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Financial management challenges faced by southeastern U.S. water utilities . Shadi Eskaf Senior Project Director Environmental Finance Center at the University of North Carolina, Chapel Hill UNC Water and Health Conference: Science, Policy and Innovation October 30, 2012 Chapel Hill, NC. - PowerPoint PPT Presentation
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www.efc.unc.edu
Financial management challenges faced by southeastern U.S. water utilities
Shadi EskafSenior Project DirectorEnvironmental Finance Center at the University of North Carolina, Chapel Hill
UNC Water and Health Conference: Science, Policy and InnovationOctober 30, 2012Chapel Hill, NC
CONTEXT
Southeastern United States
Southeast’s 8,700 Community Water Systems Serving 58.5 Million People
Alabama
Florida
Georgia
Kentuck
y
Mississ
ippi
North C
arolin
a
South C
arolin
a
Tennes
see
0
500
1,000
1,500
2,000
2,500
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Large Systems Serving >10,000 People
Small Systems Serving <10,000 People
Percent of Population Served by Small Systems
Num
ber o
f Cim
mun
ity W
ater
Sys
tem
s
Source: EPA’s 2011 SDWIS data analyzed by the Environmental Finance Center at the University of North Carolina
Large citySmall town
Rural countyRegional government
Multi-system, private corporation
Homeowners associationMobile home park
Church
School
Not-for-profit association
Contracted out operations
Who’s in Charge?
Independent private owner
Financial Management at a Local Level
Utility Manager / Finance Director
Governing Body
Regulators
Finance Committee / Customer Advisory
PanelCustomers
• Residential• Commercial• Industrial• The Big-Wig• Low-Income• Jane Atyour Door• The Mayor• Outside town limits
Media
Legal
Creditors
Ratings Agency
Finance Staff / Consultants
Sometimes Difficult to Raise Rates
Found did not need to adjust rates
16% Lowered rates1%
Found needed to raise rates, but Governing
Board did not approve any rate increase
7%
Found needed to raise rates, but Governing
Board only approved a partial rate increase
12%
Governing Board approved the pro-
posed rate increase fully60%
Other3% Don't know
1%n = 260
Source: NCLM/EFC 2010 Results of the 2010 North Carolina Water and Wastewater Financial Practices and Policies Survey.
DEMAND
Demand is Declining…
… Sometimes By a Lot
DEMAND AND RATE STRUCTURES
Broken: Fixed vs. Variable
Depen
ds on
usag
e
Revenue and Expenses for Charlotte-Mecklenburg Utilities in a Given Year
Source: CMU Director Doug Bean’s presentation to the Charlotte City Council on December 1, 2008.
The Variable Charge Portions of All Customers’ Bills in FY2010
Cary 91.1%* (FY2010)
Charlotte 82%** (FY2008)
Raleigh 75.4%* (FY2010)
OWASA 75%** (FY2012)
Durham 73.5%* (FY2010)
Cape Fear 59%** (FY2012)
Sources: * Billing records from utilities analyzed by the Environmental Finance Center at the University of North Carolina, ** reported by utility
COST RECOVERY
Cost Recovery
High Rates Alone Won’t Save a Utility
Source: EFC/NCLM 2012 Water and Wastewater Rates and Rate Structures in North Carolina
RATES AND INCOME
Household Income is Declining
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$ 0
$ 10,000
$ 20,000
$ 30,000
$ 40,000
$ 50,000
$ 60,000
Statewide Median Household Income in Southeastern United States in 2011 Dollars, 2000-2011
AlabamaFloridaGeorgiaKentuckyMississippiNorth CarolinaSouth CarolinaTennessee United States
Source: U.S. Census Bureau, Table H-8.
Poverty is Rising
Source: U.S. Census Bureau Current Population Surveys.
2,000 2,001 2,002 2,003 2,004 2,005 2,006 2,007 2,008 2,009 2,010 2,011 0.0
5.0
10.0
15.0
20.0
25.0
Percent of People in Poverty in Southeastern United States by State, 2000-2011
AlabamaFloridaGeorgiaKentuckyMississippiNorth CarolinaSouth CarolinaTennessee
But Rates are Going Up, Rapidly
All Over the Southeast
Growing Affordability Concerns
<= 0
.25%
0.25
- 0.
5%
0.5
- 0.7
5%
0.75
- 1%
1 - 1
.25%
1.25
- 1.
5%
1.5
- 1.7
5%
1.75
- 2%
2 - 2
.25%
2.25
- 2.
5%
> 2.
5%
0%
5%
10%
15%
20%
25%
30%
35%
Water
Wastewater
Total Bills in One Year as % of MHI of Community Adjusted to 2008
Perc
ent o
f NC
Util
ities
Source: NCLM/EFC 2010 Water and Wastewater Rates Structures in North Carolina.
2010
Growing Affordability Concerns
<= 0
.25%
0.25
- 0.
5%
0.5
- 0.7
5%
0.75
- 1%
1 - 1
.25%
1.25
- 1.
5%
1.5
- 1.7
5%
1.75
- 2%
2 - 2
.25%
2.25
- 2.
5%
> 2.
5%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Water
Wastewater
Total Bills in One Year as % of MHI of Community in 2010
Perc
ent o
f NC
Util
ities
Source: NCLM/EFC 2012 Water and Wastewater Rates Structures in North Carolina.
2012
Local Disparities
INFRASTRUCTURE CONDITION
Infrastructure is in Bad Shape
Source: ASCE www.infrastructurereportcard.org
Southeast’s $50 Billion Drinking Water Capital Needs Estimate
Source: EPA 2007, Drinking Water Infrastructure Needs Survey Assessment.
Alabama
Florida
Georgia
Kentuck
y
Mississ
ippi
North C
arolin
a
South C
arolin
a
Tenne
ssee
$ 0
$ 2,000
$ 4,000
$ 6,000
$ 8,000
$ 10,000
$ 12,000
$ 14,000
$ 0
$ 500
$ 1,000
$ 1,500
$ 2,000
$ 2,500
$ 3,000
$ 3,500
Drinking Water 20-Year Capital Needs Estimates in 2007 (billions of $)
Bill
ions
of $
$ / S
ervi
ce C
onne
ctio
n
OUTCOMES
If you do it wrong…
• Jefferson County, AL, home to Birmingham
• Largest U.S. local government bankruptcy to date
• $4.2 billion in debt for sewer project
– >$16,000/household– >36% of annual income for half of all
county households
If you do it right…
BENCHMARKING
EFC’s Water & Sewer Rates Dashboards
http://efc.unc.edu/RatesDashboards/
www.efc.unc.edu
Environmental Finance Center at the University of North CarolinaSchool of Government, Knapp-Sanders BuildingCB #3330Chapel Hill, NC 27599-3330USA
Shadi [email protected] 919-962-2785