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

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

• 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

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

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

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

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

www.efc.sog.unc.edu

Future of Water Governance

Jeff Hughes

Erin Riggs

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

37

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

Topics for Consideration: Crafting Interlocal Water and Wastewater Agreements

38

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

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

50

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

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/

What not including depreciation looks like

Fair Bluff Causey St. PS

What not including depreciation looks like

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

What will your future rate adjustment do?

FINANCIAL PERFORMANCE

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

Charlotte Water collected

$379 million in water and wastewater

operating revenues in FY2018Highest in North Carolina. Down 6% from FY2017.

Picture Source: Google Maps Streetview

Town of Proctorville collected

$21,211in 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 billionin water and wastewater operating revenues in FY2017Preliminary 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 billionin 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

THE STATE OF RATES IN NC

IN 2019

Your sneak peak into…

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

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

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

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 wastewaterthan they do for inside customers

For residential customers using 4,000 gallons/month

The Average North Carolinian pays…

$58.94/monthfor 4,000 gallons of water and wastewater, combined.

Accounting for service populations and inside/outside rates.

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 wastewaterAt 5,000 gallons/month

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

THE FUTURE OF RATES

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

Why look at trends?

Why look at trends? (cont.)

THE ANALYSIS

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.

TRENDS IN RATE STRUCTURES

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

0

20

40

60

80

100

120

140

Increasing Block Uniform Decreasing Block

2007: Residential 2017: Residential

51.7%

Increase 58.0%

Decline

TRENDS IN PRICING

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.

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

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)

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.

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

TRENDS IN MEDIAN HOUSEHOLD

INCOME

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

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.

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.

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.