Systematic financial planning
Financing options for …
The programs' reauthorization would provide at least $20 billion in additional seed funding for loans and other financial support for water projects over the next five years.WHAT STATES CAN DO
While states have financial challenges of their own, progressive leaders realize that strong cities and counties are critical to solving the financial crisis. They could help local officials move forward with capital programs by advocating a number of programs.
Pooled bond programs. Many states issue bonds on behalf of a “pooled” group of communities. Most participants have been small and mid-sized communities that want the higher bond ratings states typically provide but can't afford to do so unless they share issuance costs with like-minded communities.
But now, the financial crisis is prompting larger cities to participate in these state-sponsored bonding programs.
The Virginia Resources Authority, for example, issued $219 million in an offering that included such first-time participants as the Alexandria Sanitation Authority, King George County, Loudoun County, and York County. Standard & Poor's gave the bonds a AAA rating for senior debt and a AA rating for subordinate debt.
Stimulus programs or other direct funding. While balanced-budget requirements limit the opportunities for such programs, even limited involvement could help advance the most urgent capital programs.
Likewise, some states may ramp up their funding for revolving-fund loan programs or provide other direct funding to help keep critical infrastructure programs moving forward.PROACTIVE LOCAL RESPONSES
Ultimately, the bulk of funding will continue to come from local taxpayers and system users. To maximize return on increasingly limited resources, consider one or more of the following.
Strategic financial planning. Reviewing various options and scenarios will help you work with elected officials to develop contingency strategies during changing financial circumstances.
For example, if your community hasn't participated in a state-pooled bond program or public-private partnership, now's the time to think about doing so.
Following a systematic financial planning process like the one illustrated on the previous page provides a framework for efficiently expanding the array of options considered and evaluating the funding options in light of the most important goals for the funding program.
Enhanced prioritization for capital programs. A slower economy means commercial/industrial customers are using less water, providing less revenue for many water and sewer utilities because volume-based rates constitute a significant share of annual revenues for most systems. A slower housing market means fewer hookups, which contribute as much as $15,000/home for some utilities.
When revenues are declining, it's more important than ever to identify and clearly present the value of a proposed project to meet stakeholder objectives. The most important can be advanced as revenues expand and the less important ones deferred.
Prioritizing helps you better articulate the specific value contributed by candidate projects as well as make the tough budget decisions when juggling the needs of a wide array of assets, including roads, bridges, buildings, and utility systems. A related strategy is enhanced risk analysis of existing assets to target limited resources on renewal and replacement projects that provide the greatest return.
Revenue enhancement. Consider offering a new product, such as service-line insurance for the portion of water and sewer lines on private property that are the responsibility of individual property owners.