Water Finance 101 Shadi Eskaf Environmental Finance Center

Water Finance 101 Shadi Eskaf Environmental Finance Center at the University of North Carolina, Chapel Hill Environmental Finance Center Network 919. 962. 2785 eskaf@sog. unc. edu

2/21/2021 Session Objectives • Learn how to think about your water system as a financial entity • Understand some basic financial facts about water systems across the country www. efcnetwork. org

2/21/2021 Let’s Start With the Basics What does your water system do? www. efcnetwork. org

“System” is in the eye of the beholder 2/21/2021 1) System serves an important 2) System serves an environmental and health important public service – purpose -- protecting providing community with community’s water resources basic services that and supplying community everyone in the community with highest quality drinking can afford. water. 3) System serves as a well managed public enterprise – putting into practice forward-thinking sustainable business practices. www. efcnetwork. org

2/21/2021 Enterprise Fund • Your water system is supposed to be an enterprise fund, a self-sustaining business unit • If you are a governmental system, you are not supposed to receive tax dollars nor support the general fund www. efcnetwork. org

2/21/2021 Rates • Rates are the primary source of income for local government and other community systems • We’ll spend a lot of time today talking about rates www. efcnetwork. org

2/21/2021 Ideal Pricing • Prices cover full “costs” of service • Prices send and reinforce strategic messages • Prices follow State’s laws and policies • Beneficiaries pay for their benefits • Polluters pay for their pollution • Ability to pay is recognized and addressed • Simple www. efcnetwork. org

2/21/2021 Water System Finance Diagram Operating Costs Your Revenues Reserve Funds Current Capital Projects Debt Service www. efcnetwork. org Debt

2/21/2021 Note. . . Operating Costs Current Capital Projects Debt Service www. efcnetwork. org X Your Revenues Reserve Funds Debt

2/21/2021 Understanding Operating Costs • What you need to run your business day in and day out • What are your operating cost categories? www. efcnetwork. org

2/21/2021 Understanding Operating Costs • • Personnel Water bulk purchases Chemicals Office equipment Computers Supplies Etc. www. efcnetwork. org

2/21/2021 Understanding Capital Costs • The “big stuff” • Rehabilitation & replacement of existing infrastructure • New infrastructure as needed to serve your customers www. efcnetwork. org

2/21/2021 Understanding Capital Costs • What are your capital cost categories? What pieces of equipment do you want to budget for? www. efcnetwork. org

2/21/2021 Understanding Debt Service • What you owe on loans and bonds, paid back on a regular schedule www. efcnetwork. org

2/21/2021 http: //www. epa. gov/ogwdw/smallsystems/pdfs/ guide_smallsystems_final_ratesetting_guide. pdf www. efcnetwork. org • Determining Costs • Determining Current Revenues • Setting Aside a Reserve • Determining Revenues Required • Designing Rate to Cover Costs • Implementing the Rate • Reviewing the Rate

Smart Management for Small Water Systems 2/21/2021 Where does your water system revenue come from? www. efcnetwork. org

2/21/2021 Reserve Account(s) • If revenues exceed costs, the extra money can go into one or more reserve account(s) specifically for the water system • Can set up specific reserves for narrower purposes (designated reserves) • Examples: unrestricted, rate stabilization, rainy day, capital reserve, etc. • If you include depreciation as a cost, this is where that money would go www. efcnetwork. org

Why Do You Need a Reserve Account? • Future Capital Needs • Rainy Day Fund—what happens if your revenue is decreased? • Emergency Fund www. efcnetwork. org 2/21/2021

2/21/2021 How Much Do You Need In Your Reserves? • It depends (see http: //efc. web. unc. edu/2013/02/12/right-sizing-reserve-funds/) • Enough to pay for your most expensive piece of equipment? • Enough to cover your costs if you had no revenue for two months? • Enough to cover the projects in your capital improvement plan? www. efcnetwork. org

Smart Management for Small Water Systems Challenges Unique to Small Systems www. efcnetwork. org 2/21/2021

2/21/2021 Public Water System Inventory 50, 803 17, 922 81, 944 120% Very Large (more than 100, 000 people served) 100% Large (10, 001 - 100, 000 people served) 80% 60% Medium (3, 301 - 10, 000 people served) 40% Small (501 - 3, 300 people served) 20% Very Small (up to 500 people served) 0% CWS Source: EPA SDWIS, October 2012 www. efcnetwork. org NTNCWS

2/21/2021 Public Water Systems Serving Less than 3, 300 www. efcnetwork. org

2/21/2021 20 -Year Capital Infrastructure Needs for Community Water Systems Exhibit 2. 41: Need per Residential Connection by System Size Source: 2007 DWINSA and 2006 CWSS www. efcnetwork. org

2/21/2021 Community Water Systems with Health. Based Violations During FY 2011 CWS Systems in System Size Inventory Violation Percent of Size Category <= 500 29, 065 7, 145 25% 501 -3, 300 13, 832 1, 253 9% 3, 301 -10, 000 10, 001100, 000 4, 950 425 9% 3, 812 278 7% >10, 000 420 13 3% www. efcnetwork. org Source: SDWIS FY 11 Q 3 frozen tables

2/21/2021 Small System Challenges • Dis-economies of Scale • Insufficient Revenue from Small Customer Base • Regulatory Compliance • Addressing Current and Future Infrastructure Needs • Workforce – retirements and high turnover www. efcnetwork. org