Assessing Water Systems’ Financial Capacity: Financial Basics

Assessing Water Systems’ Financial Capacity: Financial Basics Presenters: Olga Morales-Sanchez, Western RCAP Tim Grogg, Southeast RCAP

This webcast will cover: • Systems’ Financial Responsibilities • Contacts and Observations • Financial Planning Tools • Site Visit Questions to Ask & Documents to Request • Resources for More Information

Types of Water Systems • Three types of water systems • Public • Non-profit • Private

Systems’ Financial Responsibilities • Planning the systems financial future • Developing and approving the system’s annual budget

Systems’ Financial Responsibilities cont. • Generating revenues to cover expenses • Establishing a financial tracking system • Reviewing financial status monthly

Site Visit Questions to Ask & Documents to Request Is the governing board or council provided with regular financial reports?

Contacts & Observations • Operation and Maintenance Contact – Water Operator • Financial contact – Billing Clerk, Administrator, Accountant, etc.

Financial Contact List • City Clerk or Utility Clerk • Bookkeeper, Accountant or Collector • Utility Manager or Public Works Director • City Manager • Utility Board Member or City Council

System Observations If you are not already familiar with the water system, do the physical inspection first. This will allow you to determine: • The condition of the system • Adequacy of funds available for O & M • If operator time is sufficient for O & M

System Observations - Office Staff • Observe documents as listed in following sections • Determine the processes used to develop water system budget and set rates • Get a non-operators view of the financial health of the water utility • Provide contacts for future technical assistance for financial management

Financial Document Checklist • Current Annual Budget • Latest Operating Statement – Revenues & Expenses • Latest Annual Audit • Rate Structure • Capital Improvement Budget – if any • Produced vs. Billed Water Comparison

Financial Planning Tools • Annual Budget • Rate Structures • Policies and Procedures • Financial Controls

Annual Budget Components • Annual Operating Expenses • Required Reserves • Revenues to Cover Expenses & Reserves

Operating Expense Budget • Are specific to the each utility • Line item expenses should make sense • Expenses should include water utility-related expenses only.

Site Visit Questions to Ask & Documents to Request Does the operator have input into the budget?

Required Reserve Accounts • Operating Reserve compensates for cash flow variations. • Emergency Reserve is cash set aside for unplanned major maintenance or equipment failure.

Reserve Accounts Cont. • Debt Service Reserve is in addition to a loan repayment. • Capital Improvement Reserve is for long-term equipment replacement and rehabilitation as well as for new projects and system expansion.

Instant Polling Question Which reserve account should fund scheduled meter replacements? • Emergency Reserve • Operating Reserve • Debt Reserve • Capital Improvement Reserve

Site Visit Questions to Ask & Documents to Request Does the utility maintain and regularly fund reserve accounts ?

Revenues • Operating • Income from base charge • Income from water sales • Non – Operating • Meter fees • Connection fees • Cell phone tower rental, etc.

Instant Polling Question Fees are considered to be which type of revenue source? • Operating Revenue • Non-Operating Revenue

Balancing the Budget Revenues = Expenses + Reserves

Site Visit Questions to Ask & Documents to Request • Does the utility have a written rate structure? 2. Does the utility have written financial policies and procedures?

Questions for Olga on the Materials Covered so Far?

Assessing Water Systems’ Financial Capacity: Financial Basics

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