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Public Enterprises: Cri1cal Management Tool or Source of All Things Controversial?
Jeff Hughes School of Government University of North Carolina at Chapel Hill 919 843-‐4956 [email protected] www.efc.sog.unc.edu
Public Enterprises
State of Public Enterprises – By the Numbers 1. Number 2. Revenues 3. Debt
Hot and Emerging issues 1. Pricing (differen1al rates, wholesale contracts) 2. Mandatory service 3. Transfers 4. Impact fees 5. Inter-‐fund loans 6. Fiscal Health (LGC, Ra1ng agencies)
Public Enterprises
§ School of Government Resources § Public Enterprise Stump the Manager Challenge
§ Background and Discussion
Headlines and Burning Ques1ons??
Public Enterprises: What characterizing defini1on sounds the best to you?
A. A statutorily defined local government service
B. A public management approach
C. An accoun1ng approach
D. A decision to use fees instead of taxes
A statutorily defined local g...
A public management approach
An accounting approach
A decision to use fees instea...
45%
27%
5%
23%
Public Enterprise Services By Statute 1. Water 2. Wastewater (including sep1c
tanks) 3. Solid Waste (collec1on and
disposal) 4. Airports 5. Off-‐street parking 6. Public transporta1on 7. Stormwater management
programs 8. Electric power (ci/es only) 9. Natural Gas (ci/es only) 10. Cable television (ci/es only)
§ Schools § Cemeteries § Golf courses § Hair salons
NOT ON THE LIST:
Who’s in the Audience
§ Water and/or wastewater? § Stormwater run as a u1lity § Solid waste run as an enterprise fund § Electricity § Broadband? § Other? § Sep1c system u1lity?
Public Enterprise Challenge
A minority community in the ETJ of a city has failing sep1c systems and/or contaminated wells and is in desperate need of service, but the price tag is quite high.
By the Numbers: Ac1ve Water and/or Wastewater U1li1es
Type of U)lity Number Popula)on Served
Opera)ng Revenue
Water and Sewer Authority 8 397244 143005413 County/District 62 1141302 326768171 Large Scale For-‐Profit (statewide) 3 250683 Metropolitan Water/Sewer Districts 3 2400 33860085 Municipali1es 387 5141058 1929862872 Nonprofit Water and Sewer Corpora1ons 44 373749 Sanitary Districts 22 109657 26858374
Grand Total 529 7,416,093 $2,460,354,91
5
Data Notes: Analysis carried out by EFC using data as reported in SDWIS (2013) and submitted Audited Financial Statements (2012_2013) submitted to LGC. Some smaller units were not included in database.
Local Government Public Enterprise Debt (6/30/2014)
Source: EFC Analysis of LGC Data
Water $3,486,025,190
34%
Sewer $4,156,916,185
41%
Stormwater and Erosion $209,739,113
2%
Electric $157,704,055
1%
Gas $54,615,963
0%
Parking $195,645,853
2%
Transit $283,875,917
3%
Airport $1,600,134,168
16%
Solid Waste $79,161,988
1%
By the Numbers: Electric U1li1es
Public Enterprise Challenge
§ Local government is faced with significant stormwater needs that are draining the general fund resources and taxes are already high. Some areas of the local government need very expensive capital projects and other areas need minimal investment.
By the Numbers: Stormwater U1li1es
http://www.efc.sog.unc.edu/reslib/item/nc-stormwater-utility-dashboard#
LICENSE TO FEE (GS 160A-‐314 /153A-‐277)
A city may establish and revise from /me to /me schedules of rents, rates, fees, charges, and penal/es for the use of or the services furnished by any public enterprise……….
Fees vs. Taxes
Pricing
http://www.efc.sog.unc.edu/reslib/item/north-carolina-water-and-wastewater-rates-dashboard#
Pricing?
§ Affordability § Inside/outside rates § Availability charges § Wholesale/bulk rates
Public Enterprise Challenge U1lity has lost several large customers and has significant capital needs and prices that do not generate any extra funds for capital investments. The u1lity realizes that they need at least an extra 50% in revenues on a yearly basis to stop the bleeding. The town has a fairly high median household income but many people live in serious poverty and are out of work.
Public Enterprise Challenge A small town purchases wholesale wastewater service from a neighboring community/town. The legacy contract requires the payment of double the large community retail rate. Rates have risen drama1cally and are approaching $150 per month for customers. And the small town has inflow and infiltra1on problems in their sewer system.
Are you allowed to?
§ Charge a family a fee even if they do not have a meter or water tap?
§ Charge some customers twice the amount for water without having a cost jus1fica1on?
§ Charge some customers (senior ci1zens, firemen) half the amount for water without having a cost jus1fica1on?
Impact Fees and Connec1on Charges
http://www.efc.sog.unc.edu/project/residential-tap-fees-and-system-development-charges-impact-fees-nc
Range of Total Water Connec1on Charges Across North Carolina (5/8 residen1al meter) 2014
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
0 50 100 150 200 250 300 350 400
Impact Fees, System Development Charges, Capacity Charges, Facili1es Charge……….
§ Many names § Omen intermingled with tap fees and meter installa1on costs
§ Genng larger § History of challenges
Mandatory service
http://canons.sog.unc.edu/?p=6305
http://shopping.netsuite.com/s.nl/c.433425/it.A/id.4179/.f?sc=7&category=4147
Public Enterprise Challenge
A large number of rural county residents have made a very compelling case for needing water or recycling services, but there are also many residents that are not interested and not willing to buy the service.
Can you require service for?
§ Water? § Wastewater? § Stormwater? § Solid waste services? § Sep1c system?
Transfers
Transfer Terminology
§ PILOT § Cover direct services § Payment of rate of return § Undocumented to cover:
– Historic investments – Shoroalls in general fund.
Budget Bill Transfer Requirements "§ 159G-‐37 (b) Cer1fica1on. – ………..to cer1fy that no funds received from water or wastewater u1lity opera1ons have been transferred to the local government's general fund for the purpose of supplemen1ng the resources of the general fund. The prohibi1on in this sec1on shall not be interpreted to include payments made to the local government to reimburse the general fund for expenses paid from that fund that are reasonably allocable to the regular and ongoing opera)ons of the u)lity, including, but not limited to, rent and shared facility costs, engineering and design work, plan review, and shared personnel costs."
Can you make inter-‐fund loan to general fund from? § Solid waste § Electric u1lity § Water and wastewater § Stormwater
Can you make inter-‐fund loan to general fund from? § Solid waste – no § Electric u1lity – yes* § Water and wastewater – yes* § Stormwater -‐-‐ no
New Developments in Understanding Your Fiscal Health § Will the LGC take you over § Will someone lend you money at the best possible rates.
§ Will your customers be able to pay you in the future
Ra1ng Agency Developments
§ S&P § Moody’s
Resources
§ Blogs – EFC – Coates Canon – DFI
§ Dashboard – Water/wastewater – Stormwater – Electricity
§ Finance Tools
Environmental Finance Center
Development Finance Ini1a1ve
Michael Lemanski DFI Director [email protected] 919.962.0942
Christy Raulli DFI Interim Asst.
Director [email protected]
919.843.7736
SOG Coates’ Canons Blog www.canons.sog.unc.edu
Public Enterprise Finance and Management
Jeff Hughes School of Government University of North Carolina at Chapel Hill 919 843-‐4956 [email protected] www.efc.unc.edu