Budgeting and Finance 101

Transcription

1 Budgeting and Finance 101 David Tucker Environmental Finance Center at the University of North Carolina at Chapel Hill

2 Session Objectives Learn how to budget for your water operations separately Understand your costs and revenues Moving from paycheck to paycheck to longer term planning

3 Budgeting 101 An instrument to implement and manage public policy by obtaining (through rates / charges / revenue) and allocating (through a budget process) resources for service delivery in this case, safe drinking water!

4 Budgeting Questions Do you have a budget? Overall? Separate budget for small water system? How do you do your budgeting process?

5 The Role Budgets Play Appropriation / allocation of funds Setting rates and revenues Public education (e.g. of your residents) Measuring and promoting financial and operational performance

6 Budget for water separately Government-owned water systems operate as enterprise funds standalone business units within the government that are self-sustaining (or at least that is the idea). You too can set up a separate account for your small water system, similar to an enterprise fund for water.

7 How do you treat your water system as part of your overall enterprise? Separate entity? Core function?

8 Why This Is Important Funders are used to treating water systems as independent entities. It s easier to understand system needs that way A separate budget for your water operations is a way to look at its finances independent of your other operations

9 Water System Finance Diagram Operating Costs Current Capital Projects Your Revenues Reserve Funds Debt Service Debt

10 One More Note... Operating Costs Current Capital Projects X Your Revenues Reserve Funds Debt Service Debt

11 Understanding Operating Costs What you need to run your business day in and day out What are your operating cost categories? Let s make a list

12 Understanding Operating Costs Personnel Water bulk purchases Chemicals Office equipment Computers Supplies Etc.

13 Understanding Capital Costs The big stuff Repair & replacement of existing infrastructure New infrastructure as needed to serve your customers

14 Understanding Capital Costs What are your capital cost categories? What pieces of equipment do you want to budget for? Let s make a list

15 Understanding Debt Service What you owe on loans and bonds, paid back on a regular schedule

16 Your Budget s Cost Side Needs to include all three categories EPA s STEP Guides can be a help

17

18 Cost Table

19 Controlling Costs

20 Controlling Costs: Options 1. Partnering with Other Systems to Reduce Costs 2. Asset Transfer and System Consolidation 3. Energy Management

21 Option 1: Partnering with Other Systems to Reduce Costs

22 System Partnership Spectrum Any kind of collaboration can be helpful

23 Benefits of Partnerships Reduce capital and operating costs and prices (per gallon of finished water produced) through increased economies of scale Help raise capital needed to replace and improve aging water-delivery infrastructure

24 Benefits of Partnerships Improve operational performance through wider use of trained operators and advanced treatment technologies Enhance environmental protection, resource conservation, and contingency planning for conditions of scarcity, through increased coordination and integrated planning.

25 Common Concerns with Desire for Autonomy Partnerships Mistrust of Other Systems Lack of Knowledge of Other Systems Lack of Knowledge of the Options No Outside Independent Force to Get Collaboration Started

26 Partnership Options Bulk sales agreements Sharing staff Sharing heavy equipment Using the same accounting or billing firm Using the same contract operator System inter-connections???

27 Does anyone in the room have these types of partnership arrangements?

28 Resources on Water System Partnerships 7/25/2013 efc.unc.edu/projects/partnerships.htm Tips and Guidelines for Crafting Inter-local Agreements EFC Contacts: Shadi Eskaf, Jeff Hughes Thanks to Public Water Supply Section (NC DENR) and local governments

29 Option 2: Asset Transfer and System Consolidation

30 When is it time to transfer a water system? 7/25/2013 Is it possible? Current compliance status with regulatory agencies Potential interconnection Another organization with interest State of system s assets State of system s finances

31 How many of you would like to get out of the water business? Has anyone here tried?

32 Option 3: Energy Management

33 Energy Use and Water Utilities Energy represents the largest controllable cost of providing water services to the public

34 Energy Use at Water Systems Pumping water is the largest consumer of energy Energy use is expected to increase increases in demand new energy intensive technologies (ozone, membranes, UV)

35 Water Systems are Energy Users In 2010 water systems used 12.6% of the nation s total annual energy consumption

36 Energy Management Techniques Equipment changes Process changes Time of operation changes Billing rates changes Electricity generation Reducing water loss

37 Possible Changes Raw and Finished Water Pumping Chemical Mixing Backwashing Well Systems Ozonation Load Shifting Distribution Supervisory Control and Data Acquisition (SCADA) Energy Efficient Motors

38 Now on to Revenue

39 In the Old Days... Water systems took advantage of the federal government s ambitious construction grants program of the 1970s and 1980s Everybody loved their free money

40 Capital Finance Today The money never really was free it came from tax dollars Today, the financial burden has been shifted away from federal and state tax dollars to funds raised by the water system itself. For example...

41 EPA Wastewater Spending ( ) In Billons of Dollars Per Year $14 $12 $10 $8 $6 $4 $2 $0 Total (in 2000 Dollars) CWSRF EPA Line Item Construction Grant

42 Capital Finance Today In other words, you pay (no sense in sugar-coating this) The harsh reality is that water and wastewater infrastructure is expensive, regardless of the size of your system. Smaller or poorer systems will likely have a hard time paying for capital improvements

43 Infrastructure Gap Source: Steve Allbee, USEPA

44 Aviation D Bridges C + Dams D Drinking Water D Energy D+ Hazardous Waste D Inland Waterways D- Levees D- Ports C Public Parks & Recreation C- Rail C+ Roads D School D Solid Waste B- Transit D Wastewater D ASCE s 2013 Report Card for America s Infrastructure 7/25/2013

45 Drinking Water D Bad news: much of our drinking water infrastructure is nearing the end of its useful life. estimated 240,000 water main breaks per year in the United States. Assuming every pipe would need to be replaced, the cost could reach more than $1 trillion, according to AWWA. Good news: The quality of drinking water in the United States remains universally high. Even though pipes and mains are frequently more than 100 years old and in need of replacement, outbreaks of disease attributable to drinking water are rare. (ASCE)

46 Wastewater D Capital investment needs estimated to total $298 billion over the next twenty years. Pipes represent the largest capital need, comprising three quarters of total needs. In recent years, capital needs for the treatment plants comprise about 15%-20% of total needs, but will likely increase due to new regulatory requirements. Stormwater needs, while growing, are still small compared with sanitary pipes and treatment plants. Since 2007, the federal government has required cities to invest more than $15 billion in new pipes, plants, and equipment to eliminate combined sewer overflows.(asce)

47 Understanding your Revenue Simply put, the money you have to cover your costs If you were a room of local governments, we d be talking about rates tied to usage.

48 Where does your water system revenue come from?

49 Revenue Table

50 Balancing the Budget: All Categories 7/25/2013 At the end of the year, you should bring in at least enough revenue to cover all of your costs This includes operating costs, capital costs, debt service and maybe...

51 ...This Funny Thing Called Depreciation 7/25/2013 This is an accounting solution to the problem of things getting old You have a cost every year of your infrastructure wearing out, a percentage of its value

52 Financial Benchmark: Operating Ratio 7/25/2013 Revenues / Costs May or may not include depreciation Goal is to be more than 1.0, especially if not including depreciation

53 Reserve Account If revenues exceed costs, the extra money can go into a reserve account specifically for the water system If you include depreciation as a cost, this is where that money would go

54 Budgeting for the Future Capital rehab or replacement System expansion Costs always going up Changes to revenue, expected or not Think 5-10 years out

55 Why Do You Need a Reserve Account? 7/25/2013 Future Capital Needs Rainy Day Fund what happens if your revenue is decreased? Emergency Fund

56 How Much Do You Need In Your It depends Reserves? 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?

57 Financial Benchmark: Days Cash On Hand Your cash reserves / operating expenses excluding depreciation Ask yourself, if we got no more revenue after today, how long could our system run?

58 Full Cost Pricing Operations & maintenance expenditures Taxes and accounting costs Contingencies for emergencies Principal and interest on long-term debt Reserves for capital improvement Source water protection

59 Sooooooooooo... How do we estimate the future costs and revenues?

60 Thank You David R. Tucker Project Director Environmental Finance Center School of Government, UNC-Chapel Hill (919)

61 Additional Slides: Cost Control

62 Bulk Sales Agreements

63 What Can You Buy In Bulk? Chemicals Testing supplies Office equipment What else?

64 Bulk Purchase of Chemicals Northeast/Merrimack Valley Consortium of Water & Wastewater Facilities 35 community water systems Purchase laboratory supplies and treatment chemicals together Systems agree not to seek out vendors independently

65 Bulk Purchase of Chemicals Tremonton, UT Serves 3,500 customers but is largest system for 30 miles Serves as chlorine clearinghouse buys chemicals in bulk and re-sells them at their cost to small neighboring systems

66 Bulk Laboratory Services 100 systems in Ohio Organized by a for-profit full-service company Consortium purchases lab services in bulk on behalf of 100 systems Volume discounts of 10 to 50 percent at labs

67 Other Options Sharing staff Sharing heavy equipment Using the same accounting firm or billing firm Using the same contract operator

68 Sharing Staff Panora and Des Moines, IA Panora is a small system serving 1,175 customers Had difficulty retaining operators Signed an MOU with Des Moines to allow Des Moines to monitor the treatment plant remotely and limiting need for on-site operator to 2.5 hours per day

69 Sharing Staff Program of Shared Operation & Management (POSOM), MT Provides operational and management assistance to very small community systems Most important assistance is how to stay in compliance with SDWA Individualized to a particular system s needs

70 Sharing Billing

71 Sharing Billing The Electric and Water/Wastewater Systems share top management, customer services, billing, meter reading and accounting... By sharing in this billing we all save on postage, paper, payroll, benefits and computers while giving the customer the convenience of one stop service and a single monthly bill.

72 Asset Transfer Ellsworth Estates Water Company, CT Small private HOA system serving 82 homes sold to Connecticut Water Company, a large private system serving 41 communities Sale after elderly co-operator died; other elderly co-operator could not handle system on his own Now has access to 30 operators and could spread capital costs over entire CWC system

73 Asset Transfer Mountain Regional Water Special Service District, UT Consolidation of 12 public and private community systems into one new entity Much greater access to paid, professional operators

74 System Consolidation Region 18 School District, CT 3 non-transient, non-community water systems, each serving one school, consolidated when they ran into water storage issues and defective wells New well and storage system serves all three schools

75 Equipment Changes Madera Valley, CA Serves 1,600 customers

76 Equipment Changes Valparaiso, IN Serves 35,000 customers (not small system)

77 Process Changes Run your existing equipment differently Key is to stay in compliance with your permit but reduce unnecessary energy expenditures

78 Time of Operation Changes On-peak vs. off-peak consumption affects rates Understanding the electric utility s pricing policies (rate structures) is critically important

79 Billing Rate Changes Valparaiso, IN Serves 35,000 customers (not small system) Did a full rate analysis and realized they were not being charged lowest possible rate at one plant Switch to different rate structure saved them $12,000 annually without any changes to energy use

80 Energy Generation Keene, NH Serves 5,100 customers Water supply is at a higher elevation than the treatment plant, resulting in head pressure Harnesses excess pressure through a turbine to generate more electricity than is needed to run the entire plant each year Cost savings $18,500 annually

81 Water Loss Newmarket, NH Serves 5,000 residents Had 33.6 percent of water unaccounted for in billing Switched to new automated meters, went from quarterly to monthly billing, and encouraged conservation Saved water and gasoline

82 Comprehensive Approach

83 Has anyone here done energy management for your system? Had an energy audit?

84 Develop Baseline of Energy Use Collect and organize equipment, energy use, and hydraulic data Develop an understanding of where, why, and when energy is used Understand energy bills and the rate structure that is used to set energy costs

85 Portfolio Manager Portfolio Manager is an interactive energy management tool that allows you to track and assess energy consumption online

86 Portfolio Manager Track multiple energy and water meters for each facility Customize meter names and key information Benchmark your facilities relative to their past performance View percent improvement in weather-normalized source energy Monitor energy and water costs Share your building data with others inside or outside of your organization Enter operating characteristics, tailored to each space use category within your building.

87 7/25/2013