1. Finance and Governance Infrastructure Challenges in North Carolina
Jeff Hughes
Environmental Finance Center
UNC School of Government

2. How you pay for it matters
Supporting the fair, effective, and financially sustainable delivery of environmental programs through:
Applied Research
Teaching and Outreach
Program Design and Evaluation
A member of the US Environmental Protection Agency Supported Environmental Finance Center Network
How you pay for it matters

3. Topics A few facts and figures
Common finance and governance challenges

4. By the Numbers: Active Water and/or Wastewater Utilities
Type of Utility
Number
Population Served
Operating Revenue
Water and Sewer Authority 8
397244
County/District 62
Large Scale For-Profit (statewide) 3
250683
Metropolitan Water/Sewer Districts
2400
Municipalities
387
Nonprofit Water and Sewer Corporations 44
373749
Sanitary Districts 22
109657
Grand Total
529
7,416,093
$2,460,354,915
Data Notes: Analysis carried out by EFC using data as reported in SDWIS (2013) and submitted Audited Financial Statements (2012_2013) submitted to LGC. Some smaller units were not included in database.

5. Preliminary 2016* by the Numbers (Based on data submitted as of 2/8/16)
Operating revenues collected by governmental utilities (FY 2015)
>$2.6 billion
Highest (FY 2014)
$341 million (Charlotte Water)
Lowest with active water utility (FY 2015)
$34,804 (Sandyfield)
Median charged by NC utility
(January 2016 rates)
$31.02 Water
$38.05 Sewer
$68.74 Combined
Average number of blocks (in 2015) 4
Median multiplier for out-of-city rates
(Among 83% percent of municipalities) (in 2015)
1.84x Water
1.92x Sewer
Percent of utilities that raised rates
(out of 299 water & 249 sewer rate structures since last year)
45% Water
44% Sewer
Median increase for those that increased bills (at 5,000 gallons/month)
5.7% Water
5.4% Sewer
As of 2/8/2016, don’t have number of blocks and outside rates stats in the template

6. Preliminary 2016* by the Numbers (Based on data submitted as of 2/8/16)
Highest rate per 1,000 gallons at 5,000 gallons/month
$12.66 Water
$20.35 Sewer
Median base charge
$14.31 Water
$15.31 Sewer
$30.00 Combined
Highest base charge
$40.00 Water
$78.08 Sewer
$ Combined
Lowest non-zero base charge
$3.07 Water
$1.95 Sewer
$3.77 Combined
Median percentage of customer bill due to base charge at 5,000
46% Water
40% Sewer

7. Common Finance and Governance Challenges
Water demand is falling faster than predicted
Disconnect between revenues and costs
Disconnect between pricing and cost structures
Build it and they aren’t coming..
Condition of assets
Household “affordability”
Working together is hard and not always rewarded

8. Do Water and Wastewater Rates Cover System Costs?
UPDATE FY2015: local governments did so much better this year than in the past few years in generating operating revenues to pay for O&M expenditures and debt service. In the past, usually only 60-70% met that threshold. This year, 81% did.
Nearly a quarter of the local government water and wastewater utilities in North Carolina did not meet the definition of full cost pricing set by Session Law (b)(1). Data for this analysis were obtained from the local government utilities’ audited financial data from the Local Government Commission at NC Department of the State Treasurer. The Session Law’s definition of “full cost pricing” is in some ways a barebones definition. In addition to being able to pay for current operating expenditures and principal and interest, utilities should also be setting money aside for future capital replacement costs. One of the most common accounting costs relating to capital other than debt service is depreciation expense. Utilities should be recovering a significant (if not all, or more) portion of their depreciation expense through their rates to be able to fund future capital costs. In FY 2008, about half of the local government utilities did not recover operating expenses (including depreciation). Since construction costs in general increase faster than the rate of inflation, utilities should aim to recover more than 100% of their depreciation especially if most of their assets are very old and nearly entirely depreciated in value.
A utility that does not cover its operating expenditures, principal and interest payments, and depreciation, through its revenues may need to review their rate structure and raise their rates.
n = 436 (FY 2015)
Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

10. Percent of Annual Income Spent at 5,000 gal
Percent of Annual Income Spent at 5,000 gal./mo: Median & Low Income Customers Water Bills, 419 Wastewater Bills, and 384 Combined Bills
Note: Explain the meaning of “Interquartile Range.”
Source: 2015 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report

12. What is biggest challenge to setting rates in your utility?
Falling consumption trends/difficulty with projections
Governing board’s unwillingness to raise rates
Communities ability to pay more for water and wastewater service
Pressure to keep rates comparable to other water utilities
Rising cost of other governmental taxes and fees
Other?

13. DENR project water systems interconnections – SDWIS data and LWSP –
-available on-line, info on each interconnection
-looked at contractual agreements, so physical details and contractual details
-good opportunity to evaluate quality of contracts
-getting details right is crucial
-service area
-pricing
-adjustments to price
-dealing w/ future capacity issues
-as purchasing system, what kind of restrictions on growth
-min/max
-drought restrictions

14. Subscribe to Keep Up-to-Date with the Environmental Finance Blog
Examples of relevant blog posts:
Declining demands in NC
Increasing rates in NC
Operating ratios in NC
Water debt in NC
What’s wrong with %MHI
Financial strategies
And much more!