Maintaining Sustainable Water and Waste Disposal Services Copyright 2011 Community Resource Group,...

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


Current RatioLiquidity ratio that measures

organization’s availability of cash to pay current debt

Current Assets

Current Liabilities

CURRENTRATIO


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.


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


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.


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)


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


Ratios are used to review financial trends

and track utility’s financial performance

from one year to the next.


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?


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.


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


User Rates

Should be reviewed annually as part of the annual budget preparation process

Should be adjusted at least once every 5-6 years


Your annual budget should provide for the

funding and accumulation of

financial reserves


Must be equal to 10% of annual debt-service

payment until one full year’s principal and

interest payments have accumulated.

Debt Service Reserve


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


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


PLAN For The Future!

Projecting for financial needs is a key part of a financially sustainable

utility.


Maintaining Sustainable Water and Waste Disposal Services Copyright 2011 Community Resource Group,...

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