Municipal Utility Districts Declining Revenue OHM

Declining Revenue Tennessee Association of Utility Districts August 6, 2009 Evan N. Pratt, PE, Principal Orchard, Hiltz, and McCliment ohm-advisors.com

Learning Objectives • Identify changing trends in financial challenges to public utilities • Identify current problems and reactions • Identify actions you can take to create a contingency plan

Baseline: How’s It Going? • Problems are different today • Problems are bigger today

Baseline: The Problems • Declining Revenue • Rising Expenses • Both

Baseline: Common Language • Revenue: Basic Components – User Fees and Connection fees • Expenses: Basic Components – Labor – Capital Improvements – Debt Retirement – O and M – Administrative

The Future: Expenses

The Future: Revenue

The Future: Big Problem!

The Future: Challenges Change has to make sense to people. • Communicate how you are cutting costs • Manage costs by managing assets • Make up for lost revenue • Focus on desired level of service of customers

Plan for the Unknown • Concept: Sensitivity analysis – Assume revenue trend is worse – Assume costs escalate faster – Run at least one parallel budget • Concept: Contingency plan

Plan for the Unknown Typical cost controls • Freeze hiring • Cut budgets • Layoffs • Reduce Capital spending • Freeze rates • Delay higher cost maintenance • Find lowest prices

Plan for the Unknown Issue: Cost vs More Cost • Reduce Capital spending • Freeze rates • Delay higher cost maintenance • Find lowest prices

How to get Behinder 80,000,000 70,000,000 60,000,000 Needed Funding 50,000,000 $ Budget 40,000,000 Existing Funding 30,000,000 20,000,000 10,000,000 - 2005 2010 2015 2020 2025 2030 Years

Sidebar: Financial Issue GASB 34 Depreciation Accounting • Cannot account for true cost • Infrastructure condition is not assessed

Plan for the Unknown: Value Managing Assets Saves $ • What do you have • Condition • Service level • Maintenance • Life cycle approach – capital & maintenance

Plan for the Unknown • How do I really know my costs for the next 10 years? • CIP with funding options • Operational Assessment – www.apwa.net • Asset Management approach – Capital work – Maintenance work

Plan for the Unknown • Now you know WHAT you need • You have some idea how to pay for it • It’s Rate Study time! • CRITICAL TIP: Sensitivity Analysis

Funding CIP and Maintenance • Are you capturing all your costs today? • Where do these (CIP and maintenance) fit in your rates/fees?

AWWA Manual M1 (2000) • 5 basic methods of funding – Connection fees – User Fees – Debt Financing – Developer reimbursement (SDCs) – Stock issuance (Third Party funding)

Financing Tip • Debt financing gives you a buffer for rate hikes • TMBF, Revolving Loan Funds, or other low interest programs cut costs 25-30%

Conclusions • Things suck • They will get worse • You will find a way • It hurts less with a plan

On Leadership • People hear what leaders do more than what they say. • Survival is not just for the strongest or smartest • Survivors will be those who adapt most quickly. Look for them on staff.

Key Points • Problems are tougher than ever • Learn more about your system, its needs, the costs, and the rate impacts • TOOLS: Sensitivity Analysis and Contingency Plan (worst case)

Key Points • Communicate the issues with staff and the public. Solutions too! • Brag about cost savings • Relate public desire to service costs

Questions http://www.advancing communities.blogspot.com ohm-advisors.com

Municipal Utility Districts Declining Revenue OHM

by OHM Advancing Communities on Aug 11, 2009

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