Environment Sciences & Engi
By Sarah Royster and Mary Sketch
The Environmental Finance Center analyzes annual data from multiple sources, including the NC Division of Environmental Assistance and the NC Division of Waste Management, on solid waste fees from North Carolina counties and municipalities. Using surveys from various government commissions on solid waste charges per household or resident, this data was combined with annual census data to reveal several interesting trends. Continue reading
Sarah Royster is a graduate student with the UNC School of Public Health pursuing a Master’s Degree in Environmental Engineering. She works as a Research Assistant with the Environmental Finance Center.
Debt and debt management for water and sewer utilities are becoming increasingly important as our country’s infrastructure needs continue to grow. The U.S. Environmental Protection Agency’s recently released 2011 Drinking Water Infrastructure Needs Survey and Assessment indicates that $384.2 billion in water infrastructure investments is needed over the next 20 years. Ten billion dollars of this need comes from North Carolina and much (if not most) of the infrastructure will be funded through debt. This makes North Carolina one of only ten states in the country with an infrastructure need above ten billion dollars. Many are concerned that financing such a large amount of debt will be challenging. Add to this concern, that North Carolina utilities already have $8 billion in outstanding debt – a value that has been consistently rising each year. In 2008, for example, North Carolina utilities had $6.7 billion in outstanding debt. This has risen to $8.1 billion in the span of four years. Paying off this outstanding debt, however, may not take as significant a toll on utility financial health as some fear. The graph below shows the outstanding water and wastewater debt for North Carolina as of June 30, 2012 and how this debt would be paid off based on linear payments to maturity date. If no more debt were issued, the current outstanding debt would be paid off by 2052. Most of this debt, however, would be paid off much sooner with a 50% reduction in outstanding debt by 2019.
Sarah Royster is a graduate student with the UNC School of Public Health pursuing a Master’s Degree in Environmental Engineering. She works as a Research Assistant with the Environmental Finance Center.
Economic decline in the past decade has created financial hardships not only for individuals and businesses, but also for water utilities. Utilities can be impacted by economic conditions in a variety of ways. Many utilities, for example, decided to take advantage of low interest rates in 2012 according to a special report by Standard & Poor’s, contributing to a 40% increase in bond issuance from the previous year. Utilities, however, are also experiencing revenue shortfalls due to increasing costs and infrastructure needs, and declining revenues. This financial hardship for utilities results in the need for rate increases. Water utility rates have increased far faster than projections of changes to disposable income, and water and sewer bills have been increasing faster than inflation since 2000 (Chapman, Breeding, & Buswick, 2013). These economic conditions also negatively impact utility customers, and create a “downward spiraling” trend in utility revenue and customer affordability (read more about customer affordability indicators here). Local income levels have fallen with the economy as poverty and unemployment rates have increased, and customers have become increasingly cost-conscious. This often leads customers to reduce their water bills by decreasing consumption, subsequently reducing utility revenues. Utilities must then consider rate increases to help mitigate these revenue losses. This cycle can prove detrimental to utility financial health. Continue reading
Sarah Royster is a graduate student with the UNC School of Public Health pursuing a Master’s Degree in Environmental Engineering. She works as a Research Assistant with the Environmental Finance Center.
Restrictions on reserve funds vary greatly from utility to utility. Capital-intensive infrastructure projects, customer demand trends, geography, governance and political priorities can affect reserve fund sizes and regulation. The Government Finance Officer’s Association (GFOA) recommends establishing minimum reserve fund levels, and many utilities have specific reserve policies based on expected revenues for the following year. When setting policies for maintaining minimum reserve fund balances, however, several factors should be taken into account, including the volatility of revenues and expenditures, the perceived exposure to financial risk (from natural disasters, customer demand shifts due to weather or drought, unexpected infrastructure repair, etc.), the amount of money and potential drain on other reserve funds, liquidity, and financial commitments to designated reserve funds (GFOA 2009).
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