Entries for the 'Capacity Development' Category

WIFIA, SRF, and Small Systems

Steve Wilson posted on April 23, 2012 07:38

WIFIA stands for Water Infrastructure Finance and Innovation Authority. AWWA, WEF and AMWA are supporting a new bill to establish this Authority as a funding mechanism for large water and wastewater infrastructure projects. When you read the summary they have put together that explains what WIFIA will be able to do, it seems like a cost effective approach for helping systems deal with their infrastructure needs. You can read the summary here.

But, And There Is Always A But...

WIFIA could end up being a problem for the current DW and CW SRF programs. WIFIA is meant to be a more open access sort of loan program whereby large projects can get low interest loans that save the utility and their customers money. It doesn't specify that the loans go to the systems with the greatest needs or those that are out of compliance. Thus, in some cases the funding could go for expansion projects that benefit the utility, rather than the intended use of dealing with the massive infrastructure problems being predicted for this country. On the other hand, SRF funds are directed toward those projects with the greatest need, with the goal being to protect public health and maintain compliance with the SDWA and CWA. This difference is important, especially in some states that have many small, rural systems.

Another difference between WIFIA and SRF are the use of cross-cutter rules. SRF requires utilities receiving money to meet certain federal requirements that limit how the funds can be used and requires the utilities to meet certain standards. The framers of WIFIA would prefer that the program not require many of those rules, which would make it easier for the utilities to receive funding, but reduce the oversight to ensure that the funding is being used for its intended purpose.

Lastly, SRF programs include set-aside monies that provide funding for the states to administer their programs and provide for state-managed activities that include things like technical assistance to small systems. WIFIA doesn't provide for these state resources.

Some Possible Advantages

The WIFIA summary points to lower overall costs for consumers, based on current rates, as compared to the bond market. It also points out that there are 27 states that currently leverage their SRF funds on the bond market and this would allow them to borrow from WIFIA instead with potentially 16% savings long term. I've also heard that because private companies can't get SRF funds in some states, WIFIA would be an option over corporate bonds that would lower overall costs for customers at these systems.

Some Possible Disadvantages

The biggest concern with WIFIA is how it will affect the SRF programs. The SRFs are successful programs with a strong track record that provide funding for water and wastewater system projects. SRF programs are managed at the state level by the agencies that regulate the utilities, work with them to stay in compliance, and know them best. States use the SRF programs to increase compliance and to protect public and environmental health. WIFIA would be a national program, managed at the national level that has the intended purpose of reducing the overall cost for infrastructure projects. Will national rules affect loan approval? Will the states be involved in decisions or the process for the WIFIA program? What about the small struggling system that doesn't have the ability to raise capital for infrastructure projects and is too small for a WIFIA loan?

When you read the SRF example in the summary, you might ask yourself why even have SRFs if WIFIA funding is available. The example basically says that the state financing authority could apply for WIFIA funding instead to fund its program, and indicates the cost savings over leveraging bonds instead. SRF costs the federal government about $2 billion dollars each year. WIFIA is being promoted as potentially having no long term cost to the federal government, so why would Congress want to keep both programs? That's the unintended consequence that many are worried about, and the reality that we could soon be faced with if a WIFIA bill doesn't have provisions to maintain the SRF program.

Loans For Small Systems

AWWA just released an infrastructure report that says funding for small system projects is going to cost much more per capita compared to larger systems that have the customer base to spread out infrastructure upgrade costs. Because WIFIA funds are meant for large projects, small systems would often not be eligible for WIFIA funding themselves. Asking small systems to bundle their projects, or asking the state to bundle the projects for them, also creates some questions. What if a loan is bundled for 5 projects and one of the projects defaults? What does that mean for the other 4 systems and what does that mean for the state if they applied for the loan? Will the state have to cover the defaulted loan?

If WIFIA replaces SRF, will the states be provided funds for staff to help small systems develop applications? Small systems often lack the managerial capacity to develop applications and instead use engineering firms and planning grants to get that task accomplished. Will those options still be available? They must be or some small systems will be left coming up with those funds themselves. What about states with very few, if any, systems that would qualify for WIFIA funding? If SRF goes away, what will they do to find funding for projects? Could they be out of luck until enough projects could be bundled to meet the WIFIA requirements?

What Needs To Happen

WIFIA is a great concept for dealing with the huge anticipated costs we expect to see for infrastructure upgrades in the next 25 years. As currently proposed, it will make it easy for large systems to get cheaper funding, even though those systems currently have more options available to them already. However, it could potentially have the unintended consequence of reducing or eliminating the SRF programs that support compliance and help small systems that might not have other options. Losing SRF funding would also reduce a state's ability to manage their SDWA and CWA programs because the states rely on the SRF set-asides for part of their program implementation. The SRF's are necessary and must be maintained - and, we would hope, at least at current funding levels.

Recently, AWWA sent out an email asking its members to support WIFIA, encouraging utilities to contact their senators and representatives to seek their support in co-sponsoring the WIFIA bill. If you are so inclined to get involved, be sure to stress the importance and differences between the SRF programs and WIFIA, and that any reduction in SRF will lead to unintended consequences that include reduced compliance and public health protection for small systems, and could leave many small systems with no options for dealing with their infrastructure needs. Make it clear that you only support a WIFIA bill that leaves the SRF programs intact and fully supported.

Posted in: Asset Management, Capacity Development, Blog Series: Small Water Biz, Funding

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Infrastructure: Small Systems Face the Biggest Challenges

Steve Wilson posted on March 24, 2012 19:26

These aren't new words. In fact, it seems like everyone is coming out with a bigger estimate of the future cost of infrastructure every few weeks and because the numbers are so big, they all seem irrelevant for small systems. Not so. This new report by AWWA definately puts some perspective on the issue for small systems.

Buried No Longer

AWWA has released a report entitled "Buried No Longer: Confronting America's Water Infrastructure Challenge". Recently, there have been snippets on the news about $1 trillion dollars over the next 25 years and other details that certainly catch your eye. But I encourage you to take a look at the report. AWWA has set up a website for the report here, where you can download the report and read more of the AWWA perspective.

What It Says

The report is short and to the point. It's only 16 pages and a good portion of that is made up of pictures and figures. But the information provided is sobering. It points out in Figures 7 and 8 that the estimated costs per household for infrastructure replacement are about $100 annually for large systems, but $400-$800+ per household for small systems.

Small systems are a widespread concern. According to AWWA, 84.5% of all public water supplies serve less than 3,300 people. The main findings are that for most systems, water bills will have to go up. More importantly, the time is now to start planning for future upgrades. The report also looks at geographic area and how populations are changing (going up in the south and west, no so much in the Northeast and Midwest). This has implications for how your town might grow in the future.

Pipe Matters

The report lists the estimated service life for all of the major kinds of pipe. You can find that on page 8 in Figure 5. Basically, you have ductile iron and PVC on the low end of about 60 years, and cast iron on the high end of about 120 years. The take home message is this, "...most of our buried drinking water infrastructure was built 50 or more years ago..." (p.4) and "Because pipe assets last a long time, water systems that were built in the latter part of the 19th century and throughout the 20th century have, for the most part, never experienced the need for pipe replacement on a large scale." (p.14) How long has your pipe been in the ground?

What It Means

Most people living in your small community have never seen the pipes that bring them their water daily. They have no understanding of the costs of replacement, nor are they willing to pay more for their water today to plan for infrastructure replacement in the future. It's time to educate your customers and begin putting money in the bank today. Failure to do so may result in even higher costs in the future, or worse, create an unsolvable situation in your community that can only be dealt with by consolidation or reduction in service. The days of government bailout for systems that can't sustain themselves are coming to an end, so you need to ask yourself, how important is your way of life today and how important is it for the future.

Next Steps

Becoming sustainable requires planning and financial management. Is your system putting money in the bank for future infrastructure needs? Do your rates reflect the true costs of providing water? Is there "extra" in your rates for replacement costs? Do you review your financial situation and consider rate changes on a regular basis? Does your community have a long-term plan for the sustainability of its water (and wastewater) system? All of these answers should be "Yes". If they aren't, its time to get some help from your TA providers on what you can do to start down this path.

Posted in: AWWAs, Sustainability, Asset Management, Capacity Development, Blog Series: Small Water Biz, Funding, Value of Water

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Financial Accounting for Small Water and Wastewater Systems

Jennifer Wilson posted on February 27, 2012 13:09

By Hatsy Cutshall, Certified Public Accountant

A cascade of bad economic news since late 2008 has focused nearly every citizen‚Äôs concern on finance, certainly at home and often at the public level. Many who are struggling to pay their own bills are looking to municipal leaders and asking valid questions about how their tax money is being spent.

A water or wastewater system is often the single largest asset owned by a small community. Like a homeowner with his property, all the stakeholders of those systems are best served if that asset is well managed and maintained to get the longest and best use at the lowest cost to all concerned. It is imperative that the board and the system managers understand and appreciate the value of the financial aspect of running the system. With that understanding they are then prepared to address public questions and concerns to help them understand how and why many decisions are made.

Financial management is not just about depositing cash in the bank and paying the bills. When used as part of an effective overall management strategy, it helps managers plan for the future to avoid unpleasant surprises like a compliance order or the sudden and unplanned need for significant infrastructure replacement. It also prepares management to explain to the rate-paying constituents how the decisions are made that go into setting the rates that keep the system going.

Without sound financial information, it is easy for the public to make incorrect assumptions about how much it costs to provide safe, reliable drinking water. Often, the first target for public scrutiny is the staffing expense. In response, many small system managers and governing boards are tempted to short change the accounting and finance function in favor of technical staff. By doing so, they risk problems that could cost them far more in the long run than the salary or accounting fees they have opted to avoid.

Furthermore, when a system does face the need for additional investment or maintenance costs, managers will find that there is less money flowing overall, fewer grants, and more loans. Funders are imposing stricter reporting requirements on systems to prove their capacity to manage the money they're borrowing.

There has never been a better time for small systems to take a look at their financial management and make sure it can stand up to this heightened scrutiny. In doing so, they likely will also discover ways that their financial information can help them decide how to make better use of the income and other resources for which they are responsible.

To help system managers and board members form a strategy for improving their financial management, I've compiled some ideas for how to get started. I've had the good fortune to talk with a number of technical assistance providers and other consultants who work with small systems. They've highlighted some common situations that they find when they begin work with a small system, as well as solutions that can help resolve some difficult situations.

Ten Financial Accounting Tips for Water and Wastewater Systems

1. Get organized! Before you can begin to create or improve a financial system you have to be able to find your expense bills, your receipts records, your bank statements, and your payroll records. Create a filing system and get your paper records in order so that when you need to refer to a document, you can find it easily. If many of your records are in electronic format, create an electronic filing system for those records, as well.

2. Review and document the system's rules and policies for income, expenses, and setting aside reserves. Read the minutes of board meetings for policies that may need to be formalized into the operating procedures. Board members and management should consider policies for handling late payments, whether to apply for a credit card, and board policy for setting aside a percentage of all fee income for capital needs reserves, to name a few.

3. Find the right person to do the accounting work. If the system has a staff member who can take on the work and is willing to learn, get him or her some training. If the system cannot afford or does not need even a part-time bookkeeper on staff, consider hiring a local bookkeeping or accounting firm to do this work on a contract basis. Ask if the contractor has staff members who are willing to attend board meetings to help managers and board members read and interpret the reports.

4. Talk to some trusted and experienced advisors about the system's accounting needs before you buy software. Often small systems buy accounting packages that are far more expensive and complex than they really need. The accounting software must be able to track the water system's activity separate and apart from that of any other government activity. If the system is small enough (e.g. 50 to 100 connections) a simple Excel spreadsheet may be able to handle all the tracking and reporting you need. For larger systems or those that are ready for a more comprehensive solution, QuickBooks is affordable and can handle most, if not all, of the accounting functions that many small systems need.

5. Build a budget. Start with the actual results of the prior year's operations and consider what is likely to change, as well as what the board and constituents wish to change and put it in writing. Once approved, enter this budget into the reporting system so that reports can compare the actual financial activity to what was expected. Comparing the two will help managers and constituents plan for the future.

6. Find and file any records you can that show how much was paid for pipe, pumps, meters, and other system infrastructure. Identify what the system owns and adopt an asset management plan. This survey of the system's physical components then informs the financial planning and budgeting process to reduce the risk of unplanned expenditures. This summary of what the system owns and how much it cost will also give you the information you'll need to record the value of the system's fixed assets on the balance sheet as required by the Governmental Accounting Standards Board (GASB) 34 rule, which addresses financial reporting requirements for infrastructure assets.

7. In addition to training the financial staff or hiring a bookkeeping firm, consider offering training for the system's board. Members of a utility's oversight board are often volunteers and may need assistance in making informed decisions and communicating the reasons for those decisions to the public. This type of training, as well as more generalized financial management training, is often offered through the state's primacy (drinking water or wastewater agency) as well as through non-profit organizations such as the Rural Community Assistance Partnership (RCAP) and the National Rural Water Association (NRWA).

8. Make sure your accounting system can track and classify income by type such as fees for water service, hookup fees, late fees, and so forth. It should also provide reports on aged receivables: how much the system is owed and how much is overdue by 30, 60, 90 or more days.

9. Classify expenses in such a way that a report reader can easily compare how money is being spent to the board's approved budget. Expense line items such as telephone, rent, electricity, salaries, supplies, and other routine costs should be created; as payments are made and entered into the system, those payments should be categorized according to their purpose. The system should also be able to provide a report on how much is owed to outside vendors and when those payments are due. This report is called an "accounts payable aging" report.

10. Record financial activity in the system regularly and often, at least once per month. If you let bookkeeping work pile up for months at a time, it is very easy to forget information that is important to the financial reports, such as the purpose of an expenditure or to which fund is should be charged. Monthly (or more frequent) reporting also helps managers see problems in time to solve them before they become more expensive to solve.

Make the decision that financial management is as important as maintaining the plant and equipment. Whether you decide to do it to meet regulatory requirements, citizen demand, or management needs, it's a great idea!

For more information or for advice and help getting started, contact your region's RCAP office (www.rcap.org), the National Rural Water Association (www.nrwa.org) or your state primacy agency that deals with drinking water or wastewater systems.

The author would like to thank the following people for their help and information in preparing this article: H.B Calvert, Karen Yates and Jan Frederick with the Midwest Assistance Program; Mary Fleming and Linda Martinez with the Rural Community Assistance Corporation; Karen Johnson and Cindy Navroli, MPA, CPA.

This article is part of the Water We Drink series, developed by the Rural Community Assistance Partnership (RCAP) and the National Environmental Services Center (NESC).

How To Run Your System Like A Business is a series at SmallWaterSupply.org, appearing on Mondays.

Posted in: NESC, RCAPs, Asset Management, Capacity Development, Blog Series: Small Water Biz

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Coordinating Tribal Technical Assistance

Steve Wilson posted on February 16, 2012 12:32

Technical assistance providers and federal agencies that serve and support tribal water and wastewater systems have developed a unifying and comprehensive strategy to coordinate services. This approach has given everyone involved a better understanding of the roles they each play in supporting tribal systems and has resulted in improved working relationships that are paying dividends for the tribes they serve.

Tribal Technical Assistance Workgroup

A national workgroup was formed to look at the technical services being offered to tribal water and wastewater systems. The group included tribes; those providing tribal services including rural water associations, regional RCAP affiliates, tribal organizations; as well as the federal partners also serving tribes, IHS, USEPA, and USDA. The IHS found that about 12% of American Indian and Alaskan Native Village homes do not have safe water and/or basic sanitation facilities, compared to 0.6% of non-native homes in the US. The committment was made to try and reduce the number of tribal homes without access by 50% by 2015.

In evaluating services, they found that service was inconsistent across Indian Country, in some areas there was coordination among service providers, but in many some areas there was not. Lack of coordination and communication has lead to confusion, conflict, or inefficient use of limited resources. The workgroups objective was to maximize the benefits that coordination and communication would provide to create a higher level of service for all tribal systems, while minimizing the duplicate services and conflicts that were barriers to service and wasting resources. The result of their efforts was the Tribal Access Workgroup Report that describes their efforts, and provides recommendations on how to move forward to develop better coordination and communication among tribal service providers.

The Recommendations

The workgroup came up with 9 recommendations to improve coordination that revolved around two specific action items. One was development of an online tool that should be maintained to allow service providers and recipients to easily identify their respective TA partners. The other action item was to hold semi-annual technical assistance coordination meetings, and in the report, the structure, format, protocol, and justification are all provided in detail.

Outcomes

The online tool is the Tribal Contact Manager database, found under "Tribal Resources" on SmallWaterSupply.org. If you are a provider or tribe interested in knowing who your partners are, you can search the database for a list by organization, then click on the specific office to get to their contact information.

The technical assistance provider (TAP) meetings are ongoing. I have been fortunate enough to participate in these meetings, so far, in Arizona and Nevada, and its clear that this approach is providing the service providers with a new, improved paradigm with which to develop services. Region 5 is holding its next TAP meeting next week, we are already seeing the providers sharing information in advance of that meeting.

Communication and coordination are always crucial pieces of any service program. Formalizing an approach that takes advantage of everyone's strengths is already providing dividends for the providers. We are excited to see the long-term value of these coordination meetings come to light as tribal services become more consistent, efficient, and effective.

Posted in: TA Providers, Tribal Systems, RCAPs, USEPA, Capacity Development, USDA

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