2019 Water and Wastewater Finance Workshop Jeff Hughes Teaching Associate Professor Director, Environmental Finance Center School of Government jhughes@unc.edu February 11-12, 2019 Chapel Hill, NC www.efc.sog.unc.edu
Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair , effective, and financially sustainable ways through: Applied Research Teaching and Outreach Program Design and Evaluation How you pay for it matters
Last Year’s Challenges
Workshop Objectives 1. Improve understanding of water service finance strategies, practices, and funding sources 2. Improve understanding of evolving trends and external drivers 3. Provide forum for sharing financing perspectives, ideas, and experiences
Agenda/Topics Primary Topics General Themes • Policy and regulatory • Communication updates • Planning/preparedness • Partnerships • Financial assessment • Asset management and • Cooperation planning • Rates and charges • Paying for the Big Stuff
Applied Research and Tools Research Tools and Guides • Annual drinking water rate • Interlocal Agreement and financial benchmarking Considerations update. • Consolidation Considerations • Debt affordability study. • Rates and financial • Planning practice survey. benchmarking dashboard • System development fee. • Plan to Pay • Affordability programs • Subsidy calculator
Meet your Neighbor (5 minutes) • Where are you from? • What do you do? • Project or finance related initiative/practice that you worked on during the last year that you are most proud of? • What finance challenge over the next few years keeps you up at night?
Using Poll Everywhere 1. Pull out your phone 2. Go to http://pollev.com/uncefc 3. You can now respond to today’s poll questions!
WHAT’S THE OUTLOOK???
Questions and… ….Burning Issues
Finance Policy and Regulatory Updates Jeff Hughes Teaching Associate Professor Director, Environmental Finance Center School of Government jhughes@unc.edu February 11-12, 2019 Chapel Hill, NC www.efc.sog.unc.edu
Policy Developments • America’s Water Infrastructure Act of 2018 • Water Infrastructure Improvement Act (2019) • Agricultural Improvement Act of 2018 (Farm Bill) • Funding Appropriation Bills • Rates Study Commission • System Development Fees • Fair Market Value
America’s Water Infrastructure Act 2018 (99 to 1) • Water Resource Projects • Reauthorizes Drinking Water State Revolving Fund ($1.174 B to $1.95 B (2021) • Allows longer term loans • WIFIA reauthorized • WIFIA approach integrated into SRF Programs
America’s Water Infrastructure Act (Misc. Provisions) https://www.congress.gov/bill/115th-congress/senate-bill/3021/text#toc- H766B6B65954F497BB6ECC93B2FE313C6 • Study of “Intractable” Water Systems • Provides potential for “Drinking Water System Infrastructure Resilience and Sustainability Program” ($4 B/ yr – needs to be appropriated) (sec. 2005) • Primacy agencies can require study of consolidations (Sec. 2010) • Requires Community Risk and Resilience Assessments for systems greater than 3,330 (Sec. 2013)
• Integration of wastewater and stormwater management plans • Expanded use of green infrastructure
Farm Bill (86 to 11) • Regional Conservation Partnership Program (RCPP) – Authorizes $200 M/yr – Calls out drinking water and drought objectives • USDA Water and Waste Disposal Grant and Loan Program reauthorized
Rates Continue to be Scrutinized
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
Rates Committee’s Expanded Discussions • Funding to support consolidation • Need for additional training
System Development Fees • SDF legislation did not address fees prior to new requirements • One approach ruled unauthorized in the courts • Other approaches under scrutiny
Future of Water Governance Jeff Hughes Erin Riggs www.efc.sog.unc.edu
Tools in the Collaboration Tool Box
The Risk of Not Getting it Right • Unexpected surprises • Law suits • Unhappy partners • Fractured agreements
Topics for Consideration: Crafting Interlocal Water and Wastewater Agreements What the guide does do: -Provide topics that should be considered at the forefront of drafting or amending interlocal water and wastewater agreements -Provide explanations for why such topics, if left unaddressed, may lead to conflict or confusion -Provide options for the types of provisions that should or could be included -Highlight different methods or alternatives for addressing the referenced topics -Provide some examples taken directly from current agreements 37
Topics for Consideration: Crafting Interlocal Water and Wastewater Agreements What the guide does not do: -Make a judgment as to how considerations should be handled -Provide model language that can be extrapolated and used in new agreements -Replace legal advice or counsel which should be a part of any local government’s setting up or amending an agreement 38
Service Area • Ambiguity concerning unserved areas can lead to problems ranging from competition to serve new growth to a lack of coordination or duplication of line extensions. • At a minimum, the sales agreement should include language that specifies which partner will have authority to serve any unserved area within close proximity to contracting entities. 42
When agreements lead to disagreements? • Binding arbitration may prove to be limiting. It will prevent participants from appealing any outcome, and will preclude formal litigation if the arbitration does not work. • As an alternative, contracting entities might want to agree to a non-binding mediation process, which will preserve the option for formal litigation if the parties cannot resolve their conflict. 45
Fair Market Value Comes to NC • Approach being used in other states • Facilitates transfer of assets to investor owned utility • Facilitates transfer of cash to local government utility • Provides insight into valuation of assets and tension between rate payers vs. utility owneer
Fair Market Value Opinions
EFC Resources Water and Wastewater Finance Publications 1. Consideration Guides for Crafting Water and Wastewater Interlocal Agreements 2. Consolidation Considerations (coming soon!) 3. Navigating Legal Pathways to Rate-Funded Customer Assistance Programs 4. Nationwide Regionalization Case Studies 5. Debt Capacity Paper 6. Analysis of Board Governing Structures for Water and Sewer Authorities in NC Tools to Assist Water Utilities with Financial Decision-Making 1. Rates and Revenue 2. Benchmarking 3. Affordability 4. Capital Finance 5. Communicating with the Board 6. Evaluating Loans and Grants Technical Assistance for Small Systems Environmental Finance Blog 50
Future of Pricing Jeff Hughes Shadi Eskaf Austin Thompson https://m.salisburypost.com/2019/02/10/josh- bergeronyears-later-bills-still-an-issue-in-landis/ www.efc.sog.unc.edu
What not including depreciation looks like
What not including depreciation looks like Fair Bluff Causey St. PS
What will your future rate adjustment do? Data Source: 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)
FINANCIAL PERFORMANCE
Charlotte Water collected $379 million in water and wastewater operating revenues in FY2018 Highest in North Carolina. Down 6% from FY2017. Picture Source: Charlotte Water http://charlottenc.gov/Water/Pages/Home.aspx
Picture Source: Google Maps Streetview Town of Proctorville collected $21,211 in wastewater operating revenues in FY2018 (no wastewater system) Lowest in North Carolina. Up 14% from FY2017. Raised monthly flat fee from $25 to $30 per customer = 20% increase.
Picture Source: Indio Water Authority http://www.indiowater.org/index.aspx?page=587 NC local government utilities collected more than $3.04 billion in water and wastewater operating revenues in FY2017 Preliminary projections show that revenues may have exceeded $3.1 billion in FY2018 (incomplete data)
The largest 10 utilities collected 43% of all of the water and wastewater operating revenues in FY2017
NC local government utilities had more than $2.43 billion in water and wastewater operating expenses in FY2017 Yet: ~ 22% of local government utilities had lower operating revenues than O&M expenditures plus debt service in FY2017
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