C O NSUMPT IO N-BASED FIXED REVENUE A no ve l, e q uita b le a p - - PowerPoint PPT Presentation

A no ve l, e q uita b le a p p ro a c h to fina nc ia l susta ina b ility

C O NSUMPT IO N-BASED FIXED REVENUE

Ma tt Willia ms, MBA Da vis re side nt F ra nk L

• g e , PhD

Civil & E nviro nme nta l E ng ine e ring , Pro fe sso r UC Da vis Ce nte r fo r Wa te r-E ne rg y E ffic ie nc y, Dire c to r

 The e ffic ie nc y o f urb a n w a te r use ha s b e e n inc re a sing

b e tw e e n 1995 a nd 2005.

 Urb a n w a te r use in C a lifo rnia fe ll b y ne a rly 25 p e rc e nt

fro m 247 to 201 g a llo ns p e r p e rso n p e r d a y.

PRO BLEM STATEMENT

PRO BLEM STATEMENT

 The e ffic ie nc y o f urb a n w a te r use ha s b e e n inc re a sing

b e tw e e n 1995 a nd 2005.

 Urb a n w a te r use in C a lifo rnia fe ll b y ne a rly 25 p e rc e nt

fro m 247 to 201 g a llo ns p e r p e rso n p e r d a y

 Whe n c usto m e rs re d uc e w a te r use , utilitie s lo se m o ne y

b e c a use the y c a nno t c o ve r the ir fixe d c o sts, w hic h fo r m o st utilitie s a re the m a jo rity o f to ta l c o sts.

PRO BLEM STATEMENT

F ISCAL PAI N POL IT I CAL PAI N

SO LUTIO N STATEMENT

 The so lutio n w e p ro p o se is sim p ly a n e xte nsio n o f w a te r

b ud g e ts, in tha t it is a llo c a ting the fixe d c o sts o n a b ud g e t, a s w e ll a s the va ria b le c o sts.

 To truly a c hie ve Pro p 218 p ro p o rtio na lity, w e think the

m a jo r c o nsid e ra tio n in a ny a na lysis o f re sid e ntia l c o nne c tio ns is the id e a o f a c tua l w a te r use re la tive to p o te ntia l w a te r use o f e a c h g ive n a c c o unt.

 C a lifo rnia C o nstitutio n A rtic le XIII (Pro p 2 1 8 ) - - The

re q uire m e nts o f Pro p o sitio n 218 p a sse d in 1996 b y C a lifo rnia vo te rs, w hic h c re a te d the C a lifo rnia C o nstitutio n a rtic le XIII D, se c tio n 6 … sp e c ific a lly tha t p ro p e rty-re la te d fe e s, suc h a s w a te r se rvic e fe e s, sha ll no t e xc e e d the p ro p o rtio na l c o st o f p ro vid ing the se rvic e a ttrib uta b le to a p a rc e l

 C a lifo rnia C o nstitutio n A rtic le X Wa te r Se c tio n 2 - - The

p ro visio ns o f C a lifo rnia C o nstitutio n a rtic le X, se c tio n 2, w hic h c re a te the fra m e w o rk w ithin w hic h p ub lic a g e nc ie s m ust e sta b lish a nd e nfo rc e w a te r c o nse rva tio n m e a sure s a nd a re c ha rg e d w ith the re sp o nsib ility o f m a na g ing w a te r re so urc e s, a nd

 Fisc a l Re sp o nsib ility – w ith the tw o ke y c o m p o ne nts b e ing

FISC AL STABILITY a nd FISC AL SUSTAINABILITY

WHEN WATER AG ENC IES C REATE WATER RATE STRUC TURES, THEY ARE FO RC ED TO DEAL WITH THREE C O MPETING FO RC ES

FIXED VS. VARIABLE … C O ST VS. REVENUES

 Fo r e ve ry $2.00 o f re ve nue lo st to c o nse rva tio n…  O nly $1.00 o f C o st is sa ve d …

R

E VE NUE

PROPORT

IONS

33% 67%

Va ria b l e Co sts F ixe d Co sts

67% 33%

Va ria b le Re ve nue F ixe d Re ve nue

C OST PROPORT

IONS

CURRE NT RAT E DE SIGN

FIXED VS. VARIABLE … C O ST VS. REVENUES

 Fo r Ag e nc ie s this d isc o nne c t m e a ns a ST

RUC T URA L DEFIC IT…

 And the m o re w e c o nse rve , the m o re DEFIC IT w e c re a te

R

E VE NUE

PROPORT

IONS

33% 67%

Va ria b l e Co sts F ixe d Co sts

67% 33%

Va ria b le Re ve nue F ixe d Re ve nue

C OST PROPORT

IONS

CURRE NT RAT E DE SIGN

 Build a c ushio n (“ g o ug e ” c usto m e rs in e a rly ye a rs? )  Run w ith the d e fic it a nd / o r d ra w d o w n re se rve s  G o b a c k to the c o nsum e rs fre q ue ntly w ith a ne w ra te

struc ture w ith hig he r ra te s

DEALING WITH A STRUC TURAL DEFIC IT

NONE OF T HE SE OPT IONS ME E T

T

HE ST ANDARD OF PROVIDING RE ASONABL E AND ST ABL E WAT E R RAT E S F OR T HE CONSUME R AND… AL L

ARE POL

IT ICAL

DYNAMIT

E

A ste p b y ste p p ro c e ss

C REAT ING C O NSUMPT IO N-BASED FIXED REVENUE

(1) C HO O SE REPRESENTATIVE PERIO D

(1) C HO O SE REPRESENTATIVE PERIO D

(2) C ALC ULATE ALLO C ATIO N PRO PO RTIO NS

15

(3) IDENTIFY & BUDG ET FIXED &VARIABLE C O STS

2011/12 Estimated Estimated Estimated Estimated Budgeted Expense Budget Fixed % Variable % Fixed $ Variable $ FUND 511 - Water Operations 1110-7252 Miscellaneous $351,260 60% 40% $211,000 $141,000 7520 Utility Resources Management $370,745 80% 20% $297,000 $74,000 7522 Water Production $2,869,635 50% 50% $1,435,000 $1,435,000 7523 Water Distribution $2,053,439 50% 50% $1,027,000 $1,027,000 7526 Cross-Connection Control $121,296 100% 0% $121,000 $0 7527 Fire Hydrant Maintenance $702,217 100% 0% $702,000 $0 7528 Water Conservation $0 50% 50% $0 $0 7529 New Services/Meter Install $16,906 100% 0% $17,000 $0 7531 North Davis Meadows $86,732 100% 0% $87,000 $0 7536 Water Support - City Facilities $45,395 100% 0% $45,000 $0 7565 Water Inter-Department Charges $234,119 100% 0% $234,000 $0 7602 - 8543 Miscellaneous $329,924 60% 40% $198,000 $132,000 8835 Debt Service $163,789 100% 0% $164,000 $0 9895 Transfer to Capital Replacement Fund 512 $2,767,268 80% 20% $2,214,000 $553,000 Total 10,112,725 $6,752,000 $3,362,000 Percentage Split 67% 33% FUND 512 - Water Capital Replacement 7520 Utility Resources Management $70,000 80% 20% $56,000 $14,000 8110-8217 Capital Replacement Misc. $2,981,603 80% 20% $2,385,000 $596,000 8543 JPA Contribution $4,275,000 90% 10% $3,848,000 $428,000 8836 - 8840 Debt Service $1,042,154 100% 0% $1,042,000 $0 9895 Transfer from Fund 511 ($2,767,268) 80% 20% ($2,214,000) ($553,000) Total $5,601,489 $5,117,000 $485,000 Percentage Split 91% 9% FUND 513 - Water Capital Expansion 8110-8185 Capital Expansion $349,533 100% 0% $350,000 $0 8543-8552 JPA Contribution $0 100% 0% $0 $0 8836 Debt Service $302,416 100% 0% $302,000 $0 9895 Contribution transfer From ????? ($150,000) 100% 0% ($150,000) $0 8223-8225 Capital Expansion $1,015,000 100% 0% $1,015,000 $0 Total $1,516,949 $1,517,000 $0 Percentage Split 100% 0% Total All Water Funds $17,231,163 $13,386,000 $3,847,000 Percentage Split 78% 22%

(3) ALLO C ATE FIXED C O STS

17

REC O VERING FIXED C O STS

• Mo st wide ly use d me tho d
• Simple to unde rsta nd
• E

a c h me te r size furthe r sub divide d

• Suppo rts F

isc a l Sta b ility a nd Susta ina b ility

• E

xpa nds c o nse rva tio n me ssa g e to “ste wa rdship o f c o lle c tive a sse t”

Pie re pre se nts to ta l fixe d c ha rg e s Pie re pre se nts to ta l fixe d c ha rg e s

(4) VARIABLE C O STS PRO PO RTIO NALITY

19

(5) ANNUAL REALLO C ATIO N O F FIXED C O STS

Annua l Re a llo c a tio n me a ns:

 100% o f e a c h F

isc a l Ye a r’ s F ixe d Co sts a re c o ve re d

 Wa te r Co nse rve rs a re re wa rde d fo r po sitive a c tio ns

IMPAC T O N SAME DO LLAR BASIS

IMPAC T O N SAME DO LLAR BASIS

 It re q uire s lo w -w a te r-use c usto m e rs to p a y fixe d c o sts fo r

w a te r the y ha ve the the o re tic a l p o te ntia l to use , b ut d o no t ha ve the a c tua l c a p a c ity to use .

 It g ive s tho se c usto m e rs w ho use a la rg e r “ sha re ” o f the

w a te r infra struc ture (b a se d o n m e te r size ) a n inc e ntive to d o so .

 Thrifty a nd e xtra va g a nt w a te r use rs p a y the sa m e fixe d

fe e , b ut d e rive e ntire ly d iffe re nt b e ne fits fro m the syste m .

 The thrifty use r’ s fixe d fe e s c o ve r so m e o f the fixe d c o sts

the w a ste ful use r im p a rts o n the syste m , in e ffe c t sub sid izing the w a te r w a ste r.

ARG UABLY, SETTING FIXED FEES BY METER SIZE FAILS PRO PO SITIO N 218’ S PRO PO RTIO NALITY TEST

NO NO

 100% vo lum e tric fo r p urp o se s o f BMP-1 c o m p lia nc e .  Full a c c e ss to Sta te Re vo lving Fund fina nc ing .  Five ye a r sta b le ra te struc ture m e a ns m o re re lia b le

re ve nue stre a m fo r b o nd fund ing .

 Mo re Re ve nue Bo nd fund ing ra the r the n G e ne ra l

O b lig a tio n Bo nd fund ing

 Lo w e r inte re st ra te s fo r b o nd fund ing

FUNDING IMPAC T

Q UEST IO NS?

A no ve l, e q uita b le a p p ro a c h to fina nc ia l susta ina b ility

C O NSUMPT IO N-BASED FIXED REVENUE

Ma tt Willia ms ma ttwill@ pa c b e ll.ne t F ra nk L

• g e , PhD

UC Da vis Ce nte r fo r Wa te r-E ne rg y E ffic ie nc y, Dire c to r fjlo g e @ uc da vis.e du Co pyrig ht 2012