Public  Enterprises:    Cri1cal  Management  Tool  or    Source  of  All  Things  Controversial?  

Jeff  Hughes  School  of  Government    University  of  North  Carolina  at  Chapel  Hill  919  843-­‐4956  jhughes@sog.unc.edu  www.efc.sog.unc.edu  

Public  Enterprises  

State  of  Public  Enterprises  –  By  the  Numbers  1.  Number  2.  Revenues  3.  Debt  

Hot  and  Emerging  issues  1.  Pricing  (differen1al  rates,  wholesale  contracts)  2. Mandatory  service  3.  Transfers  4.  Impact  fees  5.  Inter-­‐fund  loans  6.  Fiscal  Health  (LGC,  Ra1ng  agencies)  

Public  Enterprises  

§  School  of  Government  Resources  §  Public  Enterprise  Stump  the  Manager  Challenge  

§  Background  and  Discussion  

Headlines  and  Burning  Ques1ons??  

Public  Enterprises:  What  characterizing  defini1on  sounds  the  best  to  you?    

A.  A  statutorily  defined  local  government  service  

B.  A  public  management  approach  

C.  An  accoun1ng  approach  

D.  A  decision  to  use  fees  instead  of  taxes  

A  statutorily  defined  local  g...

A  public  management  approach

An  accounting  approach

A  decision  to  use  fees  instea...

45%

27%

5%

23%

Public  Enterprise  Services  By  Statute  1.  Water  2.  Wastewater  (including  sep1c  

tanks)  3.  Solid  Waste  (collec1on  and  

disposal)  4.  Airports  5.  Off-­‐street  parking  6.  Public  transporta1on  7.  Stormwater  management  

programs  8. Electric  power  (ci/es  only)  9. Natural  Gas    (ci/es  only)  10. Cable  television  (ci/es  only)  

§  Schools  §  Cemeteries  §  Golf  courses  §  Hair  salons  

NOT  ON  THE  LIST:  

Who’s  in  the  Audience  

§ Water  and/or  wastewater?  §  Stormwater  run  as  a  u1lity  §  Solid  waste  run  as  an  enterprise  fund  §  Electricity  §  Broadband?  § Other?  §  Sep1c  system  u1lity?  

Public  Enterprise  Challenge  

A  minority  community  in  the  ETJ  of  a  city  has  failing  sep1c  systems  and/or  contaminated  wells  and  is  in  desperate  need  of  service,  but  the  price  tag  is  quite  high.        

By  the  Numbers:    Ac1ve  Water  and/or  Wastewater  U1li1es  

Type  of  U)lity     Number  Popula)on  Served  

Opera)ng  Revenue  

Water  and  Sewer  Authority   8   397244   143005413  County/District   62   1141302   326768171  Large  Scale  For-­‐Profit  (statewide)   3   250683  Metropolitan  Water/Sewer  Districts   3   2400   33860085  Municipali1es   387   5141058   1929862872  Nonprofit  Water  and  Sewer  Corpora1ons   44   373749  Sanitary  Districts   22   109657   26858374  

Grand  Total   529   7,416,093  $2,460,354,91

5  

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.

Local  Government  Public  Enterprise  Debt  (6/30/2014)  

Source: EFC Analysis of LGC Data

Water  $3,486,025,190  

34%  

Sewer  $4,156,916,185  

41%  

Stormwater  and  Erosion  $209,739,113  

2%  

Electric    $157,704,055  

1%  

Gas  $54,615,963  

0%  

Parking  $195,645,853  

2%  

Transit  $283,875,917  

3%  

Airport  $1,600,134,168  

16%  

Solid  Waste  $79,161,988  

1%  

By  the  Numbers:  Electric  U1li1es  

Public  Enterprise  Challenge  

§  Local  government  is  faced  with  significant  stormwater  needs  that  are  draining  the  general  fund  resources  and  taxes  are  already  high.  Some  areas  of  the  local  government  need  very  expensive  capital  projects  and  other  areas  need  minimal  investment.    

 

By  the  Numbers:  Stormwater  U1li1es  

http://www.efc.sog.unc.edu/reslib/item/nc-stormwater-utility-dashboard#

LICENSE  TO  FEE    (GS  160A-­‐314  /153A-­‐277)  

 A  city  may  establish  and  revise  from  /me  to  /me  schedules  of  rents,  rates,  fees,  charges,  and  penal/es  for    the  use  of  or  the  services  furnished  by  any  public  enterprise……….    

 

Fees  vs.  Taxes  

Pricing    

http://www.efc.sog.unc.edu/reslib/item/north-carolina-water-and-wastewater-rates-dashboard#

Pricing?  

§  Affordability  §  Inside/outside  rates  §  Availability  charges  § Wholesale/bulk  rates  

Public  Enterprise  Challenge  U1lity  has  lost  several  large  customers  and  has  significant  capital  needs  and  prices  that  do  not  generate  any  extra  funds  for  capital  investments.  The  u1lity  realizes  that  they  need  at  least  an  extra  50%  in  revenues  on  a  yearly  basis  to  stop  the  bleeding.  The  town  has  a  fairly  high  median  household  income  but  many  people  live  in  serious  poverty  and  are  out  of  work.    

Public  Enterprise  Challenge  A  small  town  purchases  wholesale  wastewater  service  from  a  neighboring  community/town.  The  legacy  contract  requires  the  payment  of  double  the  large  community  retail  rate.  Rates  have  risen  drama1cally  and  are  approaching  $150  per  month  for  customers.  And  the  small  town  has  inflow  and  infiltra1on  problems  in  their  sewer  system.  

Are  you  allowed  to?  

§ Charge  a  family  a  fee  even  if  they  do  not  have  a  meter  or  water  tap?  

§ Charge  some  customers  twice  the  amount  for  water  without  having  a  cost  jus1fica1on?  

§ Charge  some  customers  (senior  ci1zens,  firemen)  half  the  amount  for  water  without  having  a  cost  jus1fica1on?  

Impact  Fees  and  Connec1on  Charges  

http://www.efc.sog.unc.edu/project/residential-tap-fees-and-system-development-charges-impact-fees-nc

Range  of  Total  Water  Connec1on  Charges  Across  North  Carolina  (5/8  residen1al  meter)  2014    

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

0 50 100 150 200 250 300 350 400

Impact  Fees,  System  Development  Charges,  Capacity  Charges,  Facili1es  Charge……….  

§ Many  names  § Omen  intermingled  with  tap  fees  and  meter  installa1on  costs  

§ Genng  larger  §  History  of  challenges  

Mandatory  service  

http://canons.sog.unc.edu/?p=6305

http://shopping.netsuite.com/s.nl/c.433425/it.A/id.4179/.f?sc=7&category=4147

Public  Enterprise  Challenge  

A  large  number  of  rural  county  residents  have  made  a  very  compelling  case  for  needing  water  or  recycling  services,  but  there  are  also  many  residents  that  are  not  interested  and  not  willing  to  buy  the  service.    

Can  you  require  service  for?  

§ Water?  § Wastewater?  §  Stormwater?  §  Solid  waste  services?  §  Sep1c  system?  

Transfers  

Transfer  Terminology  

§  PILOT  §  Cover  direct  services  §  Payment  of  rate  of  return  § Undocumented  to  cover:  

– Historic  investments  – Shoroalls  in  general  fund.  

Budget  Bill  Transfer  Requirements  "§  159G-­‐37          (b)  Cer1fica1on.  –  ………..to  cer1fy  that  no    funds  received  from  water  or  wastewater  u1lity  opera1ons  have  been  transferred  to  the  local    government's  general  fund  for  the  purpose  of  supplemen1ng  the  resources  of  the  general  fund.    The  prohibi1on  in  this  sec1on  shall  not  be  interpreted  to  include  payments  made  to  the  local    government  to  reimburse  the  general  fund  for  expenses  paid  from  that  fund  that  are  reasonably  allocable  to  the  regular  and  ongoing  opera)ons  of  the  u)lity,  including,  but  not  limited  to,  rent    and  shared  facility  costs,  engineering  and  design  work,  plan  review,  and  shared  personnel    costs."  

Can  you  make  inter-­‐fund  loan  to  general  fund  from?  §  Solid  waste    §  Electric  u1lity    § Water  and  wastewater    §  Stormwater  

Can  you  make  inter-­‐fund  loan  to  general  fund  from?  §  Solid  waste  –  no  §  Electric  u1lity  –  yes*  § Water  and  wastewater  –  yes*  §  Stormwater  -­‐-­‐  no  

New  Developments  in  Understanding  Your  Fiscal  Health  § Will  the  LGC  take  you  over  § Will  someone  lend  you  money  at  the  best  possible  rates.  

§ Will  your  customers  be  able  to  pay  you  in  the  future  

Ra1ng  Agency  Developments  

§  S&P    § Moody’s  

Resources  

§  Blogs  – EFC  – Coates  Canon  – DFI  

§  Dashboard  – Water/wastewater  – Stormwater  – Electricity  

§  Finance  Tools  

Environmental  Finance  Center  

Development  Finance  Ini1a1ve  

Michael  Lemanski  DFI  Director  lemanski@sog.unc.edu  919.962.0942    

Christy  Raulli  DFI  Interim  Asst.  

Director  raulli@sog.unc.edu  

919.843.7736    

SOG  Coates’  Canons  Blog  www.canons.sog.unc.edu    

Public  Enterprise  Finance  and  Management  

Jeff  Hughes  School  of  Government    University  of  North  Carolina  at  Chapel  Hill  919  843-­‐4956  jhughes@sog.unc.edu  www.efc.unc.edu