Tag: Debt

$napshot: Debt Service as Percent of Total Operating Revenues

Debt Service as Percent of Total Operating Revenues in FY2012

Last Thursday, while we were presenting one of two Water Research Foundation webinars (view recordings of the webcasts for free) on the financial strategies that water utilities have or can employ to improve revenue resiliency against changing financial trends, a participant on the webinar asked if we have any benchmarks on debt service as a percent of operating revenues. The graph above shows how debt service in FY2012 compared to the total operating revenues of 645 debt-paying water/wastewater utilities across the U.S. from Moody’s rating agency. 58% of the debt-paying utilities spent between 10% and 30% of their total operating revenues on debt service in FY2012. Only 11% of the utilities spent more than 40% of their revenues on debt service in that year. There does not seem to be a major distinction between small and large utilities in terms of the proportion of revenue spent on debt service. In our recently published WRF report, Defining A Resilient Business Model for Water Utilities, we showed that this proportion of debt service to operating revenues remained relatively steady between FY2003 and FY2012, despite declining water use. Spending a quarter of annual operating revenues on debt service requires careful financial planning on behalf of the utility since debt service is a fixed cost that must be paid regardless of fluctuating water sales and revenues. These findings are part of the research for Water Research Foundation project #4366.

A $napshot is a graphic revealing an interesting environmental finance finding accompanied by a short post. This $napshot was created by Shadi Eskaf.

Dismantling Debt: Financing North Carolina’s Infrastructure Needs

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.


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