Title: Basis of Presentation
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
The accompanying Schedule of Expenditures of Federal Awards (the “Schedule”) includes the federal awards activity of the Puerto Rico Aqueduct and Sewer Authority (the “Authority”) for the year ended June 30, 2023. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”). Because the Schedule presents only a selected portion of the operations of the Authority, it is not intended to and does not present the financial position and changes in net position of the Authority.
Title: Basis of Accounting
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
Title: Schedule of Expenditures of Federal Awards
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
The Schedule of Expenditures of Federal Awards includes expenditures incurred in prior years. For the year ended June 30, 2023, the Authority recognized approximately $13 million for the Disaster Grants - Public Assistance (Presidentially Declared Disasters) in federal expenditures in the Schedule of Expenditures of Federal Awards that were incurred in prior years but were considered to comply with all eligibility requirements during the fiscal year.
Title: Matching Costs
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
Matching costs, such as the nonfederal share of certain program costs, are not included in the Schedule.
Title: Indirect Cost Rate
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
Title: Relationship to Federal Financial Reports
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
U.S. Office of Management and Budget (“OMB”) Uniform Guidance requires that federal financial reports and claims for reimbursements contain information that is supported by the books and records from which the basic financial statements have been prepared. The Authority prepares the federal financial reports and claims for reimbursements primarily based on information from the internal accounting records of the federal programs. The Authority prepares a reconciliation of the internal accounting records of the federal programs with the Authority’s accounting system.
Title: Commitments Related to Federal Awards
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
State Revolving Fund (SRF)
On July 26, 2019, the Authority and the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”) consummated definitive agreements modifying the Authority’s then outstanding SRF Loans in the amount of $570 million plus $26 million of new funds for ongoing capital improvement projects (the “SRF Agreements”). The SRF Agreements were approved by the Oversight Board, pursuant to Section 207 of PROMESA, and consolidated all the restructured debt into two SRF loan agreements consisting of two SRF loans (the “20219 SRF Loans”) with a 30-year maturity and for years 1 through 10 bearing interest at 0% and requiring $10 million annual principal-only payments and for years 11 through 30 bearing interest at 1% per annum and requiring $27 million annual debt service thereafter.
After the July 2019 debt modification of the SRF Loans, with the agreement of and in collaboration with the Environmental and Protection Agency (“EPA”), the Authority regained access to funds from the SRF Programs. On August 18, 2020, the Authority entered into a loan agreement with the Puerto Rico Department of Environmental and Natural Resources and Puerto Rico Infrastructure Financing Authority for loans totaling up to $163 million for the funding of 28 wastewater capital improvement projects, bearing interest at 1% per annum and amortizing principal over a 30-year period after each project completion.
On August 30, 2021, and October 28, 2021, the Authority signed and executed a financial assistance agreement for Drinking Water State Revolving Fund (“DWSRF”) funding for drinking water projects, and Clean Water State Revolving Fund (“CWSRF”) funding for wastewater projects, respectively. DWSRF loans consists of $22.2 million of loans at a 1% interest rate with a 30-year amortization after project completion and $24.1 million of subsidized loan with no principal repayment and 0% interest rate. CWSRF loan consists of $23.8 million of loans at a 1% interest rate with a 30-year amortization after project completion and $8.3 million of subsidized loan with no principal repayment and 0% interest rate.
On September 2, 2022, the Authority signed and executed a financial assistance agreement for a maximum amount up to $11.8 million of DWSRF funding for water projects, consisting of a $5.6 million loan at a 1% interest rate with a 30-year amortization after project completion and a $6.2 million of subsidized loan with no principal repayment and 0% interest rate.
On January 24, 2023, the Authority signed and executed a financial assistance agreement for a maximum amount up to $24.1 million of CWSRF funding for wastewater projects, consisting of a loan of $22.5 million at a 1% interest rate with a 30-year amortization after project completion and a subsidized loan with no principal repayment and 0% interest rate by $1.6 million.
On June 12, 2023, the Authority signed and executed a financial assistance agreement for a maximum amount up to $62.0 million of DWSRF funding for water projects, consisting of a loan of $54.5 million at a 1% interest rate with a 30-year amortization after project completion and a subsidized loan with no principal repayment and 0% interest rate by $7.5 million.
SRF loans are designated as Other System Indebtedness on a parity as to payment with other senior debt under Authority’s Master Agreement of Trust and are not guaranteed by the Commonwealth.
Rural Development (RD)
On July 26, 2019, the Authority and the USDA Rural Development agreed to modify the Authority’s then outstanding balance of the RD bonds, including accrued interest as of that date into two new loans. The agreement consolidated all the restructured RD bonds and converted them into two new loans (the “RD Loans”) with a 40-year maturity bearing interest at 2% per annum, with a $10 million annual debt service requirement from years 1 through 10 and $17 million annual debt service requirement thereafter.
The modified RD loans are designated as Other System Indebtedness on a parity as to payment with other senior debt under the Authority’s Master Agreement of Trust and are not guaranteed by the Commonwealth.
Title: Disaster Grants – Public Assistance and Hazard Mitigation Grants
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
The Authority participates in federally assisted programs from the Federal Emergency Management Agency’s (“FEMA”) Public Assistance (“PA”) Grant Program. Through the PA program, the Authority receives supplemental federal disaster grant assistance for debris removal, emergency protective measures, and the repair, replacement or restoration of disaster-damaged, publicly owned facilities. The Authority also receives assistance for hazard mitigation measures during the recovery process to protect damaged facilities from future events through the Hazard Mitigation Grant Program.
On September 6, 2017 and September 20, 2017, Hurricanes Irma and María, respectively, hit Puerto Rico resulting in island-wide catastrophic damage to Puerto Rico's infrastructure, homes, and business. As a result of the impact of these Hurricanes, most of the island's population was left without electrical power and there was significant disruption to the water distribution system among other basic utility and infrastructure services. These factors caused significant disruption to the island's economic activity. The entire island was in the process of an immense infrastructure rebuilding program.
The President of the United States of America issued a state of emergency declaration for Puerto Rico, as a U.S. territory. The order mandated federal assistance through the Department of Homeland Security and FEMA to assist in local and territorial recovery efforts.
The Authority suffered damages to water treatment facilities and structures across the island which resulted in a material adverse change in the financial condition of the Authority and the Commonwealth of Puerto Rico. Significant emergency work was made after hurricanes and significant projects to restore the damaged facilities were made.
On January 7, 2020, Puerto Rico was struck by a 6.4 magnitude earthquake causing significant damage to infrastructure in the southwestern portion of the island, an island-wide power outage and water shortages. President Trump also approved an emergency declaration allowing direct federal assistance for emergency measures to protect lives, property and public health after the series of earthquakes.
On January 5, 2021, the President of the United States announced that FEMA would award federal grant funds to help rebuild Puerto Rico’s water and wastewater treatment plants, pumping stations, dams, and reservoirs affected by Hurricane María. On January 8, 2021, the funds were obligated through an agreement (the “2021 FEMA Funding Agreement”) by which FEMA agreed to pay $3.66 billion to the Authority for recovery and resiliency capital projects related to damage suffered by the Authority during Hurricane María. The amount represents the federal government’s 90% funding share of the $4.07 billion fixed cost estimate for repairing such damage to the Authority’s facilities. The Authority is required to meet a 10% cost share (“match”) requirement for its FEMA-funded permanent work projects under the 2021 FEMA Funding Agreement. The Authority plans to meet its cost-share portion with federal Housing and Urban Development (“HUD”) Community Development Block Grant – Disaster Recovery Flexible Match program (“CDBG-DR Program”) funds, as they become available. On September 2, 2021 the Department of Housing of Puerto Rico and the Authority entered into a sub-award agreement for $200 million under the CDBG-DR Non-Federal Match Program to fund the state match of the FEMA award.
On March 11, 2021, American Rescue Plan Act (ARPA) was signed. It provides additional relief to respond to the continued impact of COVID-19 in the United States and its territories. ARPA provides funds in total stimulus under the CARES Act. Through the Office of Management and Budget of the Commonwealth or Puerto Rico, the Authority received proceeds to support the response and recovery from the COVID-19 public health emergency, including funds to provide premium pay to eligible workers performing essential work during the COVID–19.
On September 18, 2022, Hurricane Fiona made landfall along the extreme southwestern coast of Puerto Rico on as a Category 1 hurricane with winds of 85 mph, according to the National Hurricane Center. The hurricane resulted in massive amounts of rain, reaching more than 30 inches in some areas in the south and the central mountain region and catastrophic flooding. As a result of the passage of Fiona all of the island lost electricity service, which was not restored in some places for many weeks. As result, The President of the United States of America issued a state of emergency declaration for Puerto Rico, as a U.S. territory. The order mandated federal assistance through the Department of Homeland Security and FEMA to assist in local and territorial recovery efforts.
Title: Federal Loans or Loan Guarantees
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
The Authority participates in the EPA Capitalization Grants for Drinking Water (FALN No. 66.468) and Clean Water (FALN No. 66.458) State Revolving Funds Programs that provide loans for eligible water infrastructure projects. Transactions relating to these loans and guarantee programs are included in the Authority’s basic financial statements.
Loans made and/or proceeds received during the year are included in the summary of federal expenditures presented in the SEFA. These loans do not have federal continuing compliance requirements except for repaying the loans and therefore the outstanding balance is not combined as part of current year federal expenditures.
Title: Federal Grants and Loans Received as Subrecipient
Accounting Policies: The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
De Minimis Rate Used: N
Rate Explanation: The Authority has elected not to use the ten percent de minimis indirect cost rate as allowed by the Uniform Guidance.
The following table shows the Federal grants and loans received as subrecipients during the fiscal year presented in the Schedule for the following programs:
a) Capitalization Grants for Clean Water State Revolving Fund (FALN 66.458) pass-through from the Puerto Rico Department of Natural and Environmental Resources and Puerto Rico Infrastructure Finance Authority (PRIFA): Loan proceeds of $21,215,839.
b) Capitalization Grants for Drinking Water State Revolving Fund (FALN 66.468) pass-through from the Puerto Rico Department of Health and Puerto Rico Infrastructure Finance Authority (PRIFA): Loan proceeds of $3,145,171 and Grants of $5,737,358.
c) U.S Department of Treasury (FALN 21.019) Pass-through from the Commonwealth of Puerto Rico's Office of Management and Budget: Grants of $9,557,842.
d) U.S Department of Homeland Security (FALN 97.036) Pass-through from the Commonwealth of Puerto Rico's Office of the Governor's Authorized Representative through Central Office for Recovery, Reconstruction and Resiliency (COR3) and the Federal Emergency Management Agency (FEMA): Grants of $107,928,534.
e) U.S Department of Housing and Urban Development (FALN 14.218) Pass-through from the Puerto Rico Department of Housing: Grants of $10,193,748.