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NCRWA.COM|
Winter 2015
feature
Understand that underfunding the system in the short term
will cause higher rates in the long term.
The elected officials
are responsible for setting the utility rates. If they choose to
keep the rates artificially low (not high enough to cover the true cost
of operating the utility) then ultimately the system will not have the
resources in reserve when the system infrastructure needs to be repaired
or replaced. If grants are not available, then the utility will have to
borrow money to repair/replace the necessary infrastructure. This
results in higher rates because the system must pay interest on the loan
in addition to the principal.
Understand that depending on Grants for long term
sustainability is not good financial planning.
Elected officials
often rely on the possibility of getting a grant (free money) as a
strategy for replacing/repairing ageing infrastructure. This strategy worked
well in the past because the federal government provided quite a lot of
funding for public water/sewer systems. This is no longer true. As the
federal deficit grows and the desire for lower taxes increases, the availability
of grant money is becoming more and more limited. More water/sewer
systems nation-wide are struggling with aging infrastructure problems
therefore the competition for the limited grant funds is increasing. Utilities
that continue to depend on future grants will likely have to delay needed
projects due to lack of funds. This will ultimately lead to increasing service
problems, higher maintenance cost and a decline in customer service.
Know that setting rates doesn’t have to be guess work.
Setting the best water/sewer rate is the most important
responsibility that elected officials must address with regard to
their utility. Setting the rates too low will cause a budget shortfall that
will require dipping into reserves or perhaps borrowing money from
another fund to balance the budget. If the rates do not generate enough
revenue to cover both the short term and long term cost of providing
continuous utility operations, there will eventually be a budget crisis.
The Local Government Commission (LGC) audits publicly owned
utilities and if a utility continuously has budget shortfalls the LGC
can impose severe penalties including taking control over the utility.
A rate study can provide the information needed to set the best rate.
There are resources readily available to help elected boards complete
a rate study.
Choosing not to raise water/sewer rates may not be the
best decision.
A business cannot afford to sell a product for
less than it cost the business to make the product. Likewise,
a utility cannot afford to provide water/sewer services for less than it
cost to provide the service. If a utility continues to keep the rates the
same while the cost of providing the service increases, then eventually
a big rate increase will be required. Ask yourself this question, “Is it
better to increase rates by 2% every year or wait 5 years and increase
the rates by 10%?” Which do you think would be easier for your
customers to budget? Which would be easier to “sell?”
Know that there is help available to assist elected
officials.
Making decisions about water/sewer systems
can be difficult for elected officials that may have limited
experience with the complexity of the technical, managerial and
financial operation of a publicly owned utility. Fortunately, there are
several resources available to help. The NC Environmental Finance
Center and the NC Local Government Commission can provide
guidance to councils and are available free of charge for consultation
on specific matters. Many utilities have a relationship with a consulting
engineering firm that provides assistance for their utility services.
Additionally, the Department of Environmental Quality (formerly
known as the Department of Environment and Natural Resources
– DENR) has regional offices that can provide assistance. The NC
Rural Water Association can provide free on-site assistance including
presentations to councils regarding technical, managerial and financial
issues. Elected officials, managers and staff can call the NCRWA
office (336-731-6963) or your friendly regional NCRWA Circuit
Rider if you have any questions regarding your system. NCRWA staff
are well versed on the issues facing publicly owned utilities and can
provide guidance and assistance at no cost. Elected officials should
not hesitate to seek information from any of these sources if they have
questions or concerns about any aspect of providing utility services.
The better informed you are as an elected official, the better equipped
you are to make good decisions to lead your utility.
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