Navigating Today s Water Finance and Governance Challenges

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1 Navigating Today s Water Finance and Governance Challenges Jeff Hughes Environmental Finance Center, School of Government University of North Carolina at Chapel Hill jhughes@unc.edu

2 Environmental Finance Center How you pay for it matters Supporting the fair, effective, and financially sustainable delivery of environmental programs through: Applied Research Fees and finance Teaching and Outreach Program Design and Evaluation Dashboard Capital planning tools 2

3 Water Quantity Management Challenges

4 Water Quality Management Challenges

5 Using Poll Everywhere 1. Pull out your phone 2. Type in as the text number 3. Type in uncefc as the message 4. You should see a message that You ve joined Jeff Hughes session 5. Your phone now has become a clicker/response for todays session.

6 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

7 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

8 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

9 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

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13 Water Finance and Governance Management Challenges (and Opportunities) 1. Capital needs and funding 2. Governance and economic regulation of rates 3. Customer affordability 4. Sustainable collaborations, consolidations, and partnerships 5. Viability of systems

14 Legislative Research Commission Study

15 1. Capital Needs

16 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

17 Outstanding Debt (6/30/2017)

18 Amounts of Debt Balance that will Reach Maturity [Maturity schedules for current outstanding water debt] $3,282 $2,113 $1,136 $764 $960 Within 5 years 6-10 years years years Greater than 20 years Analysis by the Environmental Finance Center at the UNC School of Government. Data sources: North Carolina Department of State Treasurer, State and Local Government Finance Division. Maturity dates of total FY2017 outstanding water and wastewater debt in millions $.

19 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

20 2. Rates and Revenue in Transition? 1. Diverse impact/capacity fees and charges are now structured system development fees 2. Ability to require mandatory collections and availability fees have been modified and scrutinized 3. Authority to charge different rates in service area has been scrutinized 4. Use of revenue for non-utility purposes is under study

21 Not all Transfers are Created Equal Reimbursements to cover services/indirect costs Loan repayments for general fund loan Payment of rate of return for investments Payment in lieu of taxes (PILOT) Undocumented and used to coverall general fund shortfalls Unknown

22 Preliminary Results of Management Survey Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

23 Budget Bill Transfer Requirements " 159G-37 (b) Certification...to certify that no funds received from water or wastewater utility operations have been transferred to the local government's general fund for the purpose of supplementing the resources of the general fund. The prohibition in this section shall not be interpreted to include payments made to the local government to reimburse the general fund for expenses paid from that fund that are reasonably allocable to the regular and ongoing operations of the utility, including, but not limited to, rent and shared facility costs, engineering and design work, plan review, and shared personnel costs."

24 Rates

25 Factors Driving Rates Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

26 The Future of Rate Setting and Revenue Monitoring? Status Quo State incentives or disincentives (Eligibility for state grants) Statutory prohibitions (stormwater fees) Statutory limits and thresholds Third party oversight (investor owned utilities) Required processes (System Development Fees) Adherence to more consistent practices

27 3.Water and Wastewater Affordablity

28 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

29 Options Addressing Customer Affordability Billing arrangements Programs to address water waste Referrals to other assistance programs Voluntary customer donation funded programs General government funded programs (Raleigh) Utility customer funded programs (becoming popular outside of North Carolina) Linking payment to income (starting to emerge outside of North Carolina)

30 4. Sustainable Partnerships Cooperation Collaboration Consolidation

31 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

32 Sustainable Partnerships

33 Unhappy Relationships Marriages under pressure False pretenses (projections) Ambiguous and incomplete agreements????

34 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

35 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

36 5. Threats to the Viability of Systems Capital needs, affordability, revenue pressure Demographics Skill/operation needs

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38 The future? Mandatory consolidation State bail-outs Federal bail-outs Diminished service

39 Continue the Discussion Subscribe to our Environmental Finance Blog: Efc.web.unc.edu efc.web.unc.edu Follow us on

40 Note: Results of informal poll of approximately 45 senior NC City and County Managers at 2018 NC City and County Management Seminar, February 1, 2018.

41 Navigating Today s Water Finance and Governance Challenges Jeff Hughes Environmental Finance Center, School of Government University of North Carolina at Chapel Hill jhughes@unc.edu