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
-------
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
-------
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
i1
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
-------
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.
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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.
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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?
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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?
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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
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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?
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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?
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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?
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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?
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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?
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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.
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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?
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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?
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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
-------
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;
-------
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
-------
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.
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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
-------
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
-------
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-
temnot 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.
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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.
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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;
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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:
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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.
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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.
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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.
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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:
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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
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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
II
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).
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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;
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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.
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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
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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
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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.
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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
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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.
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EXHIBIT II-8
WASTEWATER TREATMENT FACILITY
STATEMENT OF BUDGETED AND ACTUAL EXPENDITURES
Budget Actual Unencumbered
Account Appropriation Expenditures Encumbrances Balance
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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).
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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
ii
i
£2 Septic Tank Disposal Fees
Interest Revenue
Rents
Sewer Availability Charges
Connection Fees
Development Fees
Other
Total Revenue
-------
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.
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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.
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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
-------
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.
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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.
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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.
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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~tT 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.
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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 :
11-48
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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.
11-49
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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.
11-50
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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.
11-51
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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.
11-52
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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:
11-54
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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:
11-56
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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
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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.
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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 INVOLVEMENTA 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 irean 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 citizenseven when not mandatedcan 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 pieor 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.
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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
benefitsnot 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 managementand 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
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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
-------
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-inclusiveany 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 lifebut 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 citizensthe general public;
Affected citizens or groupsprogram 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 citizenscivic 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 consumingboth 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 listenon 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
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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 solicitand usecommunity 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
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