2019 Water and Wastewater Finance Workshop Jeff Hughes Teaching - - PowerPoint PPT Presentation

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2019 Water and Wastewater Finance Workshop Jeff Hughes Teaching - - PowerPoint PPT Presentation

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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

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www.efc.sog.unc.edu

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

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Dedicated to enhancing the ability

  • f

governments and

  • ther
  • rganizations

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

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Last Year’s Challenges

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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

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Agenda/Topics

Primary Topics

  • Policy and regulatory

updates

  • Partnerships
  • Asset management and

planning

  • Rates and charges
  • Paying for the Big Stuff

General Themes

  • Communication
  • Planning/preparedness
  • Financial assessment
  • Cooperation
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Applied Research and Tools

Research

  • Annual drinking water rate

and financial benchmarking update.

  • Debt affordability study.
  • Planning practice survey.
  • System development fee.
  • Affordability programs

Tools and Guides

  • Interlocal Agreement

Considerations

  • Consolidation Considerations
  • Rates and financial

benchmarking dashboard

  • Plan to Pay
  • Subsidy calculator
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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?

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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!

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WHAT’S THE OUTLOOK???

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Questions and… ….Burning Issues

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www.efc.sog.unc.edu

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

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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
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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

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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)

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  • Integration of wastewater and stormwater

management plans

  • Expanded use of green infrastructure
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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

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Rates Continue to be Scrutinized

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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
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Rates Committee’s Expanded Discussions

  • Funding to support consolidation
  • Need for additional training
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System Development Fees

  • SDF legislation did not

address fees prior to new requirements

  • One approach ruled

unauthorized in the courts

  • Other approaches

under scrutiny

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www.efc.sog.unc.edu

Future of Water Governance

Jeff Hughes Erin Riggs

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Tools in the Collaboration Tool Box

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The Risk of Not Getting it Right

  • Unexpected surprises
  • Law suits
  • Unhappy partners
  • Fractured agreements
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Topics for Consideration:

Crafting Interlocal Water and Wastewater Agreements

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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
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Topics for Consideration:

Crafting Interlocal Water and Wastewater Agreements

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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

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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.

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When agreements lead to disagreements?

  • Binding arbitration may prove to be limiting. It

will prevent participants from appealing any

  • utcome, 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.

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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

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Fair Market Value Opinions

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EFC Resources

Water and Wastewater Finance

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  • 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
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www.efc.sog.unc.edu

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/

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What not including depreciation looks like

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Fair Bluff Causey St. PS

What not including depreciation looks like

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

What will your future rate adjustment do?

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FINANCIAL PERFORMANCE

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Picture Source: Charlotte Water http://charlottenc.gov/Water/Pages/Home.aspx

Charlotte Water collected

$379 million

in water and wastewater

  • perating revenues in FY2018

Highest in North Carolina. Down 6% from FY2017.

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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.

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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)

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The largest 10 utilities collected

43%

  • f all of the water and wastewater
  • perating revenues in FY2017
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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

  • perating revenues than O&M expenditures plus debt

service in FY2017

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THE STATE OF RATES IN NC IN 2019

Your sneak peak into… PRELIMINARY RESULTS

Final results may be published in the forthcoming 2019 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

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NC Water and Wastewater Rates Survey

  • Joint annual surveys since 2005
  • 2019 survey: 495 utilities included (95%)
  • Rates Dashboard coming very soon!
  • Tables and summary report to be distributed in

coming weeks at http://www.efc.sog.unc.edu and http://www.nclm.org

  • Resources for utilities provided and funded by the

Division of Water Infrastructure of the NC Department of Environmental Quality

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Half of the utilities charge residential (inside) customers more than

$65.45 for combined water and wastewater

per month $29.16 for water $36.52 for wastewater

For “inside” residential customers using 4,000 gallons/month

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Picture Source: Wikimedia Commons https://commons.wikimedia.org/wiki/File:Raleigh_city_limits_sign.jpg

82% of NC’s municipalities charge

different rates outside city limits Half of the municipalities charge

1.77x higher for water and 1.91x higher for wastewater

than they do for inside customers

For residential customers using 4,000 gallons/month

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The Average North Carolinian pays… $58.94/month

for 4,000 gallons of water and wastewater, combined.

Accounting for service populations and inside/outside rates.

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Water rates in 42% of rate structures and Wastewater rates in 45% of rate structures were raised last year

Out of 479 water & 396 wastewater rate structures since last year

Half of the rate increases were greater than

4.6% for water and 5.0% for wastewater

At 5,000 gallons/month

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Monthly water base charge Min non-zero: $3.25 (Cary) Median: $16.55 Max: $50.00 (Martin County)

Unique section in one utility charges more

Monthly wastewater base charge Min non-zero: $2.00 (Laurel Park, Spring Hope) Median: $18.00 Max: $69.50 (Lake Lure)

Currituck County charges $100.00 in Moyock Commons

Highest volumetric rate per 1,000 gallons at 4,000 gallons/month $13.60/1000 gallons Water (Saratoga) $25.00/1000 gallons Wastewater (Walstonburg)

Yadkin County charges $19.50/1000 gallons for water in its Jonesville service area (Jonesville outside rates)

Median percentage of customer bill due to base charge at 4,000 55% Water 51% Wastewater

2019 by the Numbers - Inside Rates

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THE FUTURE OF RATES

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Before we start…

  • A little about me:

– Project Director at the Environmental Finance Center

  • Analysis, Technical Assistance, and Education

– Background

  • Biology
  • Environmental Economics and Policy
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Why look at trends?

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Why look at trends? (cont.)

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THE ANALYSIS

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What Data is included in this analysis?

  • Utility-Level Rates Data from 2007-2018
  • EPA SDWIS data from 2009-2018
  • US Census Bureau American Community Surveys

Data from 2010-2017

  • Bureau of Labor Statistics Consumer Price Index

for the South Region from 2007-2018 All together, the analysis represents approximately 200-250 utilities. Each graph represents data from utilities for which we have data in every year.

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TRENDS IN RATE STRUCTURES

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Trends in Residential Rate Structures, 2007 & 2017

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years.

58 123 50

88 124 21

20 40 60 80 100 120 140 Increasing Block Uniform Decreasing Block 2007: Residential 2017: Residential

51.7% Increase 58.0% Decline

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TRENDS IN PRICING

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Median Monthly Water and Wastewater Bills at 4,000 and 15,000 Gallons per Month, 2007-2018

(Nwater=245 & Nwastewater=201)

$17.68 $27.04 $50.19 $78.23 $21.10 $32.86 $61.04 $94.55

$0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Inside Water Rates, 4 Kgal Inside Water Rates, 15 Kgal Inside Wastewater Rates, 4 Kgal Inside Wastewater Rates, 15 Kgal

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years.

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Median Water and Wastewater Bills at 4,000 Gallons per Month for Large and Small Utilities, 2009-2018

(NLarge=80 & NSmall=146) $17.00 $19.00 $21.00 $23.00 $25.00 $27.00 $29.00 $31.00 $33.00 $35.00 $37.00

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Median Wastewater Bills at 4 Kgal, Small Utilities (<=10,000 Service Population) Median Wastewater Bills at 4 Kgal, Large Utilities (>10,000 Service Population) Median Water Bills at 4 Kgal, Small Utilities (<=10,000 Service Population) Median Water Bills at 4 Kgal, Large Utilities (>10,000 Service Population)

Small

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: SDWIS and NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years.

The median bill for small utilities is higher, both for water and wastewater at 4 Kgal

Small

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Weighted Median Water Bills at 4,000 Gallons per Month, Relative to CPI-South, 2009-2018

(n=226)

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: SDWIS, BLS, and NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years. SDWIS service population values were linearly interpolated for 2014 and 2015 based on values from 2013 and 2016.

$37.94 $27.54 $39.26 $27.48

$23.06 $26.53 18 22 26 30 34 38

2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Weighted Median Inside Water Bills at 4 Kgal Weighted Median Inside Water Bills at 4 Kgal, Forecasting to 2030 (Full Dataset) Weighted Median Inside Water Bills at 4 Kgal, Forecasting to 2030 (Last Five Years of Data) Weighted Median Inside Water Bills at 4Kgal Rising at CPI, Based on Bills in 2009 Weighted Median Inside Water Bills at 4Kgal Rising at CPI, Forecasting to 2030 (Full Dataset) Inside Water Bills at 4Kgal Rising at CPI, Forecasting to 2030 (Last Five Years of Data)

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Weighted Median Wastewater Bills at 4,000 Gallons per Month, Relative to CPI-South, 2009-2018 (n=226)

$48.74 $32.86 $46.64 $32.01 $26.86 $30.91

20 25 30 35 40 45 50 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Weighted Median Inside Wastewater Bills at 4 Kgal Weighted Median Inside Wastewater Bills at 4 Kgal, Forecasting to 2030 (Based on Full Dataset) Weighted Median Inside Wastewater Bills at 4 Kgal, Forecasting to 2030 (Based on Last Five Years of Data) Weighted Median Inside Wastewater Bills at 4Kgal Rising at CPI, Forecasting to 2030 (Last Five Years of Data) Weighted Median Inside Wastewater Bills at 4Kgal Rising at CPI, Forecasting to 2030 (Full Dataset) Weighted Median Inside Wastewater Bills at 4Kgal Rising at CPI, Based on Bills in 2009

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: SDWIS, BLS, and NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years. SDWIS service population values were linearly interpolated for 2014 and 2015 based on values from 2013 and 2016.

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Percent of Surveyed Service Population Paying More than $40 for Water or $40 for Wastewater (2018 dollars), 2009-2018 (n=226 Utilities, 5.1-5.9 Million Customers)

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% of Service Population Paying more than $40 for Wastewater at 4 Kgal (2018 Dollars) % of Service Population Paying more than $40 for Water at 4 Kgal (2018 Dollars)

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: SDWIS, BLS, and NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years. SDWIS service population values were linearly interpolated for 2014 and 2015 based on values from 2013 and 2016.

We see a steeper rise with Wastewater Bills

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TRENDS IN MEDIAN HOUSEHOLD INCOME

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North Carolina Median Household Income, 2007-2017, Forecasted to 2030, Relative to CPI-South (in 2017 dollars)

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: US Census Bureau American Community Survey, BLS-CPI, and NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years.

$46,524.92

$63,691.55

$75,189.74 $60,725.12 $52,940.24 $42,000.00 $47,000.00 $52,000.00 $57,000.00 $62,000.00 $67,000.00 $72,000.00 $77,000.00 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

NC MHI NC MHI Rising at CPI-South, Based on NC MHI in 2007 NC MHI, Forecasted to 2030 (Full Dataset) NC MHI Rising at CPI, Based on NC MHI in 2007 (Full Dataset) NC MHI, Forecasted to 2030 (Last Five Years of Data) NC MHI Rising at CPI, Based on NC MHI in 2007, Forecasted to 2030 (Last Five Years of Data)

Despite falling below CPI between the recession and 2016, NC MHI has been rising rapidly over the last five years

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Percent of Utilities with Bills Greater than 1.5% MHI in 2010 vs. 2017

(Nwater=292 & Nwastewater=245)

Data analyzed by the Environmental Finance Center at the University of North Carolina, Chapel Hill. Data Sources: US Census Bureau American Community Survey and NC League of Municipalities and Environmental Finance Center's annual water & wastewater rates surveys. The cohort of utilities is consistent across all years.

4% 10% 7% 15%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Water Bills at 4Kgal (n=292) Wastewater Bills at 4Kgal (n=245)

Percent of Utilities Charging Greater than 1.5% MHI, 2010 Percent of Utilities Charging Greater than 1.5% MHI, 2017

A greater proportion of NC utilities are charging more than 1.5% MHI in 2017 than 2010.

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So, what does this all mean?

Since 2009, in North Carolina, water and wastewater rates have risen faster than inflation. Based on both the last ten years and last five years of data, rates are expected to continue rising faster than inflation. Median Household Income is rising, but only realigned with inflation in 2017.

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Looking forward…

  • Affordability issues will continue to be a challenge

for utilities.

  • Although MHI is beginning to rebound post-

recession, it is not a good representation of the distribution of income.

  • More customers are likely to struggle with rising bills

in future years. Customer assistance programs will likely be even more crucial for customers in the lowest income brackets.