The total cost of the FM Area Diversion is being covered by the federal government, state governments of North Dakota and Minnesota and local funding through sales taxes.
[Visual: Title card appears: “FM Area Diversion Funding & Financing” with the Metro Flood Diversion Authority logo.]
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Joel Paulson: Hi, I’m Joel Paulson, the executive director for the Metro Flood Diversion Authority, with some information about how the Fargo-Moorhead Metro Diversion project will be paid for. Implementing any large infrastructure project like this requires careful planning for not only how to pay for it, but also how to manage potential cost escalation and risk along the way.
When you buy a home, you typically need cash to fund the down payment as well as a loan to cover the rest of the costs. Pretty simple, right? But what does that combination of funding and financing look like when it’s not a home, but roughly a $3 billion infrastructure project? Well, it’s still much the same, but with multiple sources of funding and financing, it can appear pretty complicated. So, I’ll break it down for you in this video.
There are two avenues for paying for the project and its operations. One involves funding sources, such as grants and appropriations that don’t need to be repaid. Think of this as if your parents or friend gave you cash for the down payment on your house. The second route is financing, which needs to be paid back, just like the mortgage on your home.
On the funding side, the FM area diversion benefited from federal, state, and local contributions. The federal government contributed $750 million; North Dakota and Minnesota added another $936 million; and Fargo and Cass County voters, who will receive the most benefit from the project, strongly supported adding sales taxes to fund even more. Altogether, the local funding adds up to about $1.2 billion.
On the financing side, lenders recognize the benefit of the diversion and agreed to incredibly low interest rates. The U.S. Environmental Protection Agency provided a $569 million Water Infrastructure Finance and Innovation Act (WIFIA) loan at 2%, and North Dakota followed suit with a $55 million loan. Another $280 million in financing came from the U.S. Department of Transportation Private Activity Bonds.
Over the course of a 30-year mortgage, interest adds up quickly. By negotiating lower interest rates, there can be a huge cost savings. In the case of the diversion, finding those low rates will save local taxpayers more than $470 million.
There is more to the financial picture than just funding and financing, though. There is also reducing the risk of losses and inflation. If you hire a contractor to add an addition to your home and pay them 50% upfront, they might disappear with your money. By using a Public-Private Partnership (P3), the project is awarded to a developer who takes on the risk. They only get paid after achieving milestones in construction and later successful operation and maintenance. That means nothing gets paid until the work gets done.
With funding and financing in place, the pace of construction will continue until we can ensure protection for our communities in 2027. This means we can say goodbye to sandbags and the high cost of fighting major flooding.
[Visual: Closing card appears: Metro Flood Diversion Authority logo, social media icons, and the website www.fmdiversion.gov.]
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To understand how the project is being paid for, it’s important to understand the difference between funding and financing.
Funding, such as appropriation and grants, does not need to be paid back.
$750 million
This amount has been approved through the signing of the Project Partnership Agreement with the U.S. Army Corps of Engineers
Of the $750 million, $437 million was allocated by the Infrastructure Investment and Jobs Act of January 2022
North Dakota: $850 million
North Dakota provided $435 million from a state Legacy Funds bonding package and $415 million in State Water Commission funds.
Minnesota: $86 million
The City of Moorhead contributed $40 million through the City of Moorhead and Clay County added another $46 million.
$1.514 billion
Local residents overwhelmingly approved multiple sales tax initiatives to fund the FM Area Diversion, including payments during construction and short- and long-term debt payments.
In the City of Fargo, voters approved City 3-21 Sales Tax of 0.5% and City 3-22 Sales Tax of 0.5%. Fargo also dedicated 0.25% of the City 3-20 Sales Tax to the FM Area Diversion. Additionally, Cass County collects a 0.5% sales and use tax (County 2010-2 Sales Tax) that will contribute at least 94% of what’s collected.
In addition to the funding noted above, the FM Area Diversion Comprehensive Project relies on financing, such as loans, that will be repaid over time using the sales tax revenues:
The P3 contract relies on milestone payments made during construction. After substantial completion of the Stormwater Diversion Channel, a series of availability payments will be made over the course of a 30-year period for maintenance
The MFDA established an ongoing O&M Funding Program that will be funded by excess sales and tax revenues, an annual maintenance district levy, and stormwater maintenance fees from Minnesota member entities. The program also will fund any unforeseen mitigation needs that may arise during operation.