The abrupt arrival of COVID-19 in the United States financially impacted businesses across all sectors, with water and wastewater utilities being no exception (see our previous blog post). Two major factors influenced revenue streams for utilities in the state. The first was Executive Order 124/142 issued by Governor Cooper on March 31st, which prevented utilities from disconnecting water or wastewater services to residential customers due to missed payments. This moratorium extended until the end of July. The second factor was that many commercial, industrial, and institutional customers reduced or stopped their operations in line with the statewide stay-at-home order. For some communities, non-residential customers use the greatest share of water or wastewater. The utilities in these areas were at risk of significant revenue declines due to these customers ceasing operations.
We know there are a wide range of financial impacts on utilities during the pandemic depending on the size and composition of each utility’s customer base. By diving deep into a case study of one utility, we can better understand the specific effects that some systems across the state have been experiencing. At the EFC, we’ve been working with the Yadkin Valley Sewer Authority (YVSA) since the beginning of the pandemic to assess their financial condition and provide technical assistance. Using data and interviews they’ve provided, we are able to share a case study of their experience over the past year and how they are preparing for the future. Continue reading
August has been a key transition month for local government utilities in North Carolina as EO 124/142 (which prohibited disconnections due to non-payment for residential utility accounts) has expired, payment plans are required to be in place, and Governor Cooper just announced $175 million in relief money, including $122 million for assistance in paying rent and utility bills.
How are water and wastewater utilities across the state faring under COVID-19 conditions? We’ve been keeping track here at the EFC and though the circumstances are constantly changing, we’ve been able to assess some of the impacts of COVID-19 on utilities during the last five months.
We have just released a report funded by Division of Water Infrastructure in the Department of Environmental Quality, outlining results from a poll, analysis of the EO 124/142 data that utilities reported to the North Carolina Utilities Commission (NCUC) for the full April through July period that covered the statewide moratorium, stories of individual utilities (blog post coming soon), and an overview of our financial resiliency tool. Continue reading
Municipal Bonds & COVID-19: What is going on?
Prior to the outbreak of COVID-19 in the US, the municipal (“muni”) bond market was strong. Investors looking for a non-taxable rate of return were hungry for municipal bonds, driving interest rates down for borrowers (state and local governments) and pushing more debt into the marketplace. Most governments have a cap on the amount of non-taxable municipal bonds they can issue, so many had expanded to include taxable bonds (at a higher rate of return for investors and a higher interest rate for borrowing).
Historically, muni bonds have been very low risk. The rate of default on municipal bonds is very low, and investors see muni bonds as a safe haven for return. The rate of return is often quite low, as determined by the safety of investment, but from a portfolio standpoint, they are a safe addition. As of the end of 2019, the muni bond market was incredibly strong; perhaps the strongest it has ever been. Many state and local governments had strong “rainy day funds” or days of cash on hand, making the risk of default even lower and the bond rating even higher.
Then, COVID-19 made its way to the US and changed the marketplace. Muni bonds have historically performed well during economic downturns, as issuers rarely default– specifically those with great bond ratings. COVID-19 changed this perspective within the market. Investors began selling off everything, including municipal bonds, leaving issued debt sitting in the market unclaimed and driving up interest rates for borrowers. The stock market followed suit, dropping rapidly over just a matter of days, pushing many to wonder if the US was headed for another recession. Why did this happen? And most importantly, what is next? Continue reading