maintaining sustainable water and waste disposal services copyright 2011 community resource group,...
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Maintaining Sustainable Water and Waste Disposal
Services
Copyright 2011 Community Resource Group, Inc.No part of this presentation may be copied or reproduced without
written consent from Community Resource Group, Inc.
SECTION 4
For many small rural towns the water supply
and/or wastewater
facility may be the largest single
capital investment in the
community.
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Steps to maintain financial viability and sustainable water and
waste disposal services
Review Financial Statements regularly
Use financial ratios to measure performance
Review user rates annually
Plan ahead
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Current RatioLiquidity ratio that measures
organization’s availability of cash to pay current debt
Current Assets
Current Liabilities
CURRENTRATIO
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Current Ratio Calculation
EXAMPLE
$98,434
$39,004
2.76
(current assets)
(current liabilities)
(current ratio)
A ratio that exceeds 1.5 is in good shape. This current ratio shows the system is
growing in a positive direction.
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Debt Service RatioA measure of the cash flow that is
available to meet annual interest and
principal payments on debt.
Net Operating
Income
Depreciation
DEBT SERVICE
COVERAGE RATIO
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
For Fiscal Year 2009 1,637 (net operating income) 17,640 (depreciation expense) 12,663 (interest expense) $23,100 (total debt service)
Debt Service Coverage Ratio(DSCR)
EXAMPLE Depreciation and interest expense included
DSCR 1.38
For Fiscal Year 2010 1,100 (net operating income) 17,640 (depreciation expense) 12,184 (interest expense) $23,100 (total debt service)
DSCR 1.34
The debt service ratio exceeds 1.1 – the minimum DSCR ratio. This means the system
is in a negative direction from the prioryear and needs to be watched.
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
For Fiscal Year 2009 8,840 (net income) 23,100 (total debt service) $23,100 (total debt service)
Debt Service Coverage Ratio(DSCR)
DSCR 1.38
For Fiscal Year 2010 7,824 (net income) 23,100 (total debt service) $23,100 (total debt service)DSCR 1.34
EXAMPLE cash-basis income and budget statement
(depreciation and interest not included)
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
The debt service ratio exceeds 1.1 – the minimum DSCR ratio. This means the system
is in a negative direction from the prioryear and needs to be watched.
Operating RatioA measure of financial efficiency that indicates the utility’s ability to cover
total expenses with revenues.
The minimum operating ratio should be 1.0 or greater and it is recommended to have a
minimum operating ratio of 1.1 or greater.
Total Annual
Revenues
TotalAnnual
Expenses
OPERATINGRATIO
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Ratios are used to review financial trends
and track utility’s financial performance
from one year to the next.
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Questions to Ask:
Are the financial ratios moving in a positive or negative direction?
Are retained earnings (in the balance sheet) going up or down?
Is net income going up or down?
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Unit-of-Service Measures
Reviewing a utility’s
operations from a unit-of-service
perspective can give decision-makers a
better understanding
of how the utility is
performing over time.
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Unit-of Service Example
Average revenue per customer per month: $81,028 250 12 mo. $27.00
Total expense per customer per month: $79,928 250 12 mo. $26.64
Total debt service per customer per month: $23,100 250 12 mo. $7.70
Total cost to produce water per 1000 gallons: $79,928 15,000,000 gals/1000 $5.33
Revenue per 1000 gallons sold: $77,153 14,250,000 gals/1000 $5.41
Average customer use per month: $14,250,000 250 12 mo. 4750 gallons
PRETTY GOOD WATER SYSTEMPERFORMANCE DATA 2010
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
User Rates
Should be reviewed annually as part of the annual budget preparation process
Should be adjusted at least once every 5-6 years
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Your annual budget should provide for the
funding and accumulation of
financial reserves
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
Must be equal to 10% of annual debt-service
payment until one full year’s principal and
interest payments have accumulated.
Debt Service Reserve
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
To be used for significant, unforeseen/unplanned
repairs. Should be equal to most recent years’ typical
expenditure for unscheduled/reactive
repairs PLUS 10%
Emergency Reserve
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
To be used for replacement and/or
rehabilitation of system components that have a
useful lifespan of less than 15 years. Fund
should be based on a prioritized schedule of inventory that requires
replacement and/or rehabilitation in
the foreseeable future.
Planned Equipment
Reserve
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services
PLAN For The Future!
Projecting for financial needs is a key part of a financially sustainable
utility.
SECTION 4: Maintaining Sustainable Water /Waste Disposal Services