THE SECRETS TO BUDGETING SUCCESS
One of life’s constants - expenses tend to increase over time. If revenue doesn’t keep pace with these increases, spending adjustments must be made in order to keep the books balanced. While you may better relate to this on a personal budget level, water systems are certainly not exempt from this challenge.
Over time, if revenues are not adjusted to keep pace with expenses, the quality of service, and ultimately the sustainability of the system, begins to decline. Since oftentimes elected officials are reluctant to institute rate increases, the method that is used to meet the bottom line of the budget is cutting financial corners and leaving system assets in place beyond the end of their useful life with no funding in place to replace them when that day arrives.
The City of Toquerville, upon realizing that this was beginning to happen, contacted Rural Water to see if we might help them evaluate how rates could be changed in order to bring in the necessary revenue to address current and long-term sustainability. To address their request, Rural Waters Management Technician, Terry Smith, met with June Jefferies, the town clerk, and Lance Gubler, the city’s public works director, to review the current budget. The goal was to help them determine how to set rates to meet this budget, while at the same time provide fair and logical justification to the customer rate categories that were in-line with their actual usage impact on the system.
When setting rates, it is necessary to provide customers some logical reasoning as to why this structure was used, especially when creating rates for different categories - residential, commercial, etc. An additional challenge that Toquerville has is that part of the city’s customers are served by pressurized irrigation. As per the city’s policy, this requires the need for some of the customers to utilize culinary water for irrigation be addressed in how they are charged for this water. Exporting customer water usage from the billing system for the fiscal year of 2017-2018, Terry imported them into a spreadsheet. Doing this allowed him to establish what revenue was necessary to meet fixed operating costs, as compared to variable costs that typically should be met by water sales during the increased usage of summer months. By doing this, he also provided them a means to easily change rate numbers and quickly see how those changes would affect yearly revenue, while at the same time providing logical reasoning as to why the rates were set in this manner. This rate model not only helped them immediately, but it can also be easily re-utilized in the future by simply updating the customer and budget data, while keeping the structure of the spreadsheet intact.
When adjusting rates, one size typically does not fit all. However, in order to keep things simple, system administrators sometimes attempt to do this. Unfortunately, what is often accomplished is simply bringing in enough revenue to fund the current operation and maintenance budget - thus pushing the revenue funding for long-term system sustainability down the road for a future discussion. Adjusting rates is not a process that system personnel like to tackle often, so when it is done, it should be a thorough evaluation with long-term sustainability as a priority.
Once an adequate budget and matching rate schedule has been put into place, a review by committee should be done on an annual basis to determine if gradual rate and budget adjustments are required to keep pace with rising expenses.
A water system master plan will greatly assist in long-range planning. If you don’t currently have one, or the plan that you have hasn’t been reviewed for many years and needs to be brought current, this would be a great starting point in laying out a system sustainability plan.