday showing the outstanding balances of the Flint DWRF loans. pipes/76845170/ As we discussed, the fund simply cannot forgive the loans as they are pledged to bond issues. Further, any loan not collected will have an impact on future capacity. Thanks John xxxEND_PAGE:treasury01_b26_3730_4111_027 00'9EE'022'0Z O0'9t€'00S‘er 00've6'F69'01 SLOZ/L/OL yZOc/L/OL 00've6'786'SL ROGT v0-6L02 £002/S7Z/6 00'80r'9Sz'r SLOZ/L/OL CZ0C/LIP 00°80¢'LLe'6 K0G7 €0-6L02 LO0z/sc/6 00°000'S22'€ SLOZ/L/OL LZOZ/LiP 00°000'SE0's ROSS 20-602 o00z/8c/6 00'v66'erS'Z SLOZ/L/OL OZOZ/L/T 00'766'891'2 %OSS b0-61L02 6661L/0E/6 aauejeg Bujpueysing | quewAeg seq | Anew [eul4 | Junowy ueoT jeul4 JaquNN welosg | 3}eqQ anss| _ SLOZ/PIZL JO SY Jul] 40 AID puny Bulajoasy JayeAq Bupjuig xxxEND_PAGE:treasury01_b26_3730_4111_028 Pleyte, Beth (T: reasury)

Do you know has DEQ done any more on this ? i.e., is someone looking at what is needed in terms of state legislation ?

Importance: High It looks like DEQ is mulling over changes to state law to allow for the financing of service lines with DWRF monies. Did you want me to respond? | think with a change in state law we can make the loans, but we would not be able to leverage them in future tax- exempt pools as they would be considered private activity; much like the SWQIF loans for footing drain disconnects. It is worth noting, we have not leveraged the drinking water program since 2007 and have approximately $50 million annual program resources for each of the next five years. Thanks John

Below is the response from the EPA regarding the replacement of lead service lines using DWRF loans. Please let me know if you need anything else.

Tom, Below is the e-mail Dan received from EPA regarding the use of SRF to replace lead service lines. | talked with Sonya Butler and she reached out to Susan and Steve below to obtain the actual cite in the EPA guidelines. | will follow up tomorrow. John

If this happened, who is next? Seems like we need to come with real world response about why this is crazy and really bad for the whole state Sent from my iPhone Begin forwarded message:

I think they would have concerns as to where it would stop; the slippery slope argument. The program tenants are based on sound business practice and are looked to as a program strength. If the path of principal forgiveness is opened up, they would view that as negative which would certainly impact the outlook, but maybe not the overall rating in the near term.

What would the rating agencies say about forgiveness?

Below is the response from DEQ: Here’s information that you can share with Amy Hovey, staffer for Congressman Dan Kildee, regarding how Michigan has used principal forgiveness in the Revolving Loan Programs. EPA has talked with Congressman Kildee on this issue at least twice. Principal forgiveness came around with the American Recovery & Reinvestment Act (ARRA). All of Flint’s drinking water loans were prior to ARRA. In May 2009, Flint submitted a project plan that comprised various projects the city wanted to pursue. Flint had 2 projects on the project priority list to receive funding in 2010 thru 2013. Initially the projects did not rank high enough to receive funding. When funding became available for Flint, the city declined to move forward with the projects. Some principal forgiveness was offered as part of the funding. Annually EPA requires the state to describe how principal forgiveness will be used (Intended Use Plan) and then report at the end of the fiscal year (Annual Report) how the funds were allocated. EPA audits the data during their annual visit. In Michigan, we have used principal forgiveness to assist disadvantaged communities and for projects that are water or energy efficient (i.e. green) consistent with EPA guidance. There is no provision to randomly provide principal forgiveness to a project or use it to refinance a prior loan, The purpose of the funds are to revolve in perpetuity (as stated in federal statute) so that communities can continue to receive financial assistance. Michigan has never completely forgiven an entire loan as it would greatly reduce the capacity of the fund to offer assistance to future projects. 1 xxxEND_PAGE:treasury01_b31_4719_5108_368 For a succinct statement I would suggest: There is no provision or program capacity to provide principal forgiveness outside the scope mandated by the EPA for disadvantaged communities (populations less than 10,000) or green infrastructure projects. The purpose of the funds are to revolve in perpetuity (as stated in federal statute) which allows communities to receive financial assistance in the future. Further, DWRF loans are pledged as security to various bond issues which provide the up-front capital to fund projects. Without a dollar-for-dollar replacement of revenue due to the loss of principal, the bonds could default.

Thanks

Okay, | will get with Ed and Randy to have something in the next couple of days. | will get with DEQ as well if that does not cause issues; they are the department that actually receives the federal funding and is responsible for program compliance.

This will probably come up again so we should get a statement together with all the reasons, both rules and credit issues

Nothing ready made, we would have to craft something. DEQ may be able to provide specific guidance from the EPA. | would suggest starting with the following: The DWRF is a pooled loan program whereby loans to local units are pledged to the repayment of a larger pooled bond issues. The pooled bond issues rely on the repayment from the local units for debt service. Absent a dollar-for-dollar replacement of the local loan revenue, the pooled bond issues would default. Further, the program is required to maintain all funds received in perpetuity as it is truly a revolving fund.

Do we have a succinct statement on why we cant forgive Flint DWRF?

Do we have a succinct statement on why we cant forgive Flint DWRF?

Tom, Did you plan on having me join the local gov't meeting tomorrow? I did talk with Brom this morning and | have Andrea looking at how to reconcile the City of Detroit reports from Rick Drumb and E&Y. | am not sure we can actually reconcile them, but we will try. If we cannot, did you want me to work with Rick to figure it out? | also gave Brom an update on Pontiac schools. | spoke with Paul Bryant and he is working with MDE this morning to get the April and May state aid payments released. The District did submit another draw for the TAN which | left with Beth. Perhaps we can spend a few minutes today reviewing the draw and latest update from the District. Also, | have a call Thursday with the Key Bank, the purchaser of the TAN to discuss the issues. My guess is Key Bank will not provide credit in the future and it will be difficult for the District to secure another TAN. Andrea and | have a good first draft of projected cash flows for Benton Harbor Schools through August 2013, | am pretty stacked up today, but should be abie to have it ready for review sometime tomorrow. Thank you John