Municipal Utility Districts Declining Revenue OHM

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http://www.ohm-advisors.com. Municipalities and Utility Districts all over the US face a shared challenge: declining revenues.Learn about the trends in financial challenges to public utilities, current problems and the actions you can take to create a smart contingency plan.

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Municipal Utility Districts Declining Revenue OHM

  1. 1. Declining Revenue Tennessee Association of Utility Districts August 6, 2009 Evan N. Pratt, PE, Principal Orchard, Hiltz, and McCliment ohm-advisors.com
  2. 2. 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
  3. 3. Baseline: How’s It Going? • Problems are different today • Problems are bigger today
  4. 4. Baseline: The Problems • Declining Revenue • Rising Expenses • Both
  5. 5. Baseline: Common Language • Revenue: Basic Components – User Fees and Connection fees • Expenses: Basic Components – Labor – Capital Improvements – Debt Retirement – O and M – Administrative
  6. 6. The Future: Expenses
  7. 7. The Future: Revenue
  8. 8. The Future: Big Problem!
  9. 9. 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
  10. 10. 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
  11. 11. Plan for the Unknown Typical cost controls • Freeze hiring • Cut budgets • Layoffs • Reduce Capital spending • Freeze rates • Delay higher cost maintenance • Find lowest prices
  12. 12. Plan for the Unknown Issue: Cost vs More Cost • Reduce Capital spending • Freeze rates • Delay higher cost maintenance • Find lowest prices
  13. 13. 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
  14. 14. Sidebar: Financial Issue GASB 34 Depreciation Accounting • Cannot account for true cost • Infrastructure condition is not assessed
  15. 15. Plan for the Unknown: Value Managing Assets Saves $ • What do you have • Condition • Service level • Maintenance • Life cycle approach – capital & maintenance
  16. 16. 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
  17. 17. 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
  18. 18. Funding CIP and Maintenance • Are you capturing all your costs today? • Where do these (CIP and maintenance) fit in your rates/fees?
  19. 19. AWWA Manual M1 (2000) • 5 basic methods of funding – Connection fees – User Fees – Debt Financing – Developer reimbursement (SDCs) – Stock issuance (Third Party funding)
  20. 20. Financing Tip • Debt financing gives you a buffer for rate hikes • TMBF, Revolving Loan Funds, or other low interest programs cut costs 25-30%
  21. 21. Conclusions • Things suck • They will get worse • You will find a way • It hurts less with a plan
  22. 22. 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.
  23. 23. 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)
  24. 24. Key Points • Communicate the issues with staff and the public. Solutions too! • Brag about cost savings • Relate public desire to service costs
  25. 25. Questions http://www.advancing communities.blogspot.com ohm-advisors.com

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