ur
A University of Tennessee
Muncipal Technical Advisory Service
workshop
Managing Your
Utility5s Money
The Trainer's Manual
Sponsored
through a
grant from
SEPA
United States
Environmental Protection
Agency
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r
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A University of Tennessee
Muncipal Technical Advisory Service
workshop
Managing Your
Utility's Money
The Trainer's Manual
Sponsored
through a
grant from
vvEPA
United States
Environmental Protection
Agency
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ABSTRACT
How can communities protect their multi-billion dollar water and
wastewater treatment investments and give citizens clean, safe water? The
key lies with municipal officials' ability to acquire sufficient operating
revenues.
Sound financial management allows communities to acquire the necessary
revenues to maintain financially self-sufficient water and wastewater
operations.
The best source of revenue for paying water and wastewater treatment
costs is user fees. Unfortunately, raising user fees is one of the most
dreaded actions undertaken by local officials. If is not done correctly, the
resulting political backlash and public resistance can be harmful for water
and wastewater operations.
The purpose of this workshop is present financial management and user fee
information for local officials. These seminars provide local officials with
information they can understand arid Use in improving "the financial health
of water and wastewater treatment operations. The workshop will help
participants establish sound financial management practices, assess the
financial health of water and wastewater systems and raise revenues
through increasing user fees.
ACKNOWLEDGEMENTS
This notebook was prepared by Haig Farmer of the United States
Environmental Protection Agency and Sharon Rollins of The University of
Tennessee Municipal Technical Advisory Service. This notebook is
available as EPA Office of Water publication number EPA 430/09-91-014.
******************************************************************
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TABLE OF CONTENTS
I. Welcome, Introductions, Purposes and Agenda
Pages
. . 1.1-6
II. The Importance of Good Financial Management II.1-13
III. Principals of Good Financial Management III.1-44
IV. Evaluating User Service Charge Systems IV.1-46
V. Determining User Service Charge Rates V.l-29
VI. Selling a User Charge Increase to Customers VI.1-22
ii
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FIGURES
Figure 1 ... Dollars Spent on Waste water Grants
Figure 2 ... Change in Local Governments Budgets
Figure 3 ... Shortfall in Revenues for EPA Funded Systems
Figure 4 ... Small Communities Outreach Education Program
Figure 5 ... Small Flows Clearinghouse Toll Free Number
Figure 6 ... Revenue Components
Figure 7 ... Expense Components
Figure 8 ... Operating Ratio Worksheet
Figure 9 ... Operating Ratio History
Figure 10 .. Coverage Ratio Worksheet
Figure 11 .. Revenue - Budget vs. Actual
Figure 12 .. Expense - Budget vs. Actual
Figure 13 .. Capital Investment Ratio Worksheet
Figure 14 .. Financial Reporting Checklist
Figure 15 .. Example General Ledger
Figure 16 .. Example Computer Generated Ledger
Figure 17 .. Purchasing Checklist
Figure ,18 .. Revenues - the User Charge Component
Figure 19 .. User Service Charges Checklist
Figure 20 .. Sewer Rate Schedule
Figure 21 .. Example Sewer Rate Schedule Monthly Rates
Figure 22 .. Special User Charge Requirements
Figure 23 .. Wastewater Expense Budget
Figure 24 .. Wastewater Revenue Budget
Figure 25 .. Revenue and Expense Components
Figure 26 .. Revenue Components
Figure 27 .. Expense Components
Figure 28 .. The Big Picture on Revenues and Expenses
Figure 29 .. List the Documents Needed
Figure 30 .. Sample Letter
Figure 31 .. Worksheet 1 - Management/Policies/Compliance
Figure 32 .. Worksheet 2 - Financial Information
Figure 33 .. Worksheet 3 - Financial Information
Figure 34 .. Worksheet 4 - Financial Information
Figure 35 .. Worksheet 5 - User Service Charge System
Figure 36 .. Worksheet 6 - User Service Charge System
Page
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m-4i
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IV-23
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III
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Figure 37 .. Example Sewer Use Ordinance
Figure 38 .. Worksheet 7 - Wastewater Facility Tour
Figure 39 .. Worksheet 1 Completed
Figure 40 .. Worksheet 2 Completed
Figure 41 .. Worksheet 3 Completed
Figure 42 Worksheet 4 Completed
Figure 43 .. Worksheet 5 Completed
Figure 44 .. Worksheet 6 Completed
Figure 45 .. Worksheet 7 Completed
Figure 46 .. Sample Follow-up Letter
Figure 47 .. Example Town Wastewater Expenses
Figure 48 .. Example Town Wastewater Other Revenues
Figure 49 .. Example Un-metered Water Customers
Figure 50 .. Example Wastewater Flow, BOD and SS Data
Figure 51 .. Example Metered Water Customers Rate Schedule
Figure 52 .. Example Town Wastewater Expenses
Figure 53 .. Example Town Wastewater Other Revenues
Figure 54 .. Annual Metered Water Flow
Figure 55 .. Worksheet 8 - Calculating New Rates Manually
Figure 56 .. Normal and Actual BOD and SS Loadings
Figure 57 .. Excess BOD and SS Loadings
Figure 58 .. Worksheet 9 - Calculating New Rates Manually
Figure 59 .. Worksheet 10 - Calculating New Rates Manually
Figure 60 .. Costs Attributable to Excess BOD and SS
Figure 61 .. Actual User Service Charge Rate
Figure 62 .. New User Service Charge Rate
Figure 63 .. Actual Industrial Rate
Figure 64 .. New Industrial User Charge Rate
Figure 65 .. Worksheet 11 - Calculating New Rates Manually
Figure 66 .. Worksheet 12 - Calculating New Rates Manually
Figure 67 .. Serious Problems Facing Utility Operations
Figure 68 .. Increase Revenues
Figure 69 .. How to Conduct a Public Education Campaign
Figure 70 .. Program Activities
Figure 71 .. What to Say in a Public Education Program
Figure 72 .. The Messenger
Figure 73 .. Target Audiences
Figure 74 .. Successful Supplements
Page
IV-29
IV-30
IV-37
IV-38
IV-39
IV-40
IV-41
IV-42
IV-43
IV-44
V-4
V-5
V-6
V-7
V-14
V-15
V-16
V-17
V-18
V-19
V-20
V-21
V-22
V-23
V-24
V-25
V-26
V-27
V-28
V-29
VI-15
VI-16
VI-17
VI-18
VI-19
VI-20
VI-21
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iv
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I. INTRODUCTION
A. WELCOME
B. TRAINING TEAM INTRODUCTIONS
C. WORKSHOP OBJECTIVES
D. WORKSHOP AGENDA
E. PARTICIPANT INTRODUCTIONS
1-1
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I.A. WELCOME
Notes:
1. Before the workshop, meet the EPA regional office staff who will be introducing the
workshop. Ask that person to introduce him/herself and to provide welcoming
statements at the beginning of the workshop.
a. Point out rest rooms and temperature controls.
b. Make recommendations about getting around in the city, where to eat, etc.
1-2
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I.B. TRAINING TEAM
Staff from The University of Tennessee Municipal Technical Advisory
Service (MTAS) will lead this seminar. MTAS provides technical assistance
to Tennessee cities and towns in the areas of finance and accounting, law,
engineering and public works and municipal management.
MTAS provides field based assistance, sponsors and administers research
projects, produces publications and houses a technical reference library.
Your participation in this course is vital. Please feel free to share your own
experiences, comments and questions during the workshop
Have each training team member introduce the other. Keep academic background
discussion short. Tell something about the person's involvement in a situation to improve
financial management in a community.
1-3
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I.C. WORKSHOP OBJECTIVES
(1) To emphasize that communities' ability to protect their investment in
water and wastewater infrastructure and to maintain sound operations
depends on generating sufficient operating revenues.
(2) To emphasize that the best source of revenues is user fees.
(3) To demonstrate how to determine if a financial management system is
healthy.
(4) To demonstrate how to evaluate a user service charge system.
(5) To demonstrate how to determine rates through use of a computer rate
model.
(6) To demonstrate how to sell a rate increase.
Post these objectives on a flip chart sheet and place them where they can be seen throughout
the day. Periodically refer back to the objectives and check whether they are being met.
*******#*********#******#*****************##***********************
1-4
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I.D. WORKSHOP AGENDA
8:30 - 9:00 Registration
9:00 - 9:30 Introductions and Workshop Objectives
9:30 - 9:45 The Importance of Good Financial Management
9:45 - 10:30 Principals of Good Financial Management
10:30 - 10:45 Break
10:45 - 12:00 Evaluating User Service Charge Systems
12:00-1:15 Lunch
1:15- 2:15 Determining User Service Charge Rates
2:15 - 2:30 Break
2:30 - 3:30 Selling a User Charge Increase to Customers
3:30 - 4:00 Summary
Briefly refer to the agenda and mention breaks and refreshments.
I-5
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I.E. PARTICIPANT INTRODUCTIONS
Notes:
This is an important part of the workshop. The object is make participants comfortable
enough to begin talking and interacting. The workshop will be much more beneficial to
everyone if participants will begin sharing their own experiences about the topic.
One approach to use: Ask participants to look around and find someone they do not know;
introduce themselves to that person; tell each other where you work, why you need
information on financial management. Ask them to introduce one another to the group.
*******************************************************************
1-6
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II. THE IMPORTANCE OF GOOD FINANCIAL MANAGEMENT
A. WHY COMMUNITIES MUST WORK HARDER AT FINANCIAL
SELF-SUFFICIENCY
B. THE IMPACT OF FINANCIAL SELF-SUFFICIENCY ON
COMMUNITIES
C. HELP FOR COMMUNITIES
D. WHAT COMMUNITIES MUST DO
Tell the topics that will be covered in this session
11-1
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II.A. WHY COMMUNITIES MUST WORK HARDER AT FINANCIAL
SELF-SUFFICIENCY
The 1987 Clean Water Act amendments place more financial responsibility
for wastewater facility construction on local governments.
EPA grants (for facility construction) are no longer available; SRF loans are
available, but the entire principal and interest must be repaid over a 20 year
period.
The loaners (EPA and states) must have assurance that the borrower is a
good risk; Le. they must have assurance that the borrower is able to make
repayments.
This leads to greater front-end scrutiny of the borrower's user charge system.
User charge systems are the principal method enterprise fund operations
have for raising revenues.
Water and wastewater operations are usually run as enterprise funds. This
means that the operations are run as a self-supporting business.
1987 Clean Water Act Amendments
Out with Grants
In with SRF Loans
He******************************************************************
11-2
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Use Overhead # 1
Since 1972 these amounts have been spent in the EPA Construction Grants
program.
All that federal and state grant money had the effect of reducing user
charges by an average of 50%.
* $ Spent in the Wastewater Grants Program Since 1972
Federal $53 Billion
States $20 Billion
Local $20 Billion
The most recent EPA Needs Survey shows that we still have $83 billion in
wastewater facility needs in this country.
So, almost as many needs exist today as all the funded needs during the last
18 years.
In the past 18 years, local governments had a chance of getting grants to
help meet these needs. Now about the best they can hope for is a low
interest loan.
And even loans are short of anticipated levels. The SRF loan program was
to provide $18 billion in capitalization grants to states through 1994, but
FY89-90 appropriations were 20% short of the authorized level
* $ in Needs for Wastewater Facilities
Wastewater Needs
$83 Billion
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1-3
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II.B. IMPACT OF FINANCIAL SELF-SUFFICIENCY ON
COMMUNITIES
So, how are local governments handling this new reality? Not well!
Even before the demise of grants, state and local governments finances were
awash in red ink.
Use Overhead # 2
Whereas, state and local government budgets showed a $5 bittion surplus in
1986; they showed a $45 bUtion deficit in 1990.
* $5 billion surplus in 1986 to $45 billion deficit in 1990
Use Overhead # 3
An EPA study showed that 37% of the EPA wastewater funded systems are
not collecting sufficient revenue from user service charges and
hookup/impact fees to cover operating cost.
The average shortfall in these inadequately funded systems is 25%.
As communities assume more of the burden of capital projects as well as
operation and maintenance costs, they must raise user charges.
*******************************************************************
11-4
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* 37% EPA wastewater funded systems experiencing shortfalls in
revenue
*
Water systems confront new monitoring costs
Amendments to the Safe Drinking Water Act equate to new monitoring
requirements for water systems. The associated costs will surely require those
water systems to generate additional revenues.
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11-5
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II.C.
HELP FOR COMMUNITIES
There are some resources for local governments. They are not grant dollars,
but these resources can help local governments use their dollars more wisely.
Use Overhead # 4
One important resource is the Small Communities Outreach and Education
Program - SCORE.
One way SCORE can help is through providing information on complex
issues in simple, easy to understand language. The booklets found in your
notebooks are examples. (Hold up one or more examples).
Another way is through SCORE Coordinators in the state and EPA
Regional Offices. Ask the SCORE coordinators to stand. Ask if there is
anything they want to say about how SCORE helps local governments.
Small Communities Outreach and Education Program
(SCORE)
Informational Assistance
EPA Regional Office Coordinators
11-6
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SCORE facilitates networking through other federal agencies and national
organizations. (List the FmHa, HUD, WPCF, AWWA, other environmental
and civic groups). They are in touch with these organizations and offices.
They share information and experiences. They attend conferences and
exchange publications.
Networking other Federal and National Organizations
Overhead # 5
And they provide assistance through the National Small Flows Clearing
House. List some functions, such as - toll free no. 1-800-624-8301,
publication, user charge survey analysis, etc.
National Small Flows Clearing House
1-800-624-8301
11-7
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:|:* *****************************************************************
II.D.
WHAT COMMUNITIES MUST DO
Communities need to undertake major tasks. They must improve financial
management of their water and wastewater operations. This probably means
they need to raise user service charges.
The rest of this workshop will show the steps local governments need to take
to accomplish these things.
It will show you how communities accomplish this task.
*
Implement Financial Self-Sufficiency
Improve Over-All Financial Management
Raise User Service Charges
11-8
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SPENT IN THE
WASTEWATER GRANTS PROGRAM
SINCE 1972
FEDERAL
STATES
LOCAL
$53 BILLION
$20 BILLION
$20 BILLION
I-9
FIGURE1
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THE CHANGE IN LOCAL
GOVERNMENTS' BUDGETS
1986
1990
+ $5 BILLION
- $45 BILLION
11-10
FIGURE 2
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37%
OF ERA-FUNDED SYSTEMS
EXPERIENCE SHORTFALL
IN REVENUE
37%
ERA-FUNDED SYSTEMS
1-11
FIGURES
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SMALL
COMMUNIT
LIT-
RE AC H
EDUCATION
PROGRAM
11-12
FIGURE 4
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NATIONAL SMALL FLOWS
CLEARINGHOUSE
1-800-624-8301
11-13
FIGURES
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III. PRINCIPALS OF GOOD FINANCIAL MANAGEMENT
A. CHECK FINANCIAL HEALTH
B. IMPROVE FINANCIAL HEALTH
C. BUILD FINANCIAL HEALTH
D. ADDITIONAL FACTORS THAT AFFECT FINANCIAL HEALTH
Tell the topics that will be covered in this session
111-1
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III.
PRINCIPALS OF GOOD FINANCIAL MANAGEMENT
A. CHECK FINANCIAL HEALTH
Introduction
Many people find financial terms confusing. The language of accountants
and auditors is often technical and intimidating for non-accountants. But,
even if you have no experience with financial terms, you already know some
important basics about finance. You have certain expenses like rent, food,
utilities and so forth to pay each month. You know how much money you'll
earn each month. You know how to balance expenses and income. This
section will present some simple financial management tools that are easy to
apply to check the financial health of a water or wastewater utility.
A financial health check lets you gage the health of your utility's operation,
and its helps you take corrective measures to make sure your operation is
self-supporting.
Ratios
Ratios are quick ways of checking on the financial health of a utility
operation.
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There are several financial ratios which indicate different aspects of a
system's financial health. Ratios can be easify calculated from the
wastewater system's accounting records. This section will go through the
process step-by-step.
By calculating ratios every month, you can build a financial trend. This
trend will provide a quick assessment of past operations in a simple, easify
understood manner. Ratios can be plotted on a graph to provide a visual
display of financial health over time.
Trends also allow you to project what will happen next month ... the next
two months and so forth. They give an early warning signal of corrective
actions that you should take ... like, raising revenues or cutting expenses.
Ratios can be used to compare operations of one utility with another.
If your utility combines the accounting for water and wastewater operations,
you will need to segregate water revenues from wastewater revenues and
water expenses from wastewater expenses before calculating ratios.
* Definitions
Before we begin calculating ratios, we will need to cover some basic
financial terms. These terms show up on utility financial records.
Use Overhead # 6
111-3
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Revenue is system income primarily from user service charges. Operating
revenues also come from special charges such as hookup and impact fees,
interest income from investments, late payments, penalties and forfeited
meter deposits. In some older systems, taxes and assessments are revenue
sources.
User Service Charge. The User Service Charge (USC) is the largest revenue
source. It is the fee charged users for the collection and treatment of
wastewater (or the treatment and distribution of water).
Hookup/Impact Fees. Hookup fees are charges for new customers
connecting to existing water and sewer tines. An impact fee is a charge,
usually imposed on developers, to compensate the system for the impact of
growth on the system's infrastructure.
Taxes/Assessments. Taxes/assessments usually pertain to older water and
wastewater systems that use property taxes or front footage assessments (or
some other basis of assessment) as revenues.
Interest Earnings. Interest income comes from investments tike checking
accounts, savings accounts and treasury bills.
Other revenue sources may include sales from treatment by-products such as
sludge compost, or the penalties charged for not paying the sewer bill on
time.
Use Overhead # 7
111-4
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Operating Expenses are the futt cost of operating your system. They include
salaries and benefits, administration costs, utility costs, chemicals, supplies,
equipment replacement costs, and the principal and interest payments on
debt.
Salaries and Benefits are the largest costs for most operations. This includes
wages and fringe benefits earned by employees... regular pay, overtime, sick
and annual leave, health benefits, bonuses, longevity pay and so forth.
Administration Costs are the costs associated with providing facilities for
conducting business, liability insurance, postage and so forth.
Utilities. These costs are for utilities associated with the operation ... such as
water, electricity, gas and fuel oil. Electricity keeps pumps pumping. Gas
may be used for heating or perhaps in burning sludge. Water is used
throughout the plant.
Chemical Costs include all chemicals necessary for the operation.
Equipment Replacement Costs are the costs of obtaining and installing
equipment or accessories necessary to maintain the capacity and
performance for which the treatment facility was designed and constructed.
Some equipment such as motors will wear out and must be replaced during
the life of the treatment facility. This should not be confused with normal
maintenance expenses. Annual contributions to a separate equipment
replacement fund is an excellent financial management practice.
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111-5
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Principal and Interest. The repayment of principal and associated interest
on debt are considered an operating cost. This is also catted debt service
costs.
Supplies and Parts include lab supplies, gaskets, belts, lubricants and so
forth.
Other. There may be other expenses such as contracts for equipment service,
engineering services and so forth.
A word about what operating expenses do not include. They do not include
the cost of new capital facilities such as more treatment capacity or
additional lines. They also exclude depreciation. Depreciation is an
estimate of how much value the utility's plant and equipment lose in a given
time period. Since municipal utility operations are generally not required to
provide money to cover depreciation, it is not counted as an operating
expense.
*
Operating Ratio
Use Overhead # 8
Now, we are ready to compute the operating ratio. Operating ratio is total
revenues divided by total operating expenses.
An operating ratio of 1.00 is the minimum acceptable for a self-supporting
utility. Anything less than an operating ratio of 1.00 spells financial trouble.
1-6
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The operating ratio must be greater than 1.00 if the utility has outstanding
debt.
Since monthly revenues and operating expenses vary widely, it's best to
calculate the operating ratio on a year-to-date basis.
Pay attention to the trend in operating ratios from year-to-year. A steady or
upward trend in the operating ratio indicates good financial health. If the
ratio trend is falling, you need to take action to get the utility back in good
financial shape.
Charting the operating ratio history gives a quick visual assessment of how
you are doing.
Use overhead # 9
*
Coverage Ratio
Coverage ratio measures whether the utility operation has enough revenue to
pay its debt service (principal and interest) on its loans and bonds and still
have enough money left to cover contingencies. Contingencies are
unexpected problems. An example is a natural disaster.
Lenders and bond agencies are particularly interested in the coverage ratio
because it indicates whether money will be available to pay off debt service
if the utility operation incurs unusual expenses.
Use overhead # 10
111-7
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The coverage ratio is calculated by:
(1) Totaling all revenues received during the year, from all sources.
(2)
(3)
(4)
Totaling all NON-DEBT expenses for the year. This is all
operating expenses excluding principal and interest payments. Refer
back to overhead # 7.
Subtracting all non-debt operating expenses from att revenues.
Divide the result by the yearly debt service expenses.
Although bond requirements differ, a coverage ratio of 1.25 is common.
Our example has a high coverage ratio -1.7. This can happen when a
system deliberately builds reserves prior to embarking on a big building
program to improve its infrastructure.
Again, the coverage ratio, like the operating ratio, is usually computed at the
end of the year. It can also be charted to provide a visual aid.
If the coverage ratio drops below the minimum required by the bond or loan
requirements, an increase in user charges is generally needed.
Budget vs. Actual Comparisons
Before we start on this section, let's review a couple of points. (1) If your
utility offers both water and sewer service, develop separate budgets for each
service. (2) At the beginning of the budget year (this may be calendar or
fiscal), prepare SEPARATE revenue and expense budgets. Well tell you
more about budget preparation in a later section.
111-8
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Budget vs. Actual comparison for revenues:
The budget to actual comparison lets you see how your ACTUAL revenues
and expenses compare to your BUDGETED revenues and expenses.
We recommend this comparison be done monthly.
Here's how you do it. Use overhead # 11.
List the amount of revenue budgeted at the beginning of the year.
Next, list the amount of revenue received to date.
Then divide the actual revenue received by the total budgeted. Compare
that to the percentage of the year completed.
For example, at the end of September we have these results:
Total Revenue Budgeted for year = $1,790,000
Total Revenue received through Sept. = $424,000
$424,000/$1,790,000 x 100% =23.7%
Three months (Jufy - September) or 25% of the budget year has passed and
you've collected only 23.7% of the revenues. This could be a sign that your
ACTUAL revenue will not match the BUDGETED revenue for the year.
There could be some reason why revenue for that particular quarter is off.
One cause may be due to timing. Bitting usually lags use by at least one
month.
ili-9
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Also, you'll want to look at the individual revenue items to find out which
ones are low and why.
It is also helpful to compare the percent of budget received this period to the
percentage of revenue received last year at this same time.
If it seems that slow revenues will continue, then you will need corrective
action.
Budget vs. Actual comparison for expenses:
A budget vs. actual test for expenses is similar to the one we conducted for
revenues.
Use overhead # 12
Here our total budgeted operating expenses for the year is $1,475,000.
Actual operating expenses at the end of the first quarter are $375,500.
Calculate the % of budget expenses year to date:
$ 375,500/$1,475,000 x 100% = 25.5%
We are running slightly higher than expenses budgeted at this point. There
may be some good reasons for this.
It's a good idea to compare the percentage spent with the percentage from
the same time last year and to investigate individual items that are headed
over budget.
111-10
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It is important that revenues and expenses work together. Look at both
budgets. In the case above, actual revenues are lower than actual expenses,
so we may be headed for trouble.
Again, it is important to track budget vs. actual revenues and expenses
monthly.
Capital Investment Ratio
Take care of your utility investment by having a healthy capital investment
ratio.
The capital investment ratio is a measure of how many resources the utility
is putting toward improving and replacing capital assets.
Capital items are components of the utility that have a long life and a
substantial cost. Examples are buildings, water and sewer lines, treatment
plants, major equipment and vehicles.
Use overhead # 13
Calculate the capital investment ratio at the end of the year by: Totaling all
money spent on capital assets and dividing by the total revenues.
We cannot give rules or guidelines for the capital investment ratio. It can be
low for a utility with new facuities; high for ones with older facilities.
It's best to judge what your capital investment ratio should be by comparing
it to earlier years.
311-11
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,.,are all monies
received for
wastewater
operations* Get
these figures from
management,
budgets and
financial
statements*
II1-12
FIGURE 6
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Expenses.
tfce
f ,f
costs of
operating,
maintaining,
replacing
equipment
and paying
debt service
fora
wastewater
system.
Equipment
Replace-
ment
111-13
FIGURE 7
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OPERATING RATIO WORKSHEET
(Year to Date)
TOTAL REVENUE
User service charges
Hook-up/Impact Fees
Taxes/Assessments
Interest Earnings
Other Revenue
Total Revenue
TOTAL OPERATING EXPENSES
Administration
Wages
Benefits
Electricity
Chemicals
Fuel & Utilities
Parts
Equipment Replacement Fund
Principal and Interest Payments
Other
Total Operating Expenses
OPERATING RATIO
Total Revenue
Total Operating Expenses
Operating Ratio
$ 1 100.
10
$ /
000
$ 1
000
OdO
$
divided by
equals
$ / 190
$ / .
\ 000
/.c2/
1-14
FIGURE 8
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OPERATING RATIO HISTORY
RATIO
1.4 T
1.3 --
1.2
1.1
1.0
0.9 __
0.8
Last Year
Year-io-Date
Minimum to Pay Debt Service and Operations
JAN FEB MAR APR MAY JUN JUL AUG SEPOCT NOV DEC
111-15
FIGURE 9
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COVERAGE RATIO WORKSHEET
Total Revenue
$ /,
minus
Non-Debt Expenses
$
equals
Revenue Available
for Debt Service
$
divided by
Debt Service Expenses $
equals
<>**
Coverage Ratio
/. 7
1-16
FIGURE 10
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Revenue
Budget vs. Actual
% of Year
Completed to
Date: as* %
User Charges
Taxes/
Assessments
Hook-up Fees
Impact Fees
Interest
Other Revenue
Total Revenue
$ Budget
Total
/, ^00, 00Q
W, 000
1 S/ 00 d
/O, &0d
^S0, 000
^jdod
i, 130, 000
$ Received
Current
Year
To Date
^0 o, a a a
>5 ' ,00a
3,404
0d
^Z*, M*
% of Budget
Received
Current Year
To Date
<43. 3
>S"o .0
33. 3
<5~a. o
3^0 . 0
^\o . o
o?3.7
% of Budget
Received
Last Year
To Date
^i*-£
^c. 4-
^#.0
^£,-$-~
^>^- 7
a^s-.o
3t.-r
111-17
FIGURE 11
-------
-------
Expense
Budget vs. Actual
% of Year
Completed to
Date: 35" %
Administration
Wages
Benefits
Electricity
Chemicals
Fuel& Utilities
Parts
Equipment
Replacement
Fund
Principal &
Interest
Payments
Other
Total
Operating
Expenses
$ Budget
Total
/ %g, 060
3-tf,00&
n£t 000
JS"0, 00<)
3o, ooo
<35 ' , OOa
dfi , 000
3>oo,ood
4&0t ooo
-3,^ ,000
it i-7^ doo
$ Spent
Current
Year
To Date
^ ,000
i 00 1 060
£0, 0 00
40, ffffff
*&, 000
3, ooo
3, ooo
&o, ooo
H3t&a0
^ 600
J767 Sw
% of Budget
Spent
Current Year
To Date
%$f.6
<%. 0
^0. 0
/7. a
3.S. d
35~-t>
/S~. S~
^.l
1-18
FIGURE 12
-------
-------
CAPITAL INVESTMENT
RATIO WORKSHEET
TOTAL CAPITAL OUTLAYS $
divided by
TOTAL REVENUE
$
000
, 000
equals
CAPITAL
INVESTMENT
RATIO
6.01
111-19
FIGURE 13
-------
-------
III.B.
IMPROVE FINANCIAL HEALTH
*
Financial Reporting
Financial reports are a must! Without them, the manager cannot know how
revenue is coming in and how many expenses are being paid out.
The financial reports need to be accurate and timely. By the 10th of the
month, you should have adequate financial information to gage the
financial health of the previous month.
Here's a financial reporting checklist. Overhead # 14
First, ask whether water and wastewater operations are accounted in a
separate enterprise fund.
We've already said that water and wastewater operations need to be
accounted separately. But, what's an enterprise fund?
To operate as an enterprise fund means that the water or wastewater utility
is operated in a manner similar to private business enterprises. The intent is
that the costs of providing the service is recovered primarily through user
service charges. Another way to think about it - enterprise funds are self-
supporting - the user pays.
111-20
-------
-------
Enterprise-type funds are accounted for on an accrual basis. Under accrual
basis accounting, revenues are recorded when they are earned (whether or
not cash is received at that time) and expenses are recorded when goods and
services are received or incurred (whether cash disbursements are made at
that time or not).
The utility revenue and expense reports may be in the form of a hand-
entered ledger like this:
Use overhead # 15
Or in the form of computer printouts like these:
Use overhead # 16
Let's go back to the previous overhead. Overhead # 14.
Good financial reports show both budget and actual figures. Refer to
overhead # 11.
Reports should be up-to-date for the previous month by the 10th of the
following month, and records should be kept for at least 4 years.
Accuracy in reporting is very important. That's why it is important to have
yearly audits performed by a CPA.
Certified Public Accountants (CPAs) audit in a form which conforms with
Generally Accepted Accounting Principles (GAAP). We have used a
simplified approach here.
111-21
-------
-------
*******************************************************************
* Purchasing
Purchasing is a big part of any water or wastewater operation. How this
task is performed affects the budget and level of service.
All utility operations have a purchasing procedure. Some are formal; some
are not.
The main purposes of a purchasing system are (1) to get goods and services
on time and (2) at the lowest price.
Here are some characteristics of a good purchasing system. Overhead #17
Centralize purchasing. This allows for better management control and
professionalism in the purchasing activity.
Use specifications, particularly for major purchases. You will be more likefy
to be satisfied with the product if you spend some time defining what you
want in the first place.
Use standard quote or bid forms. This makes it easier for you to compare
quotes from various sources.
No purchases should be made without a purchase order. Essentially a
purchase order specifies the terms and conditions of the purchase such as
specification, quantity, price and when delivery is due. This is essential for
management control It also makes bookkeeping easier.
*********************************************************:{::!:*:::$:!:;;;$$;;:
111-22
-------
-------
Have a policy on how to handle emergency purchases. Sometimes you
won't have time to get a purchase order written up first or to sent out for
quotes. Just don't let all purchases be handled as emergencies.
As soon as goods are received, inspect them for quantity and quality before
putting them in stock. Handle problems promptly.
Keep records on inventory stock. Items used by several departments can be
purchased more efficiently in bulk. Automatic reorder points can be
established. Central warehousing can deter theft and give management
better control.
User Service Charge Systems
The following discussion applies to wastewater user service charge systems.
The same principles are applicable for water systems.
By now, you realize that the health of the user service charge system is
crucial to the entire utility operation.
Use overhead # 18
As we've already mentioned, the user service charge is the central and most
important piece of a utility's revenue puzzle.
It usually accounts for 80-90% of a utility's total revenues.
The user service charge system has two parts. One part sets the user rates
and the other part collects the money.
1-23
-------
-------
Here are some characteristics of a good user service charge system.
Use overhead #19
Are costs identified?
Are costs allocated proportional to use?
What are the flow characteristics for each customer class?
Is each customers' use known?
Are customers billed proportional to use?
Does the billing cycle provide timely revenues?
Do your procedures assure collection of delinquent bills?
The rate (along with other minor revenue sources) must cover the FULL
cost of providing the service.
For wastewater, the user service charge should charge each user their
proportionate share of the operation, maintenance, and equipment
replacement costs based on quantity and quality of discharge. If the
discharge from all users is substantially equal - as expected from residential
customers - then user fees would be based on the volume of wastewater.
But, for commercial and industrial users who discharge high-strength waste,
a surcharge should be imposed.
111-24
-------
-------
Know the basis for assessing the customer's use. Wastewater is usually not
metered for residential and commercial usage. Normalfy, usage is based on
water meter readings. It may be necessary to adjust water meter readings for
water not discharged to the sanitary sewer system. If meters are not used,
usage may be a uniform flat charge or based on equivalent dwelling units.
User Service Charge Structures.
Look at the user service charge structure. Are the customers bitted
proportional to use?
A commonly used rate structure is the uniform flat rate - customers pay the
same fee regardless of quantity of use. This is only used on systems where
no water meters are available. As you can readily see this structure is unfair.
The user will either be paying too much or too little. This structure
promotes waste.
Use overhead # 20
The single block rate is recommended. In this structure, each customer pays
a minimum bill + a charge per 1,000 gallons (or c.f.) This system is fair
because the charge for the service is in direct portion to usage. (Don't forget
high strength dischargers have a surcharge added to the usage bill).
The main features of the single block rate structure are a minimum bill + a
charge per 1,000 gallons (or c.f.) The minimum bill covers the cost of
billing (preparing the bitt and postage). The total treatment rate (for
wastewater) equals total costs for operation, maintenance, equipment
replacement and debt service divided by total volume of treated wastewater.
111-25
-------
-------
Use overhead #21
Another structure Is the decreasing block rate - where the price of usage
declines as the amount used increases. The decreasing block rate
discourages conservation.
And increasing block rate is where the price of usage increases as the
amount used increases. The increasing block rate encourages conservation.
Customers accept rates that they view as fair and equal without any special
rates for specific customers. This describes a uniform rate structure.
Key Elements of a User Service Charge System for Wastewater
The user service charge should include the costs of transporting and treating
inflow/infiltration. When I/I costs cannot be assigned to any particular user
or user category, the costs are distributed proportionally among all users.
Collect surcharges for high strength wastes. A formula for this charge can be
developed.
The key to a good billing and collection system is to make sure that user
service charges are collected very soon after providing the service. Time is
money!
Establish a policy for collecting delinquent bills. This policy needs to be
written; be fair to both the utility and the customers, enforced and tracked.
Remember, user service charges have a short life span. Examine your user
service charge yearly and adjust if needed. Keep customers informed at least
annually of the current rate structure.
111-26
-------
-------
«»«««*#»#««»#««*****«*#«*«#*«**»#*******#**#*«#**##*«**#«#**###»«««
Be aware that for EPA funded facilities, the utility must comply with these
key criteria (most of which have been discussed):
a. Charge each user proportional to quantity and quality of discharge
b. Notify user of rates annually
c. Impose surcharges for wastewater that requires additional treatment
d. Establish a financial management system to account for revenues and
expenses
e. Other EPA requirements may apply
Use overhead # 22
There may also be state and local requirements, such as, the accounting
system to be used. We've already talked about the accrual method of
accounting. Reserve funds may be needed to guarantee minimum coverage
ratios on debt.
*******************************************************************
111-27
-------
-------
1 /*?
FINANCIAL REPORTING CHECKLIST^
Is this done at your utility? £p
jr
Water and wastewater
operations are accounted for
in separate enterprise funds.
Each utility uses accrual
accounting methods.
Each utility receives monthly
reports of revenues and expenses.
Reports show both budget
and actual figures.
Reports arrive by the 1 0th day
of the following month.
The utility keeps its financial
reports for at least four years.
Yes
No
Unsure
I-28
FIGURE 14
-------
-------
GENERAL LEDGER
Any town, USA
Date
Account Name
Debit
Credit
Balance
FIGURE 15
111-29
-------
-------
ANYTOWN, USA WASTEHATER DEPARTMENT
LEDGER NUMBER LEDGER NAME
411 - 5217 Insurance
4X1 - 522O Auditing Services
411 - 5245 Postage
411 - 5277 Print, Duplicate
411 - 5299 Electric Service
411 - 5223 Water Service
411 - 5231 Gas Service
411, - 5209 Office Supplies
411 - 5295 Janitorial Supplies
411 526$ Telephone Service
411 - 5295 Office Forms
411 - 5246 Rent
411 - 5221 Bad Debt Expense
411 - 5290 Messenger Delivery
411 - 5225 Legal Services
411 - 5253 Salaries - Regular
411 - 5238 Salaries - Overtime
411 - 5212 Retirement
MTD ACTUAL
$436
724
145
1,003
3,309
663
4,281
253
137
881
77
450
339
27
888
1,998
921
256
.89
.22
.87
.65
.71
.37
*99
.43
.24
.10
.53
.00
.23
.45
.56
.67
.68
,84
TOTAL BUDGET
S3
6
,750.00
,290.00
1,500*00
9
45
7
35
2
1
10
5
3
3
28
10
2
, 600, 00
,000.00
,800.00
,OOO.OO
,5OO.OO
,,000.00
,5OO.OO
500*00
,400.00
,000*00
250.00
,000*00
,OOO.OO
,000*00
,200.00
111-30
FIGURE 16
-------
-------
JJS^
I PURCHASING CHECKLIST j/
\ Is this done at your utility? J/
1 Purchasing Is centralized.
Major purchases are based on
specifications that define
requirements.
(Standard quote/bid forms are used.
No purchases are made without
a purchase order.
Exceptions are specified for
emergency purchases.
Goods are inspected immediately
for quality and damage.
Stock quantities are specified
for all inventory items.
Yes
No
Unsure
111-31
FIGURE 17
-------
-------
Revenues.
...are all monies
received for
wastewater
operations* Get
these figures from
management,
budgets and
financial
statements.
A user service charge is the central and most important
piece of a facility's financial puzzle.
111-32
FIGURE 18
-------
-------
USER SERVICE CHARGES CHECKLIST^
Mr
JiF
Is this done at your utility? /r
p
All costs are identified.
Costs are allocated proportionately
based on use.
Flow characteristics are known
for each customer class.
Each customer's use is known or
fairly estimated.
Customers are billed
proportionately to use.
Billing cycle provides timely
revenues.
Established procedures assure
collection of delinquent bills.
Yes
No
Unsure
|_qq
oo
FIGURE 19
-------
-------
SMITHTOWN, TENNESSEE
SEWER RATE SCHEDULE
MINIMUM BILL = $2.50
SEWER USAGE IS AT THE RATE OF $3.50 /
1,000 GALLONS.
SEWER SERVICE CHARGES WILL BE BASED
ON WATER METER READINGS.
I-34
FIGURE 20
-------
-------
DETERMINING USER SERVICE
CHARGE RATES
METERED WATER
Current Wastewater Services
Billing Schedule
Monthly Rates
Total Gallons Treated
From... To..
Rate per
1,000 gallons
0
2,001
4,001
6,001
10,001
2,000
4,000
6,000
10,000
Over
$2.00
1.90
1.80
1.50
1.40
I-35
FIGURE 21
-------
-------
SPECIAL USER CHARGE REQUIREMENTS
For EPA-funded facilities, the utility must comply with its
EPA-approved user charge system to:
Charge each user (or user class) its proportionate share of
the operation, maintenance and equipment replacement
costs based on quantity and quality of discharged wastes.
Notify users of rates annually.
Distribute infiltration and inflow costs proportionately among
all users.
Impose surcharges for wastewater that required additional
treatment.
Establish a financial management system to account for
revenues and expenses. (For further EPA requirements,
see page 23.)
State and local governments may:
Specify an acceptable accounting system -- how a utility
records, classifies and reports information on finances and
operations of the system.
Require certain reserve funds or coverage ratios on debt.
1-36
FIGURE 22
-------
-------
*******************************************************************
III.C. BUILD FINANCIAL HEALTH
* Improve Budgeting
You can build better financial health through improved budgeting for the
utility.
The key to good budgeting is to have a thorough understanding of the
demands on the utility and the way the utility meets those demands.
Be involved in preparing and using the budget Then you will have a better
understanding of it.
Think of a budget as a financial road map.
We've already discussed the importance of comparing the projected budget
to the actual budget at the end of every month. But, how do you prepare a
budget?
Start preparing the budget for next fiscal year about 3 months before the end
of this fiscal year.
Use Overhead #23
For the expense budget: establish the required debt service costs and
reserves. The debt service costs are the annual principal and interest
payments on loans and bonds. The debt service reserve are funds set aside
to provide additional security for a debt obligation. The amount needed for
this purpose is generally specified in loan and bond agreements. The debt
service reserve is in addition to your loan repayment.
*******************************************************************
111-37
-------
-------
*******************************************************************
Next, establish the equipment replacement fund level Recall that we
defined equipment replacement fund earlier as a fund to be used for
replacing equipment necessary to maintain the capacity and performance for
which the treatment facility was designed and constructed.
Next, estimate the cost of operating the system. This includes salaries,
benefits, chemicals, utilities and administrative costs.
Use Overhead #24
For the revenue budget, try to estimate revenues as accurately as you can.
When in doubt, estimate revenues low and expenses high.
Let's take another look at the main revenue and expense components of
your utility budget.
Use Overhead #25
Long Range Budgeting
Don't just think short-term or year-to-year. You'll need to develop capital
planning stalls to build future improvements.
Capital projects are things like new plants or plant expansions, new line
extensions, sewer line rehabilitation and so forth.
Capital planning involves figuring out needed improvements; establishing
timetables; and developing a financing plan to fund the improvements.
*******************************************************************
111-38
-------
-------
WASTEWATER EXPENSE BUDGET
199
ADMINISTRATION
WAGES
BENEFITS
ELECTRICITY
CHEMICALS
FUEL AND UTILITIES
PARTS
EQUIPMENT REPLACEMENT FUND
$
. 000
$
$ ISO.
$ 3".
000
$
$
, OOP
PRINCIPAL AND INTEREST PAYMENTS $ f&;
OTHER
TOTAL OPERATING EXPENSES
$
060
000
FIGURE 23
-------
-------
WASTEWATER REVENUE BUDGET
199
USER SERVICE CHARGES
$ /. 100_ too
HOOK-UP/IMPACT FEES
$
TAXES/ASSESSMENTS
$ 10 QOO
INTEREST EARNINGS
$
OTHER
$
TOTAL REVENUE
$
/.
1-40
FIGURE 24
-------
-------
.are all monies
wastewater
operations* Get
these figures from
budgets
financial
statements,
, ' v '
\f
t iV i
"X
are the
costs of
operating,
maintaining,
replacing
equipment
and paying
debt service
fora;
wastewater
system.
Equipment
Replace-
ment
11 Ml
FIGURE 25
-------
-------
*******************************************************************
III.D.
ADDITIONAL FACTORS THAT AFFECT FINANCIAL
HEALTH
Organizational Structure
The utility usually operates as an authority or as a municipal department.
Authorities can be regional, municipal or independent. Regional authorities
serve more than one political jurisdiction; municipal authorities are owned
by the municipality; independent authorities are created by state legislation.
Each structure has advantages and disadvantages. For instance, regional
authorities can achieve greater economies of scale; with municipal
authorities, the utility is owned by the municipality, but it has operational
autonomy which provides insulation from politics. A disadvantage of
independent authorities may be their self-perpetuating nature and lack of
accountability. However, they are almost always created to serve a need no
other agent is able to serve.
When the utility is structured as a department within the local government, it
has support from other local government departments. But, it is subject to
political influences.
Any organizational structure can work if it is financially self-sufficient and
well managed.
An organizational structure that is politically independent may be better able
to control the rate setting process.
*******************************************************************
111-42
-------
-------
*
Staff Training
Studies of water and wastewater plants' performance cite operators and staff
with insufficient experience and training as a major factor in poor
performance of the facility.
Many plants are being operated by personnel who do not meet state
certification requirements. Frequently, these are poorly performing facilities.
It is important to include money for staff training in the utility budget. This
often helps acquire and retain quality people.
Better trained staff can more effectively utilize supplies and cut equipment
replacement costs by performing better maintenance.
Personnel Turnover
Staff who are supported by adequate training opportunities are generally
more satisfied.
Wastewater treatment is frequently considered a low prestige field.
Small communities often do not pay operators enough to retain qualified
personnel This costs the community more in the long run because poor
operations means more equipment breakdowns due to poor maintenance
knowledge.
111-43
-------
-------
*******************************************************************
* Operating Procedures and Policies
Written operating policies and procedures are an earmark of a well-managed
operation.
It is not enough to develop a sewer use ordinance or connection charge
policy and put it on the shelf. It must be followed and periodically updated.
One problem with having consultants develop all your written procedures, is
that the community may not buy-in orjulfy understand the significance of
procedures.
Communities must be intimately involved in the process and the final
product.
*
Customer Relations
As you will see in a later section, it is vital to have the customers on your
side.
The customers should understand the value of the service your facility
provides. This is necessary to gain community acceptance and support to
carry out the programs you need. Such as, a new plant expansion, sewer
extensions to a new area, a rate increase, etc.
Building good customer relations takes some effort, but it's worth it.
Public relations efforts involve public meetings, plant tours, citizen advisory
boards and media coverage.
*******************************************************************
111-44
-------
-------
IV. EVALUATING USER SERVICE CHARGE SYSTEMS FOR
WASTEWATER
A. EVALUATING REVENUES
B. EVALUATING EXPENSES
C. A STEP-BY-STEP EVALUATION PROCESS
D. USER SERVICE CHARGE WORKSHEETS
E. REPORT ON FINDINGS
Tell the topics that will be covered in this session.
IV-1
-------
-------
IV.A.
EVALUATING REVENUES
Let's review. Our main objective here is to make sure water and wastewater
utilities are financially self-sufficient.
For that to occur, revenues generated by the operation must at least equal
expenses.
We've just defined and discussed the revenue components of a utility
operation.
Use overhead # 26
Again, they are:
* User Service Charge - the largest component
* Hookup/Impact Fees
* Taxes and Assessments
* Interest Earnings
* Other
IV-2
-------
-------
IV.B. EVALUATING EXPENSES
Likewise, we've defined and discussed these expense components
Use overhead # 27
- / They are:
* Salaries and Benefits - the largest component
* Utilities
* Chemicals
* Equipment Replacement Costs
* Administrative
* Other Expenses
Operating expenses do not include capital expenditures and depreciation.
IV-3
-------
-------
IV.C. A STEP-BY-STEP EVALUATION PROCESS
1. Understand Why the Evaluation of the Community's User Service
Charge System is Important
2. Recognize the Components of the User Service Charge System
3. Prepare for Appointment with Financial Management Staff
4. Accomplishments of the Review
5. Clearly Understand the Problems
6. The Report
7. Follow-up on the Report
IV-4
-------
-------
*******************************************************************
IV.C.
A STEP-BY-STEP EVALUATION PROCESS
1. Understand Why the Evaluation of the Community's User
Service Charge System is Important
Now we will apply our knowledge of financial management and user
charges. We will evaluate the user charge components of a utility's financial
management system. This is the major revenue generating system for the
utility.
To do this, clearly defined goals you want the evaluation to accomplish.
Two major goals would be - Is enough money coming in to pay for
expenses? Do user rates need to be adjusted?
Primarily you want to check the financial health of the system. To do this,
you will need to use the ratios and checklists previously discussed as well as
other financial documents.
List ratios, financial health checks and documents you'll need to see.
Your purpose is to determine whether the operation is financially sound.
You must probe, gather information and become very familiar with the
operation to determine this. You will need to research the audit reports,
budgets and other financial statements of the utility, the debt service
schedules, the rate schedule, management policies and ordinances, talk to
the staff and visit the facilities.
You will need to size up what's right and what needs improving in this
operation. Try to be objective. Look at the operation like an outsider
would.
It's wiser to do a self-evaluation and make your own adjustments rather
than be in a position of having to react to a state or federal evaluation.
*************************#****************##########*#***#*********
IV-5
-------
-------
2. Recognize the Components of the User Service Charge System
Before beginning a user service charge system self-evaluation, you wUl have
to learn the language of user charges. The previous discussion defined the
major terms.
Use Overhead # 28
Think of the components as comprising a puzzle. Revenue pieces of the
puzzle balance the expense pieces in such a way that the system operates in
a positive cash flow. The object of water and wastewater enterprise fund
operations is neither to incur profit or loss. These operations provide a
public service.
Besides learning the significance of terms like interest earnings and
equipment replacement costs, you should understand how personnel
turnover rate, surcharges, pretreatment ordinances and other factors
influence the operations'financial management. Well discuss these as we
work through a case study in the next session.
As part of their job duties, federal or state officials may do compliance
evaluations, particularly if federal or state grants or loans were used to build
facilities. We recommend you follow these steps in a self-evaluation as well
3. Prepare for Appointment with Financial Management Staff
State and federal staff will set an appointment with the staff most familiar
with the financial operation. It could be the water or wastewater utility
manager or the community's finance director or comptroller. You will want
to do the same for a self-evaluation.
IV-6
-------
-------
*******************************************************************
Use Overhead # 29
Make a list of records to review during the appointment. For instance, you
will need the most recent audit report, the current budget, current year-to-
date revenues, current year-to-date expenses, the water/wastewater rate
schedule, the sewer use ordinance, debt service schedules and contracts with
other utilities. Allow sufficient time to prepare for the appointment.
Ask your staff to have these records available. Allow them sufficient time to
gather information. You will want to tour plant faculties, too.
Set aside 2-4 hours for the entire appointment.
The state or federal staff will probably follow-up with a letter stating the
purpose of the upcoming visit and listing the documents they will need.
They will send copies of their worksheets. We recommend you use the same
worksheets for your self-evaluation.
Use Overhead # 30
Remind staff of the appointment one day before.
4. Decide on Accomplishments of the Review
Whether you or the state conducts the evaluation, the purpose is to
determine whether the operation is financially sound. In order to do that,
you'll have to probe and gather specific clues to reach a conclusion.
IV-7
-------
-------
Know ahead of time what information to gather.
The clues will be in writing - in financial statements, in management policies
and in ordinances. Clues will also be visible in other ways - the cleanliness
and state of repair of the treatment facility; the attitude and professionalism
(or lack of it) of staff.
A checklist is invaluable! Well use one in the case study coming next.
5. Clearly Understand The Problems
During the evaluation, don't be shy about asking probing questions; be sure
you have a clear understanding of financial records and other documents.
Be direct in pointing out the problems you see.
Tell the staff what will be in your evaluation report. People do not like
UNPLEASANT surprises.
6. The Report
Use the checklists and worksheets you developed during the evaluation;
information gained during conversations with staff; and what you observed
at the treatment facuity to develop a comprehensive report.
IV-8
-------
-------
*******************************************************************
7. Follow-up on the Report
Follow-up on the requirements and recommendations in a self-evaluation
report and ones received from the state. Don't drop the ball Keep on top
of the problem.
Communities, like individuals, resist change. If your community doesn't
make needed changes, enforcement action may be necessary to force better
financial management.
IV-9
-------
-------
Revenues...
,.»are all monies
received for
wastewater
operations. Get
these figures from
management,
budgets and
financial
statements.
IV-10
FIGURE 26
-------
-------
.*.are the
costs of
operating,
maintaining,
replacing
equipment
and paying
debt service
fora
wastewaier
system.
Equipment
Replace-
ment
IV-11
FIGURE 27
-------
-------
The Big Picture
Revenues
IV-12
FIGURE 28
-------
-------
LIST THE DOCUMENTS
YOU'LL NEED:
Most recent audit
Current budget
Current year-to-date revenues and expenses
Rate schedule
Sewer use ordinance
Contracts with other utilities
Debt service schedules
IV-13
FIGURE 29
-------
-------
SAMPLE LETTER
Initial letter to schedule an appointment for a user charge evaluation
(Date)
Mr. James Sullivan
Finance Director
City of Anytown
100 S. Main St.
Anytown, USA
Dear Mr. Sullivan:
This letter confirms our appointment for (time), (month) (date), (year),
and lets you know what information I will need to obtain during our
meeting.
As we discussed on the telephone today, I will be evaluating Anytown's
wastewater user service charge system. I need to determine if it is
generating sufficient revenues to cover operation, maintenance,
equipment replacement and debt service costs. The evaluation will
consist of (1) a meeting with you and your staff to discuss the utility's
financial operations and (2) a brief tour of the wastewater facilities.
These activities should take about four hours to complete.
FIGURE 30
IV-14
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I have enclosed a User Service Charge Worksheet I will use at the
meeting. Please complete as much of this worksheet as you can
before our meeting and be prepared to respond to the questions. I will
also need to review the following information on your wastewater
operation:
the most recent audited financial statement,
the current budget,
current year-to-date revenues,
current year-to-date expenses,
the wastewater rate schedule and ordinance (or resolution), and
the sewer use and pretreatment ordinances.
Please call me at (number) with any questions you may have prior to
our meeting.
Sincerely,
Anne Taylor
Utility Board Manager
enclosure
FIGURE 30A
IV-15
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IV.D.
USER SERVICE CHARGE WORKSHEETS
* Management/Operating Policies/Compliance
Worksheet 1
* Financial Information
Worksheets 2-4
* User Service Charge System
Worksheets 5-6
* Wastewater Facility Tour
Worksheet 7
IV-16
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***************************************##**#***#*#*****************
IV.D. USER SERVICE CHARGE WORKSHEETS
* Management/Operating Policies/Compliance
Worksheet 1
Use Overhead # 31
Enforcement Activity
City officials need to be familiar with the compliance status of the utility
operation. Talk to managers and superintendents and check correspondence
files to determine if the utility has any outstanding permit violations or
compliance problems. If violations have occurred within the last 12 months,
find out what they were. Are they recurring? How were they solved? Find
out when the last regulatory inspection was performed and the outcome.
Talk with your staff. Discuss any violations of the NPDES permit or any
drinking water violations within the last 12 months. Find out the nature of
the violations. Were they recurring? Have they been solved? How serious
were the violations? Have fines been levied?
Did insufficient operating revenues contribute to the violations? Beware!
Permit violations are an earmark of poor management.
*******************************************************************
IV-17
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Hi******************************************************************
Accounting Reports
Find out whether the utility receives monthly accounting reports for
wastewater revenues and expenses. Look at them. (Place an example of a
monthly accounting report in the back of the room for participants to look
at during breaks.)
Written Policies and Procedures
Find out whether the utility has a sewer use or pretreatment ordinance. Are
there written policies and procedures for collecting delinquent bills, service
cut-off, meter testing, line extensions and so forth. Again, ask to see them.
Find out how long since they were updated.
Organizational Structure
Look at the system's organizational structure. Is there a direct line of
authority and responsibility?
Think of the problem situations like these present: (1) A superintendent is
responsible for keeping enough chemicals on hand to operate the treatment
facility, but he does not have the authority to originate purchase orders for
those chemicals; (2) A manager is responsible for operating the treatment
facility, but the manager does not have authority to conduct performance
evaluations or decide on disciplinary actions and merit increases for the
employees.
Management Climate
What kind of work environment does management foster? Are workers
generally satisfied? Does management delegate? What is the turnover rate?
Do people like working here? Why? Why not? Be objective!
*******************************************************************
IV-18
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* Financial Information
Worksheets 2-4
First, look for separate budgets for revenues and expenses. The budget
should show separate line items. Of course the water and wastewater
budgets should be separate from other governmental utility budgets like
garbage disposal
Use overhead # 32
What are the total annual budgeted REVENUES for the wastewater
operation?
What are the total annual budgeted EXPENSES for the wastewater
operation?
Use overhead # 33
Next, what are the actual revenues to date?
How do they compare with budgeted revenues to date? You will need the
latest revenues report for this comparison.
What are actual expenses to date? How do they compare with budgeted
expenses? You will need the latest expense report for this comparison.
Simply subtract total operating expenses from total revenues to determine if
the utility operation has a cash flow problem.
Does the utility have a plan (or reserves) to cover a revenue deficit?
Use overhead # 34
The utility should review user service charges annually and adjust them to
reflect expenses. Do they?
An equipment replacement fund is very important Does your utility have a
line item in your budget for this expense?
******************************#*#******#*****##********************
IV-19
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What percentage of OM&R funds are set aside for equipment replacement?
ERF (%) = ERF Costs/(Total Operating Expenses) - (P&I Payments) X
100%
Finally, does a certified public accounting firm review the utility accounts?
* User Service Charge System
Worksheets 5-6
Take a close look at the rate schedule, sewer use ordinance and policy
manual.
Use Overhead # 35
Does the rate schedule specify a minimum charge? The minimum charge
should cover billing costs only (cost of preparing and mailing the bill).
Does the rate schedule specify a uniform rate based on volume of usage?
Overhead # 36
Are the costs of collection and treatment shared proportionally by each user
group?
Are users notified annually of the rates? How?
Find out how the costs for treating I/I are covered. Are they distributed
proportionally to each user group?
Compute the treatment rate cost
How does the utility determine usage? Water meters? Other?
IV-20
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*
Overhead # 37
Does the Sewer Use Ordinance and rate schedule provide for surcharges?
How does the utility determine surcharges? Based on what measurement?
What does a typical customer in this community pay per month?
Find whether the bills are separated by service. Is the water bitt separated
from the wastewater? the garbage pick-up?
Are there contractual agreements between the treating utility and other
political jurisdictions served by the utility? For example: do users outside
the utility's political boundary pay the same rate as inside users? Do those
outside jurisdictions have proportional rate schedules?
The above questions are being asked of our case study community. (In
response to the questions, discuss possible answers. Encourage participation
from the audience and fill in the worksheet pages as the questions are
discussed.)
Wastewater Facility Tour
Worksheet 7
Use Overhead # 38 to show Worksheet 7
Tour the treatment f acuity, starting at the head of the plant.
As you walk through, notice the state of repair, maintenance, and
cleanliness. Is the concrete cracking? Do handrails need painting? Are
pumps leaking? Is the chemical feed area neat? Is the fan working in the
chlorine feed room? How are the treatment processes performing? Are the
operators knowledgeable of the treatment processes?
IV-21
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Is the laboratory clean and organized?
Is the facility adequately staffed?
Are the operators certified? Do they receive training periodically?
Summary
At the end of the evaluation, (whether this is a self-evaluation or a
regulatory evaluation), summarize.
(a) List the findings
(b) Outline an action plan for solving problems
(c) Follow-up
(d) Communicate
IV-22
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Worksheet-1
Utility /Community Name:
Name of Local Contact:
Telephone Number: ( )_
Date
User Service Charge Worksheet
Management/Operating Policies/Compliance
1. Describe any NPDES permit vtolation(s) which occurred within the
last 12 months and the reason(s) for the violation(s).
2. Did insufficient operating revenues contribute to the NPDES
violation(s)?
3. Does the utility receive monthly accounting reports for wastewater
revenues and expenses?
4. Does the utility have a pretreatment ordinance?
5. Does the organizational structure of the wastewater utility present
any operational problems?
6. What is the annual personnel turnover rate?
7. Are the procedures for collecting delinquent wastewater bills
adequate?
IV-23
FIGURE 31
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iVprksheet-2
Financial Information
1. Does the wastewater budget show revenues and expenses by line
item? (Note: The wastewater budget should be separate from, other
governmental utility budgets like water, garbage disposal, etc.)
2. What are the total annual budgeted revenues for the wastewater
operation?
TOTAL BUDGETED REVENUES
User service charges
Hookup/impact fees
Taxes/assessments
Interest earnings
Other
Total Budgeted Revenues
$
3. What are the total annual budgeted expenses for the wastewater
operation?
TOTAL BUDGETED OPERATING EXPENSES
Salaries and benefits
Utilities
Equipment replacement fund
Chemicals
Supplies and parts
Contract services
Administration
Principal and interest payments
Other
Total Budgeted Operating Expenses
IV-24
FIGURE 32
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Worksheet-3
4. What are actual revenues to date? How do they compare with
budgeted revenues to date?
BUDGETED REVENUES VS. ACTUAL
Total Revenues
$ Budgeted
$ Actual
5. What are actual expenses to date? How do they compare with
budgeted expenses to date?
BUDGETED EXPENSES VS. ACTUAL
Total Operating Expenses
$ Budgeted
, :
$ Actual
6. Does the wastewater utility show a cash flow problem?
ACTUAL REVENUES & EXPENSES
Total Revenues
Total Operating Expenses (-)
Cash Available
$
7. How does the utility cover a revenue deficit?
IV-25
FIGURE 33
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Wbrksheet-4
8. Does the utility review user service charges and adjust them
annually to reflect budgeted or actual expenses?
9. Does the utility have an equipment replacement
fund (ERF)?
10. What percentage of operation, maintenance and equipment
replacement funds are set aside for equipment replacement?
Equipment
Replacement ERF Costs
Fund = ~~~~ ~
(ERF) (%)
(Total Operating Expenses) - (P&I Payments)
X 100%
ERF (%) =
11. Does a certified public accounting firm review
the utility accounts?
IV-26
FIGURE 34
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Worksheet-5
User Service Charge System
1. Does the utility distribute the wastewater collection and treatment
costs proportionally to each user, user class or political jurisdiction?
2. Does the utility use a sewer use ordinance that incorporates a
proportionate wastewater rate schedule? (Attach a copy.)
3. Does the utility distribute the I/I costs proportionally to each user,
user class or political jurisdiction?
Uiil
4. Does the rate schedule specify a uniform rate for wastewater
treatment based on the volume of usage?
Rate =
/1000 gal
5. Does the rate schedule provide for a minimum charge?
6. What is the minimum charge?
7. Are customers notified annually of the wastewater rates?
8. What is the actual total operation, maintenance, equipment
replacement and debt service costs per 1000 gallons of wastewater
treated by the utility?
Treatment Rate =
OM&R + Debt Service Costs
Total Flow
/1000 gal
IV-27
FIGURE 35
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HTorksheet-6
9. How does the utility determine wastewater user fees? (Check one)
Water meter readings?
Equivalent dwelling unit?
Other? (Specify)
10. Does the rate schedule specify surcharges for high-strength wastes?
11. How does the utility determine surcharges?
12. What is the average annual wastewater bill for a typical residential
user?
$
13. Are users billed separately for wastewater services?
14. Do all political jurisdictions served by the utility have a sewer use
ordinance which incorporates a proportional wastewater rate schedule?
15. Do users outside the utility's political boundary pay the same rate as
inside users?
16. Do all serviced political jurisdictions meet the same user service
charge system conditions as the wastewater treating utility? (If No,
describe.)
IV-28
FIGURE 36
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ORDINANCE NO.
SEWER USE ORDINANCE
Section 1. General Provisions
1.1 Purpose and Policy
This Ordinance sets forth uniform requirements for the disposal of
wastewater in the service area of the Cjty of Anytown, USA
wastewater treatment system. The objectives of this Ordinance
are:
(a) To protect the public health;
(b) To provide problem free wastewater collection and treatment
service;
(c) To prevent the introduction of pollutants into the municipal
wastewater treatment system, which will interfere with the
system operation, will cause the City's discharge to violate
its National Pollutant Discharge Elimination System
*NPDES) permit or other applicable state requirements will
cause physical damage to the wastewater treatment system
facilities;
(d) To provide for full and equitable distribution of the cost of
the wastewater treatment system;
(e) To enable the City to comply with the provisions of the
Federal Clean Water Act, the General Pretreatrnent
Regulations (40 CFR Part 403), and other applicable federal
and state laws and regulations;
FIGURE 37
IV-29
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Worksheet-7
gpd
WiEtstewater lability Tour
1. What is the current average flow treated at the facility (gallons per
2. Does the facility appear to operate normally?
3. Is any equipment out of service? (Specify)
4. Does maintenance appear satisfactory?
5. Is good housekeeping evident?
6. Is the laboratory clean and well-organized? ;
7. Are adequate chemicals, supplies and parts on hand?
8. Is staffing adequate for the operation?
9. Are operators certified?
10. Does the staff receive formal training?
11. Do operational and compliance records appear adequate?
12. Note other comments or problems:
IV-30
FIGURE 38
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*************************#**#*******#######***#********************
IV.E. DRAFT A REPORT OF FINDINGS
Follow-up the evaluation by writing a report:
* Cite Problems
*
Recommend Solutions
* Establish Response Deadline
* Follow-up
*******************************************************************
IV-31
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*******************************************************************
IV.E.
DRAFT A REPORT OF FINDINGS
Cite Problems
Use Overhead # 39 (worksheet #1 filled in)
Review the problems you noted during the evaluation:
Worksheet 1
The wastewater system has violated the NPDES permit's BOD limit for two
consecutive months. You found during the plant tow that the cause of the
violation appears to be an out-of-service sludge return pump. The budget
did not specify funds to repair or replace the pump. A back-up pump has
never been provided.
Let's assume that the utility receives monthly accounting reports for its
wastewater operation.
The utility has a pretreatment ordinance, but the manager was not very
familiar with it.
Turnover rate is not a problem. They now employ a superintendent and two
operators. The utility would have a serious problem if one of the existing
staff left or became UL
The organizational structure presents a problem. The superintendent can't
order routine supplies directly. He must wait for council approval The
council only meets one time each month.
Collecting delinquent bills is a big problem. Water service is provided by
another utility. The community depends on water usage figures supplied by
the water utility to use in billing. The community has no legal means short
of court action to collect delinquent bills. (The usual leverage is to deny
water service, but in this case, the water utility will not co-operate.)
IV-32
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************************#****#**##*#*#***#***##**#*#**#************
Worksheets 2-4
Use overhead # 40 (overhead # 32 filled in)
Adding up all the revenues - user service charges, hookup/impact fees, taxes,
assessments, interest earnings and other - the utility's total budgeted revenues
are $1,790,000.
Use overhead # 41 (overhead # 33 filled in)
To date, the total revenue, at the first quarter point in the fiscal year are
$424,000 or about 24%. Actual revenues are slightly below budgeted
revenues for this point in the year.
This indicates a potential problem. There could be a reason why revenues
are not up to our original budget projections. Ask questions. Were meters
read earlier than usual? Are some big users late in getting payments in?
Do the same comparison with expenses.
Use overhead # 40 again (overhead # 32 filled in)
Add up the total budgeted operating expenses - salaries and benefits, utilities,
equipment replacement fund, chemicals, supplies and parts, contract
services, administration, principal and interest payments, and other. The
total budgeted operating expenses are $1,475,000.
Use overhead # 41 again.
The actual operating expenses are $375,500 at the first quarter point of the
fiscal year. Budgeted expenses at this point were $368,750.
We can see that the utility is over about $6,800 on expenses and under by
about $23,500 on revenues. The utility is about $30,000 below where it
planned to be at this point in the year.
Subtract total operating expenses from total revenues. We do not have a
cash flow problem.
The utility has a reserve fund to cover a revenue deficit. Remember the
reserve ratio we discussed earlier?
****************************************#####**#***********#*******
1V-33
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************************************####**#*######**#**************
Don't count on this reserve keeping the utility out of trouble too long.
Sooner, rather than later, a rate increase will be needed.
Overhead #42 (overhead # 33 filled in)
Yes. We found that the utility reviews its user service charges annually and
makes necessary adjustments.
From the budgeted expenses (refer to worksheet # 2); we found that
$200,000 was budgeted for equipment replacement.
We can then calculate the ERF% as ERF costs /(total operating expenses -
P+I payments) x 100%. $200,000 / ($1,475,000 - $450,000) x 100% =
19.5% (this is high).
We found that a certified public accounting firm reviews the utility's
accounts annually.
Worksheets 5-6
Overhead #43
During conversations and examination of financial records, ordinances and
procedures, we found that:
Yes, costs are distributed proportionally to each user. No outside political
jurisdictions are served.
Yes, the sewer use ordinance incorporates a proportionate rate schedule.
I/I costs are not billed to specific users, but are spread proportionally among
all user.
The minimum charge is $2.50; the rate/1000 gallons is $3.50.
Customers are notified annually of the rate by a special notice in their bills
each June.
We have enough information to calculate the treatment rate.
****************************##******#***********#******************
IV-34
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**********************************#^^
Treatment rate = OM&R + Debt Service Costs divided by the total flow
received at the wastewater plant.
From previous information OM&R costs are $1,025,000. Debt Service Costs
are $450,000/yr. We found on our plant tour that the total flow averages
1.9 mgd or 700 million gaUons/yr.
Therefore the treatment rate is ($1,025,000 + 450,000)/700,000 =
$2.11/1000 gallons. This indicates that the current rate of $3.50/1,000
gallons is probably high. During the remainder of this course, we'll examine
the reason.
Overhead #44
We found that the utility determines the wastewater user fees by water meter
readings.
The utility's sewer use ordinance provides for surcharges for high strength
wastes, but the community's rate schedule does not have a surcharge rate.
This is an item that the utility needs to correct.
Now, an average 7,000 gallon/mo, user pays $324/yr. (($2.50 +
($3.50/1000 gaL x 7,000 gal)) x 12 mo. = $324.
The utility has never billed a surcharge fee. A pretreatment enforcement
program has never been established by the utility.
Yes, all users are billed separately for wastewater services.
There are no other political jurisdictions served by this utility.
Worksheet 7
Overhead # 45
At the plant, you found: the grounds were poorfy maintained; grass needed
cutting; discarded equipment was strewn about; and spillage from the sludge
hauling operation created a nuisance.
Inadequate supplies of chemicals and lab supplies were on hand; the sludge
return pump was out-of-service.
While the facility was adequately staffed, no back-up staff was available for
emergencies, (to cover for vacations and sick leave, etc.).
*******************************************************************
IV-35
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*
Recommend Solutions
Establish Response Deadline
Use Overhead # 46 to illustrate a draft report.
If you receive a regulatory evaluation the report will- (1) state the problem;
(2) cite any applicable federal, state or local requirements; (3) propose
recommendations for resolving the problem; and (4) ask the community to
develop a corrective action plan.
Use this as a guide for a self-evaluation.
* Follow-up
Follow-up! Keep on top of this situation! Offer assistance.
****
IV-36
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Worksheet-1
Utility/Community Name:
Name of Local Contact:
Telephone Number: (
Date
User Service Charge Worksheet
Management/Operating Policies/Compliance
1. Describe any NPDES permit violation(s) which occurred within the
last 12 months and the reason(s) for the violation(s).
2. Did insufficient operating revenues contribute to the NPDES
violation(s)?
3. Does the utility receive monthly accounting reports for wastewater
revenues and expenses?
4. Does the utility have a pretreatment ordinance?
5. Does the organizational structure of the wastewater utility present
any operational problems?
6. What is the annual personnel turnover rate?
7. Are the procedures for collecting delinquent wastewater bills
adequate?
IV-37
FIGURE 39
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v8- \v. , %
A-
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Worksheet-3
4. What are actual revenues to date? How do they compare with
budgeted revenues to date?
BUDGETED REVENUES VS. ACTUAL
Total Revenues
_. »../.../....<.. . .
$ Budgeted
IfViQ.ooo x .*&
4*4*1 3*4*
$ Actual
Ifa&j, &£&
5. What are actual expenses to date? How do they compare with
budgeted expenses to date?
BUDGETED EXPENSES VS. ACTUAL
Total Qpemifng Expenses
$ Budgeted
irflS'.tX)* X .3$
mg.f&
S Actual
3f&,&& \
6. Does the wastewater utility show a cash flow problem?
ACTUAL REVENUES & EXPENSES
Total Revenues
Total Operating Expenses (-)
Cash Available
3 I
7. How does the utility cover a revenue deficit?
IV-39
FIGURE
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iforksheet-4
8. Does the utility review user service charges and adjust them
annually to reflect budgeted or actual expenses?
9. Does the utility have an equipment replacement
fund (ERF)?
10. What percentage of operation, maintenance and equipment
replacement funds are set aside for equipment replacement?
Equipment
Replacement ERF Costs
Fund
(ERF) (%)
(Total Operating Expenses) - (P&I Payments)
X 100%
ERF (%) =
11. Does a certified public accounting firm review
the utility accounts?
IV-40
FIGURE 42
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^*>\
.
s. jw vSvb -u ^
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Vorksheet-6
9. How does the utility determine wastewater user fees? (Check one)
Water meter readings?
Equivalent dwelling unit?
Other? (Specify)
10. Does the rate schedule specify surcharges for high-strength wastes?
11. How does the utility determine surcharges?
12. What is the average annual wastewater bill for a typical residential
user?
$
13. Are users billed separately for wastewater services?
14. Do all political jurisdictions served by the utility have a sewer use
ordinance which incorporates a proportional wastewater rate schedule?
Uiifl
15. Do users outside the utility's political boundary pay the same rate as
inside users?
16. Do all serviced political jurisdictions meet the same user service
charge system conditions as the wastewater treating utility? (If No,
describe.)
IV-42
FIGURED
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Worksheet-7
Wastewater Facility Tour
1. What is the current average flow treated at the facility (gallons per
UU.JS .
^ *?d#f &ffff
gpd
2. Does the facility appear to operate normally?
3. Is any equipment out of service? (Specify)
4. Does maintenance appear satisfactory?
5. Is good housekeeping evident?
6. Is the laboratory clean and well-organized?
7. Are adequate chemicals, supplies and parts on hand?
8. Is staffing adequate for the operation?
9. Are operators certified?
10. Does the staff receive formal training?
11. Do operational and compliance records appear adequate?
12. Note other comments or problems:
IV-43
FIGURE 45
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Follow-up letter after a user charge evaluation
(Date)
Mr. James Sullivan
Finance Director
City of Anytown
100 S. Main St.
Anytown, USA
Dear Mr, Sullivan:
It was a pleasure to meet with you and your staff on (date) to discuss
your wastewater utility's financial operations. As a result of our
discussions and the tour of the wastewater treatment facility, I noted
the following concerns.
1. The wastewater and water accounting systems are not separate.
The water and wastewater operations need to be financially
independent and self-sufficient. The Anytown wastewater
treatment facility was partially financed by a grant from the U.S.
Environmental Protection Agency. This means Anytown must
establish a financial management system which separately
accounts for wastewater revenues and expenditures. The system
must also identify the basis for determining operation,
maintenance, equipment replacement, debt service costs and
user service charges.
2. The wastewater utility does not collect surcharges from users
discharging high-strength waste, although the city's wastewater
system's sewer use ordinance requires a surcharge on those
users whose wastes increase operation and maintenance costs.
This ordinance must be enforced as a condition of your EPA
grant.
FIGURE 46
IV-44
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The actual wastewater expenses to date at the half-way point in
this fiscal year are $125,000. The total budgeted amount for the
fiscal year is $200,000. This results in a projected deficit of
$50,000 for the year. User service charges must be increased to
provide the needed operating revenue since collection of
surcharge revenues will not be sufficient to eliminate the deficit.
The wastewater unit volume rate is insufficient to cover the
operational costs of the utility. A rough calculation showed that
the OM&R costs are $1.20/ 1,000 gallons and debt service costs
are $0.60 for a total rate of $1.80/ 1,000 gallons.
The accounting system does not budget for an equipment
replacement fund. You need an equipment replacement fund to
pay for equipment and accessories that wear out during the life of
the treatment facility. The fund is not to be used for expanding
the capacity or enhancing the treatment facility's performance. It
must be used to keep the facility operating at the level for which it
was designed and constructed. This is an EPA requirement.
At the treatment facility, the secondary clarifier sludge return
pump was inoperable and a backup pump was not available. The
sludge return pump is essential to proper operation. As we
discussed during the visit, you should install a temporary pump
as soon as possible and repair or replace the inoperable sludge
pump. You need a backup pump to prevent this circumstance
from reoccurring.
The treatment plant grounds were poorly maintained. The grass
needed mowing; discarded equipment was lying around; spillage
from the sludge hauling operation created a nuisance. The
appearance of a wastewater treatment facility is usually a good
indicator of the level of professionalism, motivation and training of
the staff. It also may be an indicator of inadequate
funding/staffing of the treatment facility. As a result of our
discussions and tour of the facilities, it appears that additional
staff is needed to achieve proper operation and maintenance.
FIGURE 46A
IV-45
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8. At the treatment facility, there was only a two-day supply of
chlorine and a limited supply of laboratory reagents and
chemicals on hand. Good management practice requires an
adequate supply of essential chemicals and reagents on hand to
operate and maintain the facility properly. From our discussion, it
appears the Anytown utility should revise its purchasing
procedure to allow the superintendent to order routine supplies
directly without waiting for governing body approval.
9. This system had exceeded its monthly average BOD NPDES
permit limit for two consecutive months. The major cause of this
violation appears to be inadequate sludge return. The pump
outage discussed above should be rectified immediately.
Many of the above concerns are consistent with the conclusion that
Anytown's wastewater treatment facility needs more financial resources
for proper operation and maintenance. I have enclosed a copy of
EPA's publication Building Support for Increasing User Fees that tells
how to increase the facility's revenue base.
Please develop a corrective action plan with compliance dates to
address the above findings, and submit the plan to this office no later
than (date).
Our office will be glad to work with the City of Anytown to protect its
water quality and improve its wastewater financial operations. If you
have questions about this report, please feel free to call me.
Sincerely,
Anne Taylor
Utility Board Manager
enclosure
FIGURE 46B
IV-46
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V.
DETERMINING USER SERVICE CHARGE RATES
A. GETTING STARTED
B. UNDERSTAND THE THEORY
C. CALCULATE USER CHARGES
Tell the topics that will be covered in this session
HI***************************************************************
V-1
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V.A. GETTING STARTED
Before determining what your utility's user service charge rates should be,
you'll have to gather some information. Most of this information has
already been discussed.
Financial Statement
From the latest fiscal year financial statement, obtain all wastewater
collection and treatment expenses.
Use Overhead # 47
This information was presented earlier. Recall the salaries and fringe
benefits were $450,000; utilities were $175,000; equipment replacement fund
was $200,000, chemicals, supplies and parts were $50,000; contract services
was $0; administrative costs were $125,000; principal and interest payments
were $450,000; other costs were $25,000. The total expenses were
$1,475,000. Remember to use actual (not budgeted) expenses when
checking current rates and budgeted expenses when setting new rates.
You will need all wastewater revenues other than user charges for the latest
fiscal year.
Use overhead # 48
Revenues (other than user charges) included connection fees - $15,000;
special assessments - $10,000; interest on investments - $50,000; other
(impact fees, etc.) - $15,000; minimum service fees - $20,000. The total
non-user charge revenues were $110,000.
V-2
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He****************************************************************
Current User Service Charge Rate Schedule
Next, gather information on the current rate schedule used to bill customers.
Usually wastewater usage is based on metered water usage.
Determine the breakdown by class of user - residential, commercial or
industrial.
If the utility does not meter water sales, you will need information on types
of customers such as number of single famUy residences, apartments,
commercial users, restaurants, industrial users, etc.
Overhead # 49
This is an example list of un-metered users.
Total Wastewater Collected and Treated
Next, you will need to gather information on the total annual flow
(expressed in gallons) through the treatment plant for the same 12 month
period covered by the financial statement.
This information can be obtained from wastewater plant meter readings.
Total Annual Influent BOD and SS
Information on annual pounds of biochemical oxygen demand (BOD) and
suspended solids (SS) treated by the plant over the same 12 moiUh period
can be obtained from treatment plant records.
Use overhead # 50
V-3
-------
-------
WASTEWATER COLLECTION
AND TREATMENT EXPENSES
FY 1990
Salaries and Fringe Benefits
Utilities
Equipment Replacement Fund
Chemicals, Supplies and Parts
Contract Services
Administrative Costs & Office Supplies
Principal and Interest Payments
Other Costs
TOTAL EXPENSES:
$450,000
175,000
200,000
50,000
0
125,000
450,000
25,000
$1,475,000
V-4
FIGURE 47
-------
-------
DETERMINING
USER SERVICE CHARGE RATES
OTHER WASTEWATER REVENUES
Connection Fees
Special Assessments
Transfers from Other Funds
Interest on Investments
Other Revenues
Minimum Service Fee
$15,000
10,000
0
50,000
15,000
20,000
TOTAL, OTHER REVENUES: $110,000
V-5
FIGURE 48
-------
-------
DETERMINING USER SERVICE
CHARGE RATES
NUMBER OF USERS BY TYPE -
UNMETERED WATER
TYPE OF CUSTOMER
NUMBER OF
CUSTOMERS
Single-Family Residences 8,000
Apartments (1 -2 bedroom) 1,500
Apartments (3 or more bedrooms) 1,000
Commercial/Institutional 900
Restaurants and Taverns 100
Industrial 100
V-6
FIGURE 49
-------
-------
FROM STP RECORDS . ..
QTAL ANNUAL FLOW = 700,000,000 GALLONS
ITOTAL ANNUAL BOD = 2,200,000 POUNDS
TOTAL ANNUAL SS = 2,200,000 POUNDS
V-7
FIGURE 50
-------
-------
*********************************#*******###**#*#*#*******
V.B.
UNDERSTAND THE THEORY
The basic premise here is to operate the wastewater utility as a non-profit
business. In other words, the wastewater utility provides a service to
residents. It should not make (MUCH) money and should never, never lose
money!
For this to happen, revenues and expenses must balance each other.
By the budgeting process, we determined the expected annual expenses.
We also determined the expected annual revenues from all sources other
than user charges.
The big variable is USER CHARGES.
V-8
-------
-------
v.c.
CALCULATE USER CHARGES
EPA has developed a computer program which uses the information
outlined above to help calculate user service charge rates. The computer
program is easy to use. It can be used by those who are not proficient in
computer operations, and it comes with a step-by-step instruction manual
The computer program requires an IBM-PC or PS/2 compatible computer.
(Hold up booklet on calculating user charges).
A major advantage of using the computer model is that assumptions can be
easily changed.
In this session, we will follow the same step-by step process the computer
program uses, but we will determine rates manually.
We witt use the instruction booklet and worksheets provided with the
computer program.
Gather the information mentioned above: financial statements, the current
rate schedule, total wastewater treated, influent biochemical oxygen demand
and suspended solids and usage by customer classification.
Now we are ready to go through an example.
V-9
-------
-------
*******************************************************************
Given information:
Overhead # 51
(1) Current rate structure:
Minimum bill = $2.50
Total Gal Treated
From
0
2,001
5,001
10,001
25,001
100,001
.^T:V.
2,000
5,000
10,000
25,000
100,000
over
Rate per 1000 gallon*
$3.50
3.50
3.50
3.50
3.50
3.50
Overhead # 52
(2) Expenses are as previously covered.
Administration
Wages and Fringe Benefits
Electricity, fuel and utilities
Chemicals and parts
Equipment replacement fund
Principal and interest payments
Other
Total expenses are $1,475,000
Overhead # 53
= $125,000
= $450,000
= $175,000
= $ 50,000
= $200,000
= $450,000
= $ 25,000
V-10
-------
-------
**********************#******###*******#***************************
(3) Revenues other than user charges are:
Connection and impact fees = $25,000
Taxes/assessments = $10,000
Interest = $50,000
Other = $ 5fQOO
Minimum service fee = $20,000
Total revenue (other than user charges) = $110,000
(4) Total annual wastewater flow through the treatment plant is:
700,000,000 gallons.
Overhead # 54
We will use metered flow in this example. The computer program can be
used for systems that do not use meters.
annual residential metered water flow = 250,000,000 gallons
annual commercial metered water flow = 100,000,000 gallons
annual industrial metered water flow
annual total metered water flow
annual total wastewater plant flow
= 150,000,000 gallons
= 500,000,000 gallons
= 700,000,000 gallons
This wastewater system obviously has an infiltration/inflow problem.
At this point, let's see how the information applies to the worksheets
designed for use with the computer program.
Overhead # 55
In our example, our system has metered flow.
(5) Normal and actual BOD and SS loadings
Overhead #56
Normal BOD and SS loadings are 0.229 lbs/100 gallons. For 500,000,000
flow, this is 0.229 lbs/100 gallons x 500,000,000 = 1,147,000 Ws. BOD and
SS annually.
Actual measured BOD is 2,200,000 lbs./year.
Actual measured SS is 2,200,000 Jbs./year.
Overhead # 57
V-11
-------
-------
*************************#*****#*#*#****#####********#***#*********
Excess BOD and SS = 2,200,000
-1,147,000
1,053,000 Ibs.
Percentage excess BOD and SS = 1,053,000/1,147,000 X100% = 91.8% In
other words, the treatment plant receives almost two times the BOD and SS
loadings normally generated by residential users.
Overhead #58
This is also calculated by using lines 12-19 of the worksheet.
Step 3
Rate Calculations
Overhead # 59
Continue with lines 26-30 of the worksheet. We stated previously: total
expenses are $1,475,000; total other revenues are $110,000; net expenses are
$1,475,000 - $110,000 = $1,365,000.
Line 29 is thousands of gallons ofwastewater = 700,000,000/1,000 =
700,000. Lines 15 and 19 were both 91.8%.
Overhead # 60
Fill in lines 31 and 32 of the worksheet. Calculate the portion of treatment
costs attributable to normal strength wastewater:
100 / (100 + 91.8) = 52.1%
The portion attributable to excess BOD (or SS) = 100% - 52.1% = 47.9%
Overhead # 61
Actual wastewater rate (per 1,000 gallons) = ($1,365,000 x .521) / 700,000 =
$1.02/1,000 gaL
*******************************************************************
V-12
-------
-------
**************************************************************
Overhead # 62
New user service charge rate, including infiltration/inflow (per 1,000 gallons)
= $1.02 x (700,000,000 / 500,000,000) = $1.43 /1,000 gallons.
Thus, a 7,000 gal/mo, residential user would pay 7x $1.43 = $10.01.
Overhead # 63
Actual Industrial Surcharge Rate (per 1,000 gallons) = ($1,365,000 x 479) /
150,000 = $4.36/1,000 gaL }/
Overhead # 64
New industrial wastewater surcharge rate, including infiltration/inflow (per
1,000 gallons) = $4.36 x (700,000,000 gal/500,000,000 gal) = $6.10/1,000
gallons.
Total new industrial wastewater surcharge rate = $1.43 + $6.10 = $7.53
Thus a 100,000 gal/mo industrial user would pay $7.53 x 100 = $753/mo.
Overhead # 65
Refer to worksheet number 11. We calculated tines 31 - 34b. (Discuss these
calculations and allow time for questions.)
Recatt, that in section IV, we used the wastewater user service charge rate of
$3.50/1000 gallons for all customers (residential and industrial). We
calculated the monthly charge for an average 7,000 gallons/mo, residential
was $24.50. Add the minimum bill of $2.50 and this is $27.00/mo.
Here, we just calculated the average monthly bill for the same 7,000
gallons/mo, residential user at $10.01. Add minimum bill and this is $12.51.
Since our example system has not implemented a surcharge for excess BOD
and suspended solids, industries got a break in the cost of wastewater
treatment. Guess who picked up the tab for the remainder? The residential
(and commercial) users.
This system needs to implement its sewer use ordinance and equitably
distribute the costs of O&M among customers
***************=M:*****************^
V-13
-------
-------
DETERMINING USER SERVICE
CHARGE RATES
METERED WATER
Minimum Bill = $2.50
Current Wastewater Services
Billing Schedule
Monthly Rates
Total Gallons Treated
From... To..
Rate per
1,000 gallons
0
2,001
5,001
10,001
25,001
2,000
5,000
10,000
25,000
Over
$3.50
3.50
3.50
3.50
3.50
V-14
FIGURE 51
-------
-------
WASTEWATER COLLECTION
AND TREATMENT EXPENSES
FY 1990
Salaries and Fringe Benefits
Utilities
Equipment Replacement Fund
Chemicals, Supplies and Parts
Contract Services
Administrative Costs & Office Supplies
Principal and Interest Payments
Other Costs
$450,000
175,000
200,000
50,000
0
125,000
450,000
25,000
TOTAL EXPENSES: $1,475,000
(WORKSHEET 9, LINE 20)
V-15
FIGURE 52
-------
-------
DETERMINING
USER SERVICE CHARGE RATES
OTHER WASTEWATER REVENUES
Connection Fees
Special Assessments
Transfers from Other Funds
Interest on Investments
Other Revenues
Minimum Service Fee
$15,000
10,000
0
50,000
15,000
20,000
TOTAL, OTHER REVENUES: $110,000
(WORKSHEETS, LINE 21)
V-16
FIGURE 53
-------
-------
ANNUAL METERED
WATER FLOW
Residential 250,000,000 gallons
Commercial 100,000,000 gallons
Industrial
TOTAL
Annual Total
Wastewater
Flow
150,000,000 gallons
500,000,000 gallons
(WORKSHEET 8, LINE 4)
700,000,000 gallons
(WORKSHEET 8, LINE 4a)
V-17
FIGURE 54
-------
-------
WORKSHEET 8
If you meter fresh water, fill in items 1 through 4.
If you don't meter fresh water, enter only item 4a.
Annual Residential Metered Water Flow (gallons)
Annual Commercial/Institutional Metered Water Flow (gallons)
Annual Industrial Metered Water Flow (gallons)
Total Annual Metered Water Flow (1+2+3)
Total Annual Wastewater Flow
If you don't meter fresh water, fill in Items 5 -11a.
Grand Total EDUs (5+6+7+8+9)
. OOP. dOO
/ So 000
000
1
. Q60 600 2
3
000 000 4
Number of
Type of Unit Units
Single family residences
Apartments (1-2 bedrooms)
Apartments (3+ bedrooms)
Commercial/Institutional
Restaurants and taverns
Industries
EDUs
per unit
1.00
0.75
1.00
2.50
10.00
Total EDUs
(Units x EDUs per)
5
6
7
8
9
10
V-18
FIGURE 55
-------
-------
Normal BOD and SS loadings
0.229 lbs./100 gallons of wastewater
0.229 lbs./100 gallons x 500,000,000 gallons
1,147,000 Ibs. BODorSS
(WORKSHEETS, LINES 13AND 17)
Actual BOD or SS = 2,200,000 Ibs.
(WORKSHEET 9, LINES 12 AND 16)
V-19
FIGURE 56
-------
-------
Excess BOD and SS
2,200,000 Ibs.
-1,147,000 Ibs.
1,053,000 Ibs.
% Excess = ' |°g'ggg x 100% = 91.8%
(WORKSHEETS, LINES 15AND 19)
V-20
FIGURE 57
-------
-------
WORKSHEET 9
Theoretical Non-Industrial Wastewater Flow
[Item 10 times 2.6 people times
100 gallons per day times 365 days]
Theoretical Industrial Wastewater Flow
[Item 4 minus Item 11]
11
For both metered and unmetered systems, fill in Items 12-19, and 20 - 23 or 26 - 32.
Total Annual Influent BOD (pounds)
Calculate Normal Annual Influent BOD (pounds)
[Item 4a times .002294 pounds per gallon]
Calculate Excess BOD
[Item 12 minus Item 13] If Item 12 is less than Item 13, enter 0.
Percentage Excess BOD
[(Item 14 divided by \\ern 13) x 100]
Total Annual Influent SS (pounds)
Calculate Normal Annual Influent SS (pounds)
[Item 4a times .002294 pounds per gallon]
Calculate Excess SS
[Item 16 minus Item 17] If Item 16 is less than Item 17, enter 0.
Percentage Excess SS
[(Item 18 divided by Hem 17) times 100]
3>. ^oo. GOO 12
/. ill. 400 13
_14
_15
16
000 17
/. 0S1 3. 0*0 18
19
If both Items 15 and 19 equal zero, then complete Items 20 through 23 and the appropriate
metered item (24) or unmetered items (25 through 25e).
Total Expenses (see pages 11-16)
Other Revenue (see pages 17-18)
Net Expenses [Item 20 minus Item 21]
1,000s of Gallons Wastewater [Item 4a divided by 1,000]
.20
,21
.22
23
V-21
FIGURE 58
-------
-------
WORKSHEET 10
Metered Water
Actual Wastewater Rate (per 1,000 gallons)
[Item 22 divided by Item 23]
New User Service Charge Rate (per 1,000 gallons)
[Item 24 times (Item 4a divided by Item 4)]
Unmetered Water
New User Service Charge Rate (per 1,000 gallons)
[Item 22 divided by Item 23]
Residential, per month
[Item 25 times 7.8 thousand gallons/month]
Apartments, 1-2 bedroom, per month
[Item 25a times 0.75]
Apartments, 3+ bedrooms, per month)
[Item 25a times 1.00]
Commercial/Institutional, per month
[Item 25a times 2.50]
Restaurants/Taverns, per month
[Item 25a times 10.00]
24
_24a
25
_25a
_25b
_25c
.25d
25e
If either item 15 or 19 is greater than zero, then complete Items 26 through 32 and the
appropriate metered items (33 and 34) or unmetered items (35 through 36).
Total Expenses (see pages 11-16) _
Other Revenue (see pages 17-18) _
Net Expenses [Item 26 minus Item 27] _
1,000s of Gallons Wastewater [Item 4a divided by 1,000] _
Enter Item 15 or 19, whichever is greater
loo.
26
27
28
29
% 30
V-22
FIGURE 59
-------
-------
of treatment cost
normal strength wastewater
100 -h (100 + 91.8)
.521 or 52.1%
(WORKSHEET 11, LINE 31)
Portion attributable to
excess BOD or SS
100.0%
- 52.1%
47.9%
(WORKSHEET 11, LINE 32)
V-23
FIGURE 60
-------
-------
ACTUAL WASTEWATER
RATE/1,000 GALLONS =
Net expenses x portion attributable to normal BOD or SS
1,000s of gallons of wastewater treated
$1,365,000x0.521
700,000 gallons
= $1.02
(WORKSHEET 11, LINE 33)
V-24
FIGURE 61
-------
-------
NEW USER
SERVICE CHARGE RATE
$1.02
1,000 gals.
700,000,000 gals,
500,000,000 gals.
$1.43
1,000 gals
(WORKSHEET 11, LINE 33a)
V-25
FIGURE 62
-------
-------
Actual Industrial
Surcharge Rate/1,000 gals,
Net expenses
portion attributable
to excess BOD or SS
1,000s of gallons treated industrial wastewater
$1,365,000 x.479
150,000 gallons
= $4.36/1,000 gallons
(WORKSHEET 11, LINE 34)
V-26
FIGURE 63
-------
-------
NEW INDUSTRIAL WASTEWATER
SURCHARGE RATE
$4.36
1,000 gals.
700,000,000 gals.
500,000,000 gals.
$6.10
1,000 gals
(WORKSHEET 11, LINE 34a)
TOTAL INDUSTRIAL USER
SERVICE CHARGE RATE:
$1.43/1,000 gals.
+ $6.10/1,000 gals.
$7.53/1,000 gals.
(WORKSHEET 11, LINE 34b)
V-27
FIGURE 64
-------
-------
WORKSHEET 11
Portion of Treatment Costs Attributable to Normal Strength
Wastewater [100 divided by (100 plus Item 30)]
Portion of Treatment Costs Attributable to
Excess BOD or SS [Item 30 divided by (100 plus Item 30)]
Metered Water
Actual Wastewater Rate (per 1,000 gallons)
[(Item 28 times Item 31) divided by Item 29]
New User Service Charge Rate (per 1,000 gallons)
[Item 33 times (Item 4a divided by Hem 4)]
Actual Industrial Wastewater Surcharge Rate (per 1,000 gallons)
[(Item 28 times Item 32) divided by (Item 3 divided by 1,000)]
New Industrial Wastewater Surcharge Rate (per 1,000 gallons)
[Item 34 times (Item 4a divided by Item 4)]
Total New Industrial User Service Charge Rate
(per 1,000 gallons) [Item 33a plus Item 34a]
6.
31
32
33
33a
34
'0 34a
34b
7. 6"
V-28
FIGURE 65
-------
-------
WORKSHEET 12
Unmetered Water
New User Service Charge Rate (per 1,000 gallons)
[(Item 28 times Item 31) divided by Item 29]
Residential, per month
[Item 35 times (7.8 thousand gallons/month)]
Apartments, 1-2 bedroom, per month
[Item 35a times 0.75]
Apartments, 3+ bedrooms, per month
[Item 35a times 1.00]
Commercial/Institutional, per month
[Item 35a times 2.50]
Restaurants/Taverns, per month
[Item 35a times 10.00]
New Industrial Wastewater Surcharge Rate (per 1,000 gallons)
[(Item 28 times Item 32) divided by (Item 11a divided by 1,000)]
Total New Industrial User Service Charge Rate
(per 1,000 gallons) [Item 35 plus Item 36]
35
35a
35b
35c
35d
35e
36
36a
V-29
FIGURE 66
-------
-------
***************************************************************
****
VI. SELLING A USER CHARGE INCREASE TO CUSTOMERS
A. A GOOD PUBLIC EDUCATION PROGRAM IS THE KEY TO
SUCCESS
B. HOW DO YOU CONDUCT A PUBLIC EDUCATION
CAMPAIGN?
ONCE YOU'VE INCREASED USER CHARGES, HOW DO
YOU KEEP ON TRACK?
Tell the topics that will be covered in this session
VI-1
-------
-------
*********************************************#*#****##****#******
A. A GOOD PUBLIC EDUCATION PROGRAM IS THE KEY TO
SUCCESS
Many Water and Wastewater Operations Are Facing Very
Serious Financial Problems
Use Overhead # 67
As we've already discussed many water and wastewater operations are facing
very serious financial problems. And, financial problems lead - sooner or later
- to water quality and enforcement problems.
State and federal pressures to meet and maintain water quality standards will
continue and translate into higher costs.
It goes without saying that inflation will continue to increase operational costs.
And now grants are gone.
Additional revenue wul be needed sooner or later. The rate of increase may be
slowed by improving efficiency through the better management practices that
we've discussed today - such as better purchasing procedures, better utilization
of manpower, improved collections, money management and so forth.
Experience shows that if operations are short-changed such as holding off
on repair/replacement of a malfunctioning pump it usually costs more in
the long run. And again, you stand the risk of having facilities deteriorate to
the point that effluent limits are violated.
*****************************************************************
VI-2
-------
-------
*************************************#***********#**#*********#**
* Improving Overall Financial Management is a Way Out of
Those Problems
The star of the good financial management tool kit is adequate user service
charges.
They are the best source of revenue.
Wastewater treatment operations should be financially self-sufficient - just like
any other utility operation. ,
This probably equates to increasing user charges. And that action is one most
feared by local officials.
*
Increasing User Service Charges Can Equate to Political Suicide
Just Ask West Carolina Regional Sewer Authority in Greenville,
S.C.
Some lessons have to be learned the hard way.
Greenville S.C. 's West Carolina Regional Sewer Authority instituted a 30%
rate increase which met with major opposition. One year later the same
authority implemented a 56% increase successfully. What made the
difference? Stay tuned.
Do you know of instances where increasing rates have spelled political defeat
for local government officials?
*****************************************************************
VI-3
-------
-------
Or Local Government Officials Can Raise Rates and Live to
Tell About It
Kokomo Knows How to Do It
Rousing rates doesn't have to be disastrous.
Kokomo, Indiana had several problems to correct in its sewerage system -
major line rehabilitation, odor problems and repair needs.
They paid for these projects - 17 in all - with a bond issue backed by a 45%
rate increase.
The rate increase met with little opposition. Why?
* The Difference Between Suicide and Success is PUBLIC
EDUCATION!
Use Overhead # 68
Kokomo implemented a public education program well in advance, of the rate
increase.
Milwaukee has successfully increased its user charges over the past 10-15 years
to finance $1.7 bMon in water pollution control efforts. They usea an
effective, ongoing public education program.
How can you tell whether your public education is successful? Two tests are:
(1) Little or no public opposition
(2) Higher user charges are not an election issue
********************************************************
VI-4
-------
-------
*************************************************************
****
B. HOW DO YOU CONDUCT A PUBLJC EDUCATION CAMPAIGN?
* Plan Ahead
Think Through What You've Been Doing and Why
Successful public education programs do not just happen. Like anything
worthwhile - they require time and effort.
Start early and think through your operation. What's right with it and what
needs improvement.
Use Overhead # 69
Ask yourself - Are we reatty managing well here? Is management top-heavy?
Can operating costs be cut? Do we let past due accounts slide? You may
need an outside expert to help evaluate your operation.
What have you run across in your experience that could save the utility
money? These are some things I have found
Decide on Other Steps to Take
Initiate water conservation practices.
Shape the workers into a leaner, team-oriented group.
VI-5
-------
-------
********************#****#*****#*****#****#*****##*##************
*
Improve purchasing procedures. Do what you can to reduce/delay the
inevitable - a rate increase.
But, don't put it off too long!
Worn-out pumps and tines will not get better with time. They get worse!
Get Ready to Meet the Public
Take photos of facilities, equipment and people. These visuals will help later.
Document the improvements you have made.
Document the remaining needs.
Budget for the Public Education Program
Use Overhead # 70
The she of the budget witt depend on the objectives.
Milwaukee Metropolitan Sewerage District spent over $700,000 during four
years to build public trust for the district's pollution abatement program. Tlils
bought: a 32 ft. traveling education vehicle, a citizen newsletter, rwspaper
advertisements and TV time.
*****************************************************************
VI-6
-------
-------
**********************************#**##*******#**************#*#*
But, much can be accomplished with less. Twin Falls, Idaho spent $2,000 on
a one day Clean Water Day event, newspaper advertisements and a poster
contest for school children. They also sponsored plant tours and educational
demonstrations.
Staff
You may use existing staff who take on additional duties to put together the
educational program; or, you may hire someone for these responsibilities or
use outside consultants.
Outside experts, such as public relations firms with experience in
environmental matters can be a great help.
But, remember to keep existing staff deeply involved. They know the system
and its problems.
Materials and Services
Budget for brochures, posters, slides, videos, advertisements and other
promotional items.
Overhead
Don't forget about budgeting for postage, office space, and supplies. If your
public education program is small, these may be absorbed into the existing
operating budget.
**************************************#*#*##********************
VI-7
-------
-------
***********************************#**#**************************
* Shape the Message
What Do you Want To Say?
Use Overhead # 71
Establish the value. People are wilting to pay a fair price for something they
value. TeU users what they are getting for their money.
Describe and emphasize the benefits. Had any recent construction or major
repairs? Show them! Highlight activities which increased efficiency.
Give cost comparisons. How does the wastewater user charge compare with
the cost of cable TV? the cost of basic phone service?
Link community growth and economic development to wastewater treatment
services. Did your town attract a new industry because adequate sewerage
services were available?
Emphasize increased property values. Having sewer service is an asset. Just
ask someone who has to rely on a failing septic tank/drainfield system.
Discuss public health benefits of eliminating water borne diseases and
providing a clean environment.
Think through the objectives - increase revenue to issue bonds, to construct
new facilities, to establish public trust and support. Different objectives wUl
require different approaches. WUl this be an on-going program?
Money and snazzy graphics aren't enough. Your message iswhatwiU
convince your audience. Be honest and straightforward!
***********************^
VI-8
-------
-------
*****************************************************************
What Methods Will be Used?
How can you best convey the message? Will meetings do it? Plant tours for
certain groups? Technical reports? Newspaper advertising? TV?
Think about methods, objectives, budget, the spokesperson and time frame
considerations.
Choose Spokesperson(s)
Who Are
Organized
Enthusiastic
Great Communicators
Natural Leaders
Familiar with the Subject
Use Overhead # 72
Who's the messenger? You need a primary spokesperson - an insider - to take
the lead. The public will trust a messenger they know. The spokesperson
should be enthusiastic, familiar with the subject, a good communicator, and
able to lead and shape opinions into consensus.
Back up the primary messenger with technical experts, communications
specialists and city personnel
Engineering consultants, especially those with marketing experience can help.
VI-9
-------
-------
********************#****#*####**#************#******************
Seek out consultants who specialize in advertising and public relations.
College students majoring in journalism at a nearby college may be able to
help.
*
Get the Message Out
Target Audiences
Start with the Workplace
Local Government Officials
Community Groups
Media
Youth
General Public
Use Overhead # 73
Start the message in the work place. Turn your staff into a public relations
team. What they say in casual comments can create a positive or a negative
image of the utility operation. Educate employees in answering questions and
complaints.
**********************************#**#*#*#****#******************
YI-10
-------
-------
Target audiences and identify what information they will need.
Target local government officials, business and civic leaders. Public officials
need detailed information for decision-making. Use graphs to simplify
complex information. Take them on tours of the system. Show them your
success stories. Business and civic leaders will want to know how services (or
lack of them) will affect the community's business and economic health.
Target the media. Work with them! They can help you tremendously. The
media are the eyes and ears of the public. You'U get radio, TV and newspaper
coverage. Make sure it's the land of coverage you want!
Reporters are interested in how issues affect the public, particularly "quality of
life" issues. Educate them about wastewater treatment. Treatment is
complicated. Your challenge is to explain complex processes, problems and
proposed solutions in easy-to-understand terms.
Communicate with the media through news releases, fact sheets, telephone
calls and plenty of one-on-one contact.
Target youth. Youth will be future rate payers and they have enormous
influence on the current rate payers - their parents. Youth are eager to learn.
Sponsor a water science fair, give wastewater plant tours or sponsor a poster
contest.
VI-11
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Target the general public. How do you reach the people who do not belong
to a civic group, read a newspaper or have children? Use a newsletter with
the monthly bill, use a telephone opinion survey or use displays at libraries
and shopping malls.
Repeat the message several times in a variety of ways.
Remember, your public education campaign should be an on-going activity.
Intensity can be varied as needed.
* Evaluate and Document
Evaluate your public education program so you can improve next time. Ask:
Did we accomplish our objectives? Did we gain public support?
Use an opinion polL
Keep track of complaint calls. Track media reports to help in your evaluation.
Keep files so you won't have to start from scratch next time your system needs
a rate increase.
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VI-12
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C. ONCE YOU'VE INCREASED USER CHARGES, HOW DO YOU
KEEP ON TRACK?
*
*
*
Make Small Annual Adjustments
Move the Utility Operations Out of the Political Realm
Use Monthly Billing
Bill Separately for Water, Wastewater, Trash Disposal, Etc.
Continue PUBLIC EDUCATION
How can you assure adequate future revenues? An EPA study provides these
suggestions:
Overhead # 74
Make small annual adjustments. Prices for other goods and services are
adjusted to cover inflation, why not sewer service?
Move the utility operations out of the political realm. Put water and
wastewater operations under an authority separate from the political body.
They will still need to use public education to sell rate increases.
Use monthly billing. This allows customers to budget more effectively. Its
easier to pay a small monthly charge than a large quarterly one.
Separate charges for water, sewer, trash disposal and so forth. Charges should
be based on costs so the customer knows the value of each service. One utility
operation should not supplement another.
VI-13
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******************************#####*********#****#***#####**##***
All these techniques are only supplements to a good ongoing public education
program.
In summary, wastewater costs are going to increase. There's no way to avoid
this fact.
User charges are the best method for achieving financial self-sufficiency.
User charges can be successfully increased by developing a comprehensive,
ongoing public education campaign.
When you get the utility on track, take steps to keep it there and use your
public education program as needed.
Let's review this topic with a video. (Play the video on "Building Support for
Increasing User Fees").
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VI-14
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SERIOUS PROBLEM
HIGHER COSTS
MORE REVENUE
USER CHARGES
PUBLIC EDUCATION
VI-15
FIGURE 67
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INCREASE REVENUES
USER CHARGES
PUBLIC EDUCATION
VI-16
FIGURE 68
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HOW DO I
CONDUCT A PUBLIC EDUCATION
CAMPAIGN?
PLAN AHEAD
DECIDE ON ACTION STEPS
IMPLEMENT THE PLAN
VI-17
FIGURE 69
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PROGRAM
ACTIVITIES
OBJECTIVES
BUDGET
MESSAGE - REPEAT
ASSESS - ONGOING
VI-18
FIGURE 70
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WHAT
DO I
SAY?
ESTABLISH VALUE
DESCRIBE BENEFITS
GIVE COMPARISONS
EMPHASIZE PUBLIC HEALTH
VI-19
FIGURE 71
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VI-20
FIGURE 72
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TARGET
AUDIENCES
CO-WORKERS
LOCAL GOVERNMENT OFFICIALS
COMMUNITY GROUPS
MEDIA
YOUTH
GENERAL PUBLIC
VI-21
FIGURE 73
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SUCCESSFUL
SUPPLEMENTS
ANNUAL ADJUSTMENTS
SEPARATE AUTHORITY
MONTHLY BILLING
VI-22
FIGURE 74
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The University of Tennessee does not discriminate on the basis of race, sex, color, religion, national origin,
age, handicap, or veteran status in provision of educational opportunities or employment opportunities and
benefits.
The University does not discriminate on the basis of sex or handicap in the education programs and
activities pursuantto requirements of Title IX of the Educational Amendments of 1972, Public Law 92-318,
and Section 504 of the Rehabilitation Act of 1973, Public Law 93-112, and the Americans With Disabilities
Act of 1990, Public Law 101 -336, respectively. This policy extends to both employment by and admission
to the University.
Inquiries concerning Title IX, Section 504 and the Americans With Disabilities Act of 1990 should be
directed to Mr. Gary W. Baskette, Director of Business Services, 109 Student Services Building, Knoxville,
Tennessee 37996-0212, (615) 974-6622. Charges of violation of the above policy should also be directed
to Mr. Baskette.
Authorization Number R14-1050-22-001-92
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