United States        Office of Water        February 1982
             Environmental Protection    Programs Operations (WH-547)   EPA-430/9-82-003
             Agency          Washington, DC 20460


             Water and Waste Management
v>EPA       Comprehensive Diagnostic
             Evaluation And Selected
             Management Issues

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     This publication was prepared with the support of a
grant from the U.S. Environmental Protection Agency's
Municipal Operations Branch.  The statements,  conclusions
and/or recommendations contained herein are those of the
authors and do not necessarily reflect the views of the
U.S. Government, the U.S. Environmental Protection Agency,
or the Municipal Finance Officers Association.

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             CHAPTER I


COMPREHENSIVE  DIAGNOSTIC EVALUATION
  '.3. Environment-!  r. «•
  tegicn V,  !•'<•'•

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u,s.
Environmenta! Protection

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                                 CHAPTER  I

                     COMPREHENSIVE DIAGNOSTIC EVALUATION

                              TABLE OF CONTENTS


                                                                          Page

INTRODUCTION 	    1-1

     •  WHEN AND WHY IS IT REQUIRED?	    1-2
     •  WHY IS IT EFFECTIVE?	    1-2
     •  HOW ARE THE RESULTS USED?	    1-2
     •  WHO CAN PERFORM IT?	    1-2

APPROACH TO PERFORMING A COMPREHENSIVE DIAGNOSTIC EVALUATION 	    1-3

     •  PHASE I  PRELIMINARY INVESTIGATION 	    1-3

          -  STEP 1  MAKE INITIAL CONTACT AND
                     REQUEST BACKGROUND DATA 	    1-5
          -  STEP 2  REVIEW BACKGROUND DATA	    1-6
          -  STEP 3  IDENTIFY MAJOR AREAS OF CONCERN AND
                     ESTABLISH OBJECTIVES AND WORK PLAN	    1-6

     •  PHASE II  FUNCTIONAL EVALUATION   	    1-6

     •  PHASE III  OVERALL UTILITY EVALUATION  	    1-9

          -  STEP 1  SUMMARIZE FUNCTIONAL EVALUATIONS	    1-9
          -  STEP 2  CROSS-SUMMARIZE AND RANK BOTH FUNCTIONAL
                     AND EVALUATION TOPIC RESULTS  	    1-11
          -  STEP 3  SUMMARIZE RESULTS IN EVALUATION
                     RESULTS	    1-13

     •  PHASE IV  SOLUTION DEVELOPMENT AND
                  IMPLEMENTATION PLANNING ..... 	     1-13

          -  STEP 1  DEVELOP ALTERNATIVE SOLUTIONS 	    1-13
          -  STEP 2  REVIEW ALTERNATIVE SOLUTIONS WITH
                     LOCAL OFFICIALS AND UTILITY MANAGERS  	    1-14
          -  STEP 3  PREPARE A SHORT- AND LONG-TERM IMPLEMENTATION
                     PLAN	    1-14

HOW TO EXAMINE UTILITY FUNCTIONS 	    1-15

     •  MANAGEMENT FUNCTION	    1-15

     •  SUPPORT FUNCTIONS  	    1-26

          -  FINANCIAL MANAGEMENT  	    1-26
          -  ENGINEERING 	    1-32
                                     I-i

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                         TABLE OF CONTENTS (cont'd)
                                                                          Page
          -  PERSONNEL	    1-37
          -  PURCHASING	    !-42
          -  MANAGEMENT INFORMATION SYSTEMS	    1-46

     •  WASTEWATER FACILITY FUNCTIONS	    1-49

          -  PART A  PHYSICAL EVALUATION	    1-51

               -  STEP 1  WALK THROUGH	    1-51
               -  STEP 2  PROBLEM AREA IDENTIFICATION	    1-52

          -  PART B  OPERATIONS AND MAINTENANCE EVALUATIONS  	    1-53

               -  OPERATIONS EVALUATION  	    1-54
               -  MAINTENANCE EVALUATION 	    1-60

REFERENCES	    I"68
                                      I-ii

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                                 CHAPTER I

                     COMPREHENSIVE DIAGNOSTIC EVALUATION
INTRODUCTION

     Over the past decade, communities of all sizes have invested heavily in
constructing or upgrading wastewater facilities designed to meet Federal and
state treatment standards.  These facilities, now on-line or about to come
on-line, are substantially more complex and expensive to operate than the
average wastewater facility of the 1940s and 1950s.  Recent surveys have con-
cluded that many of these new or upgraded facilities are not in compliance
with Federal and state standards.  A significant cause of the failure to con-
sistently remain in compliance and to operate efficiently is the inadequacy
of a utility's management system.

     According to current utility management literature and the results of a
study conducted in the northeastern states, a utility is more likely to
achieve compliance and efficiency when operated on a self-sustaining basis.
While no definition applies to all cases, there is general agreement that
self-sustaining utilities are those that manage their own decisions and sup-
port them financially.  The activities or functions required in a self-
sustaining utility include:

     •  General management;

     •  Support services

        - financial management
        - engineering
        - personnel
        - purchasing
        - management information; and

     •  Facility management

        - operations
        - maintenance

     An approach has been developed to evaluate management functions accord-
ing to the characteristics of a self-sustaining utility model.  Called the
Comprehensive Diagnostic Evaluation (CDE), this method brings together both
management and operational issues in a single analysis.  The Comprehensive
Diagnostic Evaluation process presented in this chapter was specifically
designed to assist local government officials and wastewater utility managers
in effectively evaluating the management and operation of wastewater utili-
ties and developing and implementing management solutions to achieve water
quality compliance and cost  control.
                                   1-1

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The chapter presents the Comprehensive Diagnostic Evaluation  in  three  parts:

     •  Introduction - when and why a Comprehensive  Diagnostic Evaluation is
        required, how the results are used, and who  can perform  one.

     •  Approach to performing a Comprehensive Diagnostic Evaluation.

     •  How to Examine Utility Functions, including  critical  issues  that
        should be evaluated in each wastewater utility function.

When and Why Is It Required?

     A Comprehensive Diagnostic Evaluation is effective when:

     •  the wastewater utility is not in compliance  with Federal  or  state
        water quality standards;

     •  the utility's operation and maintenance costs are increasing at a
        rapid rate and consistently exceed budget projections;

     •  local officials desire a periodic review to  ensure  that  operations
        and maintenance are as efficient and cost-effective as possible.

Why Is It Effective?

     A Comprehensive Diagnostic Evaluation is effective because  it approaches
the wastewater utility's functions in a systematic and comprehensive manner.
This offers the advantage of being able to assess the entire  utility as an
operating unit.  The evaluation team can identify problems  in specific areas
and then assess how all the management and operating functions work  together.

How Are the Results Used?

     The results of a Comprehensive Diagnostic Evaluation provide both a
short- and long-term program for resolving problems  and developing changes to
improve the utility's ability to be self-sustaining.  To be effective, the
improvement programs must be fully implemented and monitored.  To accomplish
this, the evaluation includes assigning responsibility for  implementation to
appropriate staff and establishing procedures for monitoring  implementation
and evaluating results.

Who Can Perform It?

     It is often very useful for an independent evaluation  team, whose members
are not part of the ongoing operations and management of the  utility,  to  per-
form the Comprehensive Diagnostic Evaluation.  Team  members should have:

     •  broad experience with many wastewater utility operations which can be
        drawn on during the evaluation;

     •  a broad range of skills required for the evaluation,  including
        engineering, operations, maintenance, management, finance, account-
        ing, and personnel.

                                   1-2

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Independent team members will provide a new, and often more objective evalu-
ation because they are not part of ongoing management and operations.  How-
ever, whether the team is made up of outsiders or facility personnel, it
should include two or three experienced specialists.  The evaluation may
require a few days to several weeks, depending upon the size of the utility.


APPROACH TO PERFORMING A COMPREHENSIVE DIAGNOSTIC EVALUATION

     The approach to performing a Comprehensive Diagnostic Evaluation is pre-
sented in Exhibit II-l.  As shown, there are four phases:

     Phase I.     Preliminary Investigation - The team conducts preliminary
                  investigation to obtain an initial understanding of how the
                  utility is organized, how it operates, and how it performs
                  as shown in its operating and financial statistics.

     Phase II.    Functional Evaluation - The team carries out detailed on
                  site evaluation of each management, support and facility
                  function of the wastewater utility.

     Phase III.   Overall Utility Evaluation - The team analyzes all func-
                  tions to synthesize overall utility problems based on the
                  specific problems within functions.  This phase results in
                  a utility-wide Evaluation Report.

     Phase IV.    Solution Development and Implementation Planning - The team
                  formulates alternative solutions to the problems identified
                  and then evaluates them in terms of cost, benefits, and
                  practicality.  The best solutions are selected and an
                  implementation plan is developed.

The balance of this part of the chapter discusses the steps in each phase of
the methodology.

Phase I - Preliminary Investigation

     The preliminary investigation enables the team to develop an under-
standing of the utility's management and operations and to make a preliminary
assessment of the problem areas.  The investigation involves three steps in
which team members should:

     1. Make the initial contact with utility management and request back-
        ground data.

     2. Review background data to:

             develop a basic understanding of the organization;

             review compliance standards and compliance performance; and

          -  identify each management function and review basic system data.

     3. Identify major areas of concern and establish evaluation objectives
        and a work plan.

                                 1-3

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                                            EXHIBIT II
                   COMPREHENSIVE DIAGNOSTIC EVALUATION OF WASTEWATER
                                       FACILITIES UTILITIES
       I'MASE I
PRELIMINARY ASSESSMENT
INIIIAL
CONTACT
-
HHELIMINAMY
ASSbSSMCNT
                  FINAL
                  wonK
                  PLAN
      PHASE II      I        PHASE III         |             PHASE IV
FUNCTIONAL EVALUATION! OVERALL FACILITY EVALUATION. ALTERNATIVE SOLUTIONS, RECOMMENDATIONS
                                                AND IMPLEMENTATION PLAN
" MANAGEMENT

s

UPPOR1 FUHCIIONS
PERSONNEL
PUIICMASINQ
.UAIA PIIOCESSING
FINANCE
ENGINttlllNU

f
*-
ACUITY FUNCTIONS
OPEIIA1IUNS
MAINIENAHCE
-1

1
1
1
1
	 +-
\
\
\
\
\
p
-

OPERA UNO
PROCEOUHES
AND POIICItS

ORGANIZATION

STAFFING

PLANNING

MANAGEMENT 1
CONTROLS 1


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     Step 1 - Make Initial Contact and Request Background  Data

     The Evaluation team requires some orientation before  it  conducts  the
on-site review.  By preparing in advance, the evaluators gain a  sense  of the
wastewater utility, its management systems, and how  it operates.   This  step
saves valuable time when the evaluators begin on-site work.

     To perform this step, the evaluators should have an initial meeting or
telephone conversation with the wastewater utility manager and the appro-
priate public officials.  The objectives of the first contact are  to learn
the concerns and expectations of wastewater utility  and local government
officials, to review the evaluation approach, to schedule  on-site  interviews,
and to obtain basic data.

     By requesting and reviewing basic data in advance of  the on-site  review,
many of the evaluators1 initial questions will be answered and the subsequent
Evaluation can be accomplished with a minimum of disruption to utility  opera-
tions.  The specific data that should be requested for advance review  should
include at least:

     •  any regulatory permits including NPDES.

     •  Sewer Use Ordinance (including Pretreatment  Ordinance).

     •  plant operating reports and audit reports for the  past 12  months.

     •  standard operating procedures.

     •  operation and maintenance manuals.

     •  utility bills and water bills for the past 12 months.

     •  organization chart (with names and titles).

     •  copies of any consultant reports conducted over the past 5 years
        including utility plans, energy reviews, etc.

     •  budgets and financial reports and audit reports for the past 5  years.

     •  management reports for the past 5 years.

     •  descriptions of:

          -  user charge billing system(s);

             accounting system(s); and

          -  personnel system(s) and job descriptions.

     •  construction specifications and standards, including  as-built
        drawings (plant, pump stations, and collection system).
                                      1-5

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      Step 2 - Review Background Data

      The treatment system's  operating data should be compared to regulatory
 requirements and cost performance.   Team members should assess how well the
 facility is meeting effluent standards and make an initial hypothesis about
 possible causes  of noncompliance.   Similar hypotheses should be made with
 respect  to costs and management.   These hypotheses provide needed insights
 for  formulating  major areas  of concern and finalizing the evaluation work
 plan.

      Step 3 - Identify Major Areas  of Concern and Establish Evaluation
               Objectives  and Work  Plan

      In  Step 3,  the evaluators should summarize what they believe to be the
 major  areas of concern,  preliminary hypotheses of problem areas, and a set of
 evaluation objectives.   Using these results,  they must  develop a detailed
 work plan for the  balance of the evaluation.

      The utility manager  and the appropriate  local public officials  must now
 meet with the team to review these  materials  and set out  a final evaluation
 schedule.   If more than  one  local government  is involved,  each should be
 represented at the meeting.

 Phase  II - Functional Evaluation

     Phase  II is the  detailed on-site evaluation of  each  wastewater  utility
 function  including:

     •   management  function:

     •   support  functions:

              personnel;

           -   purchasing;

           -  management information systems;

          -   engineering; and

          -   finance.

     •  wastewater  facility  functions:

          -  operations; and

          -  maintenance.

     Management provides overall direction for  the utility and bears  the
responsibility for  the performance  of all the functions.  Support provides
the specialized services needed to  permit the management and control  of  the


                                      1-6

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facility's operations.  Facility functions  carry  out,  under  direction  of
management and with support from specialized  services,  the day-to-day  running
of the wastewater facility.

     The diversity of functions and  the  complexity  of  a wastewater utility
require that each function be evaluated  in  a  systematic and  consistent man-
ner.  The method presented here achieves  this  through  use of a  common  set of
evaluation topics.  These topics provide  the  evaluators with a  framework  for
evaluating each function.  This enables  the evaluators  to develop the  overall
wastewater utility evaluation more efficiently.

     The framework is illustrated in Exhibit   1-2 which shows how the  evalua-
tion topics are applied to the maintenance  function.   Each of the other
wastewater functions  is evaluated in the  same manner using the  same evalua-
tion topics.  Because the impact of  each  of these topics is  very difficult to
quantify, evaluators must be able to call upon their own professional  judg-
ment and experience.

     The common set of evaluation topics  is briefly described below.  These
topics are further defined in each of the functional discussions in the last
part of this chapter:

     •  Policies/Procedures - Does the function  operate with a  specific set
        of written or implicit policies  and procedures, and  are these  con-
        sistent with  the needs of the function and  the wastewater utility as
        a whole?

     •  Organization  - How is the function  organized,  and what  are the lines
        of communication and authority?   Are  sound  organizational practices
        followed, and does the organization meet the  function's needs?

     •  Staffing - How is the function staffed?   Is there an adequate  number
        of personnel with the required skills to perform the work?  Is there
        adequate training?  Is there an  adequate personnel system in place?

     •  Short- and Long-Term Planning - Is  there an operating plan for the
        function which includes  budgets,  staffing,  capital  improvements,
        emergency procedures, and so forth?  Are plans followed, and are  they
        adequate to meet the needs of the function  and the utility?  Is con-
        sideration given to external planning as well  as internal planning?

     •  Management Controls - Are  there management  controls  in  place to moni-
        tor performance and allow actions to  be  taken  to solve  problems?   Are
        the correct recordkeeping systems in  place, and are  there procedures
        to use the records and reports as management  tools ?

     Each of these topics is used when evaluating each utility  function.   The
principal output of the functional evaluation is a  report  summarizing  the
team's findings on each individual function.
                                      1-7

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        EXHIBIT  1-2




MAINTENANCE EVALUATION MATRIX
EVALUATION
TOPICS
POLICIES /PROCEDURES

ORGANIZATION

STAFFING


PLANNING
MANAGEMENT
CONTROLS
SUB FUNCTION
REPORTS
MAINTENANCE SUBFUNCTIONS
PROCESS
EQUIPMENT



WASTEWATER
COLLECTION
SYSTEM


VEHICLES


1












GROUNDS
AND
BUILDING
i
1

i



t
•

i
i
i


FUNCTIONAL
EVALUATION
BY TOPIC









OVERALL
SUBFUNCTION
REPORT

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Phase III - Overall Utility Evaluation

     The overall objective of the Comprehensive Diagnostic Evaluation  is  to
identify the principal factors that contribute to non-compliance and/or
excessive operating costs.  In Phase II, each major utility  function is
evaluated in detail and conclusions are drawn about problems  in each func-
tional area.  Phase III is concerned with putting together the results of the
individual functional analyses and drawing conclusions  about  the utility  as  a
whole.  The problems identified are then ranked according to  the severity of
their impact on compliance and costs.

     There are three steps to developing the overall  evaluation:

     1.  Summarize all the functional evaluations and develop conclusions for
         each evaluation  topic for the utility as a whole.

     2.  Rank functional  evaluation topic results in  terms of impact on  com-
         pliance and cost.

     3.  Develop the overall evaluation report that summarizes  the major  pro-
         blems in order of the severity of their  impact.

Following is a brief discussion of each step.

     Step 1;  Summarize Functional Evaluations

     This part of the analysis focuses upon  assimilating  the problems  identi-
fied and assessing the extent to which these problems affect plant perfor-
mance and utility cost.

     To assimilate performance problems across functions,  it is  suggested
that the evaluators construct a utility-wide matrix  (functions  vs  evaluation
topics) and fill in the cells with:

     •  a description of  the specific  problems;  and

     •  an assessment of  their impact  on compliance and cost.

     Exhibit  1-3 is an example of how part  of  the  utility-wide evaluation
matrix would  be  filled out.  Developing  the  matrix  serves  two purposes:   (1)
it  concisely  summarizes  the  performance  of  the utility  as  a  whole  and  (2) it
provides a worksheet format  to assess  the  evaluation  topics  across each func-
tion for the  utility as a whole.   This assessment must  be  based upon a con-
sistent set of evaluation measures as  follows:

     •  The problem has no  significant effect  on performance.

     •  The problem has a minor detrimental  effect  on compliance,  cost-
        effectiveness, or both.   While improvement  is desirable,  correction
        would not substantially improve  performance.
                                      1-9

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                                           UTILITY-WIDE EVALUATION MATRIX
i
i—1
o


MANAGEMENT
Organization
Controls
Planning
Public relations
Profession* 1
Services


SUPPORT SERVICES
Personnel
Data Processing


Financial


Engineer ing


npTRATIONS
Sludge
I'til. Prod.
l.abs
( onveyance
tAINTFHANCF
Schedul ing
Process Equipment
Vohi« 1c-s
firoumH t, Duildinqs
Conveyance

CRITERIA SUWRY


PROCEDURES


















Ho clear operating
policies .
compliance /cost Impact

(Summar Ize based on
.ihovr.)


ORGANIZATION (2)


















No written operating
procedures; Job order
system not used.
Impact preventatlve
maintenance system
and contributes to
excessive equipment
failure.

(Su**nar 1 ?e bdst-i) on


STAFFING (3)
Ho clean assignment of
responslbl llty - no
Ho overal 1 assessment
of utl 1 Ity ttaff UR
needs.
Impacts tbll Uy of n( 1
function became of
otaff problems.

mately tt.iffed and or-
ganized bot furn t Ion
performed by Tlty Hept
of Pub) Ir World
No utility Impact
Undvr slat fed hut
perst nne
Impact Is late bll 1 l..t<
reporting, cash flow
lag and Insuf f It lent
hudgetfl/noteq
No In-house engineer
staff, function per-
itnd Inadequate
Poor engineering judge-
ment, no process con-
trol, poor equipment
selection. Resul tn In

ly staffed and managed
but Is Inadequately
and engineering.
Results In having to
Improvise without ade-
quate data and equip-
ment. Can't meet
standards .
Understaffed. Does not
have qualified mechanical
skills needed; department
not organizationally
structured
Results In excessive EQ,
allure and then non-
ompl lance
from overall utility or-
ganization and personnel
n HII| IB In wide varla-
l-»n In level ami quail-
v of ntflf r by fund l»it
M,»)or Impair to rompl f

PLANNING (';}


















ack of planning results
n only emergency malnte-
ance - no preventive
maintenance .
ontrlbutes to excessive
qulpment failure; con-
rlbutes to early equlp-
ent replacement.




CONTROLS


















No ecords prevents
equ pment data for pre-
ven Ive maintenance
sy^ em.
]on ributes to equipment




IUHU1UH SUFl'lAliy (()

TROH MCONO srt:r
itaif *
\ on' t inn Fvi1u.it i.'it

FROH SECOND STEP
	 rt Ion rv.Tlu.il (on


1 HUM SECOND STEP
runn Ion Evaluation
ttittttHtfiitttmtftit
IRON SECOND STEP
tinitttitiHttttmtc
^tl|lctlon Evaluation

titatinsHtiittii,
FROM SECOND STEP
Fimrtlon Evaluation
Lack of strong manage-
ment controls; and ex-
• f salve staffing pro-
blems results In only
nifolmal maintenance.
Mnjor reason plant K
>flen non-operating.
>ui of compliance aiut
rt -.nits In extra cost
to ftx.

Summarize based upon
both function summary
(Kowends) ,md criteria
summary (column ends).

                                                                                                                    W
                                                                                                                    M
                                                                                                                    H
                                                                                                                    I
                                                                                                                    Lo

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     •  The problem periodically affects the utility's capability to maintain
        compliance standards and/or results in additional but avoidable  costs.
        Correction will improve performance but will not necessarily solve
        major compliance problems nor substantially reduce cost.

     •  The problem directly and consistently affects the utility's ability
        to achieve compliance and/or results in excessive operation costs.

     Continuing with the example in Exhibit  1-3, the evaluators can fill  in
the matrix, row by row, using the functional evaluations developed in  Phase
II.  This is illustrated in the row for the maintenance function.  In  the
example, the maintenance problems focus on lack of management controls and
serious staffing problems in both number and skill level.

     The process of filling in each row using the team's functional evaluation
results will complete each row in the matrix except the bottom  one.  This  row
is a conclusion for each evaluation topic for the utility as a  whole.  It  is
completed by reading down the column for a particular evaluation topic to  see
how each function performs with respect to that management criterion.

     In the example, staffing is the evaluation topic presented.  Reviewing
the sample column shows the evaluator that staffing is not only a problem  in
the maintenance function but also in the financial management,  engineering
and operation functions.  The evaluator can also see  that the problem  appears
to be a result of the overall wastewater utility management  and personnel
procedures rather than management at the functional level.   This example
illustrates how the assessment moves from the basic functional  evaluations  to
the overall evaluation.

     Step 2:  Rank Both Functional and Evaluation Topic Results

     The evaluators use the utility-wide matrix results to rank the problems
in order of impact severity.  In Exhibit  1-4, the results of the matrix are
cross-classified, and the critical problem areas are  isolated by evaluation
topic and by function.  These problem areas are then  ranked  in  order of
impact.  Again, the ranking procedure requires professional  judgment on  the
part of the evaluators.

     The example in this exhibit shows that staffing  (topic  3)  appears in
almost every function and the judgement of the evaluators suggests this  is
the most significant overall problem.  As a result, this problem is ranked  #1
under the problem ranking column.  The balance of this column is developed  in
a similar manner and results in a ranking of problems by evaluation topic.

     A review of the matrix, by function, shows that  maintenance and engineer-
ing have the most numerous and most severe problems.  From the  qualitative
evaluation however, management appears to be the origin of some of these pro-
blems.  Since all the maintenance and engineering problems cannot be solved
without first correcting management problems, general management is the  pro-
blem area assigned the highest ranking, followed by maintenance and engineer-
ing.
                                      1-11

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                                                                                   EXHIBIT  1-4

                                                CROSS SUMMARY AM) RANK ORDER OF WASTE WATER FACILITY PROBLEMS1
MANAGEMENT TOPIC
1. Policies and Procedures
2. Organltallon
3. Stalling
4. Planning
5. Management Controls

MANAGEMENT

X
X

X

FINANCE


X



ENGINEERING

X
X
X
X
FUNCTIONS
PERSONNEL


X

X
PURCHASING


X

X
MANAGEMENT
INFORMATION
SYSTEMS


X

X
OPERATIONS


X

X
MAINTENANCE
X
X
X
X
X
IMPACT
ON
FACILITY
(Judgement)

MINOR

MINOR


PROBLEM
BY TOPIC: RANK
MOST IMPACT TO
LEAST IMPACT
(Rows)
1. Stalling In
AH Functions
2. Management
Controls
In Most Functions
PROBLEM AREA
BY FUNCTIONS
MOST PROBLEMSJIMPACT TO
LEAST PROBLEMS/IMPACT

1. Management

2. Maintenance


                                                                                                                                    MAJOR
                                                                                                                                    MINOR
                                                                                                                                    MAJOR
                                                                                                                                                                      3. Engineering
                                                                                                                                                                       4. Operations
                                                                                                                                                                      6. Personnel
Impact on Facility
                              MAJOR       MINOR      MAJOR       MAJOR       MINOR       MINOR       MAJOR       MAJOR
           1  Evaluation Is based on professional Judgment ol evalualors and
             should not be numerically tabulated to rank problem areas.

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     Step 3;  Summarize Results in Evaluation Report

     To summarize the results of the analysis a  report  should  be  prepared that
presents a brief overview of the results and the  conclusions.   The  balance of
the report should address in detail, and according  to rank,  each  problem by
topic and function.  The evaluators should  review the finished report  with
the utility's management in a working session before moving  to Phase  IV.

Phase IV - Solution Development, and Implementation Planning

     The fourth phase in the Comprehensive  Diagnostic Evaluation  is the
development and implementation  of solutions to  the  problems  identified in the
first three phases.  It is only with positive action  that  improved  compliance
and cost performance can be achieved.

     To develop an implementation program,  local officials  and wastewater
utility managers must understand and agree  on the seriousness  of  the  problems
identified.  In addition, both  the  local officials  and  utility managers must
be involved as solutions are developed,  if  practical  solutions are  to be
carried out.

     The basic steps to develop solutions,  recommendations,  and an  implemen-
tation plan are as follows:

     1. Develop alternative solutions  to each problem identified; identify
        advantages and disadvantages  (costs and benefits)  for  each  solution
        and identify constraints to  their  implementation.

     2. Review and discuss each possible solution with  local officials and
        utility managers and obtain  a  consensus for the most practical and
        effective solution to  each  problem.

     3. Prepare both short- and long-term  implementation programs that
        include such items as  funding,  staging, assignment of  responsibility,
        and specific action steps to be taken.

     Step  1;  Develop Alternative Solutions

     The evaluators should develop  a set of alternative solutions for each
problem area.  Solutions should be  arranged in  terms  of their  ability to be
implemented.  Solutions such as simple  and  immediate  management actions which
can alleviate serious problems  should  be considered first.   For example, if
problems stem from employee scheduling  or  understaffing, administrative
actions can be taken to revise  schedules and/or increase the operations staff
(assuming  such additions can be made within existing  financial resources).
These solutions should lead to  a set of immediate action steps.

     More  comprehensive solutions,  which require time to implement, should
also be formulated.  These solutions may be short-term  (over, the next year)
or long-term  (1 to 5 years).   Solutions that fall into  these categories
                                      1-13

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 include such  things as  rate  changes  (short-term)  or new/revised accounting
 and  budgeting systems  (long-term).

     Whether  the solutions are  changes  in  operating procedures, management
 systems, or organization, each  must  be  accompanied  by  a  listing of its advan-
 tages and disadvantages.  This  is most  important  since this  information will
 assist local officials  and wastewater utility managers in  selecting solutions
 for  implementation.

     Step 2;  Review Alternative Solutions With Local  Officials and
              Utility Managers

     Alternative solutions should be reviewed with  local officials and the
wastewater utility management to:

     •  explain the results  of  the analysis and the advantages  and disadvan-
        tages of the alternatives;

     •  identify political,  legal, or financial constraints  that may affect
        implementation; and

     •  reach agreement on solutions from  those responsible  for carrying them
        out.

     Step 3;  Prepare a Short- and Long-Term Implementation  Program

     The final step in  the Evaluation is to develop specific short-term and
long-term actions that  can be used as an implementation guide by the local
officials and utility management.  The implementation  guide  should include,
at a minimum:

     •  identification of the individuals responsible  for  implementation;

     •  a timetable showing  immediate, short-terra,  and long-term actions;

     •  the cost of implementing each recommendation and the source  of  funds
        to pay for implementation;

     •  the specific steps and/or actions which must be taken and  the  speci-
        fic individuals or departments responsible  for each step;  and

     •  provisions for ongoing performance evaluation.
                                     1-14

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HOW TO EXAMINE UTILITY  FUNCTIONS

     In developing  the  Comprehensive  Diagnostic Evaluation methodology, the
functions of a wastewater  utility  are grouped into three categories as shown
in Exhibit  1-5.  These categories  are:

     1. Management  Functions

     2. Support  Functions

          -  financial  management

          -  engineering

          -  personnel

             purchasing

          -  management information systems

     3. Wastewater  Facility Functions

          -  operations

          -  maintenance

     For purposes of discussion, it is assumed that  wastewater collection and
treatment are organized as a  separate utility that controls each function,
under the guidance  and  direction of the  local government.   In many cases,
however, this is not the .case.  Collection and treatment may not be controlled
by one utility manager  and the  supporting services may be  independent of the
wastewater facility.  This results  in additional layers  of management that
must be evaluated.

     In this part of Chapter  I, each of the  functions is  reviewed including
a discussion of  its general characteristics and an identification of key
problem areas that  should  be  considered  in the review.  For each function
there is an exhibit summarizing the types of  questions that need to be
answered and analyzed for  each  of  the evaluation topics  discussed in the
approach to performing  a Comprehensive Diagnostic Evaluation.   These exhibits
are not intended to replace detailed  interview guides  and  evaluation check-
lists but rather to identify, for  the utility manager, the type of concerns
and issues that need to  be considered in the  review.   This will allow the
utility to better monitor and evaluate the evaluation  team and its findings.

Management Function

     A thorough  review  of the management function is required  to establish a
framework within which  the utility  operates and to evaluate the extent to
which management affects the  performance of the utility.   Misdirection at the
                                     1-15

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            EXHIBIT 1-5

WASTEWATER UTILITY ORGANIZATION
          (ILLUSTRATIVE)
         GOVERNING BODY(IES)




1
PERSONNEL


















1
PURCHASING


















1
ENGINEERING


1
OPERATIONS










S
MANAC








JS
3EMENT


1
MANAGEMENT
INFORMATION
SYSTEMS


1
MAINTENANCE














I
FINANCE














HiMMMvaumcn i
FUNCTION



SUPPORT
FUNCTIONS

	 	

FACILITY
FUNCTIONS

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management level can result in performance problems that are often attributed
to the treatment functions.  As wastewater facilities have grown in size and
complexity, management problems as well as technical problems have increased.
Managing people and the treatment process requires planning, organization and
direction.

     Especially important among the five evaluation topics are:

     •  policies and procedures;

          -  all interaction with the governing body

             articulating goals, policies and procedures for the utility

             public relations

     •  organization;

     •  staffing;

             training practices

     •  planning; and

     •  management controls;

             short range

             long range

             budget preparation and justification

             controlling utility performance

     Management has the primary responsibility to interact with the governing
body(ies) keeping it fully informed of all major aspects of the facility and
translating the governing body's direction into the policies and procedures
which direct the facility.  In addition, management has the responsibility to
deal with state and Federal regulatory agencies to ensure that compliance is
achieved.

     Management must develop and provide the overall organization with
operating goals, objectives, policies  and procedures to ensure that each
function in the utility is operating consistently with the overall needs of
the utility.   In addition, it  must ensure that each function's procedures
interact with each other function.

     One of the most overlooked management responsibilities is public rela-
tions.   If utility management  maintains good communication with the public
and is  aware of the public's needs,  costly delays can be avoided when major
                                   1-17

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programs are developed and/or changes in financial or operating policies are
required.

     Since management is responsible for the overall organization of the
utility, it must ensure that the utility is organized in the best possible
way to accomplish the utility's mission.  In developing the organizational
structure careful attention must be given to assignment of responsibility,
assignment of authority to carry out the responsibility and to the lines of
authority.  A major problem occurs if the formal organization and lines of
authority are undermined and made ineffective by informal lines of authority,
as shown in Exhibit  1-6.

     Staffing levels and training requirements are developed and set by
management.  Establishing staffing levels requires management to evaluate
finances, operating needs, and other needs before determining the mix of
skills and experience needed.  The effectiveness of the utility depends on
the ability of management not to understaff (unable to perform all functions)
or overstaff (inefficient and costly).

     The level of training of new and experienced personnel is established by
management.  Management must recognize the training needs for all personnel
and ensure that such training is available.

     Planning and Budgeting

     Only management has all the information about each utility function as
well as the information and requirements provided by the governing bodies and
the regulatory agencies.  This information should be used to anticipate and
provide plans and decisions for future facility needs.  Without such planning
there is little chance for the utility to meet all community needs.  The fol-
lowing is a list of the needs which must be planned:

     •  capacity requirements;

     •  future standards;

     •  equipment replacement;

     •  reconstruction needs;

     •  emergencies;

     •  financing; and

     •  other.

     A critical component of management planning is short- and long-term bud-
get preparation, justification and control.  This activity controls the
ability of the utility to be self-sustaining and to operate at the correct
level of efficiency.  Of major importance in formulating a budget is manage-
ment's ability to forecast revenue needs and take steps to ensure that ade-
quate revenues will be generated to cover operation, maintenance and equip-
ment replacement and reconstruction needs.
                                   1-18

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            EXHIBIT 1-6
WASTEWATER UTILITY ORGANIZATION
          (ILLUSTRATIVE)
                                                      MANAGEMENT
                                                      FUNCTION
         GOVERNING BODY(IES)
                                     FINANCE
                                     DECISIONS
                                    MADE HERE
                     ENGINEER
                    RUNS PLANT
                    UNDERCUTS
                   MANAGEMENT
            MANAGEMENT
                                                      SUPPORT
                                                      FUNCTIONS
                                                    MANAGEMENT
                         ENGINEERING
                                                    INFORMATION
 STAFFING
CONTROLLED
   HERE
                         MAINTENANCE
                                                      FACILITY
                                                      FUNCTIONS

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     Monitoring and Control

     Management must constantly monitor and evaluate each function  in  the
utility and take necessary actions to maintain their level of  performance.
Actions include such things as replacement of personnel, changes  in user
charges, reorganization, and revision of operating procedures.  Adequate
information must be available and a set of management controls must be in
place.  Such controls include management information systems that produce
reports to allow continuous evaluation of performance based upon  both  quanti-
tative data (budget variance and effluent samples) and qualitative  data
(staff morale).  The control systems should have specific procedures to be
followed when actions have to be taken to maintain performance levels.

     Exhibit  1-7 presents a series of questions, arranged by  evaluation
topic, identifying key issues and concerns in utility management.
                                     1-20

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                           Exhibit   1-7
             MANAGEMENT FUNCTION EVALUATION QUESTIONS


PROCEDURES AND POLICIES

•  Is wastewater collection and treatment  run as a utility?

•  Does the utility have a set of formal or informal management
   policies?

•  Do policies address ?

     -  remaining in compliance
     -  minimizing cost
     -  public relations
     -  complying with legal requirements

•  Does a set of procedures exist to implement these policies?

•  Are they written or informal?

•  Do the procedures consider?

     -  acceptance of wastes
     -  service agreements
     -  staffing
     -  training
     -  staff meetings
     -  support services
     -  line functions
     •-  emergencies
     -  safety
        labor relations
     -  energy conservation
     -  long and short range planning
     -  staff reporting requirements
     -  budgeting
     -  use of professional services
     -  recordkeeping practices
        housekeeping practices
     -  attention to complaints
     -  guided tours
•  Are the policies and procedures followed in fact?

ORGANIZATION

•  What is the history of the utility?

•  Is the institutional structure of the utility adequate?
                                     1-21

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                      Exhibit  1-7  (Con't)
   Is there an Organization Plan (Chart) for the entire utility?

   Does the plan include

     -  who serves as the governing body
     -  who serves as the regulatory body
     -  powers of the utility to
            .raise revenue
             raise capital
             undertake planning, design and construction
             set operating budgets
             accept and control waste
     -  lines of authority
     -  reporting requirements
     -  broad job descriptions
     -  staff responsibilities and backup
     -  interdepartmental relationships
     -  emergencies?

•  Is the plan consistent with procedures and policies?

•  Is the Organization Plan formal or informal?

•  Is the plan available and understood by  the staff?

•  Is the plan followed in fact?

•  How well does the management Organization Plan match with  the
   individual functional Organization Plans within  the utility?

STAFFING

•  Is there adequate staff (skills and numbers)  to  meet  the
   organizational needs of the utility?

•  How does staff use compare to  similar utilities?

•  Is the staff effectively utilized?

•  Is utilization controlled  by

        evaluation  of need for new hires
     -  elimination of  unnecessary work
     -  determination of degree of shift coverage
     -  time  card/work  order  system
     -  scheduling?
                                      1-22

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                       Exhibit  1-7 (Con't)
•  Does management work closely with personnel to provide direc-
   tion?

•  Is training encouraged across the utility?  Certification?

•  Are good working relations enhanced by

     -  evaluation of -performance
     -  open lines of communication
     -  a good working environment
     -  opportunities for advancement
        competitive salaries?

•  Does management encourage staff motivation?

•  Does management support the first line supervisors?

•  When do consultants or other outside personnel supplement the
   staff?  How is their use evaluated and controlled?

PLANNING

•  Does management oversee and coordinate all utility planning
   efforts?  To what extent does the governing body become
   involved?

•  To what extent does management ensure that budget preparation
   by the finance department is

    ,-  actually prepared
     -  a realistic representation of anticipated expenditures
     -  understood and accepted by the governing body
     -  utilized by staff through delegated cost responsibility ?

•  Does management provide broad scheduling input to staff with
   scheduling responsibilities?  Is feedback directed to manage-
   ment?

•  Are the following scheduled and reported upon?

     -  work activities
     -  staffing
     -  use of supporting services
     -  use of supplies
     -  energy use
     -  construction
        funds
                                     1-23

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                       Exhibit   1-7  (Con't)
•  Does a utility-wide emergency contingency plan exist?   Is  it
   known and accepted across the utility?

•  Is the plan reviewed and updated periodically?

•  Does the plan contain

        an analysis of. vulnerable areas
     -  standby power sources
     -  backup assignments in key positions
        alternate operating plans
     -  training routines?

•  Have insurance needs been determined and met?

•  Does insurance coverage include

     -  public liability
     -  boiler room
     -  structures
     -  flood damage?

•  Have long-range staffing needs and objectives been deter-
   mined?  Formally?

•  Are long-range budgets estimated for operation, maintenance,
   and equipment replacement?  Are they used in current year  bud-
   get preparation?

•  Does a formal capital improvement program exist for the  utili-
   ty?  Does management keep the governing body abreast of  it?

•  Does management coordinate the development and review of the
   capital improvement program with the assistance of finance and
   engineering?

MANAGEMENT CONTROLS

•  Does management receive and utilize summary reports on  planned
   and actual daily activities within the utility?

•  Do these reports provide useful information?

•  Is too much/little information requested by management?
                                     1-24

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                       Exhibit   1-7  (Con't)
•  Do reporting requirements hinder the staff's effectiveness
   beyond reason?

•  Do reports to management summarize

     -  treatment efficiency
          •  influent
          •  process parameters
          •  effluent
          •  sludge characteristics
     -  downtime
     -  accidents
     -  staff turnover
        energy use
     -  cost records
          o  budget
          o  actual expense
     -  revenue generation?

•  How does management utilize the reports it receives?

•  Are all regulatory reporting requirements satisfied?
                                     1-25

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Support Functions

     Support functions include those ancillary activities  that are needed  to
enable the line functions to carry out the day-to-day operation  of the  utili-
ty. Evaluation of each support function must focus on the  service provided,
and the extent to which it meets the needs of the management and treatment
functions.

     The following support functions need to be considered:

     •  financial management;

     •  engineering;

     •  personnel;

     •  purchasing; and

     •  management information systems.

     Financial Management

     Proper financial management is important to utility managers because  it
provides them with the ability to maintain fiscal control, meet  citizen
desires for higher quality services, and increase efficiency and account-
ability.

     Financial management services may be provided by the  utility itself,  the
department of public works or the general municipal government.

     Key financial management activities include accounting and  financial
reporting, financial planning and budgeting, and cost recovery.

     Accounting and financial reporting are important to utility managers  for
two major reasons.  First, they provide utility managers with a  degree  of
confidence that the utility's resources are being properly used.  Second,
they provide managers with the information needed to evaluate performance  and
determine a course for future action.

     In recent years, the costs of facility operations have increased drama-
tically.  There have also been growing constraints on the  revenue sources  to
pay for facility operations.  These operations are being closely scrutinized
to assure that all services are being planned and provided within acceptable
levels of cost.  Planning and budgeting are the only means by which  the
facility can accumulate financial data, analyze service costs and make  deci-
sions about the level and cost of services which will be provided.   The bud-
get is the main vehicle for monitoring and controlling the facility's expen-
ditures and may be used to monitor the quality of the work performed.   Plan-
ning and budgeting cover both operating and capital programs.  These serve as
financial guidelines for the allocation of resources to accomplish planned
activities.
                                     1-26

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     Cost recovery refers to the mechanism the utility uses  to raise  revenues
to achieve financial self-sufficiency.  Frequently total cost recovery  is not
being achieved by wastewater utilities.  The types of cost that need  to be
considered include:

     •  operating and maintenance;

     •  indirect;

     •  equipment replacement and reconstruction; and

     •  debt service.

     The basic questions that need to be addressed and evaluated during the
review of the financial management function are presented in Exhibit  1.8.
                                     1-27

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                          Exhibit  1-8

       FINANCIAL MANAGEMENT FUNCTION EVALUATION  QUESTIONS
PROCEDURES AND POLICIES

•  Are there policies or procedures that address

     -  recovery of total utility cost
     -  long and short term planning
     -  maintaining a self-sustaining operation
     -  cost efficiency?

•  Is there a set of standard procedures to implement  these
   policies?

•  Are they written or informal?

•  Do the procedures consider

     -  a sewer service charge system
     -  enterprise fund accounting
     -  capital budgeting
     -  use of line item or activity item  budget
     -  flexible budgets
     -  internal controls  over expenditures
     -  financial reporting
     -  formal chart of accounts
     -  fixed asset records
     -  accounts payable
     -  accounts receivable
     -  source documents
     -  encumbrance system?

 •   Does the sewer service  charge  system recover total system
    costs  both direct and  indirect?

 •   If  it  does not  recover  total  system costs:

      - are  total  system costs  known?
      - are  total  operation,  maintenance and equipment replace-
        ment  costs  known?
      - are  indirect  costs known?
      - does  it  recover depreciation?
      - does  municipal policy require  tax subsidies of sewer ser-
        vice  charges?
      - does  it  rely heavily on non-user fee revenue?
 •  Are sewer service charge revenues utilized to subsidize the
    general fund?
                                      1-28

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                      Exhibit   1-8  (Con't)
•  Does the user charge system treat all users proportionately?
   Does it ensure that

        all users are being charged
        industrial user fees are based on total wastewater dis-
        charge, not just flow
        residential user charges are in place
     -  user flow data is current
        industrial discharge data is available and utilized
     -  user fees are reviewed periodically
        user charge system is based on actual use?

•  Does the municipality's assessment authority limit the
   effectiveness of its sewer service charge system?

•  Is there a timely billing system?

•  Is there a formal follow-up billing procedure for delinquent
   accounts?

•  Are outstanding purchase orders encumbered?

•  Are end-of-year encumbrances reviewed for proper accruals?

•  Does the department reconcile outstanding purchase orders?

ORGANIZATION

•  Does the utility have primary responsible for its own finan-
   cial management activities?

•  What is the organizational plan (chart) for financial manage-
   ment within the utility?

•  If the financial management functions are not within the
   direct control and responsibility of the utility, where is the
   control for these activities based?

•  If the functions are performed by other departments within a
   municipality, is there a direct line of authority in reporting
   between the utility and the other departments?

•  Are these lines of authority and responsibility clearly
   defined and understood?

•  Are the lines of authority and responsibility followed in fact?

•  Are accounting duties segregated?

•  Are local capital costs and operation,  maintenance and
   replacement cost separately identified?
                                 1-29

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                       Exhibit   1-8  (Con't)
STAFFING

•  Is there an adequate number of staff to achieve the policies
   and procedures ?

•  Are staff adequately qualified for their duties and responsi-
   bilities? .

     -  certification (CPA's)
     -  qualifications
     -  abilities
     -  job performance
     -  understanding of financial management procedures

•  Is staff effectively utilized?

•  Are employees who handle cash bonded?

•  Does the management encourage staff motivation?

•  Is staff motivation maintained by

     -  encouragement for  training
     -  job recognition
     -  promotional opportunities
     -  salary incentives
     -  job security
     -  working  environment?

PLANNING

•  Is there a formal planning  process?

•  Are there identified planning  responsibilities and authority?

•  Is there a current five-year  capital  improvements and replace-
   ment program?

•  Is there an effective  budgeting  process?   Does the budgeting
   process  consider  items  such as

      -  inflation
        contingency  funds
        capital  replacements
      -  reserves
      -  flow  and strength characteristics (flexible budgets)?

 •  Who  is involved in  the budget development and review process?
                                      1-30

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                       Exhibit   1-8  (Con't)
•  Are future year budget impacts integrated into the current
   year budget process?

•  Is there a long-range capital improvements program?

•  Are there adequate reconstruction reserves for the plant
   facility?

•  Are annual capital budgets typically reduced or eliminated
   prior to budget approval?

•  Do the budgeting and accounting systems provide relevant  data
   to make budget-cutting decisions?

MANAGEMENT CONTROLS

•  Are the following management systems kept current

     -  an appropriation and/or encumbrance system
     -  cash reports
     -  monthly operating reports
     -  monthly budget-to-actual reports?

•  Are monthly operating reports reconciled to the general ledger?

•  Are there effective cash controls?

•  Is there an appropriation or budget authorization control
   system?

•  Is there a system for checking availability of funds?

•  Is there a system to control amounts outstanding on  purchase
   orders issued but not received?

•  Are formal budget-to-actual reports maintained?

•  Is there a budget-to-actual report for  revenues?  Is  the
   budget to actual revenue report based on billings or  cash
   received?
                                      1-31

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     Engineering

     Wastewater utilities require engineering services to provide evaluation
and direction of facility operations and maintenance.  Engineering services
may be part of the utility staff, or provided by the municipal department  of
public works.  In many cases, engineering services also require outside
assistance from consultants.

     Within the evaluation topics, management controls and planning are  of
particular concern when evaluating the engineering function:

     •  management controls

          -  operating the facility (e.g., process control);

          -  maintaining the facility (e.g., collection system);

     •  planning

          -  short-term planning  (e.g., schedules, emergencies, resource
             allocation);

          -  long-term planning  (e.g., process changes, Capital Improvement
             Program);

          -  design review; and

          -  construction management and inspection.

     Facility operations, both collection and treatment, can  be controlled
and improved if there is engineering staff with sanitary design and process
control expertise.  These skills  are not always available within  engineering
departments and the required operational assistance may come  from engineering
consultants.

     Facility maintenance may require engineering services, particularly con-
struction engineers in collection system maintenance.  The engineering func-
tion also usually has responsibility to design and implement  collection
systems improvement.

     Construction management and  inspection  is a significant  activity of the
engineering function  to ensure that the utility fully  controls and  receives
quality capital construction.

     Short-term engineering planning includes technical assistance  to the
other utility functions in:

     •  scheduling daily operations and maintenance;

     •  evaluating emergency procedures; and

     •  allocation of resources.

                                     1-32

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     Long-term engineering planning focuses on capital  improvement  including
facility planning, design and review.

     Exhibit  1-9 presents the evaluation questions  that  should  be  addressed
when evaluating the engineering function.
                                     1-33

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                           Exhibit   1-9
            ENGINEERING FUNCTION EVALUATION QUESTIONS
PROCEDURES AND POLICIES

•  Are policies in place which differentiate between the use of
   internal and external engineering services?

•  Is the engineering department responsible for long range tech-
   nical planning?

•  Is is responsible for maintaining a capital improvements pro-
   gram?  Is the program coordinated through management?

•  What policies have been established for using the engineering
   staff on operational problems?

•  When must outside assistance be sought?

ORGANIZATION

•  Does the engineering function have an Organization Plan?

•  Does the plan identify staff responsibilities (job descrip-
   tions) and lines of authority?

•  Is it evident that the plan is current and reflects daily
   practices ?

•  How is time split between the wastewater utility  (operations
   and maintenance) and other tasks (i.e., street work)?

•  Are priorities established for work precedence?   Does this
   create problems?

•  Does the utility management have direct access to engineering
   expertise when it is needed?

STAFFING

•  Does the staff meet basic organizational needs (job descrip-
   tions)?

•  Is the staff effectively utilized?

•  When outside assistance is sought does the engineering  staff
   really need support?
                                      1-34

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                       Exhibit   1-9  (Con't)
•  Does the staff often become overloaded?

•  How well does the engineering staff work with hired consul-
   tants ?

•  Does management work with the engineering staff when seeking
   consulting, assistance?

PLANNING

•  Are the engineers involved in the budgeting  of the use  of
   resources ?

•  Do they assist in the scheduling of daily operations and main-
   tenance?

•  Are they part of updating emergency procedures on an ongoing
   basis?

•  How are upcoming engineering needs scheduled?

•  Is the level of engineering involvement in utility operations
   reviewed periodically?

•  How are construction activities anticipated  and  integrated
   into existing vorkloads?

MANAGEMENT CONTROLS

•  Ai*e the decisions and recommendations  of  the engineering staff
   accurately documented?

•  Does the documentation  include?

        supporting information
     -  engineering analysis
        design calculations
     -  cost/benefit studies of alternative  actions
     -  management and staff input

•  Is documentation readily accessible by process and project?

•  Is documentation also readily accessible  for the  work  of
   engineering consultants?

•  Do the engineering records complement  the  "physical  facili-
   ties" records?
                                      1-35

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                       Exhibit   1-9  (Con't)
•  What utility records are directly under the control of  the
   engineering staff?

e  How are the costs of engineering support allocated back to  the
   other utility functions?

•  How are these costs budgeted for and expenses  tracked?

•  Does the engineering staff receive periodic operating and
   maintenance reports to keep abreast of the facility?  Are
   these reports useful?
                                      1-36

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     Personnel

     The activities of the personnel department are central  to acquiring and
maintaining a top level utility staff.  Particularly important in  the  review
is the evaluation of the policies and procedures for:

     •  hiring;

     •  employee communications;

     •  personnel records;

     •  salary and  benefit structure; and

     •  collective  bargaining  and  contract  administration.

     The availability  and performance of  these services  can affect the level
and  quality  of performance of  staff throughout the utility.

     While staffing needs are  usually determined  by utility management, the
actual  hiring process  is  controlled and coordinated by the  personnel depart-
ment.   This  process includes  soliciting applicants, screening applications,
testing,  interviewing, and  consulting on the final hiring decision.

      Being  the principal  employee  information center,  the personnel depart-
ment must  provide  effective  communications.  This includes  preparing and
updating  an  employee  manual,  discussing and administering policies and bene-
 fits, maintaining  current personnel records, and controlling performance
evaluations•

      Personnel records should provide a complete history of each staff member
 from hiring to termination.   These records should include:

      •   the application form;

      •   job descriptions

      •   interview notes;

      •  insurance  and tax forms;

      •  performance evaluations;

      •  salary history;

      •  sick leave and vacation history;

      •  training/certification; and

      •  notes from an exit interview given at employment termination.
                                       1-37

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These records should be viable and current  to  assist  employees  and management.

     Salary and benefits  for employees must  be competitive  to attract  and
retain qualified people.  The personnel department  should periodically review
and compare salary structures and benefits  to  the local  job market and to
similar wastewater utilities.  In this way,  employee  compensation  can  be
evaluated for reasonableness.  Restructuring salaries  and benefits should be
a utility-wide effort coordinated by the personnel  department.

     The staff of many utilities are union  organized.  It is the personnel
department's job to work with management in  collective bargaining  and  contract
administration with union employees.  This  requires working with the shop
stewards and union officials to reach mutually acceptable contracts.   It is
also the personnel department's function to  ensure  the utility  operates
within the contract requirements.

     The practical application of good labor relations is an extensive job
requiring detailed guidance.  Detailed assistance can  be found  in  "Union
Management Relations in Public Service," Morrison et.  al.,  WPCF Journal,
Page 7, 1968.

     Exhibit  1-10 presents the specific personnel  evaluation questions  for
the personnel function.
                                     1-38

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                          Exhibit  1-10

             PERSONNEL FUNCTION EVALUATION QUEiJ'i'iONb
PROCEDURES AND POLICIES

•  Does the personnel function have a clear set of procedures and
   policies which are known to all supervisors?

•  Are policies set with respect to

     -  preparation of job descriptions
     -  recruiting and termination practices
     -  position processing
        salary
     -  evaluation and development
     -  benefits
     -  affirmative action/EEO
     -  occupational safety and health
     -  labor relations
     -  desirability of certification or  other  professional
        recognition

•  Are procedures available to all employees  and  are they under-
   standable?

•  Do  supervisors appropriately apply personnel procedures and
   policies?

•  What are  the  local, state,  and  federal legal requirements
   governing  personnel policies and  practices?

•  How is  compliance with  these requirements  ensured?

•  Is  the  utility  currently  in compliance?

ORGANIZATION

•  Does a  current  Organization Chart exist for  personnel?

 •  Is  its  supporting  role  to  the  other  utility functions clearly
   defined?

 •  Are the requirements  and  responsibilities  of personnel staff
   detailed  (job descriptions)?

 •   Does  a procedural  manual  exist?  Is  it utilized?

 •   Are reporting relationships clearly defined?
                                      1-39

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                       Exhibit   1-10  (Con't)
STAFFING

•  Does the personnel staff meet  the  organizational  needs  (job
   descriptions) of  the utility?

•  Are the personnel staff effectively utilized?   Does  the per-
   sonnel staff receive training?

•  Does their work complement all other  functions?

•  How is their attitude and motivation  towards their work?

PLANNING

•  How does the utility determine its staff requirements?

•  How are salary adjustments processed?

•  Are job descriptions reviewed and  updated periodically?

•  Do personnel policies undergo formal  review with  utility
   management?

•  To what extent are the supervisors of other utility  functions
   part of the planning process?

•  What management controls are used  in  planning?

MANAGEMENT CONTROLS

•  Are the organizational plans of all utility functions con-
   solidated into an overall plan?

•  Is a complete set of job descriptions maintained?

•  Is an employee file maintained?

•  Is a file of rejected applicants kept?

•  Does the personnel staff perform exit interviews  and- retain
   the results?

•  Are files useable?

•  Do job descriptions include?
                                     1-40

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                   Exhibit  1-10 (Con't)
  -  position title
  -  duties of the position
  -  who the individuals report to
  -  required qualifications
  -  promotional potential

Are job descriptions updated on a routine basis?
                                   1-41

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     Purchasing

     Purchases of wastewater utility  supplies  and  equipment  are usually
coordinated through a purchasing  department.   This  requires  clear lines of
communication and an effective  purchase order  system.

     Purchasing provides a service  to  the  other  utility  function that
requires continual interaction  and  communication to  place  an order for the
right item, monitor the processing  of  the  order, ascertain the  quality of the
product received, and monitor the performance  of the vendors used by the
utility.  The purchase order system can be  the basis for this communication
provided that it contains pertinent information  and  is utilized by the staff.
An important consideration with the use of  purchase  orders is whether the
majority of purchases flow through  this process.   If the utility staff tends
to avoid the purchasing department  route,  then the system  is not working.

     Within the evaluation topics,  policies and  procedures and  management
controls are particularly important when evaluating  the  purchasing function.
Exhibit  1-11 presents the questions which  should be addressed  when
evaluating purchasing.
                                     1-42

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                          Exhibit  1-11

            PURCHASING FUNCTION  EVALUATION  QUESTIONS
PROCEDURES AND POLICIES

.  Does the purchasing department have a clear set of procedures
   and policies?

•  Are the procedures and policies formal or  informal?

•  What are the local, state, and federal legal  requirements
   governing purchasing policies and  practices?

•  How is compliance with these  requirements  ensured?

•  Is  the utility  currently  in compliance?

•  When is a purchase  exempt from  central  purchasing?

•  Are procedures  and  policies established  for?

      - purchasing methods,  biddable and non-biddable items
        emergency  orders
      - .quality and control
      - inventory  levels

 •   Is disposal of  surplus  and scrap property centrally controlled?

 ORGANIZATION

 •   Does  a current  Organization Plan  (Chart) exist for purchasing?

 •   Are lines of authority and responsibilities clearly defined?

 •   Do job descriptions exist for each position in purchasing?

 •   Does a procedural manual exist for purchasing and is  it
    utilized?

 •  Does the manual include?

      -  the purchasing department
      -  the user  departments
      -  the receiving department
      -  vendors
                                       1-43

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                      Exhibit  1-11  (Con't)
STAFFING

•  Does the purchasing staff meet the organizational needs  (job
   descriptions) of the utility?

•  Is the staff bonded?

•  Is the staff effectively utilized?

•  What is the purchasing staff's understanding of wastewater
   utilities?

•  Does the staff receive relevant training?

•  Does the staff have a good attitude and work to complement  the
   other utility functions?

PLANNING

•  How are expenditures budgeted?  What other functions are
   involved?

•  Is a time schedule established to provide sufficient lead time
   in procurement?

•  Are past emergency orders reviewed to minimize its  future
   occurrence?

•  To what extent are purchase orders reviewed?

•  Is the quality of merchandise reviewed in planning  future pur-
   chases?  What about vendor service?

•  Do reorder points exist for inventory items?  How are  these
   established?

•  How often are inventory levels reviewed?

•  How do levels relate to utility policies?

•  Are distribution practices planned and periodically upgraded?

MANAGEMENT CONTROLS

•  Do purchase orders retain sufficient information?

     -  order data
     -  article ordered and quantity
                                     1-44

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                      Exhibit  1-11 (Con't)
     -  date of receipt
     -  distribution
     -  inventory level
     -  requesting department
     -  vendor
     -  procurement method
     -  cost (unit and total price)

•  Are periodic reports prepared describing?

     -  open purchase order status
     -  purchases by vendor
     -  purchases by buyer
     -  departmental budget status

•  Who receives these reports and how often?

•  Is a vendor history available to assist  in  the  planning  of
   purchases?

•  How are  inventory levels recorded?   Is  the  system adequate?

•  What measures have been  taken to ensure  the security of  pur-
   chases and  inventory?

e  How are  shipments, part  shipments, and  backorders recorded  to
   provide  a runriing tabulation of open purchase orders?

•  How often are purchasing forms and other controls reviewed  for
   relevance and clarity?   How is this  information filed?
                                      1-45

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     Management Information Systems

     As wastewater utilities become increasingly more complex  to  operate  and
manage, information systems are becoming more important  to successful  opera-
tions.  Information systems should or can provide support  to every  function
in the utility.  The basic role of the information systems function in the
utility is to provide information for:

        process control and monitoring
        preventive maintenance
        billing and collection
        personnel payroll, benefits, etc.
        purchasing and inventory control
        project control
        accounting
        financial data
        engineering monitoring
        operations controls
        management controls
        budgets and cash flows
        capital improvement programs
        fixed assets

     To effectively evaluate the information systems  function  requires iden-
tification of (1) information needs of each function;  (2)  the  extent to which
these needs are met and (3) the extent to which information systems reports
are used at all levels of management.  Equally important are identifying
areas and functions where there is no current use of  information  systems  but
which could be improved with their use (e.g., preventive maintenance or
inventory control).

     Exhibit  1-12 presents the management information system  evaluation
questions which should be addressed.
                                      1-46

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                          Exhibit  1.12

   MANAGEMENT INFORMATION SYSTEM FUNCTION EVALUATION QUESTIONS


POLICIES AND PROCEDURES

•  Does the utility have specific policies about the use of
   information systems?

•  Do the policies include

        internal or external hardware
        sharing computer time
     -  documentation requirements
        what can be automated
        security considerations
        funding of the management information system?

•  How are costs shared across the utility?

•  What backup and recovery policies have been established?

•  Does the utility have an overall management information system?

•  Are there written procedures for management information sys-
   tems ?

ORGANIZATION

•  Does a current organization chart exist for a management
   information system?

•  Is its supporting role to other functions clearly defined?

•  Are the responsibilities and requirements (job descriptions)
   of information system staff detailed?

•  Does a procedural manual exist for internal and external use?

•  Where are the information system facilities located?

STAFFING

•  Does the staff serve the organizational needs (job descrip-
   tions) of the utility?

•  What is the information systems staff's technical background?

•  What is the average tenure, by level, of information system
   personnel?
                                 1-47

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                       Exhibit   1-12  (Con't)
PLANNING

•  Has  the utility determined  its  information  requirements?

•  Is the use of information system  services scheduled between
   functions to provide a uniform  work  load?

•  How well coordinated is  the interaction  between  users  and the
   information system staff?

•  How  is the potential for new systems  evaluated?

•  Are  records of run-time utilized  to  assess  hardware require-
   ments?

•  When is system useability evaluated?  Who is  involved  in these
   evaluations ?

•  What procedures are available to  make system  changes  (software
   or hardware)?

MANAGEMENT CONTROLS

•  Are inputs and outputs controlled by user departments  and the
   information systems department?

•  How are the following recorded  and reported upon?

     -  activity
     ,-  transactions
     -  utilization

•  Is this information aggregated  for use throughout  the  utility?

•  Are there quality control checks  on  reports?

•  How secure is the data processing information?

•  Is run-time recorded?  How?

•  How are computer costs recorded?  Are the costs  allocated
   across departments according  to policies?

•  Is there a mechanism to document  and communicate system  modi-
   fications?
                                     1-48

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Wastewater Facility Functions

     The key to efficient, continuous wastewater collection  and  treatment  is
in the wastewater facility functions, i.e., operations  and maintenance.  The
other utility functions, management and support services, provide  direction
and assistance to enable the facility functions to  perform their work.

     A wastewater facility is comprised of a number of  working systems  that
all must be operated and maintained.  These include:

     •  wastewater collection system

          -  collection
          -  interceptors
             pump stations

     •  wastewater treatment system

          -  preliminary treatment
          -  primary treatment
          -  secondary  treatment
          -  advanced waste  treatment

     •  sludge system

          -  treatment
          -  ultimate disposal

     •  energy recovery

     •  laboratory

     •  vehicles

     •  buildings

     Each system of a wastewater  facility is  interactive with each other.
Because of  these interdependencies,  the  evaluator  must  examine not only
specific problems for each system,  but  the affect  of problems on other sys-
tems.  For  example, in  preliminary  treatment,  poor grit removal  can result in
excessive wear in influent pump impellers.   Therefore,  when  evaluating the
facility functions, all  interactions must be  reviewed to ensure  that major
problems are identified  for  correction.

     The facility functions  are evaluated in  a two-part process, as illus-
trated in Exhibit   1-13.  Part  A includes a  physical inspection  of the facil-
ity  to identify equipment and  process  problems.   Part B is  an evaluation of
the  procedures and  policies, organization, staffing, planning, and management
controls.   In  some  cases, these will be  design-related  problems  requiring
                                      1-49

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                                                            EXHIBIT 1-13

                                               EVALUATION OF FACILITY FUNCTIONS
i
Ln
O
                                            PHYSICAL INSPECT ION

                                             1.  Walk Through
                                               DESIGN
                                               PROBLEMS
ENGINEERING
SOLUTIONS
                                             2.  Problem
                                                Identification
                             PART A
                           INSPECTION
                                                                MAINTENANCE
                                                                EVALUATION
OPERATIONS EVALUATION
                           Policy & Procedures
                           Organization
                           Staffing
                           Planning
                           Management Controls
                                     •  Policy & Procedures
                                     •  Organization
                                     •  Staffing
                                     •  Planning
                                     •  Management Controls
                                                                                               PART B
                                                                                            EVALUATION

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engineering solutions.  In other cases, however, problems result  from  opera-
tions and maintenance management practices.  Therefore, evaluations  should
focus on finding the underlying reasons for the problems identified  in the
physical inspection and uncover problems and causes not- identified in  the
physical inspection.

     A valuable aid in performing both the physical inspection and the opera-
tions and maintenance evaluations is the standardized  U.S.  EPA Report  on
Operation and Maintenance of Wastewater Treatment Plant - Form 7500-05.  The
information recorded on this form provides both a checklist  for the  physical
evaluation and a guide for the operations and maintenance evaluations.

     The following presents a brief discussion of the  physical inspection
followed by discussion of the operations and maintenance evaluations.

     Part A;  Physical Evaluation

     Performing the physical evaluation of the facility is  conducted in two
steps:

     •  facility walk through.

     •  problem area identification.

     Step 1:  Walk Through

     The wastewater facility supervisor can assist the evaluator  by  providing
reference materials and making key personnel available at the beginning of
the physical inspection.  Data including the NPDES permit,  compliance
reports, plant records (operations and maintenance) and any  previous or on-
going studies including facility plans, sewer system evaluation surveys,
engineering reports and comprehensive plans should be  provided.   A map of the
utility service area should be available so that the location of  the plant,
pump stations, and users can be understood by the evaluator.

     The plant manager or chief operator should provide a complete tour of
the facility during which the evaluator should watch for and ask  about:

     •  excessive solids passing over clarifier weirs;

     •  excessive odors;

     •  abnormal color of wastewater in various process stages;

     •  any unusual equipment such as special pumps, chemical feeders,  tem-
        porary construction on systems which are being used  to correct pro-
        blems (or which may cause them);

     •  equipment accessibility;
                                     1-51

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     •  evidence of flow through by-pass channels;

     •  process flexibility; and

     •  treatment units out of service - why and how long.

     From the preliminary information, interviews and inspection,  the  evalu-
ator will have an overall view of the facility functions.  In addition,  the
facility supervisor may gain some insight into problem areas in  the  facility
operation which he can discuss with the evaluator.  It is important  that a
dialogue be established between the supervisor (and operators) and the per-
sons doing the physical inspection.

     Step 2;  Problem Area Identification

     The evaluator should review the results of the inspection and identify
problem areas and their effect on each component of the  operation  and  main-
tenance of the facility.  The problems identified should be reviewed and dis-
cussed with the facility supervisor and staff before the physical  evaluation
report.is prepared.

     Potential problem areas which should be covered are:

     •  influent characteristics;

          -  combined sewer loads
          -  infiltration/inflow
          -  industrial contributions
             diurnal/seasonal loading variations

     •  process control;

     •  unit operations;

     •  equipment condition; or

     •  other problems particular  to  the plant.

     The basis for reviewing the above areas should be  the  Field Manual for
Performance Evaluation and  Trouble Shooting at Municipal Wastewater  Facili-
ties, published by the Municipal Operations Branch  of  the  U.S.  EPA,  M.O. #16.

     The physical inspection results  should provide the  evaluator with two
pieces of key  information:

     1. Whether or not there is a  major design problem which  can only  be
        solved with an engineering solution.

     2. Problem areas  that  can  be  solved through  the  evaluation  of the
        operation and  maintenance  functions.
                                      1-52

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     If the first condition exists, one of the recommendations will be to
develop engineering solutions.  In addition,  the evaluator must conduct the
evaluation of the operation and maintenance functions from the point of view
of what can be done to minimize problems, if the design problems continue to
exist.

     When the second condition exists, the evaluator should use the results
to tailor his evaluation of the operation and maintenance functions.  This
information allows the evaluator to look for specific practices which con-
tribute to or cause the problems uncovered in the physical inspection.

     Part B;  Operations and Maintenance Evaluations

     Part B is the comprehensive evaluations of the operations and main-
tenance functions.  These are two separate reviews which will become part of
the overall utility Comprehensive Diagnostic Evaluation.

     The remaining sections discuss the operations and maintenance evalua-
tions .
                                   T-53

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     Operations Evaluation

     Operational factors affecting plant performance range from qualitative
factors such as the skills and attitude of operators (e.g., process knowledge
and general aptitude), to physical constraints such as deficiencies in  labo-
ratory equipment or a lack of flexibility in process equipment.

     The key activities in operations include:

     •  wastewater treatment

     •  sludge treatment/disposal

     •  energy recovery

     •  laboratory analysis

The evaluation of the operations  function must focus on  each  activity and be
assessed based on the five evaluation topics.

     While each of the  five  evaluation  topics must  be  covered for each
activity,  the  following are  three common areas of concern in  the  operations
function:

     1. Staffing

     2. Management controls

           -  plant monitoring
             process  control

      3. Policy and  procedures

           -  operating  procedures
           -  technical  references

      The  best  engineered  facility cannot  perform to its potential without the
 efforts of capable  staff.  Conversely,  many poorly designed facilities can
 perform satisfactorily  and meet effluent  standards  through efforts of  con-
 scientious and capable  operators.  The  evaluators must consider the abilities
 and limitations  of  the  operating staff.  Staff interviews may include  the
 individual in  charge of overall operations, the chief operator, specific unit
 processes operators  (e.g., digester control operator), and laboratory  staff.

      Monitoring practices are a good indication of the emphasis placed on
 operations,  and the operator's understanding of process control.  Factors
 affecting a facility's  monitoring capabilities are:

      •  sampling program;

      •  performance testing;

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      •   analytical  capabilities;  and

      •   recordkeeping practices.

      An  effective process  control program is essential if a treatment facil-
 ity's performance is  to be optimized.   Process control, however, is not some-
 thing that will  be  easily  quantified by the evaluator.  In most cases, the
 evaluators will  have  to rely on discussions with the plant superintendent
 and/or operators to supplement  available records and the technical evaluation.

      The key considerations  in  process  control are:

      •   process  knowledge;

      •   basis  for control  practices;

     •   past performance;

     •   operator emphasis  on control; and

     •   recordkeeping .
         operating procedures and references enable  the  operator  to  achieve
efficient plant operation.  The operations manual  prepared  for  the facility
should be the most important reference.  Other  reference materials relating
to operations include manufacturers' literature, publications by  professional
organizations (e.g., Water Pollution Control Federation) and U.S. EPA
publications.

     The basis 'concerns that  need  to  be  addressed  and evaluated  during  the
operations function review are presented in Exhibit  1-14.
                                     1-55

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                          Exhibit  1-14

            OPERATIONS  FUNCTION EVALUATION QUESTIONS
POLICIES AND PROCEDURES

•  Is there a formal or informal set of policies  for  facility
   operations?

•  Do policies address?

     -  Remaining in Compliance
     -  Maintaining Process and Cost Controls
     -  Minimizing Expenses

•  Is there a set of standard procedures to implement these
   policies?

•  Are they written or informal?

•  Do the procedures consider the following areas?

     -  Safety                         -  Labor  Relations
     -  Emergency                      -  Energy Conservation
     -  Laboratory                     -  Collection  System
     -  Process Control                -  Pumping Stations
     -  Operating Procedures           -  Treatment Process
     -  Monitoring                     -  Sludge Disposal
                                                                i
•  Are the procedures followed in fact?

ORGANIZATION

»  Is there an Organizational Plan  (Chart) for operations?

•  Does the Plan include?

     -  Delegation of responsibility and authority
     -  Job descriptions
     -  Interaction with other functions (such as maintenance)

•  Is the Organizational Plan formal or informal?

•  Is the Organizational Plan available and understood by  the
   staff?

•  Is the Organizational Plan followed in fact?

•  Is the Organizational Plan consistent with operating policies
   and procedures?
                                      1-56

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                      Exhibit  1-14 (Con't)
•  Is the Organizational Plan flexible?  Can it handle emergency
   situations?

•  Does the Organizational Plan clearly define lines of authority
   and responsibility in such subfunctional areas as?

     -  laboratory
     -  process control
     -  equipment operation
     -  instrumentation
     -  sludge disposal
     -  collection system
     -  pump stations

STAFFING

•  Is there an adequate number of staff to achieve  policies-
   /procedures?

•  Are staff members adequately qualified for their duties and
   responsibilities ?

     -  Certification
     -  Qualifications
     -  Ability
     -  Job Performance
     -  Understanding of Treatment Processes

•  Is staff effectively utilized?

•  Are training procedures followed for?

     -  Orientation of new staff
     -  Training new operators
     -  Training new supervisors
     -  Continuing training of existing staff
     -  Cross training

•  What training procedures are used?

     -  Formal classroom
     -  Home study
     -  On-the-job training
     -  Participation in professional organization
                                     1-57

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                      Exhibit  1-14 (Con't)
•  Does the training program include?

        laboratory procedures
     -  treatment processes
        instrumentation
        equipment trouble-shooting
        handling personnel problems

•  Does management encourage staff motivation?

•  Does management support its first line supervisors?

•  How is staff motivation maintained?

     -  encouragement for training
     -  job recognition
        promotional opportunities
        salary incentives
        job security
        working environment

PLANNING

•  How are operating schedules established?

•  Do they attempt to attain optimum staff utilization?

•  Are line supervisors  included  in manpower  scheduling?

•  Are staff  involved/informed in manpower planning?

•  Is  there sufficient  long-term  planning for staff replacement
   and system changes?

•  Are there  procedures  in manpower  staffing  for emergency  situa-
   tions?

•  How are process control changes  initiated?

•  How do  process control  changes interact with management  con-
   trols?

 •  How effectively are  laboratory results used in  process  control?

 •  Are there  emergency  plans  for  treatment control?
                                    1-58

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                       Exhibit  1-14 (Con't)
 •   Is  there an effective energy management plan?  Is the plan
    utilized?

 •   To  what extent are operations personnel involved in the budge-
    tary process?

 •   Do  budgets  adequately identify and justify the cost components
    of  operations?

 •   Are future  budgets based on current and anticipated operating
    conditions?

 •   Do  operating and  capital budget limits constrain operations
    (capital replacement and improvements)?

 •   Can budget  line items be adjusted to reflect actual operating
    conditions?

 MANAGEMENT CONTROLS

 •   Are the following documents maintained in a current state?

         Operating Reports
    - -  Work Schedules
     -  Activity Reports (time cards)
     -  Performance  Reports (lab,  supplies,  energy)
     -  Expenditure  Reports (labor,  supplies,  energy)
     -  Cost Analysis  Reports
     -  Emergency and  Complaint  Calls

 •   Do  the  reports  contain  sufficient information to  support  their
    intended  purpose?

 •   Are  they  useable  and  accepted  by  the  staff?

 •   Are  reports  being completed as  required?

 •   Are  reports  consistent with one another?

 •   Are  reports  used  directly in  process  control?

 •   Are  the reports reviewed and  discussed with operating  staff?

 •   What  type of  summary  reports  are  required?

•   To whom are  they distributed and  when?
                                     1-59

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     Maintenance

     Maintenance directly affects the ability of the facility to run effi-
ciently and remain in compliance with its NPDES permit.  There are  two  types
of facility maintenance:

     •  Corrective Maintenance

          -  puts back in operation malfunctioning equipment; and
          -  avoids or minimizes possible compliance violations

     •  Preventive Maintenance

          -  reduces facility operating costs by avoiding  breakdown and cor-
             rective maintenance;
          -  improves the wastewater facility's reliability  by minimizing
             out-of-service time for equipment; and
          -  increases the useful life of equipment and  avoids costly  pre-
             mature replacement.

     The evaluation of the maintenance function must focus on  the  ability to
maintain the following system components:

     •  process equipment

     •  wastewater collection system

     •  vehicles

     •  buildings and grounds

     While  each of the  five evaluation  topics  must be  covered  for  each com-
ponent, the following are  three common  areas of  concern  in the maintenance
function:

     •  staffing  and  training;

     •  planning  and  scheduling;  and

     •  management control

           -  records  systems
              inventory  control

      Only  well-trained,  competent staff can be expected to perform adequate
 inspections, repairs,  and preventive  maintenance.   Wastewater facilities main-
 tenance is  complex and  requires a variety of skills including:  electrical,
 mechanical, instrumentation,  automotive and building maintenance.   Because
 many of these skills  are not  readily available,  an.ongoing training program
 is essential.
                                      1-60

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     Maintenance  planning  and  scheduling  is  essential to effectively perform
preventive and corrective  maintenance.  The  major  constraints  in planning and
scheduling are emergency repairs  versus routine  maintenance.   The maintenance
supervisor must prepare work schedules  listing  job priorities,  work assign-
ments, available  personnel, and timing.

     A detailed records system is  the  basis  of  any maintenance  program.
Records are used  to establish  maintenance histories on equipment, diagnose
problems, and anticipate and therefore  avoid failure through  preventive  main-
tenance.  Records systems  can  vary from a logbook  or card system to a fully
automated computer system  depending  upon  utility size.

     A central inventory for spare parts,  equipment, and supplies must be
maintained and controlled.  The basis  for the inventory should  be manufac-
turer's recommendations supplemented by maintenance experience.   Inventories
must be kept at levels sufficient  to avoid process interruptions.  The con-
trol of the inventory is usually  by  a  card system  with predetermined reorder
points allowing for procurement lead times.

     A maintenance cost control system  should be an integral  part of every
wastewater facility.  Budgets  must be developed  from past cost  records and
are usually categorized according  to preventive  maintenance,  corrective  main-
tenance, and major repairs.  Costs over a given  year must be  compared to bud-
get on a periodic basis to control maintenance  expenditures.  Evaluating
costs in this manner provides  control over expenditures  and provides a basis
for development of future  year budgets.

     Each of the  basic elements of a maintenance program is discussed in more
detail in Maintenance Management  Systems  for Municipal Wastewater Facilities,
EPA, 68/01/0341,'March 1973.   This document  can  serve  as  a primary reference
for the evaluator and the  utility  manager/maintenance  staff.

     The basic concerns that need  to be addressed  and  evaluated  during the
review of the maintenance  program  are presented  in Exhibit  1-15.
                                     1-61

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                          Exhibit  1-15
            MAINTENANCE FUNCTION EVALUATION QUESTIONS


PROCEDURES AND POLICIES

•  Is there a formal or informal set of policies for facility
   maintenance?

•  Do Policies Address?

     -  Remaining in Compliance
     -  Performance Objectives
     -  Maintaining Process and Cost Controls
     -  Minimizing Expenses
     -  Staying Within Budgets

•  Is there a set of standard procedures  to implement  these
   policies?

•  Is it written or informal?

•  Do the procedures consider the  following areas?

        Equipment record system
     -  Maintenance planning and scheduling
     -  Work orders
        Inventory management
     -  Operating procedures
     -  Emergencies
     -  Maintaining process control
     • -  Labor relations
     -  Energy conservation

•  Are the procedures  followed in  fact?   Are  they  effective?

ORGANIZATION

•  Is there an Organizational Plan (Chart)  for maintenance?

•  Does the Plan include?

     -  Delegation  of  responsibility  and  authority
     -  Job descriptions
        Interaction with other functions  (such as  operations)

•  Is the  Organizational Plan  formal  or  informal?
                                      1-62

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                       Exhibit  1-15 (don't)
 •  Is  the Organizational Plan available to and understood by the
    staff?

 •  Is  the Organizational Plan followed in fact?  Is it effective?

 •  Is  the Organizational Plan consistent with policies and proce-
    dures?

 •  Is  the Organizational Plan flexible?  Can it handle emergency
    situations?

 •  Does  the  Organizational Plan clearly define lines of authority
    and responsibility in such subfunctional areas as?

     -  mechanical
     -  electrical
     -  instrumentation
     -  buildings and grounds
     -  automotive
     -  supplies and  spare parts

 STAFFING

 •   Is  there  an adequate  number  of  staff to  achieve  policies-
    /procedures?

 •   Are staff members  adequately qualified  for  their duties  and
    responsibilities ?

     -   Certification  (esp. mechanics  and electricians)
     -   Qualifications
     -   Ability
     -   Job performance
         Understanding of maintenance procedures

•   Is staff effectively  utilized?

•  Has  the potential  for borrowing personnel been considered?

•  Are  training procedures followed for?

     -   Orientation of new staff
        Training new maintenance personnel
        Training new maintenance supervisors
     -   Continuing training of existing staff
     -   Cross training
                                     1-63

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                            EvMMf  T-1S
I
      •  What training procedures are used?

           -  Formal classroom
           -  Home study
           -  On-the-job training

      •  Does the training program provide specific instruction to the
         various maintenance disciplines?

           -  mechanical
           -  electrical
           -  instrumentation
           -  automotive
           -  building maintenance
           -  inventory control

      •  Does management encourage staff motivation?

      •  Is staff motivation maintained by?

           -  Encouragement for training
           -  Job recognition
          - -  Promotional opportunities
           -  Salary incentives
           -  Job security
           -  Working environment

      •  Is the staff committed to a maintenance program?

      PLANNING

      •  Are maintenance activities planned?  Formally or informally?

      •  Does the utility have sufficient management controls to affect
         realistic planning and scheduling?  If the controls exist are
         they utilized?

      •  To what extent do the other utility functions become involved
         in the planning process?

      •  Are operating variables exploited to simplify maintenance
         efforts?

      •  Is efficient staff utilization a significant factor in plan-
         ning?
                                           1-64

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                       Exhibit   1-15 (Con't)
 •   To what  extent  is  the  supplies  and spare parts  inventory plan-
    ned  in conjunction with maintenance activities?

 •   Have minimum  and maximum levels  been established for all
    inventory  items?

 •   Does maintenance have  an emergency plan  in harmony with the
    utility  emergency  plan?

 •   Is it up to date?   Is  the staff  knowledgeable about emergency
    procedures ?

 •   Does a plan exist  for  returning  to the preventive maintenance
    mode following  an  emergency?

 •   Are  preventive  maintenance tasks  scheduled in accordance with
    manufacturer's  recommendations?

 •   Is adequate time allowed for  corrective  maintenance?

 •   Are  basic maintenance  practices  (preventive and corrective)
    and  frequencies reviewed for  cost-effectiveness?

 •   Do the management  controls  provide sufficient information for
    accurate budget preparation?

 •   Does the maintenance department  receive  feedback on cost per-
    formance to facilitate  future budget  preparation?

 •   To what  extent  are maintenance personnel  involved in the bud-
    getary process?

 •   Do the management  controls  provide  sufficient information for
    accurate budget preparation?

 •   Do budgets adequately identify and  justify  the  cost components
    of maintenance?

 •   Are  future budgets based  on current and anticipated operating
    and maintenance conditions?

•   Do maintenance and capital  budget  limits  constrain  preventive
   maintenance (equipment  replacement  and improvements)?

•   Does  the maintenance department receive adequate  feedback on
   cost  performance?
                                     1-65

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                      Exhibit  1-15  (Con't)
•  Can budget line items be adjusted to reflect  actual  main-
   tenance conditions?

MANAGEMENT CONTROLS

•  Does a maintenance record system exist?  Does  it  include?

        as-built drawings
     -  shop drawings
     -  construction specifications
     -  capital and equipment inventory
     -  maintenance history (preventive and corrective)
     -  maintenance costs

•  Is the base record system kept up-to-date as  part of daily
   maintenance practices?

•  Is there a work order system for scheduling maintenance?  Is
   it explicit or implicit?

•  Do work orders contain?

     -  date
    - -  work order number
        location
     -  nature of problem
     -  work required
        time requirements
     -  assigned personnel
     .-  space for reporting work performed, required supplies,
        time required, and cost summary
     -  responsible staff member and supervisory  signature
        requirements

•  When emergency work must be performed without  a work order, is
   one completed afterwards?

•  Are work orders useable and accepted by staff  as essential to
   the maintenance program?  Are they actually completed?

•  Is work order information transferred to a maintenance record
   system?

•  Does a catalog or index system exist for controlling items in
   inventory?
                                     1-66

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                      Exhibit  1-15 (Con't)
•  Are withdrawal tickets used for obtaining supplies  from inven-
   tory?

•  Do the tickets contain cost information and interact well with
   inventory controls and the work order system?

•  Is the cost and activity information from work orders aggre-
   gated to provide management reports?  Is this information also
   used for budget preparation?

•  Is maintenance performance discussed regularly with the staff?

•  How is the cost of contract maintenance or the use  of special-
   ized assistance recorded?

•  Are there adequate safeguards and penalties to prevent main-
   tenance cards from being returned without the work  being done?

•  Is the preventive maintenance record checked after  an emer-
   gency equipment failure?
                                      1-67

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                                   REFERENCES


 "A Planned Maintenance Management  System  for  Municipal  Wastewater Treatment
 Plants," EPA 600/2-73-004,  November  1973, M.O.  #23.

 Bargman, R.D.   "Organization and Management Control  in  a  Sewage  Treatment
 Plant, Journal  of Sewage and Industrial Wastes  (WPCF),  P.  1145,  October 1953

 "Considerations for Preparation of Operation  and Maintenance  Manuals  "  EPA
 430/9-74-001, 1974, M.O. #5.


 "Emergency Planning for Municipal Wastewater  Treatment  Facilities  " EPA
 430/9-74-013, February 1974, M.O. #9.

 "Estimating Laboratory Needs for Municipal Wastewater Treatment  Facilities  "
 EPA 430/9-74-002,  June 1973                                                '


 "Estimating Staffing for Municipal Wastewater Facilities," EPA 68/01/0328
 March 1973, M.O. //I.                                                      '


 "Financing  and  Charges for Wastewater Systems," APWA, ASCE, WPCF,  1973

 Graeser,  H.J.,  "Sewage Works Management,"  Journal of Sewage and  Industrial
 Wastes  (WPCF),  P.  133, 1953


 "Maintenance  Management Systems for Municipal  Wastewater Facilities " EPA
 43019-74-004  October 1973,  M.O. #7.

 "Management of  Small-to-Medium-Sized  Municipal Wastewater Treatment Plants "
 EPA 430/9-79-013,  July 1979, M.O.  #22.

 "Model  Protocol  for  the Comprehensive Evaluation of Publicly-Owned Treatment
 Works Performance  and  Operation,"  EPA 68/03/2571

 "Operation  and Maintenance  of Wastewater Collection Systems,"  MOP #7,  WPCF,
 1980

 "Operation  of Wastewater Treatment  Plants," MOP  #11,  WPCF,  1977

 "Public Information  Handbook,"  WPCF,  1977


 "Public Ownership  Constraints on Utility Management," American Water Works
Association Journal, P. 495, October  1969

Field Manual for Performance Evaluation and Troubleshooting at Municipal
Wastewater Treatment Facilities, EPA  430/9/78-001,  January  1978,  M.O.  #16.

"Public Works Management Handbook," Commonwealth of Pennsylvania,  January 1972
                                     1-68

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"Structure of Publicly-Owned Water Utilities,"  American  Water  Works  Associa-
tion Journal, P. 215, April 1970

"Uniform System of Accounts for Wastewater Utilities," MOP  #10,  WPCF,  1970

"Inspector's Guide For Evaluation of Municipal  Wastewater Treatment  Plants,'
EPA 430/9-79-010, April 1979, M.O. #24.
                                    1-69

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            CHAPTER II




SELECTED UTILITY MANAGEMENT ISSUES

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                                 CHAPTER II:


                     SELECTED UTILITY MANAGEMENT ISSUES


                              TABLE OF CONTENTS
INTRODUCTION 	    II-

                                                                      II-2
INSTITUTIONAL/ORGANIZATIONAL STRUCTURE 	

     •   MUNICIPAL DEPARTMENT	    II-2

             Control and Accountability	    TT~/L
             Management  	
             Finance	    11-6

     •   AUTHORITIES 	    II-6

             Control and Accountability  	    11-10
             Management	    TT  in
             Finance	    H~10

                                                                .  .    H-11
     •   CONCLUSION  	  	

FINANCIAL MANAGEMENT 	    11-12

     •   PLANNING	    II-12

             Develop Objectives for Wastewater Activities   ....    11-14
             Develop Quantitative Measures of Performance   ....    11-14
             Develop Budget Requests Based on Objectives and
                 Performance Measures   	    11-16
             Establish Timetable and Assign Responsibilities  .  .  .    11-16
             Monitor and Evaluate Performance
                 in Relation to Budget	    11-16

     •   BUDGETING	,	    H-M

             Policy	    11-18
             Operation and Maintenance  Budget   	    11-19
                                     Il-i

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                                  CHAPTER II:


                      SELECTED UTILITY MANAGEMENT ISSUES


                               TABLE OF CONTENTS
                                  (Continued)
              Capital  Budget   	    11-23
              Flexible Budgets   	    11-27
              Cost  of  Service	    11-28
              Budget Narrative   	    11-28
              Budgetary Control  	    11-30

     •   ACCOUNTING AND FINANCIAL  REPORTING   	    11-32

         -    Policy	    H_34
              Relationship  to Budget   	    11-37
              Types of Cost	    11-37
              Accounting Records  	    11-38
              Enterprise Fund Accounting   	    11-39
              Property and  Fixed Assets  	    11-41
              Cash  Flow	    11-41
              Financial  Reporting 	    11-45

     •   COST RECOVERY	    11-45

              Policy	    11-46
         -    Revenue  Requirements  	    11-48
              User Charges	    11-49
             Regional  Assessment 	    11-49

     •   CAPITAL FINANCING 	    11-50

             Grants	    11-50
             Current  Revenues and Accumulated Funds   	    11-51
             Bonded Indebtedness 	    11-52
             Leasing	    11-59

PUB1IC INVOLVEMENT - A  TOOL FOR IMPROVING OPERATION
     AND MANAGEMENT	    11-66

     •   WHY INVOLVE THE PUBLIC IN WASTEWATER UTILITY MANAGEMENT  .    11-67
                                    Il-li

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                            CHAPTER II:


                SELECTED UTILITY MANAGEMENT ISSUES


                         TABLE OF CONTENTS
                            (Continued)
        Inadequate Financing  	    TT~7i
        Rate Setting	    }}  7}
        Capital Reconstruction and Renewal  	    11-71
        Extension of Services	    TT  79
        Sludge Disposal	    }}  7l
        Industrial Waste	    TT  7?
        Interjurisdictional Disputes  	

•   PLANNING TO INVOLVE CITIZENS  	    11-73

        When to Involve the Public	    11-73
        The objectives of Public Involvement  	    11-/4
        Decide Whom to Involve	    TT  TK
        Assess Available Resources  	    TT  TK
        Identify Who Will Manage Public Involvement 	    11-76
        Select Particular Techniques  	    11-76

•   AN INVENTORY OF PUBLIC INVOLVEMENT ACTIVITIES	    11-76

        Information Receiving Activities  	    11-76
        Information Giving Activities 	    11-77
        Informal Activities  	    ii-//

•   SUGGESTIONS FOR USING PARTICULAR TECHNIQUES  	    11-77

        Public Hearings 	    11-77
        Advantages of Public Hearings 	    11-79
        Disadvantages of Public Hearings  	    11-79
        Public Meetings and Workshops 	    11-79
        Advantages of Meetings and Workshops  	    11-80
    -   Disadvantages of Meetings and Workshops  	    11-80
        Obtaining Information from the General Public  ....    11-80
        Advisory Groups and  Task Forces	    11-81
        Advantages of Advisory Groups and Task Forces  ....    11-ot
        Disadvantages of Advisory Groups and Task Forces   .  .    Il-ot
        Public Education/Information Programs 	    11-82
        Advantages of Public Education Programs  	    11-84
        Disadvantages of Public Education Programs	    11-o4

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                                  CHAPTER II

                      SELECTED UTILITY MANAGEMENT ISSUES
 INTRODUCTION

     It  is  generally  recognized  that  a  wastewater  utility  must  be  self-
 sustaining  if it  is to  operate efficiently  and  effectively.   To  be  self-
 sustaining requires:

        organizational  independence
        management capability
        public support
        adequate staff
        financial self-sufficiency

     Political,  managerial  and  financial  constraints  have  a  significant
effect on  the ability  to be  self-sustaining.   In chapter   I,  Comprehensive
Diagnostic Evaluation,  a methodology was  presented to evaluate  a  wastewater
utility.   It  presented  the  management framework of a  self-sustaining utility
including a review  of the general, support  services,  financial  and treatment
facility management  functions  of a utility.   The general  characteristics  of
each  of  these  management  functions  were  described  and  key questions  were
identified to evaluate each function.

     While any  of  these management functions  can affect a  utility's  ability
to be self-sustaining,  there are  three  areas of particular  concern  in waste-
water utility management.  These are:

     •  Institutional/Organizational
     •  Financial
     •  Public Support and Public Involvement

     These  three areas are reviewed in detail in this  chapter.
                                      II-l

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INSTITUTIONAL/ORGANIZATIONAL STRUCTURE

     The  institutional  structure  of a  utility,  as well  as  its  internal and
external  organization are  important  considerations   in  developing  a  self-
sustaining utility.  These affect:

     •  who controls the utility;
     •  how the utility is managed; and
     •  how capital and operating revenues are generated.

     The preferred  institutional  structure  for any  given  utility depends upon
its political, financial and operational  environment.   There  is a broad range
of possible structures; most,  however,  are variations  or combinations  of the
following:

     1. a  municipal department,  with  or  without  sanitary  districts,  under
        which the facilities are local government-owned and operated;

     2. a municipal authority  or  commission under which  the  local government
        owns the  facilities but management and operations  are  separated from
        general municipal activities; and

     3. an  independent  authority  or commission,  fully  autonomous   from  the
        local municipality, with its own appointed or elected governing board.

     The following  reviews  some of  the advantages  and disadvantages  of each
type of institutional structure  to provide a basis for evaluating its  appro-
priateness in particular situations.

Municipal Department

     A municipally  owned  and  operated utility usually  exists  as a department
within  the local  government.   The  typical  intergovernmental   relations  are
shown  on  exhibit  II-l.   In most  cases,  the  department has  direct  responsi-
bility for  treatment  facility operation  and  maintenance  and relies  on other
government  departments  for general  management  and support services such  as
accounting, personnel, data processing  and purchasing.   The  financial  struc-
ture is either integrated into the general municipal accounts or is maintained
as a  separate  enterprise fund.   Special  taxing  districts  may  be established
as a means  to  pay debt for utility  costs  through ad  valorem taxes.   Budgets
are usually part of the general municipal budget.

     Municipal departments are most appropriate when:

     •  the utility operates only within one political jurisdiction;
     •  the majority of the population is served; and
     •  the local municipality is  financially sound.
                                     II-2

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                   EXHIBIT  II-l

            WASTEWATER UTILITY AS A
             MUNICIPAL DEPARTMENT
  MUNICIPAL
  LEGISLATIVE
    BODY
    CHIEF
ADMINISTRATOR
1
POLICE




PUBLIC
WORKS
• • • «*•
— ' • • •
STREETS
&
HIGHWAYS
-{


WASTEWATER
TREATMENT



SEWER
SYSTEM


1
FINANCE &
ACCOUNTING


1 1 1
LABORATORY
MAINTENANCE OPERATIONS

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     Exhibit 11-2  summarizes the  advantages  and  disadvantages  of  a utility
operated as  a  municipal  department.   The following discussions  address these
in terms of control and accountability, management and finance.

     Control and Accountability

     The municipally-owned  and  operated utility  provides  elected  officials
with complete control of:

     •  user charge rates;
     •  capital improvements;
     •  budgeting; and
     •  delineation of service areas and collection systems.

     In exercising this  control, elected officials  act  to serve  the interests
of the  public  within their  jurisdiction.  Such actions  may or may  not  be in
the best interest of the utility when  key questions arise.  For  example, when
rate  increases  are  required,  decisions may  be  based  upon  political   issues
rather  than  the  utility's  revenue  requirements.   Conversely,  political pres-
sure helps to ensure that utility costs do not get out of hand.

     When the  utility  serves only  the jurisdiction and  the majority  of  the
population are  served,  full control and  accountability  by  elected  officials
is a sound concept.  When the utility serves other jurisdictions, however, the
other jurisdictions  are  not adequately represented.  In  such  cases, the con-
cept of a  jointly  sponsored authority  or  commission may be more  desirable
since  it  provides  joint control  and  accountability  by  each  participating
jurisdiction. Authorities are discussed in a subsequent subsection.

     When only  a small  portion or  pockets  of the  jurisdiction  are  served,
there is the potential  to  be  overlooked or overruled  by the balance  of  the
jurisdiction.   In such  cases,  special .sanitary  districts  can  be  formed  to
represent  the   interests   of  the  people   served  and   provide  financial
accountability.

     Management

     A  municipal wastewater  department usually  provides  the  operation  and
maintenance  functions for the utility.   The other utility functions  are often
provided by other municipal departments including:

        public works;
        finance;
        planning;
        personnel;
        purchasing;
        data processing;  and
        engineering.
                                        II-4

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                                             EXHIBIT II-2

                             LOCAL GOVERNMENT-OWNED AND OPERATED UTILITY
Control and
Accountability
           Advantages

   maximum control by  local government
                •  closely accountable  to  elected
                   officials
             Pi sadvantages

•  Policy issues are subject to political
   pressures that are not utility-oriented
   (e.g., growth control)

•  Key activities may be controlled by other
   departments (e.g. maintenance of sewer
   system, finance, billing)

•  rate  setting  is  political  and  may  not
   address utility needs
Management      •  supported by other municipal
                   departments and  avoids  duplication
                   of functions (e.g., separate  finance
                   or purchasing functions)
                                           •  constrained  by local government  rules and
                                              regulations  (e.g.  salary,  staffing,  etc.)
                                                           •  may  be  too reliant  on other local
                                                             government departments for key services
                                                              (e.g.,  finance,  billing,  etc.)

                                                           •  management subject  to override for
                                                             political  reasons
Finance
•  raising capital can be done without
   general obligation bonds

•  short-term financial assistance may
   come from the general fund
                                                              utility  is  less  likely to be self-
                                                              sustaining  requiring subsidies
                                                              between  utility  and  general fund

                                                              investors   may   be   less   willing   to
                                                              purchase  bonds   because  of  potential
                                                              political pressures

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     For  small  utilities,  having these  functions  performed by  other depart-
ments is  beneficial  since  the utility could  not  afford to maintain  the same
level of  service  by  itself and  it  avoids unnecessary  duplication  of activi-
ties.  For larger utilities, however, this type of support is frequently
inadequate to serve the utility's needs.

     While having some utility functions  managed  and  performed by other muni-
cipal  departments  is  appropriate  in  certain instances,  it  can  create dis-
advantages.  For example, authority over the sewer system is often part of the
public works department.  With its many other responsibilities, the Department
of Public Works often  places  sewer  construction  inspection and maintenance in
a position of low priority.   This may  affect  the  utility manager's ability to
control daily operations of the  facility  because  of  decisions  made outside of
his control.

     As  a municipal  department,  personnel   policies  are  controlled  by  the
general   government.    This  may   constrain  the   utility's   operation   by
establishing:

     •  pay  scales  below  those   required   to   attract  and   maintain  good
        operators;

     •  staff size below the  level necessary for proper operations; and

     •  staff qualifications  or  selection  criteria that are  inconsistent with
        the utility's needs.

     Finance

     The  key  financial  issues for a municipally  operated  utility are raising
capital and operating  revenue.   If  the municipality is  in  a  strong financial
position,  it  provides  the  utility  with  access   to  generally  less  expensive
capital,  typically through  general obligation or  revenue bonds.   (The types
of capital  financing and cost recovery  available to utility  departments  are
more  completely  discussed   in  the  financial  management  section  of  this
chapter.)

     As a department  within a local  government,  a utility has  the advantage
of being  able to draw  on or borrow money from the general  fund  when unexpec-
ted shortfalls are encountered.

     A problem frequently encountered within a municipal wastewater department
is that  the  utility  is subsidized by  the local  government.   This  occurs  be-
cause some indirect costs are not charged  to  the  utility such  as support ser-
vices provided by  other departments.  In  such cases,   the utility  appears to
be self-supporting when in  fact  the general government and the entire tax base
are supporting the operation.

Authorities

     There are two basic forms of authorities:
                                        II-6

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     •  a  municipal   authority  wherein   the   municipality  which   retains
        ownership of  the  facilities while  most  management control  is  vested
        in the authority;  and

     •  an independent authority which owns and manages the facilities.

     Exhibit  11-3 illustrates  the  organization  of   a  municipal  authority.
Typically,  it  is operated  by a governing  board or  commission  which  is  ap-
pointed by the chief  executive  of  the  municipality.   The commissioners' terms
of office  are  frequently  overlapping  and  generally not  coterminous  with  the
chief executive's.  Financial and  accounting systems  are  completely separate
from  the  city's  and  the authority  is  vested  with  the power  to  establish  its
own budgets and  set  utility rates without  municipal  approval.   The authority
may  also be  empowered  to  issue  debt,  although direct  voter  referendum  or
council approval of bond issues may  be required.   The major advantage of this
type  of  arrangement  is  its  operational autonomy.   This  autonomy provides  in-
sulation from political pressure on budgets and rates.

     An  independent authority has  similar  operational autonomy.   In addition,
it assumes  ownership  of  the  utility.   This type  of  authority   is  usually
created  by  a  special act  of  the  state  legislature which  defines how  the
authority is to be structured and operated.  A board or commission arrangement
is the typical governing structure  which  can be amended  only  by state  legis-
lation.  Through creation of  such  an authority, a municipality  can shift  the
burden of a substantial service to an  essentially  separate jurisdiction.  The
degree of control a municipality can maintain over  these systems once such an
authority has  been  established  depends  on the   authority's  enabling legisla-
tion.  Continued control over the governing  board  appointment  process, board
composition, terms of office,  provisions concerning  the  use  of  surplus reve-
nues and  the like are all mechanisms by which a municipality  can  ensure that
the  independent  authority  will be  accountable  to  municipal interests.   In
practice, however, a  satisfactory  balance  between independence and account-
ability  is difficult  to achieve.

     An authority type of operation is most appropriate when:

     •   two or more local governments  have  major participation in  the utility
        services;
     •   the utility is large and operates as a stand alone operation;
     •   there are financial problems in  the local  government,  particularly in
        raising capital;
     •   state and/or  local  law  and requirements on  the  local  government con-
        strain facility operations; and
     •   local political issues  interfere with utility operations.

     Exhibit  11-4 summarizes  the advantages  and  disadvantages  of authorities.
The following section discusses  these  in terms  of control and accountability,
management and finance.
                                     II-7

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                                                                             Kxmiiri 11-3
                                                                        MUNICIPAL AUTHORITY
                                                                        ORGANIZATION CHART
                                                                 ELECTED OFFICIALS
                                                                  COMMISSIONERS
                                                                 UTILITY MANAGER
 I
CO
                FINANCE &
                ACCOUNTING
PURCHASING
                    PERSONNEL
                                                                   ENGINEERING
                                                                        &
                                                                    INSPECTION
                                                                                                                           FACILITY
                                                                                                                          OPERATIONS
                                                         SEWER
                                                         SYSTEM
                                                      MAINTENANCE
                                              SEWER
                                              SYSTEM
                                            INSPECTION
                                                                                                   LABORATORY
                                                                                                                         MAINTENANCE
                                                                                                                                              OPERATIONS

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                                            EXHIBIT  11-4

                                     AUTHORITY-OPERATED UTILITY
Control and
Accountability
Management
           Advantages

   control is  independent  of  other
   local issues/politics

   relieves local government  from
   political burden of establishing
   a self-sustaining utility
•  utility has complete management sys-
   tem—not dependent on local government

•  utility can organize in best manner
   for operations,  management only deals
   with utility issues

•  investors prefer independence from
   local politics
             Disadvantages

•  not accountable to general government
   and local officials

•  loss of local government control of a
   major functional area
•  local government loss of a policy-
   making area

•  creates another level of "government"

•  replicates existing support systems
                                                              may expand beyond need, when not
                                                              accountable to local government
                                                           •  loss of the use of generally  cheaper
                                                              general obligation bonds
Finance
•  financial issues not mixed with
   local government financial issues
                •  rate setting is not constrained by
                   "other" political issues
   capital funding may be more expensive
   because it is primarily dependent upon
   revenue bonds

   has no taxing power to act as  a
   financial backup  to user charges
                •  utility is self-sustaining

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     Control and Accountability

     One of  the  principal  advantages of an  authority  is that  control  is re-
moved from general government  and  it is less affected  by  unrelated political
issues.  This is particularly  true  when there are two  or  more  political sub-
divisions served by the utility.

     Even  though formal control  goes  to  the  board  or  commissioners  of  an
authority, in most cases there  are  still sufficient  ties,  formal or informal,
to the  local  government  and/or  the  public  to assure  accountability.  Account-
ability exists because  the authority officials  are  elected by  the  public  or
appointed by  the elected officials participating in the authority.

     Management

     The most significant  management advantage of the  authority is its  inde-
pendence from local municipal departments.   Management needs to deal only with
utility related  issues and can  organize in a manner best suited to operate the
facility.  In addition,  independence can avoid constraints on personnel hiring
requirements  and salary limitations  enabling management  to staff  to  proper
levels and develop pay scales suitable  to a utility operation.

     A  disadvantage  of  an authority  operation is the  duplication and  higher
costs  of support  services.    To  a  certain  extent,  this   can  be  avoided  by
developing  agreements  with local government  to  provide special services such
as data processing.

     Finance

     A  major advantage of an  authority is  its ability  to raise both  capital
and  operating revenues  without affecting or being affected by  local municipal
constraints.    (Capital  financing   is  discussed  in   detail   later   in this
chapter.)

     Investors   frequently regard  authorities  more  favorably  than municipal
utilities  because  there  is more clear separation of funds and  less  likelihood
of diversion of  utility  revenues  to the general municipal  fund.

     One  major financial disadvantage  is the  loss  of  less expensive  and more
accessible capital which  can  be  raised with general obligation bonds.   Since
authorities  usually  finance  with revenue bonds, interest rates will be higher
and  bond reserve requirements  more  stringent.
                                    11-10

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      In addition,  since  the  authority  is  independent  and  self-sustaining,
 there is no short-term  financial  backup available as  in  the case of  a local
 government  operation.  At the same  time,  the authority form  avoids  direct or
 hidden cross-subsidy between the local government and the  utility.

 Conclusion

      •  There   is  no  "best"  organizational  structure.    It  depends  on  the
         political,  managerial  and  financial  condition  of  the  municipality
         being  served.  There are  financially and managerially  strong  systems
         under  each  organizational  alternative.  This suggests that,  while  the
         institutional structure  is  important,  it  is  only  one of  several  fac-
         tors  determining  successful  utility operation.    A  recent  study  of
         urban  water  systems  found  that  a  municipal utility  can be  operated
         successfully  "...if  the  city  government  is  strong financially, has  a
         stable  tax  base, and  assigns  a  reasonably  high  priority  to  water
         supply...   The converse of this statement  also appears  to  be  true.
         Thus, while  type  of  ownership  can impact success,  it  is not  in itself
         necessarily a determining  factor."_!_/

      •  The experience of municipalities  that have recently  restructured their
         utility operations  suggests  that   the  more  financially  secure  the
         existing municipal operation,  and the longer  its track record of self-
         support and  demonstrated capability  of meeting debt  service  coverage
         requirements,  the less  the need,  from a financial  perspective,  for
         creating a new independent management structure.

      •  The decision  as  to whether  or not  to  create a separate authority  is
         to a  large  extent determined  by  the municipality's overall  financial
         needs and political  motivation to reorganize.  For example,  formation
         of  the  Boston Water  and Sewer  Commission provided  the city  with  a
         much  needed   relief  from a  constant  drain  on general  tax  revenues.
         The form of  an independent  authority offered a mechanism whereby  the
         city  could  assure  that  utility  operations   would  be conducted  on  a
         fully  self-supporting basis  without the  political  burden  of City
         Council members having to advocate  the  requisite rate  increases.
I/  SCM-Martin  Consulting  Engineers  and  Temple,  Barker  & Sloane,  Inc.,  "An
Analysis  of  the  Nation's  Urban  Water  Systems:   Characteristics,  Investment
Requirements and  Policy Options," Institute  for Water  Resources,  Department
of the Army,  December 1979, p. 9.
                                   II-ll

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FINANCIAL MANAGEMENT

     Sound financial management can  aid  utility  managers  in making policy and
managerial decisions needed to plan, budget, account for and recover operating
and maintenance costs and to finance capital improvements.

     Financial management  includes  the  establishment  of  fiscal  policies and
plans, the allocation of resources  to  meet the policies  and  plans,  the  iden-
tification, documentation and  recovery of costs, the  protection  of  funds and
the timely dissemination of relevant financial  information  to utility manage-
ment.  Specifically financial management includes the following activities:

        planning;
        budgeting;
        accounting and financial reporting;
        cost recovery; and
        capital financing.

     Each of these activities is discussed in the following section.

Planning

     Planning is  the  means  to decide  in advance what  the utility will  do in
the future, who  will do  it,  and how  it will  be  accomplished.   Planning is
like a road to get  a  person  from  one place to another.   It  establishes goals
as to  where  a person  should  begin  and  end,  objectives  or milestones  as to
where the person should be during his  trip, a timetable as  to when the person
should arrive and a measurement as  to  how far  he has gone.   When  a  person is
"on course" the plan should show how far he has  proceeded and how much he has
to accomplish.   When a person strays  off  the  course, the  plan  should  show
where he strayed and what steps have to be taken to bring  him back on course.

     Utility responsibilities  are broad  and complex.  The community  which it
serves is  in  a  continual  state of  change.   New developments  for residential
and industrial  users are planned  and  constructed.   This  results  in  a  con-
stantly changing  environment  where  wastewater  volume  and strength character-
istics are directly  affected  by community plans.  Under  these circumstances,
a  sound  program  of  comprehensive   planning  is  one  of  the  most  important
responsibilities of the utility manager.

     Wastewater utility planning is  concerned with the following major issues:

     •  what is the current and future  wastewater requirement;

     •  what  resources  are needed  to  respond  to  this   requirement  (people,
        materials, equipment);
                                   11-12

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      •  what resources can be used more efficiently; and

      •  what wastewater  functions  can be  provided more  effectively  and/or
         efficiently by the private sector.

      For planning  to  be  effective, the  following  basic conditions  should  be
 met:

      •  the people  who  manage the  wastewater utility  should  be  involved  in
         the planning process.  This includes  not  only the wastewater  utility
         manager  and staff,  but   also  local  administrative  and  legislative
         officials;
                                                                 •

      •  the current and future wastewater requirements  in a  community  must  be
         determined.   This  requires the  utility manager to understand the  type
         of  development  planned for the  community;

      •  the public   should  be  involved  in decisions  about  current and  future
         wastewater   services.   While  the public  typically  can  identify  with
         drinking  water  activities it has little  perception  of the process  or
         problems  associated  with  wastewater  management.   Public  input  can
         have a  positive  benefit in accomplishing utility goals and objectives
         and developing  facility operating and  capital budgets;

      •  planning  should  be comprehensive, including all wastewater  functions
         (financial,  support and  facility management).   Budget  requests  for
         wastewater  services  should include a determination of the  anticipated
         service to  be provided, an analysis  of what will happen if the  waste-
         water discharge  is increased or  reduced  and an analysis  of  the  cost
         of  service  at the  requested level; and

      •   performance  should be  monitored  in  relation to  the  service   levels
         requested  in the  plan.   Regular performance monitoring  can enhance
         the planning and replanning process.

      When these general  conditions are  met,  planning can  become  a vital  part
of the management process.

      This  section  describes   planning  in its  more  formal   sense.  In many
instances it tends  to be  carried  on  informally by  wastewater  utilities.   It
is important  to identify  and  understand  the  steps  required in  the  process,
however, to fully develop  effective wastewater  utility  planning.   These steps
include

     •  develop objectives for wastewater activities;
     •  develop quantitative measures of performance;
     •  develop   budget   requests   based  on   objectives   and  measures   of
        performance;
                                  11-13

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     •  establish a timetable and assign responsibilities; and
     •  monitor and evaluate performance in relationship to the budget.

These five steps are discussed in the following section.

     Develop Objectives for Wastewater Activities

     The  first  step in  the  planning  process  is  to  identify  objectives for
wastewater activities.  Typical activities of a wastewater utility include:

        billing, meter reading and customer service;
        laboratory;
        operations;
        maintenance;
        industrial surveillance, monitoring; and
        general administration.

     For  each  of  the  activities,  objectives  should  be developed.   Objec-
tives should meet the following criteria:

     •  Result-oriented.   They  should   focus  directly  upon  what  is  to  be
        produced.

     •  Specific.  They should state  what  will  be  achieved in very narrow and
        precise  terms.   They  should  not encompass   general  statements  of
        philosophy.

     •  Stated  in measurable  terms  to determine whether an objective  has been
        attained.

     •  Attainable within  a  specifically stated timeframe.  Objectives should
        be  associated  with a  specific  point  in time  so  that  results can be
        evaluated when that point is  reached.

     •  Related  to  the utility's  overall objectives.   As  such, the objectives
        should  be geared  to  achieving effluent  and sludge disposal standards,
        to cost efficiency and to self-sufficiency.

     An example of a wastewater treatment  objective is:

        To  maintain a  monthly average  concentration  for  BOD  and  suspended
        solids  of 20 mg/1  or  less throughout the fiscal year.

        Many  objectives are  established by NPDES permit and regulatory agency
        requirements.

     Develop  Quantitative  Measures of Performance

     After  objectives  have been  developed, utility managers  must develop per-
formance measures to analyze  achievements  relating to objectives.  Performance
measures  are  the  yardsticks  by which  the  results of  an activity can  be  meas-
ured.  Among  the quantitative  performance  measures which can be used are:
                                    11-14

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      •  Wastewater  loadings, which  indicate  the need for wastewater services.
         They  measure  the  dimensions  of  the   service  and  include flow  and
         strength.   Loading measures  are critical  because they  help  utility
         officials  explain  the  level  of  service required  by  the  wastewater
         facility  and give  perspective  to  the  expenditure  requests  for funds
         to support wastewater activities.

      •  Workload,  which  indicates  the  amount  of work  actually  performed by
         the utility.

      •  Efficiency, which establishes the relationship  between resources used
         (people, materials and  equipment)  and  results  obtained.   These  meas-
         ures, used  in  conjunction with  workload measures,  give  utility  mana-
         gers insight into how well  resources are being  utilized.   Examples of
         efficiency measures are:

           -  dollars per  1000 gallons  of wastewater  treated;

           -  kilowatt  hours  of  electricity  per  1000  gallons  of  wastewater
              treated;

           -  kilowatt hours per ton of sludge generated; or

           -  pounds of chlorine per 1000 gallons treated.

         Efficiency measures  are derived by  combining  accounting  expenditure
         data  with  other management information.

      •   Effectiveness,  which  determines  how well  an activity  meets an objec-
         tive.    Effectiveness   measures   emphasize   results.    They  show  the
         progress made  toward  the achievement of an  objective.   An activity
         might  be  efficiently  carried out  at a very limited  cost and  in a
         timely  manner,  but  it may  not  produce the   results  desired.    The
         percent  of BOD and suspended solids  removed are  examples  of effec-
         tiveness measures and are  available from management  reports.

      Utility  managers must  determine  the  types  of  measures which are needed
to plan  and monitor operations.   This  is part of defining management informa-
tion  requirements.  Once decided,  utility managers should instruct their  staff
or hire  outside  help to design  information and  accounting  systems to capture
and report  this  data.

      Ideally, each  wastewater activity should  be evaluated  by  all performance
measures.   Appropriate  and  easily  developed  measures should  be used  in the
planning effort.  The key is to use performance measures  which relate directly
to the needs and objectives  of the utility.
                                    H-15

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     Develop Budget Requests Based on Objectives and Performance Measures

     A major step in the planning process is to use objectives and performance
measures to develop budget requests.  This is a difficult task for it requires
relating  resources  (costs)  to  outputs  (services).   Few  standards  exist   in
wastewater management to aid in  this  process.   The best approach, however,  is
to develop an annual work plan for each activity.  The work plan  identifies:

     •  How  much service  is  needed,  based  on  wastewater  loadings,  to meet
        stated objectives/NPDES permit;

     •  How  much work must  be  performed  to treat  these  loadings,  based  on
        workload measures;

     •  How  much personnel,  materials and equipment will  be  required to per-
        form this work, utilizing efficiency measures and past experience;

     •  What  are the  cost of  services and  consequences of an  increase  or
        decrease  in wastewater loading  (and  resulting revenues);  and

     •  What  are the  alternatives  to  the  current methods of performing  the
        activity  and what are their costs and service implications.

The  work plan  for  each  activity then  becomes  the mechanism by which  budget
requests  are developed and  justified.

     Establish  Timetable  and Assign  Responsibilities

     A timetable for  each activity  work plan should  be  established.   Employees
should be instructed  as  to whom  is  responsible for each activity, by when  and
how  results will be  measured.   This  should be  communicated  in  writing  to
assigned  employees.

     Monitor and Evaluate Performance in Relation to Budget

     The final  step in the planning cycle is to  monitor and  evaluate perform-
 ance.   Performance is measured  against the  plan and is monitored  throughout
 the  year by a  designated  official.   This  monitoring would encompass the fol-
 lowing considerations:
      •  Is performance at the anticipated level?
      •  Are costs higher or lower than anticipated?
      •  Have  actual  wastewater  loadings increased  or  decreased   from  those
         anticipated?

      Reports  based  on  this  monitoring  procedure should  be  prepared  on  a
 periodic basis and distributed to the utility manager and chief administrator.
 Information gained through the monitoring process  can  be used to indicate and
 support the need for budget modifications.
                                    H-16

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     Finally, the work  plan  should become  the  basis for  a  formal evaluation
of the utility's  performance.   Such evaluations should be  performed  periodi-
cally and focus on:

     •  the  utility's  ability  to  achieve  work plans within  the  budget  and
        time constraints;

     •  service effectiveness; and

     •  barriers  to  and  extraordinary  achievements  in  effective  service
        delivery.

Budgeting

     Budgeting provides  the mechanism  to  accumulate  financial  and performance
data by activity, review the merits of  each activity, compare  each  proposed
activity to planned objectives and make decisions  about  the  level and cost of
services to  be provided.  The  budget also serves as the main  document  for
monitoring  and  controlling  facility  expenditures,  measuring  the  quality of
work  performed  by  employees  and  assuring  the  availability  of  adequate  re-
sources  to  meet  current  operating and maintenance,  capital  outlay  and debt
service expenses.

     Frequently,  the  wastewater utility  budget  is not presented  in  a  format
which provides utility management  with  relevant information  for utility oper-
ations.  Reasons  for this include:

     •  the  budget  is  organized  by  line  items  such  as personal  services,
        expenses  and  capital  outlay and  not  by activity such  as  primary  and
        secondary treatment,  sludge dewatering or sludge disposal;

     •  the utility budget is integrated with the municipal budget and accord-
        ingly is  more responsive  to general government  concerns than  to self-
        sustaining enterprise; and

     •  the utility is financed  in  part with general  property  tax revenue  and
        is not fully self-supporting.

     Accordingly, this  section  is designed  to  provide utility  and municipal
officials with  budgetary guidance  where a utility  desires  to  become  self-
supporting.   Wastewater  facility  managers   should  review   the   concepts
discussed  in this  section  with  finance  officials  in   their  jurisdiction.
Topics included in this section are:

        Policy
        Operating, maintenance and equipment replacement budgets
        Capital budgets
        Flexible budgets
        Cost of service
        Budget narratives
        Budgetary control.
                                  II-17

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      Policy

      Wastewater utilities  should  adopt  budgeting  policies  which  are  consistent
with  sound  financial management and  their  overall  objectives.  Policies  should
be  adopted  which assure  that  the  budget process or document:

      •   satisfies   legal  requirements  established   by   Federal  and   state
         statutes, municipal charters,  sewer use and other  local  ordinances;

      •   provides for proper administrative and legislative reviews;

      •   responds to planned utility  objectives and timetables;

      •   provides for  an operating  and maintenance budget  to  be   prepared,
         reviewed and adopted  annually;

      •   balances approved expenses with anticipated revenues ;

      •   presents requests  by specific cost  components   (personal   services,
         expenses,  capital  outlay)   and by  activities  such  as  primary and
         secondary treatment;

      •   presents expense and  revenue analyses  by  various   levels of wastewater
         characteristics  (different flow levels and  strength characteristics);

      •   includes,for the  useful  life of the treatment  works,  a projection  of
         plant and equipment replacement;

      •   establishes  a  contingency   reserve  to   provide   for  emergencies   or
         unforeseen expenses;

      •   includes  a  budget narrative  to explain  principal budget  issues and
         objectives;

      •   provides  performance  measures  and  standards   for   each  budgeted
         activity; and

      •   provides for open public hearings.

      Once approved, the  adopted  budget should  be  communicated  throughout the
organization.   Each employee should understand  what  is expected of him or her,
by when  and how  performance will  be measured.

      The adopted budget  should also  be  controlled  and monitored through peri-
odic  reports  which compare planned  (budgeted) expenditures  and  revenues   to
actual performance.  Objectives and timetables  should be reviewed periodically
by  comparing  actual  performance  to  planned  objectives   established in  the
budget.

     Budget control  should  be assigned  to  a  responsible  individual  who will
ensure that  budgets are  not  overspent,  review  and approve budget  transfer
                                    II-18

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requests,  prepare  budget control reports  and  monitor utility expenditures  to
determine  potential  problems.

     Operation and Maintenance  Budgets

     Typically  wastewater  activities  are  accounted  for  within  the  general
fund,  when the  intent  is  to  finance  utility  operations  with  property tax
revenue,  or  within an enterprise fund when the intent  is  to finance  utility
operations with  sewer service charges.  Federal regulations  restrict the use
of  general property  tax revenues  for purposes  of  financing  the operation,
maintenance  and  replacement  costs  of  wastewater  facilities   financed  with
Federal  construction grants.   Utility managers  should familiarize themselves
with these user  charge regulations  in  evaluating their sources  of revenues  to
finance  utility  operations.  (See  the  Cost Recovery  section of this  chapter
for additional discussion.)

     If  the utility  is to be accounted for  in  the general fund,   the wastewater
budget would normally  be included in the municipal  budget.   If, however, the
facility is to be accounted for in an enterprise fund, a separate and distinct
budget is  normally required.   Regardless  of which  fund  is  applicable,  an an-
nual operating and maintenance budget should be prepared, reviewed and adopted
annually.

     The budget should reflect the managerial responsibility of the wastewater
utility.  As a general  rule,  organization  classifications  should  be  provided
where significant managerial  responsibility is delegated to  an  official.   If
a subordinate  is responsible  for managing  a  specific activity  and  achieving
results, then that subordinate  should  have some budgetary  responsibility and
be held accountable for both activity and budgetary performance.

     Activities should be established to further define the wastewater organi-
zation,  activity classifications and utility managers to:

     •  reflect the actual utility structure,
     •  reflect sufficient detail for specific  management responsibility,
     •  help management direct utility  operations,  and
     •  aid  the   legislative   body   and   the  public  to  understand   utility
        operations.

     Examples  of  wastewater  activities  are:

        Operations;
        Maintenance;
        Laboratory;
        Billing,  meter reading and customer service;
        Industrial  surveillance,  monitoring, and  pretreatment  programs;  and
        General Administration.
                                   11-19

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     The budget should present each activity  by  management's desired level of
detail and relate  activities  to  the organization roles  and responsibilities.
In this manner,  resources  can be  allocated  and  expenses  recorded  based upon
wastewater operations.  Detailed  budgets  can be developed  for administrative
purposes, while the legal budget or appropriation can be established at a more
general level. This allows  for flexibility  in budget implementation and still
provides  the  tools for budget monitoring  and management  on a responsibility
basis.

     The  accounting system  should reflect the budgeted  activities  and should
record  expenses  at management's  desired  level  of  detail  i.e.,  at  the  sub-
activities level.   (Refer  to the  Accounting  and Financial  Reporting section
for a discussion on information requirements.)

     Objects of expenditures  are  used  to  classify the various  types of goods
and services purchased.  Normally,  state  statutes or local ordinances mandate
that the budget be presented  in a "line  item" (object of expenditure) format.
Line  items  are direct  (under the  control  of utility  managers)  or indirect
(utility costs which  are under the control  of another official).  Examples of
direct and indirect objects of expenditures are:

     •  Direct

        - Personal services for salaries, overtime,  longevity.
        - Operating expenses  for  supplies,  travel,   electricity,  gas,  oil and
          diesel,  chemicals.
        - Maintenance expenses for vehicles,  equipment, buildings.
        - Capital outlay for equipment.

     •  Indirect
        - Debt service for  principal payments and interest  on debt.
        - Fringe benefits for pensions, employee insurance, vacation and sick
          pay.
        - Overhead  for  accounting,   payroll,   data  processing,  purchasing,
          revenue  collection and  investment costs.

     The  typical utility  line item budget includes  direct  costs, as shown in
Exhibit  II-5.   Certain  indirect  costs,  for  necessary  utility  expenses,  are
frequently  included   in  other  department  budgets  (i.e., debt  service within
the  treasury  budget).   Depreciation,  while  a   facility   expense,  is  not   a
budgeted  item.   It is what is  termed  a  "non-cash  expense."   Indirect costs
should  be recovered through the sewer  service charge.

     Utility budgets  should combine the use  of activity and line  item classi-
fications  as  illustrated  in  Exhibit  H_6.   This presentation  maintains the
basic  line  item classification  (thus  meeting legal  requirements)  while pro-
viding  budgeted  information by utility activities.   This format,  or  variations
of  it,  will facilitate cost-of-service analyses  for  rate setting.

     Utility budgets  should identify each revenue source and
amounts by each  revenue  source.   Typical  revenue sources include:
                                   11-20

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                                 Exhibit  11-5

                          TYPICAL WASTEWATER UTILITY

                               LINE ITEM  BUDGET


                                   Utility

Personal Services

     Salaries
     Overtime
     Fringe Benefits

          Total Personal Services

Expenses

     Insurance
     Vehicle Repairs, Fuel, etc.
     Supplies
     Electricity
     Gas, Oil and Diesel
     Maintenance
     Chemicals
     Equipment Rental
     Training
     Travel
     Parts
     Equipment Replacement
     Contingencies

          Total Expenses

Capital Outlay

     Improvements
     Expansions
     Principal and Interest on Existing Debt
     Betterments

          Total Utility
                                    H-21

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                                                   Exhibit 11-6

                                           WASTEWATER TREATMENT UTILITY

                                                  ACTIVITY BUDGET
                                                                          ACTIVITY
     LINE ITEM-                                                                              ADMINIS-
                                             PUMPING   OPERATIONS    MAINTENANCE LABORATORY   TRATION   TOTAL

     Personal Services

          Salaries
          Overtime
          Fringe Benefits
               Total Personal  Services


     Expenses
H~l
I—I
ro         Insurance
          Vehicle Repairs, Fuel, etc.
          Supplies
          Electricity
          Gas, Oil and Diesel
          Maintenance
          Chemicals
          Equipment Rental
          Training
          Travel
          Parts
          Equipment Replacements
          Contingencies
               Total Expenses


     Capital Outlay

          Improvements
          Expansions
          Principal and Interest on Existing Debt
          Betterments

-------
        general property tax
        sewer service charges
        septic disposal fees
        interest on investments
        miscellaneous revenues from rent and sale of equipment.

     Utility  management  should  balance  anticipated  revenues  with  planned
expenditures and include anticipated  revenues  as  part  of the budget document.
Anticipated revenues  should  reflect  utility cost recovery  policies  (see Cost
Recovery).

     Capital Budgets

     The wastewater  utility is  one  of  the largest capital  structures  in a
community.  Depending upon the responsibilities associated  with  it,  the util-
ity capital facilities may  include the  collection,  pumping  and treatment sys-
tem.  Capital budgets  involve  the  development of shortand  long-term plans to
maintain  and  expand  the  utility's  physical   facilities,  as  required.   This
includes planned expenditures for buildings,  land,  sewers  and major equipment
which have significant value and have a useful life of several years.

     The capital  improvement program should  include  a list  of  each proposed
capital  item  or  project   to be undertaken,   the  year  in  which  it will  be
started,  the  amount expected  to be   expended  in  each year and  the proposed
method  of  financing the expenditures.   Based on this  plan  (usually  a five-
year projection), summaries  of capital  activity in each year  can be prepared
and included in the utility's annual  capital  budget.   The  steps  to  implement-
ing a capital budget include:

        establishing capital improvement policies;
        performing an annual inventory of existing capital assets;
        performing a financial analysis;
        establishing funding sources;
        establishing a capital reconstruction  reserve;  and
        implementing the annual capital budget.

     The exact  format  of  capital improvement  policies will  vary from utility
to  utility  depending  where  it fits  into the  overall  municipal  organization.
All requests for capital  improvements should be reviewed by  the utility man-
ager and forwarded to the appropriate official.

     Capital  improvement   policies  should  address  criteria   for  determining
what is a capital  item.   A suggested capitalization policy  includes any item
which has a cost greater  than  $700 and  a useful life  greater  than two years.
Only major,  non-recurring items should be included  in  the  capital program.
Examples of capital items include:

     •  land purchases;
     •  expanded facility operations; and
     •  large  scale  rehabilitation   (one  that expands  capacity  or  extends
        useful life).
                                     11-23

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      Replacements  of sewer  collector  lines,  if  recurring,  should be  treated
 as  an operating, not  capital,  expense  and provided for as part  of  the  mainte-
 nance budget.   If,  however,  the  facility rarely receives  approval   to  fund
 line  replacements  (i.e.,  not an annual maintenance expense), then  this may be
 treated  as  a  capital  item.

      Policies  should  also address the number  of years to  be included  in  the
 capital  program.   Normally,  a  capital   program is  planned for  a five-year
 period.   As  each  year  passes,  the  second year becomes  the   first   (and  is
 included  in the  annual  budget as the capital budget)  and  a  new fifth  year  is
 added to  the  plan.

      Policies  should  also be  established to  obtain  citizens'  input  into  the
 capital  planning and  budgeting process.   The utility's  plan represents  large
 expenditures  which often  dramatically affect the community.   Obtaining  citizen
 input  can gain needed  support for  the  capital  plan  and budget  and   for  the
 capital  financing mechanism  such as bond  issues.

      The  utility should  compile  and  update an  annual  inventory of its  physi-
 cal plant.  For each capital item the inventory  should record:

        description, including an identification  record;
        original cost;
        modifications;
        funding source;
        year of acquisition;
        condition;
        estimated useful  life from acquisition;
        annual depreciation amount; and
        estimated target date for reconstruction  or removal.

     This information is  important  in  order to  provide  documentation   for the
preparation of utility  financial statements, compute  and  support depreciation
expense  and  to   forecast  replacement  needs.    This  information  should  be
recorded  in the  utility's fixed asset  records.   (Refer  to Accounting   section
for a discussion of fixed asset records.)

     Financial analysis  involves  the determination of a  utility's  capability
to  secure  financing for  capital  expenditures.    This  is  normally  associated
with  the municipality's  financial capability to fund  these expenditures.  The
key to the  financial analysis  is  to  determine  the amount  of capital  expendi-
tures that the utility can save or defer  until  needed.   Consideration  must be
given to:

     •  smoothing out the tax rate or sewer service charges, i.e.,, not having
        major  increases/decreases from  year to  year;

     •  maintaining a balance  between  debt  service and operating  and  mainte-
        nance  expenses;
                                      11-24

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     •  staying within debt limits; and

     •  availability  of  one-time  Federal  or  state  grants/loans  for  major
        items.

     The utility should consider establishing or  expanding  the  use  of a capi-
tal replacement  reserve  as part of  its  annual  capital budget  request.   The
reserve should be thought of as an annual budget item to be raised by taxation
or recovered through  sewer service charges, connection or  availability fees,
whether this reserve  is actually expended or  not.   Utilities typically do not
have such a  replacement reserve established.  Accordingly,  when a large piece
of equipment breaks  down  unexpectedly  (i.e., an aerator or  a  vacuum  filter)
there  are  no  available  funds  to  replace  the   item.   A  capital  replacement
reserve  provides  a  needed  cushion  for  such  unforeseen,  but  predictable
occurences.

     Funding   Sources  for  the  capital  program  should  be   identified  and
analyzed  as  to  their impact.  (Refer  to  the  Capital  Financing  section for
additional discussion.)  Funding sources  typically include:

     •  General  obligation bonds  which are backed by  the  municipality's full
        faith  and  credit,  payment on  which is  financed  normally by property
        taxes  or user fees.   These are frequently used when a  utility is not
        recovering  its full costs  through sewer  service charges.

     •  Special  assessment  bonds  which  finance  specific  projects   such  as
        sewer  line  construction where  the project improves  the value of  adja-
        cent property.   Special assessments are  levied  against the owners of
        the  benefiting property based  on the specific benefit  accruing to the
        property.   Assessment  income  is  pledged  to  the  repayment  of  these
        bonds.

      •  Revenue  bonds which  are backed by the income from the  utility  but are
        not  full faith and  credit obligations   of  the  municipality.   Charges
        are  made to the  users of  the sewer system which are  then committed  to
        repay  these  bonds.   Revenue  bonds are  becoming more popular  (than
        general  obligation bonds)  because:

        1.    Utilities  are  becoming more  self-supporting,   relying  on  sewer
              service charges  to finance costs,  including  capital expenditures;

        2.    Municipalities  are limited in the  amount  of  taxes  they can levy;
              and

        3.    Revenue bonds are not  considered  part of the  general  municipal
              debt  and in  some  instances  are issued by the utility  without  a
              public vote.
                                    11-25

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     •  Federal and state aid which, when  available,  finances a major portion
        of  the  capital expenditure  while  minimizing  the  local share  of the
        costs.   The  utility  should  be  cautious  to  ensure  that  Federal and
        state requirements are met (i.e., instituting a fully recoverable user
        charge system) and should evaluate the future impact these grants will
        have upon operating budgets.

     In addition  to  these common funding  sources,  a number  of  other sources
to finance  capital expenditures  exist.   While not particularly  common,  these
sources  are nevertheless  becoming   more  popular  and should  be  reviewed  by
utility management for  inclusion into  its financial  planning.   These sources
include:

     •  Service availability charges which can be  levied  against non-users  of
        the system to pay in part for  the extra capacity of  the system built
        to handle future flow.   Many sewer systems are designed to handle the
        future needs of non-users  (i.e., septic tank users)  who  will  or may
        eventually tie into the system.

     •  Connection  (tap)  fees  which are  designed  to recover  the  costs  of
        connecting new users to  the  system.    These  may be based  on  the mar-
        ginal costs to  provide  new  users with  the service,  plus  the connec-
        tion charge, or may  be  limited  to  recovering the actual  (direct and
        indirect) connection costs.

     •  Development tap fees which are  based on establishing a  set amount  of
        new connections  to  be paid  by  real  estate  developers  regardless  of
        whether  these  connections  are   actually  installed.  These  fees  are
        negotiated between  the  utility  (or  municipality) and  a developer(s)
        and are  paid  annually  for a defined  number  of years.   The  intent  of
        development fees is to establish an  orderly growth pattern  in  a com-
        munity which will  facilitate an orderly planning process  for capital
        improvements  and,  coincidentally, assist in  the development  of  waste-
        water loading measures.

     Service  availability  charges,   connection  and  tap  fees,  where  imposed,
reduce the amount of capital expenditures required to be  raised through bond-
ing.   Utility  managers should  review  the  feasibility  of  establishing such
charges.

     The  capital program  should  include a capital  reconstruction  reserve
which  is  an amount  budgeted each year  to  make  replacement necessitated by  a
breakdown  which  cannot  be   specifically  identified.   This  reserve   is  in
addition to specific  capital line item requests  for plant and equipment   items.

     An established amount  should be budgeted  annually  and  placed  in  a re-
serve, regardless if it is spent in  any one fiscal  year.  Guidelines as   to how
much should be  budgeted  for the capital reserve can be based on  1-2%  of the
utility's reconstruction value.  For  example, if the  utility's reconstruction
                                    11-26

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cost  is  10  million  dollars,  the  capital  reconstruction  reserve   can  be
established  at  $100,000-200,000.   This  is  typically  too large  an  amount to
set  aside  each year.  Accordingly,  a capital  reconstruction  reserve  fund of
$30,000-60,000 per year  can  be a realistic  amount  for  a utility to establish
on an annual basis.

     Such  a  reserve  will  benefit  the utility  in  two major ways.   First, it
will provide  immediate funds  for  needed replacements.   Second,  it  will sta-
bilize  the  amounts  of taxes or  sewer service charges to be  raised  from year
to year.

     Key to implementing  the annual  capital  budget is the extent to which the
capital policies  have  been accepted  by  the  legislative  body  and the public.
Ideally, the  legislative body and  the  public have played  a significant role
in developing and improving  capital policies for  the  utility   At this stage,
the approving body should  be adopting the capital  budget  in principle.  Never-
theless, utility managers  should be prepared to explain  the:

     •  annual capital budget  utility policies;
     •  need for  each capital  item requested;
     •  financial plan to  pay  for each item; and
     •  impact on the operating budget,  tax  rate and/or  sewer service charges.

     In approving the  annual capital  budget, the  legislative authority is not
binding  itself  to   the   remaining  years  of  the   capital   improvement  plan.
Accordingly, utility managers  must be  prepared to constantly  update,  review
and strategize how to be successful in capital planning.

     Flexible Budgets

     Generally  municipal  revenues   are   independent  of their   expenditures.
Expenditures are  financed by general property  taxes.   Levels  of services are
generally determined based on  an  incremental approach;  they are based on what
was spent  last  year  adjusted  for  inflation  and unusual  events.   Budgets are
typically line item,  by  department,  with little or no  activity budgeting and
are fixed in terms of  their  annual  appropriations.  Wastewater facilities are
different.   Levels   of  service  are  not  fixed.   Rather, wastewater  service
levels  are  determined by  wastewater  loadings.  Increased  loadings mean in-
creased  wastewater  services  which  in   turn   mean   increased   sewer  service
charges.    Wastewater   service   is   dependent   on    flow   and   strength
considerations,  and  it  is  not established,  nor  can it  be  controlled  by an
annual  fixed  appropriation.   Because  wastewater  expenses  (and  revenues)
fluctuate  with  changing  loadings  (flow  and  strength),  the  use  of  fixed
appropriations is inappropriate.

     Utilities should  adopt flexible  budgets to  plan,   control  and  evaluate
wastewater operations.   Flexible  budgets are  based on  various  predetermined
estimated flow and strength  loading levels.  These budgets  include  projected
expenses and revenues for  each estimated  service level.   For example,  a small
utility would  create  flexible budgets  for  1  mgd,  1.5  mgd and  2  mgd  flow
rates.   A medium size utility would create flexible budgets for 10, 12 and 15
                                    11-27

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mgd flow rates, and so on.  Each budget would contain required projected
expenses and corresponding sewer service charge revenues for each loading
level.  Actual operating results would be compared with the corresponding
budgeted amounts for the loading level actually encountered.  This method
would provide utility managers with a more sophisticated and appropriate
vehicle to plan, control and evaluate their wastewater facility.

     Cost of Service

     Most communities are experiencing a fiscal crisis of one kind or
another.Many states have adopted revenue limitation measures which limit the
amount of taxes that can be levied or expenditure caps which freeze
expenditures to that amount spent in the prior year or permit a small
percentage increase.  The magnitude and severity of the fiscal crisis will
vary from community to community.  Nevertheless, citizens are generally
demanding that their local officials rethink the nature and level of
governmental services and who will pay for these services.

     In the course of reviewing municipal expenditures, local officials are
viewing the sewer service charge as an untapped revenue source since, in many
instances, sewer service charges do not recover the cost of wastewater
activities.  In order to establish the appropriate sewer service charge, it
is essential that local officials obtain information about the cost of
providing watewater services.

     Cost of service for a wastewater facility includes all costs, direct and
indirect, including depreciation.  Refer to Exhibit 11-7 for a cost of ser-
vice checklist.  Utility managers should review this checklist to determine
if their cost of service is all inclusive.

     Once the cost of service is computed, utility managers should analyze
the ability of various funding sources to finance the  cost of service.
(Refer to the Revenue Requirements discussion in the Cost Recovery section
for a further discussion.)

     Budget Narrative

     Utility budgets should contain a budget narrative which describes util-
ity operations, the major assumptions underlying the budget, major issues the
legislative body should address, significant changes in the proposed budget
from the current year and the impact of the proposed budget in the tax rate or
sewer service charges.  The narrative is an important  element of a successful
budget document.  A number of different groups (council members, finance
committees, town meeting, etc.) will be reviewing utility requests.
Frequently, many of these people will have little knowledge of the utility.
A narrative is important because it educates the reader of utility operations
and requirements and provides input from the utility manager directly to the
legislative body.

     The narrative should also include a brief description of how citizen
input was obtained.
                                  11-28

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                                 EXHIBIT 11-7
                          COST OF SERVICE CHECKLIST
DESCRIPTION
SOURCE OF INFORMATION
Direct Costs

Personal Services
Operating Expenses .
Maintenance Expenses
Capital Outlay
Depreciation
Utility Budget
Utility Budget
Utility Budget
Utility Budget
Property or Fixed Asset Records
Indirect Costs

Pensions
Insurances
Sick Pay
Vacation Pay
Principal Payments
Interest on Debt
Overhead
Municipal Budget
Municipal Budget
Municipal Budget
Municipal Budget
Municipal Budget
Municipal Budget
Municipal Budget or
  Municipal Cost Allocation Plan
Other Considerations

Capital Reconstruction Reserve
Contingency
Utility Policy
Utility Policy
                                    11-29

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      Budgetary  Control

      The  beginning of a  fiscal  year sets  into motion  the  implementation  of
the adopted  budget.   The  approved budget must  be  entered  into the accounting
system  so that  effective accounting  control  can  be established.   A desig-
nated utility official should  be  responsible  for monitoring the budget during
the year.  Key elements of a budget control system include:

     •  reporting actual expenditures against budget;
     •  instituting procedures to timely adjust budgets; and
     •  monitoring progress toward the achievement of objectives.

     Reporting budget to actual expenditures is one of the most effective ways
to control budgets.   At least  monthly,  a report of  expenditures  made against
budget  should  be  prepared.   The report  structure  should  correspond  to  the
budget classification structure used in the budget document.   Refer to Exhibit
li-o1 for  a sample  budget  to actual  expenditure report.  Expenditure  data  is
obtained from the accounting records.
                                   H-30

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                              EXHIBIT  II-8


                     WASTEWATER TREATMENT FACILITY

             STATEMENT OF BUDGETED AND ACTUAL EXPENDITURES
              Budget           Actual                       Unencumbered
Account    Appropriation    Expenditures    Encumbrances       Balance
                                11-31

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      A  statement  of actual and  estimated  (budgeted) revenues  should  also be
 prepared on  a monthly basis.   Refer  to Exhibit H-9  for an  example  of  this
 report.

      These reports  are  important to measure utility operations  from both the
 expense and revenue sides.  Remember, utility expenses  are  caused by flow and
 strength loadings.   Expense and  revenue  data must  be  reviewed  in a  timely
 manner by management.   Discrepancies should be resolved immediately.

      Periodic  budget  transfers  may be  required  for   various reasons.   The
 utility should adopt a standard transfer procedure and  follow it.

      Monitoring expenses means  enforcing  expense  controls  and ensuring  that
 planned objectives  are  being  carried out.   This  entails establishing  stand-
 ards and procedures to measure  progress  toward achieving objectives.

 Accounting  and Financial  Reporting

      Accounting is a means  of  interpreting business activity.  Mechanically,
 accounting  may be  viewed as a series of transactions stated  numerically.   The
 details of individual  transactions are first  recorded  in  source  documents.
 These documents are sorted  and  summarized and become  basic entries in account-
 ing journals  or other books of  original entry.   This data is  then  summarized
 and posted in  condensed  form  to ledgers.    The  data is  then  transferred  to
 financial   statements  which  constitute  the  real  objective  of  accounting  -
 reports to  management  and  other  users  on  the  financial condition and  per-
 formance of the utility.

      Accounting is primarily concerned with  the  reconciling  and  reporting  of
 assets,  liabilities, equity, expenses  and  revenues.   Many  wastewater  utili-
 ties  have been  financed  for the most part  from general  property tax revenues.
 Recently, many wastewater utilities have  been required  to,  or have adopted,
 the policy  of  financing  activities through  user charge  revenues.   This  has
 resulted  in an increasing number  of wastewater  operations that are  operating
 as  enterprises.  An important effect of this  change in  financing is that  it
 has  created a  need for  more  accounting  information  to better  serve  their
 informational needs.

      This section  on accounting  and  financial reporting  recognizes the  dual
 revenue  sources  of wastewater  utilities  - general  property  tax  and  sewer
 service  charges.   This  section  is  designed to  address  the   common need to
 provide  guidance  on accounting  issues  for  a self-sustaining utility  or a
 utility  that  is to become self-sustaining.   The  primary difference, from  the
 standpoint  of  Che  need for accounting alone,  lies largely  in  the  accounting
 for   revenues.   If revenue  is  from   property   taxes,  the  accounting  is
 relatively  simple  and  the number of  entries   is  relatively   small.    If,
 conversely, income  is  from sewer  service  charges,  each user must have an
 individual  account  and  the accounting  needed  for  a  wastewater  utility is
 comparable  to that of a private enterprise.

      The  use  of  general  property tax  revenues   to  pay  for   the  operation,
maintenance  and  equipment  replacement  cost  of  a  wastewater  utility  is
 restricted  by  Federal  regulation  regarding  the use  of ad  valorem  tax as a
 user  charge. (See Cost Recovery Section).

                                    11-32

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                                                         EXHIBIT II-9



                                                WASTEWATER TREATMENT FACILITY



                                          STATEMENT OF ACTUAL AND ESTIMATED REVENUES





                                      Current  Month                                Year to Date
                                                      Over         Total                           Over      Balance to

   Revenue  Sources             Estimated     Actual    (Under)     Estimated   Estimated   Actual   (Under)   Be Collected



   Sewer Service  Charges



   General  Property  Taxes



   Federal  Grants



_ State Grants
i—i
i

£2 Septic Tank Disposal  Fees



   Interest  Revenue



   Rents



   Sewer Availability  Charges



   Connection Fees



   Development Fees



   Other



   Total Revenue

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Utility  managers  should  review  the concepts  discussed in  this  section with
accounting  officials  in their jurisdictions.   Topics  that  will  be discussed
are:

        Policy
        Relationship to Budget
        Types of Cost
        Accounting Records
        Enterprise Fund Accounting
        Property and Fixed Assets
        Cash Flow
     •  Financial Reporting

     Policy

     Wastewater utilities should  establish  accounting  and financial reporting
policies which are consistent with  sound  financial  management and their over-
all objectives.  Policies should address full accountability and informational
needs.  The accounting system should be broad enough to encompass full utility
activities.   Installing  such  a  system requires  establishing  the books  of
account; formulating a  plan  for gathering  required  accounting information and
forwarding  the  information   through   several   offices,  and  determining  the
number and type of accounts,  records and documents.

     The utility should  adopt policies to  provide  suitable  working quarters,
adequate accounting personnel and sufficient working materials and equipment.
Arrangements  must  be  made   to  receive  and disburse  cash  and supplies,  to
prepare and disburse payroll  and  vendor payments and  for  other activities in
addition  to maintaining  the  books and files.   Accounting  personnel  should
have accounting experience.

     A  policy should  be established  for  the  accounting  system  to  provide
required information.  The design  of  the  accounting records  is  a  function of
the informational  needs of  a utility.  Information  needs are  determined  by
utility and municipal  management.  It  is  stressed  that  the  determination of
what  information  is  required  by  management   is  the  prime  factor  for  the
accounting system to provide  responsive data.

     A  policy  should exist  to  provide a  workable  operational  plan  for  the
accounting system.   This  is essential  for  an efficient and effective account-
ing system.   It  includes the following  working procedures,  internal  control
and employee instructions:

     •  Working procedures  establish  the   proper  flow  and  documentation  of
        transactions  through the   accounting   system.   A  procedures  manual
        should exist which establishes lines of authority  and responsibility
        for each position, a chart of accounts for  the utility and  records
        necessary to support  accounting transactions.
                                  11-34

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     •  Internal control establishes a system of checks and balances to ensure
        that the work  of  one  employee is segregated  from  that  of another, to
        provide an audit trail for tracking activities and to ensure accuracy.
        Employees who  handle  cash receipts, for example,  should  not maintain
        the accounts  receivable  ledger.  Purchases  should be received  by an
        individual other than the person who placed the order.

     •  Employee instructions should  be given to  each employee as  to  his or
        her responsibilities and authority.

     The accounting system  should reflect the various  functions  performed by
the wastewater  utility.   Accordingly,  a policy should  exist  for  the account-
ing system to record and report on:

     •  billings to users of the system
     •  collection of revenues
     •  expenses including purchases, interest, payrolls and depreciation
     •  assets   including  cash,   receivables,   inventory,   property   and
        investments
     •  liabilities including debt, accounts payable and reserves
     •  equity by an analysis  of assets and liability accounts

     Wastewater utilities  perform a  number  of activities.   These  activities
vary depending on the structure and responsibilities of the utility.  A policy
should exist to account for wastewater activities such as:

        operations
        maintenance
        laborabory
        billing, meter reading and customer service
        monitoring
        general administration

     These activities may be  further  divided  into  subactivities.   For example
wastewater operations can be  categorized  as  collection,  pumping,  preliminary,
primary,   secondary,   tertiary,    sludge   treatment   disposal    and   general
facilities.

     The accounting records should record revenue  and expense data,  including
depreciation,  by activity.

     A policy should exist  to establish a chart of accounts  which  relates to
utility management  information needs.   The  chart  of  accounts   provides  the
framework  to  capture  necessary  information  and should  permit  the  classifi-
cation  of  accounting  information  to  facilitate  control  of  utility  assets,
liabilities  and  fund  equity,  expenses  and  revenues.    It  should  classify
information in  at  least the  same  format  and  level  of detail as the  budget.
Refer to Exhibit 11-10 for a sample utility chart of accounts.

     A policy  should  exist  to periodically  audit  utility accounting  records
and procedures by an independent  public accountant.
                                   11-35

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                                                    Exhibit 11-10

                                               SAMPLE  CHART OF ACCOUNTS

                                                       UTILITY
i
CO
  BALANCE SHEET ACCOUNTS

Assets
   Cash
   Accounts Receivable
   Due from other Funds
   Prepaid Expenses
   Materials and Supplies
   Restricted Assets
   Equipment
   Utility Plant
   Construction in Progress

Liabilities
   Accounts Payable
   Due to other Funds
   Notes Payable
   Bonds Payable
   Customer Deposits
   Accrued Liabilities

   Reserves

Fund Equity
   Contributions
   Retained Earnings
                                          ACTIVITY

                                         Operation
                                         Maintenance
                                         Laboratory
                                         Billing,  Reading
                                         Monitoring
                                         General
   ACCOUNTS

General Property Tax
Sewer Service  Charges
Septic Tank Disposal
Interest on Investments
Rent
Sale of Equipment
Intragovernmental
Department Billings
Sewer Availability Charges
Connection Fees
Development Fees

Expenses (Major Objects)
   Personal Services
   Operating
   Maintenance
   Equipment Replacement
   Capital Outlay
 EXPENSE ACCOUNTS

Personal Services
Operating
Maintenance
Equipment Replacement
Capital Outlay

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     Relationship to Budget

     The accounting and budgeting  systems  should  reflect  each other.  Budgets
are made on an annual basis  to allocate  anticipated  revenues for  use.   The
budget serves  as  a guide  for expenditures  during  the year.   The  accounting
system and the reports it  generates  can  provide utility officials with needed
information to evaluate  performance.  Complete and  timely  accounting reports
covering  such matters  as  financial  condition,  actual  performance  against
budgeted expenditures and  revenues,  and  the  cost  of providing specific waste-
water activities are critical ingredients to successful management.

     Types of Cost

     Knowing full costs  is  essential for sound financial  management.  The sum
of all activity  costs  (to include all line  items)  is  known  as  the utility's
cost of service.

     Wastewater  utilities  incur a  variety of costs  for goods  and services.
As with activities, costs  may be recorded at various  levels  of detail.   Line
items are normally used to classify  the types of goods and services purchased.
Expenditures can be classified at  a  general  level,  called major objects,  such
as operating expenses.  If  additional  detail  is needed,  the major objects may
be broken  out to  individual  components  called  minor  objects such  as  heat,
light and power.  Utility cost of service includes:

        personal services
        operating expenses
        maintenance expenses
        equipment replacement
        capital outlay
        depreciation
        debt service
          -  principal
          -  interest
     •  fringe benefits
          -  pensions
             employee insurance
             vacation
          -  sick leave
             holiday
     •  overhead    (accounting,    payroll,    data   processing,   purchasing,
        collection,  investment  costs  incurred by  the municipality  for  the
        wastewater utility, if applicable)
     •  capital reconstruction reserve (see Budget section)
     •  contingency funds

     Cost of service data  is  important in  setting user fees.   See Cost Recov-
ery.    For  a  further  discussion of  cost  of  service,   see  Budget.    Refer  to
Enterprise Fund Accounting for discussion of depreciation.
                                    II-37

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     Accounting Records

     Wastewater utilities  must  maintain adequate  accounting records.   These
include at a minimum:

     •  Source Documents

        The details of financial transactions are normally  described  on docu-
        ments prepared within the  utility  or from utility  vendors.   Examples
        of  source  documents  include:   internal  documents   such  as  purchase
        requisitions,   purchase  orders,  receiving  reports,  time  cards  and
        checks and external documents  such as vendor packing slips,  shipping
        documents   and  invoices.   These  source  documents  are  evidence  of
        original transactions.   Source document  information is  recorded  in
        one of  the books  of  original  entry.   Once  posted, source  documents
        are filed  and  retained.

     •  Books of Original Entry

        Books of  original entry  are  accounting  journals  (or  registers)  in
        which accounting transaction information is first recorded.   Account-
        ing information  is recorded  (posted)  from the source document  to one
        of the following books of  original  entry:

        - Cash Receipts Journal  which records  cash or  checks received
        - Cash Disbursements Journal  which  records payments
        - General  Journal which  records journal  entries.

        In addition to these  required  journals,  a wastewater utility may use
        payroll,  purchase and  revenue journals as  books  of original  entry.

     •  Books of Final  Entry

        Books of final entry  are  the principal  accounting  records  from which
        financial  and management reports are  prepared.   Accounting information
        is summarized   from the  books  of  original  entry and posted to  one  of
        the following books of final  entry:

        - General  ledger which is  a comprehensive record  of all major utility
          accounts  and  contains  the current balance of each  account.

        - Accounts  receivable ledger which  records  the  amount  owed  to  the
          utility  from each user.  Separate  ledgers  may be used  to differen-
          tiate   revenue   sources  (i.e.,   sewer   service  charges,  special
          assessments,  connection  fees, sewer  availability charges,  etc.).

        - Property  ledger which  records additions  and  deletions  of property,
          plant  and equipment.
                                      II-38

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         In  addition,  payable and  operating ledgers may  be used in  utilities
         that  are  too  large to record accounts payable and  budgetary  revenues,
         appropriations and encumbrances  in  the general ledger.

     Enterprise Fund Accounting

     Enterprise  funds  are  used to  account  for  wastewater  operations where
there  is significant  potential  for  financing  the  utility's  operating  and
maintenance  costs through  sewer  service  charges,  even  if  the municipality
decides  not  to finance  the  service through  sewer service  charges,  or where
the  utility  desires  to  know  its  profit  or loss.   An  enterprise  fund  is
designed  to  gather total costs, including  depreciation where applicable,  and
to  indicate  the  extent  to  which  sewer service  charges  are  sufficient  to
recover  total  costs.   Where  it is determined  not  to fully recover the total
cost  of  providing wastewater  services  through  sewer   service charges,   an
enterprise fund indicates  the amount of subsidy  (i.e.,  general property  tax)
which must be supplied.

     Municipalities must decide  to  what  extent   sewer  service  charges  will
recover   the   cost  of  wastewater  operations  within   Federal  regulations
regarding user charge systems.  This is  a policy  decision which should not  be
confused  with  the decision  to   account   for  wastewater  activities  as   an
enterprise  fund.   The  characteristics  of  enterprise  fund  accounting  for
wastewater utilities include
the following:

     •  Budgetary  Considerations

        Enterprise funds  may  be operated independently or as part of municipal
        operations, depending  on  local  legal  requirements.   Regardless  of
        legal requirements, budgetary control is important  to sound financial
        management.  Therefore,  the utility should prepare,  adopt and monitor
        an annual  budget,  even though  it  is  accounted  for as  an  enterprise
        fund.

     •  Accounting Treatment

        Enterprise funds  are  accounted  for on the  accrual  basis.   Revenues
        and  expenses are  recorded  when they  are  earned  or  incurred,  respec-
        tively,  regardless when the cash  is  received  or  payments are dis-
        bursed.   Inventory purchases  (materials and supplies) are recorded  as
        assets and are  expensed as consumed. Property purchases  (land,  build-
        ings,  improvement other than buildings, machinery and equipment)  are
        recorded as assets  and are  capitalized.

     •   Revenues and Expenses

        Where   sewer  service  charges   account  for  most   utility   revenues,
        municipalities  may provide revenues  (i.e., general  property tax)   to
        be  transferred   from  another   fund  (i.e.,   general  fund)  to   the
        wastewater  enterprise   fund.    Enterprise  funds  may   receive  other
        revenues from rents,  sale of  equipment or interest on  investments.
                                 11-39

-------
   Enterprise  fund  expenses  include  all  operating,  maintenance  and
   equipment replacement costs, including depreciation.

•  Contributions

   Enterprise funds  often  receive contributions  (from the municipality,
   customers, subdividers,  etc.) for start up or capital donations.

•  Debt Service

   Debt  service  is  usually  accounted  for  in  separate   asset  accounts
   usually  called  "funds."   Typical  "funds"  required in  an  enterprise
   fund  include  a  debt service  fund,  a  reserve  fund and  a  contingency
   fund.

   - Debt service fund is used  to account for  all interest and principal
     contributions, accumulations and payments.

   - Reserve  fund  is  a  backup  fund  for  payment of  matured  bonds  and
     interest should the debt  service  fund not be capable  of  paying the
     required amounts.

   - Contingency fund  is designed to provide cash for unforeseen operat-
     ing expenses and  provides  additional  security that  the utility will
     meet  its  bonded  obligations.   This  fund is  sometimes   called  the
     emergency repair fund  or operating reserve fund.

   These  funds  are  identified  as restricted  assets  and  are  established
   when  cash is  received.    Revenue  bonds  also  typically require  the
   establishment of restricted asset accounts.

•  Depreciation

   Depreciation  is a  process  which  allocates  the cost of  a  fixed asset
   over its useful life.  It  is  computed  using the information contained
   in the  property or  fixed asset records.  Depreciation  expense  is not
   a budgeted item.  Depreciation is computed  using  the  information con-
   tained in the property or  fixed asset  records.  It  should  be  based on
   the net book value of an asset using the following formula:

       Original Cost              .    n  ^            _
       	r—:	TT;—r~t—T • a  = Annual Depreciation Expense
       Anticipated Useful  Life

   Utility  managers  must  consider   the  impact  of   depreciation  expense
   upon its  profit and loss statement and  in  establishing sewer service
   fees.   The  typical  utility usually  does  not  include  depreciation as
   an expense.   This  practice  does  not  provide  a  true  picture  of  the
   costs to  operate  a  utility.   Some utilities depreciate an asset based
   upon  the  net  cost,  after  deducting Federal  and  state  grants.   This
   practice  distorts  the financial  position of the  utility and  does not
   reflect  the  allocation  of  the  original gross  cost over the  asset's
   useful life.
                            11-40

-------
        Utility managers  should  not  confuse  the  true  depreciation  expense
        calculation with  the  policy  of  including  depreciation as  part  of
        establishing  sewer  service  charges.    Cost  of  service  should  be
        computed  to  include   all   costs  of  operating  and  maintaining  the
        utility, replacing  capital  items, meeting  debt service  requirements
        and depreciation.

        Establishing sewer  service  charges,  or  user charge  systems  required
        of grantees  is a  policy consideration  separate  from computing  the
        true cost of the service.

     Property and Fixed Asset Records

     Maintaining a complete and accurate accounting for fixed assets is essen-
tial.  Adequate accounting  records  are  important  to the protective  custody of
utility property.  The utility is probably the  largest  capital asset  owned by
a municipality.  The stewardship  responsibility  involved in safeguarding such
a large public  investment  is of  utmost  importance to sound financial  adminis-
tration.  An accounting of  fixed  assets  is required to  prepare accurate util-
ity financial statements and to account for depreciation.

     Fixed assets  are specific  property items  that  are tangible  in nature,
have a  useful  life  longer  than two  years and have  a  significant value.  What
constitutes  significant  value  will vary depending  on  local  policy.   A sug-
gested policy is to capitalize any  item with a cost greater than $700.00.

     An adequate fixed asset system for a utility includes:

        classifying and recording fixed assets;
        developing  fixed asset control numbers;
        physical tagging of fixed assets;
        inventoring fixed asset inventory annually;
        disposing of fixed  assets;  and
        providing periodic  statements of fixed assets.

See Exhibit 11-11  for examples of fixed asset records.

     Cash Flow

     Cash  flow  represents  an important component of  financial management for
a  wastewater utility.   It is  the  process  of managing a utility's  cash to
ensure  timely  billing, collection  and  availability of  cash  to meet  .payrol1,
vendor  and debt  service  payments  and  to maximize  the amount  available for
investment.

     A  utility  is  primarily dependent  on either general property tax or  sewer
service   charges   to   meet  its   obligations.    In  the  instance  where  the
municipality is providing  general property tax revenues and is paying  utility
obligations, the  utility has  very  little,  if any,  involvement with managing
cash  flow.   However,  where  the  utility  is  primarily  dependent  on  sewer
service  charges to finance  its  activities,  cash  flow  management  is  a  vital
ingredient to  sound financial  management.

-------
       EXHIBIT  11-11
FIXED ASSET RECORD
ASSET TAG
ASSET CLASSIFICATION _ 	 FIXED ASSE
wn

T LEDGER ACCOUNT NO. 	 _ 	
ASSET DESCRIPTION
Manufacturer'! S«rl«l No. — _ 	
DATE ACQUIRE
METHOD OF A
PURCHASE OR
ORIGINAL COS
TRANSPORTAT
INSTALLATION
OTHER COST/
TOTAL COST _
DATE OF DISPC
METHOD OF Dl
REASON FOR [
ACQUISITION DAT* 	



T OR APPRAI
ION TORT
SAL 	 . 	 	 	 	 	




OISPOSITIOI
>SITION _ 	 . 	
)ISPOSITION 	 ^z^i^m^nii^^^^imi^m^^^-
DATE, 	 	
DEPRECIATION ASSET SALVAGE
BEGAN- LIFE: ._ VALUED





















COST




















ADDITIONS
DELETIONS




















ADJUSTED
COST




















PERIOD
DEPREC




















ACCUM.
DEPREC.






















DATE
VENDOR


OFFICE
OH DEPT.
4 BUILDING OR
' OTHER LOCATION
RESPONSIBLE OFFICIAL
OR OTHER PERSON
DATE
OFFICE
OR DEPT.
f) 8UILDWG OR
^ OTHER LOCATION
RESPONSIBLE OFFICIAL
OR OTHER PERSON
FUND SOURCE
FUND


AMOUNT FUND AMOUNT


DATA
ASSET VAI IJE 	 	 	 	 	
TRADE IN C
OR SALE PR
TAG NO OF
1EDIT

REPLACEMENT 	 . 	
DEPRECIATION
METHOD-
RESIDUAL
VALUE




















PHYS
CKD.




















INVENTORY
CONDITION




















DATE




















REFERENCE




















AMOUNT




















          11-42

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     Elements of a sound cash  flow  system  include  the  establishment of effec-
tive cash  information  systems, timely billings  and collection  systems,  dis-
bursement procedures and cash budgeting as described below:

     •  Cash Information Systems

        A  cash  accounting  system  should  record and  report daily receipts.
        The utility should know its daily  cash balance.   It should record the
        beginning  daily balance,  receipts,  disbursements  and  ending  daily
        balance.

     •  Timely Billings and Collections

        The  development  of policies  and procedures which bring  user charge
        dollars into the utility as  quickly as  possible  is  critical  to sound
        financial management.   Periodic,  timely  billings  for  wastewater ser-
        vices is critical  to  ensure  the maximum amount  of  available  cash to
        meet obligations.   Regular  billings followed by  late  payment  notices
        and late payment penalties can encourage  more prompt payments.

     •  Disbursement Procedures

        From a  cash management standpoint,  disbursements  should  be timed so
        that they  remove cash  from the  treasury  only  at the  last  possible
        moment while maintaining  payment  dates.    A system  of  aging  payables
        should be  established  which  will  enhance  disbursement  control.   The
        utility should wherever possible take advantage of vendor discounts.

     •  Cash Budgeting

        Cash budgeting is concerned with estimating specific dates  of receipts
        and  disbursements.   It is not budgeting for revenues  (billings)  and
        expenditures  (obligations).   Cash  budgeting can  make  a   significant
        contribution  to cash  flow.    Two  major  elements  of  cash budgeting
        include:

        - preparing  an annual  cash  budget  based  on  historical  receipt  and
          disbursements and knowledge of future events,

        - updating  the  cash budget on a regular basis  throughout the fiscal
          year.

     Disbursement  information  can  be  obtained from  the  operating  and  capital
budgets  (see  Budget)  and the  purchasing system.   Receipt  information can be
determined from the billing system.   Refer to  Exhibit 11-12  for a  sample cash
flow results and forecast format.
                              11-43

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                                           EXHIBIT  11-12
                            Cash Flow Results and Forecast
                              Results for	and Forecast through.
                                                                    Projected for                 (Additional
                         Results for (Current Month)	  	(Each Projected Month)	     Projected
                 Beginning           Disburse-   Ending    Beginning            Disburse-    Ending       Months)
     Fund          Balance   Receipts    ments    Balance    Balance   Receipts     ments    Balance

                 $         $        $        $          $         $         $         $$$$
TOTAL-ALL FUNDS

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      Two basic methods can be  used  to  project cash flow.  One  is  to use bank
 statements to  accumulate  prior years'  disbursements  and receipt  history.   A
 second method  is to develop  a  history  of the previous three  to  five years  of
 receipts and  disbursements   for recurring  types of  cash flow.  Both  methods
 would need to be adjusted for projected wastewater service increases/decreases
 and resultant  expenditures  and billings.   Inflation  should  also  be factored
 in.
      Cash budgeting  is  also  important  to effective  cash management  because
 the knowledge of the timing and extent of  cash  availability  allows  management
 to take an informed approach to designing an investment strategy.

      Financial Reporting

      The primary  objective  of an  accounting system  is  to  provide  financial
 and management reports  to management  and other users.  Utilities should  pre-
 pare and publish easily  understandable financial reports.   Three basic  utility
 financial reports are  (1)  the balance sheet, which shows how much the  utility
 is worth on  a certain date,  (2) the income (profit and loss) statement, which
 shows how much the enterprise earned or  lost  during  a certain period  and  (3)
 a  statement  of changes  in  financial position which  describes  the source  and
 use of  utility  working  capital.   These  reflect the  essential,  minimum  data
 that management  must  know.

      Management  should,  however, know  the value and  earnings  of  each waste-
 water activity  and  such   information is  made  available  by   more  detailed
 accounting.

      Other important  financial  reports are:

      •   Statement of Actual  and Estimated Revenues;
      •   Summary  Statement of Budgeted and Actual Expenditures; and
      •   Cash  Flow Results and Forecasts

 Cost  Recovery

      One major utility objective  is to be financially self-supporting.   To be
 financially  self-supporting,  a utility needs  to recover  its costs,  in full
 through  a sewer service  charge  system.   (As  used  in   this  manual,  sewer
 service  charge includes  both operation, maintenance  and equipment  replacement
 (OM&R)  costs  and local  capital cost  (LCC)  recovery.)  For  those  facilities
 financed  in   part  by Federal  dollars  under  the  Clean  Water   Act,  the  Act
 requires  a  utility  to   recover  100%  of  its  OM&R costs  from  each  user  in
 proportion to use.   This portion of the  sewer  service charge is  referred to
as  the  "User  Charge".   Federal requirements regarding  proportionality  do  not
pertain  to  recovery  of LCC.   Sound  financial  management  practices  also
dictate the initiation or expansion of a sewer service charge to:

     •  reduce the general  property tax support of wastewater operations;
     •  recover costs from those  users who caused the costs to be  incurred-
        and                                                                  '
     •  become self-sustaining.
                                 11-45

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     As more general property tax  limitations are  passed  such as Propositions
13 and  2-1/2  in California and  Massachusetts,  respectively,  the need  for  a
full cost  recovery sewer  service  charge system  will  become  more  prevalent.
Utility managers may need  sewer  service  charge  revenues  to  survive.   And the
sewer  service  charge  is  the   vehicle  by  which  a   utility  can  become
self-sustaining.

     Despite Federal regulations and the growing  recognition of  sewer service
charges as a sound  financial  management  practice, many utilities do  not have
a user charge system or, if they have one,  it does not:

     •  recover total operating, maintenance and  equipment  replacement costs;
        or
     •  recover costs in proportion to use.

     Accordingly,  this  section  will  discuss  cost  recovery  through  sewer
service  charge  systems  which   comply   with  Federal  regulations  and  sound
financial management practices.   Key elements which will be addressed are:

     •  policy
     •  revenue requirements
     •  user charge systems
     •  district assessments

     Utility  managers   can use  this section  to  initiate  a sewer  service
charge system or evaluate  and revise their  current cost  recovery mechanism to
fully recover operating, maintenance and capital costs.

     Policy

     Wastewater  treatment  utilities should  establish  cost  recovery  policies
that are  consistent with  their  overall objectives,  Federal  regulations  and
sound  financial management.   Policies  should   primarily  address  full  cost
recovery and the systems necessary to provide requisite  information to deter-
mine a proper user  charge.  Policies should  be  developed  by the  utility mana-
ger  as a  recommendation  to  the sewer   authority and/or municipality.   Once
approved they should become an  integral  part  of the utility's community rela-
tions  program.   Suggested  items which  should  be  involved in  cost  recovery
policies are discussed below.

     In  order  to achieve  the objective of  self-sufficiency, a  utility must
establish  a  sewer  service  charge system  to   recover  its  operating,  and
maintenance  and  capital  costs.   In  addition,  where  applicable,  Federal
regulations  for construction  grants projects require  that  100% . of  the costs
to  operate,  maintain and  replace  equipment be  recovered  through user charges
and  that recovery  be  based  in  proportion  to  use.   Therefore, the  utility
should adopt a  policy to establish a user charge system which:

     •  recovers 100% of OM&R costs and

     •   recovers  costs  in  proportion  to flow  and strength  (e.g.,  suspended.
        solids  and  BOD).
                              11-46

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     Capital cost recovery is directed at obtaining revenues to pay the annual
installment of plant facility construction costs.  The utility's share of con-
struction  costs  is normally  financed  by bonds which  require  annual payments
to retire the debt.  Typically, the annual revenue requirement for the payment
of principal and  interest  is  financed  by general  property tax.  Federal regu-
lations do  not  require (nor do they  prohibit) capital costs  to  be recovered
through  sewer  service charges.   State  regulations  may  prohibit  or  limit
capital  costs  to  be  recovered  through  sewer  service  charges.   Utility
managers should be  aware  of state law restrictions  on capital cost recovery.
A  policy  should  be adopted  to  finance capital  cost  recovery   through  the
general property  tax  or  sewer service  fees.   (Refer  to the  capital  budget
discussion in the Budget section for further details.)

     Cost recovery must be accomplished  in a  fair  manner.  OM&R costs  must be
recovered  in proportion  to  use   from  all  users.   Capital   cost  should  be
recovered over the  useful  life of the structure,  equipment  or the collection
system.  A shorter retirement places too much  burden  on the initial users.  A
retirement of capital costs longer than  the useful  life  is  not fair to future
users  as   they  will  simultaneously  be  paying   for  the  original   and
reconstructed facilities.   Consideration must  also be given to  the  available
future  capacity  of   the  system  to  handle   discharges  of   residents'  and
businesses who  are  not presently  tied  in.   Part  of  the costs to  build  the
utility are  directly  attributable to  future  sewer   availability.   Nonusers
should be paying a portion of these costs through a sewer availability charge.
Accordingly, a  policy  should be adopted  that  recovers operating  and  mainte-
nance and  capital costs from  all  users, present  and  future.   (Refer  to  the
capital budget discussion  in the Budget section for further details.)

     Wastewater measurement is critical  to assure  proportionality  of  the  user
charge system.    There  are  many   acceptable   ways  to  estimating  wastewater
flow.  Among these are:

     •  percent  of metered water;
     •  average  water consumed during winter  months;  and

     In situations  where  the  flow of  water  cannot be  measured,  a number  of
acceptable ways  to establish sewer service  charges  exist.   Among these  are:

     •  size of  water connection,  and
     •  number of  water fixtures (i.e., toilets,  sinks).

     A policy should be established  to determine  how  water will  be measured
to fairly  charge users  for flow.
                                  11-47

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Sewage  strength  is  measured  in  terms  of  suspended  solids   and  BOD.   The
utility  is  required  to  know  the  discharge  strength  for  each  industrial
equivalent for both suspended solids and BOD.  Accordingly, the utility should
adopt a  policy  which specifies  that  industrial equivalents will  be  periodi-
cally tested for strength characteristics.

     Federal  regulations  require  that  user   charge   systems  be  reviewed
biennially  and   revised  as   needed   to  recover  operating,  maintenance  and
equipment replacement costs.   Wastewater operations  are  constantly changing.
Flow and  strength  characteristics  and the costs required to  treat wastewater
are not  static.   A policy should be  adopted to review  sewer  service charges
annually.  Where  flow,  strength and  billings are  set  by a  contract between
the  utility  and  municipality  and  a  user  or   users  (i.e.,   industrial
equivalents), efforts should  be made  to revise the  contract  to permit annual
reviews and necessary adjustments to sewer service charges.

     A proper user charge system  requires  accurate  and  timely data  on flow
and strength of the wastewater  and on the cost of  treatment.   It  is  critical
that utility managers understand the importance of  management  information in
order  to  accurately  compute  a  sewer  user  charge. Accounting records  and
procedures should  identify,  capture and report accurate  and  timely cost data
(see Accounting).  Flow and  strength  data are needed by  individual and class
users.   Thus, utility cost  recovery policies should  incorporate the  need for
timely management information.

     Revenue Requirements

     The  wastewater  utility  revenue requirement is  the  amount  of  cash needed
to finance utility operations.   It is computed utilizing:

     •  accounting cost of service;
     •  policies on OM&R cost and capital cost recovery; and
     •  budget revenue requirements.

     The  basic  formula  to compute  sewer service charge  revenue requirements


    Tcost ofLr   nonuser   ""'sfrevenues to be recovered  through""'
    • servicej icharge revenuej  j_sewer service charges           _j

     Each equation component  is  briefly discussed below.

     Cost  of  service is the  amount  of  operation and maintenance  expense and
capital  expenditures,  including  depreciation,   for  wastewater  services  pro-
vided.   These  costs  include:   salaries,  electricity,   chemicals,  insurance,
fringe benefits,  overhead, fuel, vehicles,  service  lines and equipment.  This
information  is  identified,   collected  and reported  by  the  accounting system
(see Accounting).

     Wastewater  operations   are  financed  by  a number  of  user  and nonuser
revenue  sources (depending upon budget and cost recovery  policies), such as:
is :
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        general property  taxes;
        special assessments;
        Federal and state grants;
        interest on investments;
        septic tank disposal  fees;
        landfill fees;
        sewer availability charges;
        tap fees; and
        user charges.

     Nonuser charge revenues  are deducted from the cost-of-service to derive
the revenue requirements to be recovered from sewer service charges.  This
information is available  from the operating and capital budgets  (see Budget).

     User Charges

     User charges are established to recover the revenue requirement from
each user or user class in proportion to its use of the system.

     User charges should be computed as part of the budgetary process (see
Budget) and billed, accounted for and monitored (see Accounting).  The reve-
nues are allocated to each user class based on flow (residential) and flow
and strength (industrial equivalent).  This allocation is based on the OM&R
cost-of-service to treat flow and strength characteristics.  Where there are
only residential users, cost-of-service is directly related to flow.

     It is emphasized that a  user charge system is not a once a year event.
It is a process which is planned, implemented and monitored on a year round
basis.  It is a time consuming process.  Cost separation between OM&R and
capital cost, flow and strength data gathering user class identification all
take time.  Staff or consultant assistance is needed.  The approval and
implementation process takes  additional time.  Public notification and
educational or awareness programs are necessary and also take time.  Time
must be devoted to properly address rate increases.  Thus, utility managers
should be prepared to spend the required time to develop and maintain a
proper user charge system.

     Regional Charges

     Regional Wastewater systems recover costs through charges to user
communities.   These assessments are based on flow and strength
characteristics similar to those previously discussed.  Typically, they are
annual charges which are paid periodically through the operating year.
Regional systems  should have  the authority to assess  more than once a year if
the need arises.
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     If  the  Regional  wastewater  treatment  system  was  constructed  using
Federal funds, there  may  be a  requirement  for the individual  communities to
recover regional charges  through a  user  charge system which  is  based on user
flow and  strength  characteristics.   Regional  treatment  system  and community
officials should check with  state  and  Federal wastewater officials to see if
this requirement is applicable.

     Regional   system   managers   should   recognize   the   potential   for
limitations.  State efforts to reduce tax levy authority or  to  place a cap on
expenditures may potentially include assessment  limitations.   Regional system
managers should meet  with state officials  to understand  the impact  any new
legislation will have on regional treatment systems.

Capital Financing

     Effective management  of a wastewater  treatment  system must  include the
ability to  expand  the system  as  needed  in  response  to  community  growth, to
reconstruct  deteriorating  facilities  and to make other  capital improvements
to provide optimum levels of wastewater treatment.

     This  section  discusses   the  methods   of   raising   the  capital   funds
necessary  to meet construction costs.   The ways  in which  these  costs are
ultimately  recovered  from the  users of  wastewater systems were discussed in
the Cost Recovery section of this chapter.

     There are  four  primary ways to finance  capital  facilities  and equipment
including:

     •  Federal or state grants;
     •  current revenues and accumulated funds;
     •  bonded indebtedness; and
     •  leasing.

Each of these is reviewed in the following section.

     Grants

     While  the  future  timing  and  magnitude  of  grant  funds  are  uncertain,
Federal and  state  funds  for wastewater treatment  facilities  will  undoubtedly
continue to  be available.  Thus, while the emphasis in the future is  likely to
be on  wastewater  treatment  becoming a financially self-supporting operation,
the  possibilities for  obtaining  intergovernmental  grants   to   reduce   local
costs  should still be explored.

     Prior  to a decision  to accept  grant funds,  it should  be determined  that
the facilities thus obtained are indeed a  local  priority,  and that the future
local  financial  implications  (operating  costs,  manpower  requirements,   etc.)
are acceptable.
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      The  Federal government  and  several of  the  states provide  a variety  of
 grants  that  may be  used  for  water  pollution control  facilities.

                 To  suggest the kinds  of avenues that  exist,  aside  from the
EPA Construction Grants Program,  programs  sponsored  by  the  following  agencies
should be explored:

     •  U.S. Department of Agriculture, Farmers Home Administration (FHA);

     •  U.S.  Department  of  Commerce,  Economic  Development  Administration
        (EDA); and

     •  Department  of  Housing  and  Urban  Development,  Community  Development
        Assistance.  _!/

Further  information on  the  availability  of  Federal  funds  can  be  obtained
through the  Federal  Assistance  Program Retrieval System (FAPRS) which  can be
reached by  calling  (202)  395-3112.   This  service  can  provide  a  list  of all
Federal assistance  funds  for water  pollution control.   Details  of  amounts
available,  eligibility  and  application  procedures  are   also   given   in  the
Catalog of Federal Domestic Assistance. 2_/

     Various  states  also  make available grants for  the purpose  of wastewater
treatment facilities.   Space does  not permit  a  cataloging of  the  different
state  programs;  further  information  may  be  obtained  from  individual  state
water pollution  control or development agencies, municipal  leagues and  county
organizations, and area planning and devlopment commissions.

     Current Revenues and Accumulated Funds

     In addition to intergovernmental grants, current revenues and accumulated
funds can be a source of  funds  for financing  capital  facilities.   These may
be particularly  appropriate in  the  case of established  utilities,  where there
may be substantial cash flows and reserves have been set  aside  for repair and
replacement,  and reconstruction  the  latter  frequently being  required  as  a
matter of borrowing contracts (see Bond Security Agreement, below).
_!/  U.S.  Environmental  Protection  Agency,  Federal  Financial Assistance  for
Pollution Prevention and  Control.   (Washington,  D.C.:  EPA,  Office of Analysis
and Evaluation, March 1980).  (202) 426-7874.

2/ Available in all public  libraries  or  by  writing to the Government Printing
Office  (Symbol  No. COFA),  710  North  Capitol  Street, Washington,  DC  20402.
$20.00.
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     The use of current revenues to finance recurring capital needs of smaller
magnitude (certain equipment needs and  replacement)  is  a common practice, and
many governments earmark 10 to 15 percent of their revenues for such purposes.
Furthermore, certain design and  planning  activities  may be financed from cur-
rent revenues.

     However,  most  large  capital  projects  require  the  amassing of  large
amounts  of  cash  that cannot  be  assembled from  current  income.   In  these
situations,   the utility  or government  must  typically  turn  to  the  capital
markets to borrow  funds.  The alternative of  saving  funds to make  investments
is a  limited  one.   In the case  of new  systems or major  expansions,  there is
little choice,  since users cannot  be  expected to pay fees  for  services prior
to their receiving them.   Even  in the case of well-established systems, sub-
stantial increases in rates much in  advance of  improvements  is not possible.
Furthermore,  long  delays  in  needed construction have frequently  meant higher
construction  prices  that  ultimately  increase  the  overall cost burden of the
facility.

     Bonded Indebtedness

     In making the decision to  borrow,   certain key policy issues should be
resolved.   The  issues  involved  in a debt policy are briefly  outlined below,
followed by a presentation of  the  types of  debt  that  may be  undertaken and
the mechanisms of debt management. _!/

     •  Formulating a Debt Policy

        For most  governments,  debt management  involves a  complex  of  factors
        born  out  of  both  practical  necessity  and  legal tradition.   A "debt
        policy" as such  is seldom found  in a  particular document or set of
        principles,  and  the  financial  planner  must take  into consideration
        several factors  in policy formulation.  First, debt sold  today must
        be repaid in the future  and with  interest.   This will  create an added
        fixed  obligation  in  subsequent  budgets.   Furthermore,  according to
        both  practice and  law,  most  long-term borrowing  is  done  for  purposes
        of  financing  long-lived,  major   capital  projects.    These   projects
        become  part  of  the  public physical environment and thereby influence
        patterns   of  growth  and   generate   future   operating    expenditure
        requirements.
_!/ For more  detailed  information on debt policy and  management,  see David S.
Sawicki  et  al.,   Financing   and   Pricing   for  Capital  Costs  of  Sewerage
Facilities  (University of  Wisconsin:  Milwaukee  School  of  Architecture  and
Urban  Planning,   June  1980);  Government  Finance   Research   Center,  Debt
Management Handbook for Small  Cities  and Other Governmental  Units  (Chicago:
Municipal  Finance  Officers  Association:  Chicago,  1978; and  Fundamentals  of
Municipal Bonds.   Securities Industry Corporation, New York,  1981.
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   Debt  management  policies  and  issuing  procedures  should meet  four
   requirements:

     -  guidelines as to the appropriate and prudent  uses of  borrowing;

     -  statutory and constitutional  requirements  placed  upon the use of
        debt;

        analysis as  to  the  affordability of debt  in  terms  of the fiscal
        capacity of the issuer; and

        consideration of questions  of timing and  design  to  maximize the
        efficiency of borrowing under various market  conditions.

•  Uses of Debt

   Most borrowing  is done  to  finance capital facilities.   This  is  true
   not only because  of  restrictions  on the use of public  debt,  but  also
   because capital  facility financing possesses  certain  attributes  that
   make the use of credit  efficient  and  equitable.   Capital investments
   are those whose  useful  lives exceed more than  one period and, there-
   fore, whose  benefits accrue  over  time.   Because large  amounts of cash
   are needed  and  the  benefits will  extend  over many  years,  borrowing
   may be the only feasible alternative for major  capital projects.

   The need  for borrowing  to  finance public facilities may be particu-
   larly great  in  growing areas.   Growth  in population and income almost
   always require capital outlays  that anticipate  the ultimate  growth in
   revenues.   Thus,  exclusive  reliance  on the  "pay-as-you-go"  approach
   to finance capital investments  out of  current  savings  can inhibit the
   economical growth  of a  utility and deter  the efficiency of capital
   investment.

   Overall debt policy must be  meshed clearly with growth planning and a
   prudent concept of what the  fiscal and economic capacity of the debtor
   will be in  the  future.   It  should  be  integrated  with  the process  of
   capital programming  and  budgeting.  Making  commitments  to  carry out
   specific projects  necessarily  involves planning  for  their financing.
   If the capital  improvements  program is  to  be   an  effective  guide for
   financial planning and a means  of  achieving  a  government's long-range
   physical,  social  and economic  goals,  then the capital  planning and
   budgeting process should connect all projects  systematically.

•  Types of Borrowing

   There are two basic choices  that must be made at  the outset  of a  bor-
   rowing decision:  the type of security and its  maturity.
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General Obligation vs. Revenue Bonds.  The securities market is sensi-
tive to  the  difference among  the  security types.   Given a  level  of
indebtedness,  the  broader  the  security  base  in  terms  of  potential
revenues to  repay  the  obligation,  the better  the market  will  treat
the security.

With general obligation debt  (G.O.), the general  taxing  power of the
jurisdiction is pledged to  pay both principal and  interest.   To sell
such debt, voter approval may be  required,  and various  debt  and tax
limitations usually restrict its use.

Various  types  of limited  obligations,  known as  Revenue  Bonds,  fre-
quently are  sold for  purposes,  such as water and  sewer systems, that
produce revenues.  Such bonds usually are not included in debt limits,
as  are  general obligation  bonds,  nor do  they  usually  require  voter
approval because they  are not  backed by the full  faith  and credit of
the  local  jurisdiction, but  rather are  repaid  from  various  service
charges or fees.

Generally  speaking,   tax-supported   general  obligation  debt   is  con-
sidered a superior form of  debt by  the  market because of its standing
as a full-faith obligation  of  the  unit.   It  typically carries a lower
interest  rate   than  revenue-secured  debt.   There  are  many  circum-
stances, however, where  revenue-secured debt  has  advantages,  particu-
larly  when  it  comes  to  allocating the  costs  of  facilities to  the
actual  users.   A  frequent reason   for  using  the  revenue bond (and
associated special-purpose  funds or districts)  has been to circumvent
debt  and  referendum  requirements   or  to  finance  purposes  that  are
beyond the legal authority of a general unit of government.

Long-Term  vs.   Short-Term  Borrowing.   Another  important  choice  in
security  type   is  between  long-term  borrowing  (that which  extends
beyond  a year) and short-term  borrowing   (that with a maturity  of a
year or less).

There  are  three types of short-term debt:   (1)  the bond anticipation
note, which  anticipates the ultimate sale of the  long-term bond; (2)
the  tax  anticipation  note,  which  is  sold  to  bridge  gaps  between
expenditures and expected tax proceeds; and  (3)  revenue anticipation
notes,  short-term securities  that  are  sold in anticipation of general
revenues or  grant receipts.

Designing  a  Bond Issue

The  features to be determined  in  designing  an issue  include the two
major  characteristics  previously  described:   length of  term;  and the
type of  security pledged.

In  addition, other major aspects must be determined:
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  - Denomination.   This  is  the  face  amount  (or  par value)  that  the
    issuer promises  to  pay  on  the date the bond matures.   Five  thousand
    dollars  ($5000)  is  the standard  denomination  for  larger issues.

  - Registration.   A registration option may be  offered,  in which  case
    the owner's name is  listed in the books of both  the bond  issuer and
    the  paying agent.   Registration may be  offered  for  principal  and
    interest  or only principal.

  - Call  privileges.  A bond that is callable may be  retired  before the
    maturity  date.   Usually this  feature  is considered  when  interest
    rates are high.

  - Coupon.   The  coupon is  the  detachable  part  of  a bond  which  serves
    as a  notice of interest  due.  If the bond is registered (see  above)
    checks are issued automatically  by the  issuer to  the holder.   Other-
    wise, the holder presents  the coupon for payment.  Nominal  rates of
    interest  are  specified  on  the coupons.   The  rates may  vary (if state
    law  permits)  depending  on length of maturity.  The establishment of
    rates and the number to permit should be  done  in conjunction  with
    the  fiscal advisor.

  - Method of retirement (Maturity structure).   Serial bonds are divided
    into  amounts  which  mature  annually.  Maturity schedules are  of three
    types:

     (1)   Declining  payments  (principal matures  in  equal  payments  and
          interest is paid on declining balance;

     (2)   Equal payments  -   annual  principal  and  interest  payments  are
          approximately  equal;  and

     (3)   Irregular  payments  -  designed  to  accommodate  the  financial
          situation of the local government.

   Term bonds are  retired   at  maturity  (or  at  specified  dates  during
   their   life)  from  sinking funds  accumulated  during the  life  of the
   bonds.   Term  bonds  are   not  popular  because  of   the   potential  for
   diverting  sinking funds to other local uses.

•  Bond Security Agreement for Limited Liability Bondj

   Limited liability  bonds,  because they rely  on restricted  funds,  are
   subject to special agreement  between the  debtor  and   the  creditor.
   This agreement  (known  as  the trust  indenture) includes  a requirement
   that bond  funds be held in  a  special fund in order  to  guarantee that
   the funds   are  kept   separate  from  operating  funds.   The manner in
   which   the  bond funds may be  used and how  operating income  from the
   facility should be handled  are spelled out in the  trust indenture in
   great  detail.
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        In addition, a variety of special pledges or covenants may be included
        in the agreement.  One of these should pledge that the rates for users
        of the  facility will be  kept at  a level  that  is sufficient  to pay
        debt  service and  to  operate  the  system.   Such  covenants  usually
        require  an  enterprise   system  of  accounting  which  is  helpful  in
        encouraging a self-supporting operation of the facility.

     •  Marketing Debt

        Debt may be  issued  either through negotiation with a  purchaser or by
        competitive  bidding.  The latter is usually  required in  the  case of
        general obligation  borrowings.   In  this  case  for the public  sale of
        bonds, the following steps should  be taken  in preparing  the bonds for
        sale:

     •  Prepare documents for the bond sale.  These include:

        - the official statement,
        - the official bid form,
        - the security agreement (see above), and
        - the bond sale calendar.

        Note, the  option to refuse all bids should be maintained.

     •  Obtain a bond rating.  A rating can  be obtained  for a  fee from either
        Moody's Investors  Service  or  Standard   and  Poor's  Corporation.   A
        rating expresses an opinion about  the  quality  of a bond  and  the risk
        for the investor.

     •  Choose the date of sale.   This  should  be done with fiscal experts so
        as to obtain the lowest  possible rates.

     •  Advertise  the bonds in  the Daily  Bond  Buyer,  local newspapers,  finan-
        cial  journals and by direct notification of investment banking firms.

     •  Award bids.  All bids that do not meet  the  terms of the  sale  should
        be discarded.  The award is made  in  conjunction with  bond counsel and
        fiscal  advisor,  and good  faith  checks  returned   to   unsuccessful
        bidders.

     •  Print bonds.   Instructions  to the printer  should include  the  number
        to be  left  blank,  the  number  needed   to  be  registered,  and  the
        delivery date.

     •  Bond   closing.   At  closing,   the  fiscal advisor  will  verify  final
        closing figures.  Debt  records  are  provided  to  the  paying agent  and
        the bond issuer.

     Several  states also offer credit assistance  that may  be  of  the following
types:
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     •  Guarantees -  state  acts  as guarantor with  a  contingent obligation to
        the bond holder in the event of default.

     •  Financial intermediation  - state  sets up  a special entity  such  as a
        bond  bank which  pools small  issues or  a  development  authority  in
        which the state borrows and then lends to localities.

     •  Using Advisors

     Borrowing frequently involves  the  needs for specialized  skills  that are
not found  on  most government  staffs.   Communities  may need to  obtain assis-
tance in issuing debt from the following types of advisors:

     •  Fiscal Advisor  - these experts  put  the  financing  package  together.
        They  should have  a  thorough knowledge  of  the legal framework of the
        jurisdiction,   the workings  of bond and  money  markets  and  how  to
        obtain a bond rating.  A fiscal advisor can:

        - help obtain public support for a referendum,
        - prepare a  financing plan, and
        - design the  features of a bond issue.

        Sometimes  these  services  are  provided   by  engineering  firms  or
        architects, which may also be independently hired.

     •  Bond  Counsel  - has  principal  responsibility  to  the  investor.   The
        counsel's duties typically are to:

        - determine whether  there  is legal  authority to issue debt,
        - draft  bond  ordinance, resolutions,  or  trust  indenture,  and
        - determine if bonds are  legally advertised, sold and executed.

     •  Local  Attorney  -  in cases  where  bonds will  be   sold  locally  or  are
        placed privately,  the  local  attorney may  fulfill functions of  a  bond
        counsel.   Even when  bond counsel is  retained, a  local  attorney may  be
        used to  review the documents prepared by bond  counsel.

     •  Outside  Auditor - the  official  statement  of the   bond  offering  should
        contain   audited  financial  statements  of   the  issuing  agency.   The
        auditor  should be independent  and  give an  opinion that  the material
        financial statements  are correctly  prepared  and presented.

     •  Underwriter -  in many  types  of  bond  sales  the  underwriter (who  buys
        the debt  for  purposes  of  resale   to  investors)  may  also  perform
        financial  advisory services.

     •  Paying Agent   -  the   paying  agent   is usually  a  bank,   selected  in a
        financial  center,  who  handles  transactions  with  investors,  such  as
        remitting   coupon   (interest)  payments   and   the   retirement    of
        principal.  State  laws  frequently govern selection of paying agents.
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    •  Innovations in the Bond Market

       As  the  cost  and  complexity  of  borrowing  has  increased,  public
       officials have  looked for nontraditional  ways  to borrow  funds.   One
       technique which  has  drawn considerable attention  is  the  new directly
       marketed  small-denomination  bond.   This  credit  instrument,  commonly
       referred to as a mini  bond,  has  been used in several jurisdictions  to
       raise modest  amounts  of capital  (less than  $1,000,000)  at relatively
       lower interest and administrative costs. _!/

       Whereas  the  traditional tax-exempt  bond  is  sold  in  denominations  of
       $5,000  or  more,  the  mini  bond may  range  from  $100  to  $1,000  and  is
       sold directly to  investors,  bypassing the underwriting establishment.
       The  fascination  local officials have with mini  bonds does not relate
       to  their  ability to  acquire  funds  previously  unavailable   through
       normal  channels.   Rather,  they see  the mini bond  as  a way to  provide
       a  tax-free  yield to citizens  typically excluded from the bond market
       who  could  benefit from  a  tax shelter.   And they  present the oppor-
       tunity  for  a  unique  form of  citizen participation; thus encouraging a
       sense  of  civic  pride  and  ownership.   For  example,  Rochester, New
       York, first sold mini bonds  in  1979  for  an  industrial park, downtown
       improvements, and  public safety  communications.

       Another attraction public officials have  recognized  is  the reduction
       in the  total  cost of issuing  this  type of  security  over  the  more
       traditional forms.  Savings, though difficult to  quantify, occur for
       two  reasons:    (l) interest  rates  should  reflect  the  elimination  of
       underwriting  and  brokerage  fees,  and  (2)  coupons are  eliminated  by
       selling discount bonds or using  machine-readable  checks  which reduce
       debt service  costs.

       Early  experiences with  the  sale of  mini  bonds  suggest  there  may  be
       extra  expenses  for printing costs  and selling  the  bonds directly  to
       investors  from  City  Hall  offices.    However,  the  additional expenses
       do not  outweigh  savings  and are expected to  decrease as  familiarity
       with the process increases.

       Those who criticize this method of debt issuance  raise  some  important
       issues.  First,  they  argue  that  there  is  a  tendency to overprice the
       mini bonds  compared  to market interest rates.    They  also  point to the
       lack of a  secondary  market  where  mini  bond purchasers  can sell the
       bonds and the inappropriateness of the tax shelter for  some mini bond
       purchasers.
I/ For  a more  detailed  discussion on  mini  bonds see  Edward Anthony  Lehan,
"The   Case  for  Directly  Marketed  Small-Denomination  Bonds,"   Governmental
Finance 9 (September 1980): 3-7.
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        Despite these drawbacks,  several  local  jurisdictions and the state of
        Massachusetts  have  successfully   sold   these  citizen  subscription
        bonds.   Some issues which must  be considered  by  local  governments
        planning to sell mini bonds include:

        - whether a rating agency review should be obtained;
        - what the issuing officials' disclosure responsibilities are;
        - how rates will be set in the absence of competitive bidding;
        - whether the jurisdiction will "create" a secondary market; and
        - how the mini bond will be designed with respect to the denomination,
          technique of interest payment, form of ownership, and maturity.

        While  this  bond market  innovation  receives  strong  and enthusiastic
        support from local officials who  have  raised  capital with mini bonds,
        many  bond-market  experts  are  not  quite  as   supportive.   Therefore,
        jurisdictions interested  in  this  method  of financing  will  encounter
        substantial  resistance  from  the  finance  community.  However,  in the
        face  of diminishing  Federal  grant assistance,   this   technique  may
        satisfy  a  financial  need,  and  perhaps  more  importantly,  encourage
        citizen  support  for  needed  wastewater   treatment  facilities  and
        equipment.

     Leasing

     Leasing  is  one of  the least  used  techniques  for  financing  wastewater
treatment facilities, yet  potentially  one of  the  most  useful.   For  munici-
palities faced with  inflation,  declining revenues, and legally  imposed bond-
ing limits, leasing  offers  a  prompt, flexible, and oftentimes  cost-effective
alternative  to  issuing  debt.   A  number  of municipalities,  both  large  and
small, have arranged for the lease or  lease-purchase  of  wastewater facilities
and/or  major  equipment.   In  discussing  the   leasing  option,  this  section
examines:

     (1)  principal types of leases;

     (2)  legal, practical  and  financial advantages of leasing;  and

     (3)  examples  from  local  governments  that have  employed  this  financing
          technique.

     •  Principal Types  of  Leases

        A lease is  defined as  a  legal  and  financial instrument  which  permits
        a lessee to  use an asset  (equipment  or  a building)  in  return  for
        regularly scheduled payments  to the owner.

        The  option  to purchase upon  completion  of the lease is  often  written
        into the contract.   Because municipalities cannot  obligate  themselves
        for  debt  beyond  the  annual  appropriation  cycle,  municipal   leases
                                     11-59

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   typically include  a  "fiscal  funding"  or  "non-appropriation  clause"
   allowing the municipality to  terminate,  without penalty, a  lease  for
   which funds  are not appropriated.

   The two  principle  lease  arrangements used when governments act as  a
   lessee are the straight-operating lease  and  lease-purchase  agreement.
   The straight-operating lease is simple to structure  for  both parties.
   Terms and rental  fees provide  little room  for negotiations  because
   the vendor expects  to receive  fair  market  value  for the  asset  when
   leasing  payments  are  completed.  The  rent  paid  by  the  municipality
   includes no  interest  and  the  contract does not allow for  a purchase
   option.   A straight-operating lease frequently  is  used when a  govern-
   ment does not have  sufficient funds to  purchase  an asset  because  of
   budget constraints or grant requirements.   Many cities now lease  the
   following major items:  fire trucks, garbage trucks,  police and ambu-
   lance vehicles, administrative equipment, and road maintenance equip-
   ment.

   Historically,  leases  of  this  type were  arranged  for periods  of  5-10
   years, thus  reserving the number and size of bond  offerings for large
   capital facilities, such as new building construction.   In  most lease
   arrangements,   the  initial  cost  of  the  equipment  is   borne  by  the
   lessor,  with the term of the  lease coinciding with the  projected  life
   of the equipment and with the  cost amortized over the same period.

   While  a  lease  involves  only   rental  payments,   a  lease-purchase
   agreement is structured with  an option to buy  when the  terms  of  the
   lease have  been completed.    Although  title for  the asset generally
   remains   with  the  lessor,  the  municipality accumulates  equity  with
   each rent payment.

   Lease and lease-purchase  agreements  can be  arranged either directly
   from  a  vendor  or from  a  lease-financing  company.   The  difference
   between the  two is that a lease-financing company  can be used  for  any
   brand or  type  of  equipment  or facility desired,  whereas  the  vendor
   can only arrange  leasing of  its own line of goods.   A  lease-purchase
   agreement may  also be structured as a tax-exempt  lease  through a  bank
   or  other financial   institution  rather  than  as  a  lease  arranged
   directly  from   a   vendor  or  third  party  corporation.   The  lease,
   lease-purchase, and tax-exempt  lease  agreements offer a  range  of  tax
   advantages to  the  lessor,  lessee and  investor  which are examined  in
   more detail  in the following section.

•  Advantages of  Leasing

   Properly structured,  a  lease  or  lease-purchase agreement  is  often  a
   more efficient and less expensive method to obtain  the  use of equip-
   ment  than a traditional  bond  issue  or outright  purchase.  Municipal-
   ities have  identified the following  legal,  practical,  and financial
   advantages that leasing may provide.
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        - lease financing is not subject to legally established debt limits,
        - municipalities are not  required  to hold a referendum  before  enter-
          ing into a lease agreement,
        - the  required  "fiscal  constraint"  clause  obligates  a  municipality
          only on a year-to-year basis.

        All  three  advantages  evolve  from the  principle of  common  law  that
        holds a lease is not a debt  and,  therefore, is not subject  to  estab-
        lished debt limits or to legal procedures for issuing  additional debt.

                                  Practical

        - leases may be used for equipment too small to  justify  a bond  issue,
          but too large to finance out of current revenues,
        - lease repayment  schedules  are designed  to match municipal budgets
          or revenues,
        - through  leases   all   normal  warranties  and  guarantees  of   the
          manufacturer are passed through to  the municipality,
        - lease contract  terms fall within  existing laws  and appropriations
          and are frequently very flexible.

                                  Financial

     The lease, lease-purchase  agreement,  and tax-exempt  lease each  offer tax
benefits to the various parties involved.

     A straight-operating lease establishes  rent  payments only for use  of the
asset and does not include interest.  The lessor, or owner,  may take advantage
of depreciation allowances but tax-free interest benefits do not  apply.

     A  lease-purchase agreement, by  contract,   includes  a  schedule of  both
principal and  interest on  the  principal balance of the purchase  price  of the
property.  The lessor benefits from receiving tax-free  interest as part  of the
scheduled lease payments.  The municipal lessee  or renter benefits because the
tax-free incentive  brings  leasing interest  rates  in line with  the  municipal
bond market.

     The tax-free  lease is  a  lease-purchase agreement  in  which  the munici-
pality borrows the purchase price from a bank or other  financial institution.
Title  is  transferred to  the  institution  which  has loaned out  money  to the
municipality.  After  the manufacturer has  assigned  its  rights  in the lease to
the financial institution for cash,  its only  obligation is to honor applicable
warranties.

     While  the  tax-exempt  lease  benefits  the  manufacturer through  immediate
payment, no depreciation or tax-free  interest is  available.  The municipality
benefits by negotiating  an  interest  rate comparable to that in  the municipal
bond market.  The bank or  financial  institution  frequently  sells certificates
of  participation  in  the  municipality's  lease  payments   to  investors,  the
interest of which is tax-free.


                                   11-61

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     In all three cases, investment  tax  credit  is not available  to  the  manu-
facturer,  vendor, or other lease holders because  the  property  is  used  in con-
ducting the business of municipal government.

     •  Bond vs. Lease Financing.  The fact that  leasing may prove  to be  the
        least expensive means of equipment financing  requires  further  explan-
        ation.   This  statement  refers  to comparable  costs  of bond  financing
        or outright cash payment for equipment which  costs  from  $50,000  to $2
        million.   Actual  experience  of  municipal  officials   and  various
        analyses uphold this view.   The interest  rates on borrowing via a bond
        issue will  typically  be less  than  the  interest  costs  involved in  a
        lease.  However, bond issues involve many other  costs  than simply  the
        stated rate of interest, including the costs  of  holding  a referendum,
        underwriting  fees, closing costs,  legal  fees, tax  opinions,  printing
        and engraving expenses,  special bidding  procedures,  and possibly  state
        approval.  When these are calculated,  leasing, even at  a slightly  in-
        creased interest rate (owing primarily to the higher risk involved for
        the  lessor  should a  government  be unable  to appropriate  the  annual
        lease payments)  often  can  come  out  ahead.  The  example  in  Exhibit
        IV-13 compares the total costs  of  a $100,000 piece  of  equipment when
        financed by either a  10-year bond  issue  yielding 8.5 percent annually
        and by a 5-year lease at 10 percent annual interest.

                                EXHIBIT H-13

                          BOND  vs. LEASE FINANCING

                                               ISSUE A BOND     ARRANGE A LOAN

Equipment Cost	      $100,000          $100,000

Total Interest Expense	        48,783            27,482

Other Expenses:   (estimates)
     Referendum  	         1,000               	
     Legal	         2,000               	
     Financial	         2,000               	
     Printing 	         1,000               	
TOTAL COST	      $154.783          $127,482
Assumptions:
     Life of Equipment	      5 years           5 years
     Length of Financing	     10 years           5 years
     Interest Rate	   .   8.5 percent      10 percent
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     Another factor  can  be the  "inflation  delay" costs between  the  time the
decision is made  to  acquire capital equipment  and  the receipt  of  funds from
the  bond  sale.   With leasing,  the equipment  can  be  made  available  almost
immediately and  thus there  are  few "inflation delay" costs  associated with
this  method of  acquisition.   Expenses  to  the  municipality  associated with
leasing include the  higher  interest rate  plus administrative time involved in
negotiating the lease contract.   However, the total costs  associated with the
lease  for  the municipality will  likely be  less  than bond  financing  on  a
present value basis because the lease term will be for a shorter time period.

     o  Purchase  vs.  Lease Financing.   Exhibit  11-13  shows  that  the present
        value  of  lease  payments  for   a  $100,000  piece   of  equipment  are
        virtually the same  as  the  cost of  purchasing  when  calculated  at  a  9
        percent discount rate over 4 years.
                                EXHIBIT  H-13
                           PURCHASE
                                                         LEASE
YEAR
              Equipment
                Cost
Present Value
of Cash Flow

  $100,000
  Annual
  Lease

$ 25,498
                                                               Present Value
                                                               of Cash Flow

                                                                  $23,393
0 (current     $100,000
    year)

1                                     	          25,496

2                                     	          25,496

3                                     	          25,496

4                                     	          25,496

TOTAL          $100,000            $100,000      $127,482

While the present value discount  factor  is  assumed to be  9%  for the example,
the exact  rate for  each  local government  will be  different.   The  discount
factor  is  the borrowing  cost  (or  cost  of  capital)  for  a  particular  city,
which for simplicity is assumed to be the cost of issuing debt.

WASTE AGE/NOVEMBER 1980
                                                                   21,459

                                                                   19,688

                                                                   18,062

                                                                   16,571

                                                                  $99,173
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     The  execution  of a  lease-purchase contract  by a  municipality  is  much
simpler than obtaining bond financing.  First, depending  on the jurisdiction,
it may not require competitive bidding and may be  done  solely on a negotiated
basis.  The lease document can be  in  a  standard  lease format  and  (except for
the "fiscal funding" clause)  accompanied by:

          -  an amortization  schedule  indicating  the.  payment  allocation  to
             principal and interest;

          -  a certificate of authorization approved  by  the governing body of
             the jurisdiction; and

          -  a legal opinion of the municipal attorney.

The municipality  holds  title  to  the  equipment subject  to the  lessor's  lien
and  is  responsible  for  insurance,  taxes,   and   all risks   associated  with
ownership until clear title passes to it at the end of the lease term.

     While leasing  offers a number of attractive  features, municipalities are
advised  to  consider  the  following issues  before entering into  any leasing
agreement:

          -  compliance with public bidding laws,
          -  state as well as  local debt limit provisions,
          -  required collateral for rent payments,
             consequences  of  nonappropriation  of   lease  payments  by  the
             municipality,
             impact  of  "non-substitution" clause  which  prevents  the munici-
             pality  from  purchasing,  through  another source,  the  asset  that
             is being leased,  and
             probable  tightening   of  municipal   lease   and   lease-purchase
             accounting  standards  to  eliminate   excessive  off-balance-sheet
             financing.

     •  Lease-Purchase Examples

        While  lease-p.urchase  agreements are  relatively  new  to the  field of
        wastewater  treatment,  cities and  towns   of   various  sizes  have  used
        them to their advantage.

        In 1978, a  major  Eastern  city was  ordered  to phase out ocean disposal
        of municipal wastewater  immediately.   After city engineers  drew up
        preliminary  requirements  for  the  sludge  treatment   facilities,  the
        project was put   out  for  bid on  a  lease-purchase basis  rather  than
        seeking a  bond  issue.  Although the  city  did not  have the  necessary
        capital,  the lease-purchase  arrangement  was chosen   over  a possible
        bond  issue  principally  because  of the time  factor rather than fiscal
        constraints.  The city director for  water  pollution control  estimates
        that  if normal  planning,   testing,  bidding, and  approval  procedures
        had been followed, ten years or more would have elapsed.
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      Facilities  and  equipment  were built on  a turn-key basis,  with the city
 making  its  first payment only  after  the  facility and  equipment were  completed,
 and  installed,  and  performance  standards met.   The contractor  continued   to
 supply  training,  chemicals, and  other  than base-line  maintenance  during  the
 two-year  leasing period.   To date,  this  city has purchased two facilities  and
 three  dewatering  machines through  lease-purchase  contracts.   The  pollution
 control  director  identified the following advantages of  leasing  over capital
 budgeting:

          -  there  is  no risk of  the failure or  delays  associated with bond
              issues;
          -  only  serious  competitors make  bids since contractors must  invest
              money up  front for completion of  the entire project;
          -  the city  need not purchase  equipment  and  facilities that  do  not
              meet  standards established  in the contract;
              the contractor, not  the city,  is under pressure to complete  the
              facility  on schedule  so  that leasing payments may begin;  and
          -  lease-purchase agreements  are competitively  priced  when all  the
              costs related  to  a bond  issue are calculated.

     For  years,  a  small  midwestern  town  maintained  a  flat  rate  for  all
 residents  using  municipal water.   In   1974,  the  Town  Council  decided   to
 install meters, but  did not have  the  capital to purchase the 400 or more that
 were required.  Working with a private  leasing company, the  town arranged  for
 a  five-year,  lease-purchase agreement for meters with  a  projected  life of 20
 years.   Within  three years, the  added  income from  the metered  water  helped
 the  city  pay  off   the  remaining  $10,000  to complete  its  purchase.   Town
 officials  report that  the meters  have  continued  to  give   good  service  and
 water rates have remained  acceptable  to  residents at  $.70  per 1000 gallons.

     A municipal  utility district,  serving  one of  California's  major  cities
has used  leasing  to  insure the adequacy  of  equipment before purchase.  While
 this district has  been able to  finance  all necessary  facility  and equipment
 requirements  through bond  issues, grants, and sewer  service charges, utility
managers  recently  leased  a major  sludge  treatment  unit on  a six-month trial
 basis before  deciding  to purchase.   The  district  was able to apply  80 percent
 of  its   rental  fees towards   the  purchase   price.   The  utility's   purchasing
 agent sees  an expanded use  of  leases  even by those  districts for which  a bond
 issue   is   feasible.   With  wastewater  technology  advancing   so   swiftly,
 particularly    in    secondary   treatment    processes,    he   believes   that
municipalities  may  be  well advised  to  lease  equipment  affected  by rapidly
 changing  technology, rather than  financing  over  the traditional 15  to 20-year
period.

     Leased facilities and equipment are available  through third party leasing
corporations  and increasingly  from manufacturers.    In  some  instances mainte-
nance,  supplies  and  even  skilled  personnel  are available  through   these same
parties.
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PUBLIC INVOLVEMENT—A TOOL FOR IMPROVING OPERATION AND MANAGEMENT

     "Treatment plants out of compliance."'.   "Sewer  rates  through  the roof!".
"Residents fight  sludge  disposal  site I".   These are  the  kinds of  headlines
that haunt public  officials  who are responsible  for  operation  and management
of wastewater  treatment  systems.   Public works officials  are,  unfortunately,
rarely  the  recipients of  public  service  awards.   They  are,  in  fact,  more
likely to be  the  target  of community  ire—an experience  which may  only lead
to a  desire  to avoid  public  involvement at  all  costs.   The paradox  is that
community support  for sufficient personnel and  funds is vital  for  improving
operation and management.  And  that  support will, more than likely,  only come
after  a  concerted  effort by  public  officials  to  involve  and   educate  the
public.  The  challenge,  then,  is how to win  over a  community, how  to obtain
support  for  adequate funding,  and  how to resolve  the political  issues that
can contribute to inadequate operation or management.

     Involving citizens—even when not mandated—can  be  politically prudent.
It can:

        enhance public understanding of an issue;
        ensure adequate funding;
        ensure reasonable costs;
        reduce conflicts;
        improve public appreciation of the ability and actions  of government
        officials; and
     •  avoid undesirable social, economic or environmental impacts.

     Involving citizens  can  also  provide  valuable  information and  ideas  for
making decisions about management improvements.  It can:

     •  identify community opinions and interests;
     •  define community issues; and
     •  develop sound solutions that are acceptable to the community.

     In  seeking  adequate  funds  for system management,  a  community's waste-
water  system  may,  unless  operated as a  self-supporting utility, be  in direct
competition with  other government programs.   Adequate  financing may hinge on
obtaining a larger slice of the revenue pie—or it may be necessary to enlarge
the  pie.  Neither  of those  approaches will  happen without  public  support,
however.   It  is  also  possible  to consider treatment systems as  a  community
resource  that might have  value for other government  programs.   Citizens who
are  involved  in  considering  the range  of   government  programs  and funding
demands may very well  come up  with creative  approaches that maximize  the uses
of wastewater treatment facilities. 1  For  instance, a  plant site or  sewer
^Alternative   approaches   that  have   been   used  across   the   country  are
described  in  "Recreation  and  Land  Use:   The  Public Benefits of Clean Waters."
EPA,  Office  of  Environmental  Review,  Washington,   DC.    1980.    See   also,
"Environmental   Quality,   the   Eleventh   Annual   Report".    Council   on
Environmental Quality, Washington, DC.   1981.
                                    11-66

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 easement  might  be viewed as  a  resource for  recreational  or educational  use.
 Furthermore,  with access to  the  site  and  its  waterfront  areas,  the general
 public   is  much  more   likely  to  care  about   the  effectiveness   of   plant
 operations.

      Community  involvement,  as  operators  of  other government  programs  have
 found, may  or may not arise  of  its  own accord.  To receive  the full benefit
 from  public involvement,  local  officials will probably  have to  take  a leading
 role  in  encouraging residents  to  be involved  in  the  task  of  overcoming
 stumbling blocks  to  proper  system management.   However,  to be effective  it  is
 necessary that  local officials understand  how to  plan  to  involve  the   right
 people at the right  time  in the right  activities.

      Table  1  gives  suggestions  for some  "dos and  don'ts"  of  public involve-
 ment.  The remainder of  this  section  focuses  on the reasons for involving the
 public, the potential benefits  of so  doing and  describes  how public involve-
 ment  can  be accomplished in a'manner  that will  achieve  the desired  purposes.
 Table 2  summarizes  the  questions  that should be addressed  when planning for
 public involvement.

Why Involve the Public in Wastewater Utility Management?

      Public officials  are,  unfortunately,  most often  aware of  the  negative
aspects  of  civic  activity  -  lawsuits,   lobbying,  and  demonstrations  or
 picketing by  irate  citizens.  They   are  already  familiar  with  the citizen
participation requirements  that accompany many Federal  assistance   programs.
Too often,  public officials  have  experienced citizen participation  in   those
programs  that is  ineffectual  and have  not  experienced  the  benefits  that can
occur when  citizens  and public  officials  work together  for  common  goals.
Nonetheless, the  time invested  by municipal officials in  putting  together an
effective approach   to  public  involvement  can  indeed  have  a multitude  of
benefits—not the least of which  can  be vital  community  and political support
 so that adequate  financing  becomes the norm.   The  fact  that  when  no Federal
 funding is provided, public  involvement is not required  should  not  mean that
 its benefits can be overlooked.

     The  residents  of any  community  have  a  substantial  investment through
their local  and Federal  tax dollars in wastewater treatment.  Citizens,  there-
 fore, have a strong material interest in protecting this  investment and  making
sure  that it  is  used  as efficiently  as  possible  for  as  long as  possible.
Furthermore, wastewater  treatment is  essential  to any  community  and   how  a
treatment system  is operated  can significantly  enhance or  degrade a  local
environment.  Many communities have discovered that wastewater treatment  plan-
ning decisions have long-lasting economic, social and environmental  repercus-
sions in  their  community.   For  these  and other  reasons,  it should  be  fairly
easy  to  stimulate  citizen  interest  in operation  and  management—and  once
stimulated to channel  it in  productive directions.  Establishment of a con-
tinuing  public  involvement  program can also  be particularly useful  in  highly
transient areas by  setting  up a mechanism that  reaches  out to  new  residents
                                   11-67

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                                                                   TABLE 1

                                                  THE DO'S AND DONT'S OF PUBLIC  INVOLVEMENT
                                        DO
                                                                                                   DON'T
 I
C7>
co
Define objectives of an activity

Have all parties Involved agree on objectives

Use an approach that matches:
  -the stage of development of an issue
  -the technical complexity of an issue
  -the "public" who is involved

Tie public involvement to key issues

Provide adequate time for the public involvement
  approach used

Provide a definite completion date for activities

Use a politically acceptable approach
  or lay groundwork
Give adequate notification time for public hearings
  and meetings

Precede public hearings with public Information
  programs

Include participants from all groups affected by
  issue or decision

Give citizen groups well-defined charge with
  deadlines for tasks

Provide adequate guidance and staff support to
  citizen groups

Present technical material concisely and clearly

Provide citizens with feedback that shows that their
  input was indeed considered

Keep elected officials informed of developing issues
  and problems

Get to know your community leaders

Reach out to the total community including uninvolved
  cltizens

Be creative

Lis ten
Have a "hidden agenda"  for public  involvement

Make decisions immediately following a  public  meeting
Permit special interests or vocal  minorities  to  dominate
  public meetings or advisory groups

Place too many demands  on Individual citizens  (volunteers
'  are busy people - their time  is  valuable)

Address the wrong issue or allow  Involvement  to  get  side-
  tracked on extraneous Issues

Launch a public involvement campaign without  consent  of
  elected officials
Rely solely on "legal notices"  to  announce public  hearings
  or meetings

Rely on advisory groups as the  only technique  of public
  involvement

Announce a public hearing without  providing prior  public
  information on the issue

Become too friendly with any one  segment  of the  community
Talk down to citizens as "only" lay people

Don't neglect to Involve professional and business persons
  from a broad spectrum of the  community

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and  thus  maintains  a  level  of  appreciation  for  the   system  despite  high
community turnover.

     One long-term benefit  of public involvement  is  likely to  come  from the
resultant core of  informed  citizens with a continuing and  long-term interest
in advocating proper management and adequate financing in the face of changing
political players  and  climates.  In  addition,  concerned citizens can  play  a
unique role by taking  the  lead in advocating actions that  might otherwise be
avoided by  public  officials  who  are  concerned  with   political  expediency.
Public officials  who want  to elevate  the  priority on  the local agenda for
improving system  management will  find  that  informed and supportive  citizens
are invaluable allies.
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                                   TABLE 2

       QUESTIONS TO ANSWER IN DEVELOPING A PUBLIC  INVOLVEMENT  PROGRAM

WHEN SHOULD PUBLIC INVOLVEMENT BE USED?

     *  to clarify or develop an issue
     *  to define problems
     *  to articulate goals
     *  to develop alternative solutions
     *  to recommend a preferred alternative
     *  to advocate a course of action
     *  to monitor implementation
WHAT ARE THE OBJECTIVES OF PUBLIC INVOLVEMENT?
     *  to fulfill legal requirements for public hearings or referenda
     *  to be politically prudent:
        - to enhance public understanding
        - to ensure adequate funding
        - to ensure reasonable costs
        - to reduce conflicts
        - to improve public appreciation for government ability/actions
        - to develop solutions acceptable to the community
        - to avoid undesirable social, economic or environmental  impacts

     *  to gather information:
        - to identify community characteristics
        - to identify community opinions and interests
        - to define community issues

WHO SHOULD BE INVOLVED?
     *  the media
     *  elected officials
     *  private citizens - the general public
     *  affected citizens - client groups, citizens or businesses with an
        economic interest in the  issue
     *  experts and agency staff
     *  organized citizens - civic groups
WHAT RESOURCES ARE AVAILABLE FOR  PUBLIC INVOLVEMENT?
        - how much  staff  time can be  given  to managing  public  involvement
        - how much  time is available  to achieve objectives of  involvement
        - how much  time can  the  public to be involved be  asked to  spend

     *  funds:

        - how much  money  is  available to spend on  public  involvement
          activities

     *  special  talent:

        - what  leadership role can  be expected of  public  to  be involved
        - what  special skills are available in the community
        - what  skills do  staff who  will manage public involvement  have

     *  what are the available community communications networks

 WHO  WILL MANAGE  PUBLIC INVOLVEMENT?

     *  who will be responsible  for responding to  public  involvement
     *  which  staff person should be  the contact for  the  public
     *  what are other public involvement activities  of the  local  government
     *  what skills are required

 WHAT TECHNIQUES  (OR COMBINATION  OF  TECHNIQUES) SHOULD BE  USED?

     *   information giving
     *   information receiving
     *   targeted to a broad  "public"
     *  targeted to specific narrow segments of.  the public
     *   formal  public involvement efforts
     *   informal public involvement -activities
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     There are  several  knotty problems peculiar  to  wastewater system manage-
ment for which  an  active  involvement of the public  in  devising and effecting
solutions could have a salutory effect.   Some  of  these  are listed below; how-
ever,  this  list is  not  all-inclusive—any  problem  may  well  benefit  by the
better  definition  that can  come  from  citizen involvement  and the  range  of
solutions that  are considered is  likely  to be broader  and more  creative  if
the public is involved in developing options.

     Suggestions of areas where public involvement could be helpful include:

        inadequate financing;
        rate setting;
        capital replacement;
        extension of services;
        sludge disposal;
        industrial wastes; and
        interjurisdictional disputes.

     Inadequate Financing

     An inadequate budget can cripple the management of a wastewater treatment
system.  When public funds are  tight,  there is always  a  strong temptation to
take a shortsighted approach by cutting out  funds for the purchase of replace-
ment parts or equipment.  Without adequate  funds  it  may be impossible to hire
sufficient personnel  to  provide adequate  training  or  to  establish efficient
maintenance  or  inspection schedules.   Citizens  who  are  concerned  about the
wise use of public money and who understand  the long- and short-range environ-
mental problems that occur as  a  result of an  inadequately  managed system can
take  the  steps necessary  (even  if  at  first  glance  it may  seem  politically
difficult) to ensure that adequate funds are provided.

     Rate Setting

     Sewer rates have  hit the headlines with  increasing  frequency during the
past  few  years  and increases  have  met with resistance  (and  even demonstra-
tions)  in  some  locations.  Citizens  who  are  convinced  of  the  importance  of
protecting their investment  in wastewater facilities with  adequate  funds for
operation and management  and  who  are consulted in designing the structure of
sewer rates can be a positive  force  in  mitigating the public reaction to rate
increases.   If  indeed  rates  are  found to be overly  burdensome,  then citizens
can  provide  insights  and suggestions  for  alternative courses  of  action.  In
any  event, citizen involvement will guarantee that  equity  considerations are
addressed.

     Capital Reconstruction and Renewal

     Careful stewardship  of  wastewater system facilities  can  lengthen  their
useful  life—but  not indefinitely.   At some  point  each piece  of equipment,
pipe or plant will have to be replaced.  It  is prudent management to plan for
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that event  by  gradually accumulating reconstruction funds  so  that money will
be  available  when  needed.    However,   citizens  and  elected  officials  may
perceive the accumulation of funds as a  sign  that  funding levels  are too high
and not as a sign  of  good management.   A capital  reconstruction fund can also
be an  easy  prey when the need  for  special  projects arises.   Therefore  it is
important  that  citizens  and  elected  officials  understand  and   support  the
necessity of  protecting a  capital  reconstruction  fund  from being  tapped at
will.   Every  effort  should be made  to avoid  trifling  with the  long-term
investment  in   a  community's  basic   infrastructure   in  order   to  realize
short-term gains.

     Extension of Services

     Planning  decisions  regarding sewer  extensions  and  new  interceptors  are
usually complicated by  the  inherent issues of  growth and  land  use patterns.
The meshing of  the development of public facilities and  growth management is
an area  in  which  community  residents  have a big  stake  and in  which public
involvement is necessary to  avoid political problems  later on.  Additionally,
during  the  actual construction phase,  if an adequate inspection  program is
not  in place a  community  may  be saddled with leaky  pipes that  could  later
prove  to  be an enormous drain on  the  efficiency of the  system.   Informed
citizens can insist that inspection programs are properly funded and managed.

     Sludge Disposal

     Disposing of  the increased volume  of sludge  generated by improved treat-
ment  levels has  been  difficult  for  many  communities.   Citizens  who  are
involved  in developing  solutions to  this  problem and   who  learn  about  new
techniques are likely to be  able  to  help develop  acceptable solutions.  After
that involvement, concerned citizens can  be even more  valuable  as they play a
leading role  in helping to  convince  the public at  large to agree  with  such
plans  and accept the solutions  agreed upon.

     Industrial Wastes

     The problem of industrial  wastes  plagues the  operation of many treatment
systems.   In assessing  the  severity  and dimensions   of  the  problem and  in
determining potential solutions,  productive results are  likely  to be achieved
if  careful  attention is  given  to  involving   the  public  who understand  the
different points  of view concerned.   Citizens involved  in this  process  can
serve  as  catalysts in obtaining  necessary  compromises between the  different
interests affected.

     Interjurisdictional Disputes

     Many plants  serve  more  than one  locality  and troublesome issues  can be
raised over the  equitable sharing of responsibility for  financing and manage-
ment of  the  system's  operation.  These disputes mirror  the difficulties  that
were often encountered in the  construction of plants  to  serve regional areas.
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Citizens  from  all  jurisdictions  who are involved in analyzing the  issues  that
are  in  dispute and who help to develop recommendations  for a solution to  the
problems  can be very  useful  in working for a result that is acceptable to  all
parties.

Planning  to Involve Citizens

     As in all planning,  there are certain steps that should be undertaken  to
make  sure that  an  effective approach  for  involving  citizens  is designed.
Elements  that  should be  considered  include  the  following  (not  necessarily
sequential) steps  which are amplified  below:

        Decide when the public should  be  involved;
        Determine  the purpose  of  involving  the public;
        Decide which  segments  of  the public  to involve;
        Identify the  resources available  for public involvement;
        Select appropriate techniques  to  use; and
        Identify who  will manage  public involvement activities.

     When to Involve  the Public

     Before a  major  effort should be  initiated  towards  the general public  or
community groups,  it  is  important  that wastewater system  managers obtain  at
least the tacit approval  of  their local governing body.  A public  involvement
effort  is a  political activity  and it is  necessary  that  it  be  managed  with
sensitivity to the local  political situation.   If  a  system manager is inter-
ested in  a  formal public  involvement  program,  it  is  most likely  to  be  suc-
cessful  if  the groundwork has been  laid previously  through  developing  good
working relationships with elected officials and by  keeping  them  informed  of
developing issues.

     Involvement is best  when it  is tied  to  key decision points,   although  it
may  also  be  appropriate  at other  times, such  as  in an  educational  program
that lays the  groundwork for  future  decisions.   The key  points  where public
involvement is most useful are:

        Clarifying and developing issues;
        Defining problems;
        Articulating  goals;
        Developing alternative solutions;
        Recommending  a preferred  solution;
        Advocating a  course of action; and
        Monitoring implementation.

     Once the  key  point from this list has been  identified  for public involve-
ment, then a   review  of more  specific objectives such  as  those  listed  below
should help in developing a clear  idea  of just what it is hoped to accomplish
by involving citizens.  Without clear objectives, public involvement is likely
to be unfocused and frustrating for public officials and citizens alike.
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     If a course of action is deemed desirable but is perceived as politically
unpalatable, it may be preferable for involved citizens to take a leading role
in advocating  the  action,  thus  laying the groundwork  for  public  officials to
follow suit.   However, for this strategy to be acceptable it is necessary that
a  mutually  supportive  relationship  between  citizens  and  officials  already
exist.

     The Objectives of Public Involvement

     Citizens  who involve  themselves  in  government  affairs  and  government
officials who  seek citizen input do  not necessarily  have  similar objectives
in mind.  Citizens may  have  broad goals that  include  the  general improvement
of government  programs, but they  can  also  be motivated by  a  single objective
such as  blocking  a particular project,  lowering  tax rates or  sewer charges,
checking the power of special interests, or furthering an individual political
career.

     Public officials may  share some  of  the  same  goals or  they may have dif-
ferent purposes.  Their efforts to involve the public  may  stem  from a need to
fulfill  legal   requirements,  to  enhance  public  acceptance of  a  program  or
decision, or it could be to delay or avoid making  difficult decisions.

     It is only when  citizens  and public officials share the same  goals that
the  true  benefits  of public  involvement  are  realized.  The negative experi-
ences  with  public participation  by  both  citizens  and government  officials
usually occur when the two groups  use  the exercise to achieve different, often
conflicting, purposes.

     The objectives selected will depend on the key  decision point  that is to
be the focus of involvement.  As  listed  earlier,  objectives  can  be considered
to revolve round three major areas:

     •  to fulfill legal requirements
     •  for political prudence
     •  to gather information

     Decide Whom to Involve

     Sometimes  public involvement programs are criticized as being deficient
because a few  citizens  with  narrow views  cannot  properly represent  a  commu-
nity.  Furthermore,  if general  public approval  is  needed  for   a  particular
decision or program,  a process that rests on limited public views may lead to
unnecessary conflict  with those  who  were  interested  but  were  excluded  from
involvement.   Further criticisms  can  arise  if  agencies become too  cozy with,
or appear to be captured by,  special interests.

     None of these charges should hold up when public  involvement is  properly
designed and well managed.  Hence, part  of that design must be an  early con-
sideration of whom to involve, which,  of necessity, depends  on a  clear articu-
latrion of the objectives of involving  the public.
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     The people who may  be involved can  include  a wide variety  of interests
that may be  loosely  grouped as  follows:   (Media representatives  can  play an
extremely important role in public  involvement,  but since their  function is
primarily as  a  conduit  rather  than as an active  participant they  have  been
excluded from the following list.)

     •  Elected officials;

     •  Private citizens—the general public;

     •  Affected citizens  or groups—program clients,  or  those with  an  eco-
        nomic stake in the  program or decision to  be  made (businesses,  land-
        owners or other  special or minority interests);

     •  Experts and agency personnel; and

     •  Organized citizens—civic groups.

     While it may be  that  all  possible interests do not need to be involved,
a conscious  decision  on  how to target participants  should  be made only after
reviewing  all possible  groups  in  the community.   Deciding  whom  to  involve
should be considered  in  light  of long-term and  short-term objectives.   And in
addition,  careful  consideration  should  be given  to the  community's  citizen
resources, its  individuals,  organizations, businesses  and communication  net-
works as well as special needs.  An important consideration  is  the time  that
community members have available  to contribute and  their potential  for leader-
ship roles.

     It  is  useful to  develop   a  list  of  citizens,  experts,  media  and  civic
groups  (such  as  the League  of  Women Voters,  Chamber of Commerce,  Civic Asso-
ciations,  Rotary  Club,  Taxpayers Group)  to have  available for targeting  par-
ticular segments of  the  community.  However, waiting  until a public involve-
ment  activity is underway may  result  in  the need  for  a   list  on very short
notice  so  that  citizens  with much  to  offer  can be missed.   A  "good"  list is
an  invaluable resource.   It  should be  developed early  and  kept  up to  date so
as  to be readily available when needed.

     Assess Available Resources

     Public  involvement  activities can be very  time consuming—both in terms
of  hours  spent  by government  officials  and  citizens,  and in terms  of weeks
and months taken to complete a  task.   Therefore  it is important to review the
amount  of  staff support  that  can be expended on  managing public  involvement
activities as well  as the  time schedule within which  the-desired objectives
are to  be  achieved.   In addition  to  funds and  staff  time,  consider also the
skills  that   government  officials have.   Some  public  involvement activities
require  a  fairly highly developed level  of  interpersonal skills,  in either
staff or citizen  leaders,  such as  in  facilitating  the resolution of conflict
or  managing  group interaction.   A necessary skill  for  any successful public
involvement  program, of  course,  is  the ability  to listen—on the part of both
officials and citizens.
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     Identify Who Will Manage Public Involvement

     In  designing  a public  involvement  or awareness program  it  is necessary
to coordinate with other agencies or staff who might be doing similar activi-
ties.  If there is a Public Affairs or Community Relations office it is impor-
tant  that  wastewater system  managers  establish  good relationships with the
staff so as to be able to rely on their  skills when needed,  and to develop  in
them an  understanding of wastewater management issues and the public involve-
ment approach  being  used.   Similarly,  a public  involvement  program should  be
at least acceptable  to,  if  not managed by, those who will  be  responsible for
reacting to  the  results of that involvement.   It   is  also  best to  have one
staff person who  is  assigned to serve as  the contact point for  citizens who
might have questions about  the issue or program.

     Select Particular Techniques

     Once the objectives of involving  the  public are clearly articulated, the
public who should be targeted has been identified, and the amount of resources
that can be used for public involvement has been assessed, then a decision can
be made regarding the particular activities to be undertaken.  It is important
to note  that  there  is no one "perfect"  activity that can be  relied  on every
time.  Each objective should be seen in the context of local circumstances and
then the specific activities  that are  most likely  to achieve  the  desired re-
sults at a particular time  should be selected.   Some activities are more time
consuming or  costly than  others,  some  are  more politically  acceptable  than
others and some have a greater potential for producing new ideas.

     Ways of involving the public are limited only by the imagination of local
government  officials, and techniques should be  selected  with a careful  eye  to
their advantages and disadvantages,  their potential benefits and their limita-
tions.   The next section of this chapter describes  a range  of  possible  activ-
ities and is followed by suggestions for their use.

An Inventory of Public Involvement  Activities

     A categorization of  activities is  useful  for  matching particular  tech-
niques to  specific  objectives.  Activities  can  be described  as  information
giving or information receiving (or  both),  they can have a broadly or narrowly
targeted audience,  and  they  can be  conducted  formally or informally.   One
grouping that illustrates the range  of  possible activities is given below:

     Information Receiving Activities

        Public hearings
        Public meetings  or workshops
        Referenda
        Surveys,  questionnaires,  or  polls
        Interviews
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        A call-in radio program
        Task forces or advisory groups
        A talent bank

     Information Giving Activities

        Press releases or conferences
        Interviews with editors or reporters
        Radio or TV talk shows or announcements
        Advertisements and legal notices
        Films, slide shows and documentaries
        Speakers bureaus
        Advisory groups or task forces
        Public briefings, meetings or workshops
        Fact sheets, brochures or citizen handbooks
        Newsletters
        Direct mail
        Signs, posters or billboards
        Preparation of educational materials for use in schools
        Tours
        Exhibits
        Events, such as an "Environmental Awareness Day"
        Public information or drop-in centers
        Responsiveness summaries^

     Informal Activities

        Consulting informally with citizens
        Being available to assist community groups
        Keeping open records and files
        Establishing contacts with influential citizens or groups
        Establishing good relationships with reporters and editors

Suggestions For Using Particular Techniques

     This  section  gives detailed  suggestions  for  some  of the  more  commonly
used techniques.  Selected references are  also  provided  for  those who wish to
pursue  further  information   about   these,   or   other,   public  involvement
activities.

     Public Hearings

     Public hearings are often  considered  to  be strictly "information receiv-
ing" activities in the most  formal  sense  and may  require  signing  up  ahead of
time for  the  presentation  of prepared testimony.   However, hearings  need not
^-Responsiveness summaries  give staff  responses  to  citizen  comments  or  sug-
gestions and show how those comments were considered in decision making.
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 be so formal and can be handled in less structured ways.   It  is  also possible
 to use a hearing as  an information giving  activity by including a presentation
 of the  issue at  the beginning and also to  permit a  certain amount  of  inter-
 change between  officials  and the  public.   A  skilled moderator  can even achieve
 an interchange  to approach a true debate.  At  their worst,  public hearings can
 be a  frustrating  experience for  citizens,  who  may speak  to  empty  chairs  or
 listen to decisions  being made immediately  following a hearing  that  had  obvi-
 ously been decided beforehand.  At their  best,  public hearings can  produce  a
 real  dialogue between officials  and  citizens  when time and management  permit
 opinions to be  incorporated into  decision  makers'  thinking.

      A hearing  should be  tied  to  a  specific  decision.   To obtain citizen  views
 on issues not yet at the  decision  point,  other  activities, such as  workshops
 or surveys,  are preferred.  A  formal  public  hearing is best if  it  is  the  cul-
 mination of  a  series  of  carefully  designed  public  involvement  activities,
 rather than a "stand alone" activity.  Prior efforts should have  included  in-
 forming the public  about  the  issue  to be heard,  possibly  involving them  in
 developing  a range of alternatives or  recommendations  for  consideration.   In
 that   setting  it  can  provide  carefully  thought-out  public   viewpoints   and
 suggestions.

      Sometimes  officials feel  that  legal requirements mean  that  a hearing must
 be  held even though  the decision  to be heard has  to  all  intents and  purposes
 been  made.   To invite  public  comment under such  circumstances  is to invite
 trouble.   Every effort should be made  to  plan  legally required hearings  far
 enough in  advance so  that the  public comment   received  can  be  adequately
 considered before  a decision is made.

      Formal  hearings can  be intimidating  for  citizens,  and  public   officals
 should take whatever  steps  they can in  arranging the  location  and  room design
 so  as to minimize the  impression  of  an  adversarial and authoritarian rela-
 tionship  that otherwise  may be created.2  It may  be  helpful to  have a staff
 person assigned to meet people as  they  come  in  and to circulate and be avail-
 able  to  answer  questions.   This  can  provide the side  benefit  of establishing
 informal  contacts with citizens and reporters.
^•For  some  good  suggestions  about  how  to write  public  notices  see  "How to
Write a  Public  Notice:  A  Collection  of Examples,"  Office of Water  Program
Operations, EPA, Washington, DC.  1979
f\
 For  suggestions   about   room  arrangements  for   hearings,  meetings   or
workshops  see  "Techniques  of Public Involvement,"  Council  of  State  Planning
Agencies, State Planning Series #11, Washington, DC.   1977
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     Advantages of Public Hearings

        Provide opportunities  for public input prior to decisions
        Can provide documentation of citizen values and attitudes
        Are open to all citizens
        Give special attention to specific decisions
        Give citizens an opportunity to hear all sides

     Disadvantages of Public Hearings

        Easy to leave till too late in the decision-making process
        Formality may impose authoritarian atmosphere
        Citizens may be "turned off" by having to wait too long to speak
        May be dominated by a  vocal minority
        Do not reach uninvolved citizens
        Can be used by individuals to "grandstand" for political purposes

     Public Meetings and Workshops

     Public meetings  and  workshops  that are carefully planned to attract and
interest  the desired  audience  can have very productive results.   They can be
carried out with  different  formats depending on whether  they are  to  be used
with  information  giving,  information  receiving  or  problem  solving as  their
primary purpose.

     For  information  giving,   a well  planned  and rehearsed  presentation with
visual aids that  explain  technical  aspects in lay  terms  should  be  used.   An
alternative approach  is to  present  a panel  of  experts  who can  discuss  and
present different  perspectives on a  topic.   For this to  work well,  a  short
background  presentation should  be  given  at  the  start,  and  the  discussion
should be handled by an experienced moderator.   Each  approach will benefit if
handouts  on the  topic are  provided  and  if  adequate  time  is  allowed  for
questions  to  be   answered.    Evaluation  or  comment   forms  can   also   be
distributed to obtain additional feedback.

     For  a meeting  or workshop whose  purpose  is   interaction  followed  by
agreement  or  consensus,   the  room  arrangements  and  atmosphere   can   be
important.  Participants should be arranged in small  groups  around tables  and
coffee or refreshments may be  provided.   A process for the  session  should be
carefully developed that includes an  agenda and  an outline  of the procedures
to  be  followed.   The  agenda   should  be  explained  to  the participants  along
with a short briefing on the  issues  at  the beginning of the session  (or it
could  be  mailed ahead  of  time).   It can  be useful  to  appoint a  recorder
and/or discussion leader for each group,  and  a discussion outline or  list of
discussion questions may be  provided.
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     Whichever  approach  is  chosen,  it  is  necessary  that  the  audience  be
properly  identified  and  targeted.   If  the  audience  is  to  be  the  entire
community,  newspaper or  radio announcements  can be  made,  or  announcements
could  be  included  with  sewer  charge  bills.    If  the  audience  is   a  more
restricted  group,  then announcements or  invitations  can  be  mailed directly,
or personal phone calls made.   Community  groups may also  be  willing to carry
announcements in their newsletters, or to sponsor a meeting or workshop.

     A registration requirement can be used if  it is  necessary to cover costs
of the event  if space is limited, or if  a meal will be  provided for which a
head count is needed.

     Advantages of Meetings and Workshops

     •  Can be used effectively in combination with other  techniques
     •  Permit establishment of personal contacts
     •  Can be used to resolve conflicts
     •  Is difficult for special interests to dominate

     Disadvantages of Meetings and  Workshops

     •  Need very careful planning and preparation
     •  Time consuming for staff and the public
     •  May require special skills in group dynamics

     Obtaining Information From The General Public

     The  previous  activities  describe  methods  that can obtain information
from  the  public — but  probably  only from  those actively  interested  in a
particular issue.   Sometimes,  however,  it is  necessary to elicit opinions or
information from the public at  large.   There  are several techniques that can
be used  to gather  information of this  nature  and  different  techniques  are
appropriate for different needs.   For instance,  a comprehensive needs assess-
ment could be undertaken  prior to  system expansion or  service  area extension
in conjunction  with  planning  for other public  facilities.^/   Less comprehen-
sive  information  about citizens or  their opinions  can be obtained through,
for example,  the  use of  short questionnaires  included  with  water  bills,  or
printed in community  newspapers  or newsletters, or through a brief telephone
survey.   Another  approach  is  to  stage  a  call-in  radio show.   Conducting
on-the-spot interviews on a  busy street  corner  or by going  door-to-door  can
also provide information on community opinions or needs.
iy For suggestions about needs assessment  techniques  see  "Coping With Growth:
Community  Needs  Assessment  Techniques,"  Oregon  State  University,  Western
Rural Development  Center,  Corvalis,  Oregon,  1980.    See  also  "How  Effective
Are Your  Community  Services? Procedures for  Monitoring the  Effectiveness  of
Municipal  Services,"  Urban  Institute  and   International   City  Management
Association,  Washington,  D.C. 1977.
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     Whatever the approach,  the  questions  formulated should be free from bias
and  a  sample  population  should  be  chosen  that  is  charcteristic  of  the
targeted population.   If  a mail-in approach  is used, the  response rate will
increase if  the response  package  includes  a  self-mailer,  or  if  follow-up is
provided to non-responders.

     Advisory Groups And Task Forces

     The use  of citizen committees  has become  a popular,  if  somewhat  over-
used,  technique of  public involvement.   Groups  can  be  roughly   categorized
according to their several potential functions:

        Inform  citizens about issues
        Obtain  general citizen advice
        Obtain  advice from a selected perspective
        Develop and undertake an action campaign
        Conduct research or fact-finding
        Perform a general review

     Membership will  depend  on  the  particular purpose  of the group  and the
process of selecting members is  important  so  that the activities  of the group
will  be well   received by the  wider   community.   Membership  should  include
people who have the time  available  to give  to the task  including doing the
necessary homework  and exercising  leadership when  required.   Members should
thoroughly, understand their community,  the  role of the group, attend meetings
and be able to  mobilize community  support.   Advisory groups can be invaluable
in helping to define broader public involvement programs._!/

     Before  an  advisory group  or  task force  is established, several  items
need to be decided.   These include:

     •  Membership:  - which segments of the community to include
                    - how they will be selected

     •  Purpose:    - a clearly  defined charge should be  prepared  that  indi-
                      cates whether the purpose  is  for  planning,   information
                      transfer,   policy  advice,   problem  solving,  conflict
                      resolution, mobilizing  public  support or undertaking  a
                      broad public awareness campaign.

     •  Duration:    - when will  the group start and finish
                    - how will length of membership terms be established
WSee  also  "Working  for Clean  Water:   The  Role  of  Advisory  Groups  —  A
Citizen  Handbook," Pennsylvania  State  University,   Institute  of  State  and
Regional Affairs, Middletown, Pa. 1980.
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     •  Operation:  - will meetings be regular or occasional
                    - who will lead meetings
                    - who will develop agenda and keep track of actions
                    - who will carry out recommended actions
                    - how much and which staff support will be provided
                    - how  will  members  be  brought  "up  to  speed"  and  their
                      interest maintained

     Sometimes permanent  advisory  bodies are established whose  only function
is to advise — but specifically on what is  never determined.   This situation
should be avoided, and  a  specific  charge should be given to the  group  at the
outset.  A danger also  exists with permanent  advisory groups,  in that leaders
of  the group  may begin  to  perceive  themselves  in  a quasi-staff  role  with
management functions.   If  this occurs,  the  only recourse may  be,  in the end,
to abolish the group.   Therefore,  it  is best to guard against such an occur-
rence by structuring the  group and defining  its function so that  the role of
group members is quite clear from the beginning.

     Advisory  groups  are  popular  because of  their  multiplicity  of function
and  apparent  ease of use.   However,  beside  their  many advantages  there are
some  significant  disadvantages   that  should  be  considered  before  one  is
established to make sure  that  an advisory group  is  indeed  the best technique
for a given purpose.

     Advantages of Advisory Groups and Task Forces

     •  Can  provide  useful   interchange and   dialogue  between   government
        officials and citizens
     •  Can  raise difficult  but  important   issues,  potential  solutions  and
        ways of approaching problems
     •  Establish personal contacts with  individuals  in community
     •  Can help encourage wider public  involvement
     •  Can help achieve  consensus or compromise on difficult  issues
     •  Can be a useful sounding board  for staff members

     Disadvantages of Advisory Groups and Task  Forces

        Require skilled leadership
        Members do not necessarily represent  the community
        Can be very time  consuming for  staff
        Can be very demanding on citizens who may "burn out"
        Can become a delaying agent
        Special interests  or vocal individuals may dominate
       ' May become a rubbet stamp
        May be used as  a  political springboard

     Public Education/Information Programs

     This  broad  category  of  activities is  designed  to  provide  citizens with
information  about  government  programs,  services   and  needs.    Short  term
                                 11-82

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activities can be geared to a  specific  issue,  or continuing activities can be
used with the objective of improving a  general  image.   Programs can be beamed
to  the  public at  large  by using  the  media  or  they  can  be  geared  to  more
specific  sections  of  the  community  through  membership  in  particular  age
groups or organizations or by  residential  location.   Members of organizations
can also be reached through their newsletters or bulletins.

     Any promotional  campaign  requires careful  planning.   If the  media  will
be  the  main avenue  for  communications, each  of  the  three vehicles  (press,
radio and  television)  should be explored.   Competition for news  and  feature
space may be  heavy,  so it pays  to make it easy for reporters  or  editors  to
cover  activities.    All  the  media  in  the  community  should  be  identified,
perhaps  by  using  a  file card  system.  The  appropriate  contacts  should  be
determined,  when  deadlines  must  be  met   and  in  what   format  material  is
needed.   It may  be  helpful  to hand   carry  releases   to  an  editor  as  this
permits the establishment of personal contacts with media staff.

     There  are  certain  "rules" governing  the  format  for  news  releases  or
announcements.  Some of these are described below:

     •  Include, at  the  top  of the  page,  organization or  agency  name,  phone
        number and name and phone number of a contact person
     •  Leave two inches of white space at  the top of the page
     •  Type double-spaced,  one side only,  with wide margins
     •  If the release runs more than  one  page type "MORE"  at  the  end of the
        page(s) to be  continued  (in  this  case put a. page  number and one-word
        identifier at the head of each succeeding page)
     •  End pages only at the end of a paragraph
     •  At the end of the release type "END", "30", or "###"
     •  Headlines may be included
     •  A fact sheet  may be attached for background information

     Sometimes  it  can  be useful  to  submit  a  photograph  -  but  only  high
quality  pictures  should  be  used.   A  good  black  and  white  picture  is
preferable.   A  caption should  be  written  on  a piece  of  paper taped  to the
photograph.

     Radio  and  television releases have similar  formats  with  the  addition  of
an  airtime  estimate  typed  in  the  upper  left  of the  first page.   (This  is
approximately 10 seconds for each  20-25 words).   If  slides are submitted  (one
for each  10 seconds),  allow additional space  in  the left hand  margin of the
copy  and in  that  space  identify  which slide  goes with which  part  of  the
text.  Be sure to specify if slides are to  be returned.!_/
l_/More  detailed suggestions  for  publicity  campaigns  specifically  geared  to
wastewater  treatment  can  be  found  in  "Public  Information  Handbook,"  Water
Pollution Control Federation, Washington,  B.C. 1977.
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     Special  publications  can  be  produced  for  a  variety  of  uses.   These
include  fact  sheets,  brochures,  citizen handbooks,  kits- for  school use  or
periodical newsletters.  The  purpose  of the  publication and how  it will  be
produced  and   distributed  should  be  decided well   in  advance.   A  regular
newsletter included with water or sewer bills  is a  simple  way to  reach  all
customers of a wastewater treatment system unless a  postcard billing is  used,
in which case  separate mailings would  be necessary.

     Public education  can  also be accomplished by  opening  system  facilities
to the  public either  by  promoting tours  or by  holding an open  house.   In
either event,  a  guide or host  (possibly a volunteer) should  be trained  and
prepared to explain the  facilities to visitors.  An exhibit (which  could  be
portable)  could  be developed  to  describe  the   system's  operation.   Safety
considerations should be included  for all events that bring the public  onto
facility sites.

     Advantages of Public Education Programs

     •  Can provide brief or indepth information to  the non-involved public
     •  Emphasis can be placed on public service  and  educational aspects
     •  Can reach a large number of people
     •  Can, over time, develop a  generally  supportive attitude  in  the  public
        at large

     Disadvantages of Public Education Programs

     •  May take a long time to be effective
     •  Can be expensive
     •  Provide only one-way communication

     Government officials can make  a  variety of  other efforts  to  involve  the
public  in  planning and  decision  making that include a   range  of   formal  and
informal activities  from visiting civic associations to encouraging  public
attendance at  official meetings and making public records and  reports  widely
available  to  the  general  community.    In  addition   there  may  be  influential
community groups  or individuals that  are interested  in  particular  issues  who
may benefit from technical assistance  or  training  that   government  officials
can provide.  Establishing personal contacts  with  these groups  and  individuals
is a  necessary component  for improving community  support  for  operation  and
management.

     A local  government that  makes  a  concerted  effort to operate  in the open
and  solicit—and  use—community  input  whenever  appropriate  should  be  in  a
good  position to  call  on  its  citizen  leaders  to  assist  in   solving  thorny
local  problems  such   as  those  that   surround  improving  the  management  of
wastewater treatment systems.
                                        . GOVERNMENT PRINTING OFFICE:  1982-361-082/309
                                   11-84

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