Texas Commission on Environmental Quality Public Drinking Water Conference
Dan Smith August 16, 2006
Dollars and Sense
• Why Bother with a “Strategic” Plan or Strategic” Any Kind of Business Plan? • What Goes Into Those Types of Plans? • What’s a Financial Plan Look Like? What’
Why Bother?
A Business Plan Is Required By Law In Some Circumstances. The Safe Drinking Water Act in 1996, Senate Bill 1 in 1997, and 30 TAC Chapter 290.39 Require the Commission to Ensure That Public Water Systems. . .Are Financially Stable. . . and Review . . . Business Plans.
Why Bother?
To Obtain, Amend or Transfer a CCN, All Applicants Must Be Able to Demonstrate That They Have FMT. PWSs with Compliance Problems or Having Enforcement Actions May Be Required to Submit a Business Plan.
TYPE OF PUBLIC WATER SYSTEM
Engineering plan review required Y Y Y
Business plan with plan review required Y Y Y
Business Plan for Systems w/Compliance Problems Y Y Y
CCN, must demonstrate FMT N N N
Why Bother?
EPA Guidance Indicates States May Not Provide Drinking Water State Revolving Funds to a System That Lacks FMT Capacity Unless the Plan and the Funds to be Provided, Ensure Compliance.
Non-Transient Non-Community (offices, factories) Transient Non-Community (stores, parks) Community Water Systems Non-Utility Community Water Systems Utility -IOU -WSC -Affected Counties -Districts
Y Y Y Y
Y N Y-if util. N-if not util N
Y Y Y Y
Y Y Y Y*
-Cities Y N Y Y* * Although many districts and cities have CCNs, they are not required to obtain a CCN unless they are proposing to serve an area already lawfully being served.
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Why Bother?
• Raising Capital Will Be Difficult Without a Business/Cash Flow Plan. • Achieving a Goal of Success Is Easier When Each Small Step Is Defined. • Making Management Adjustments Is Easier When Deviation From a Defined Plan Is Identified.
What Goes Into These Plans?
• Identification of Ownership and a Mission Statement to Identify the Purpose and Ultimate Goal. • A Strategic Plan Identifies Both Immediate Service Expectations and Potential Growth Areas.
What Goes Into These Plans?
• An Organizational Structure and Job Descriptions to Provide for Measurement of Job Performance. • An Operating Plan, or Budget, Details Revenue, Expenses and Net Profit, and the Assumptions Under Which It Was Projected.
What Goes Into These Plans?
• A Capital Plan Projects When Improvements Will Be Needed And How They Will Be Financed. • A Cash Flow Plan Requires Thought on the Priority of Expenditures.
What Goes Into These Plans?
• Progress Must Be Periodically Compared to the Plan, Monthly or Quarterly, So Periodic Financial Statements Are Necessary. • Good Information Is the Basis for Informed Decisions/Adjustments During the Period. These Goals Aren’t Achieved Just Because Aren’ They’re on Paper. They’
What’s It Look Like?
A Financial Plan Starts from a Historical Basis, Even If It Is Only a Basic Balance Sheet of Cash/Land and Debt/Equity. Then It Liberally Estimates Expenses, Conservatively Estimates the Speed of New Connections, and Expects Negative Cash Flow For a While.
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PROJECTED BALANCE SHEETS START UP CURRENT ASSETS Cash Accounts Receivable Inventories Income Tax Receivable Other Total FIXED ASSETS Land Collection/Distribution System Buildings Equipment Other Less: Accum. Depreciation or Reserves Total TOTAL ASSETS CURRENT LIABILITIES Accounts Payable Notes Payable, Current Accrued Expenses Other Total LONG TERM LIABILITIES Notes Payable, Long-term Other TOTAL LIABILITIES OWNER'S EQUITY Paid In Capital Retained Equity Other Current Period Profit or Loss TOTAL OWNER'S EQUITY TOTAL LIABILITIES AND EQUITY WORKING CAPITAL CURRENT RATIO DEBT TO EQUITY RATIO EQUITY TO TOTAL ASSETS YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Existing Number of Taps New Taps per Year Total Meters at Year-End
PROJECTED INCOME AND EXPENSE STATEMENTS YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTALS
Average Annual: Fees Per Meter Cost Per Meter Operating Revenue Per Meter Gross Water Revenue Fees Other Gross Income Operating Expenses General & Administrative Interest Other Net Income SCHEDULE OF EXPENSES General & Administrative Expenses Salaries Office Expense Computer Expense Auto Expense Insurance Expense Telephone Expense Utilities Expense Depreciation Expense Property Taxes Professional Fees Other TOTAL Operational Expenses Salaries Auto Expense Utilities Expense Repair & Maintenance Supplies Other TOTAL ASSUMPTIONS: Interest Rate/Terms: Utility Cost/gal.: Depreciation Schedule: Other:
Subsequent years increased by __% each year, or columns added
Subsequent years increased by __% each year, or columns added
PROJECTED SOURCES AND USES OF CASH STATEMENTS
YEAR 1 Sources of Cash Net Income Depreciation (If Funded) Loan Proceeds Other Total Sources Uses of Cash Net Loss Principal Portion of Pmts. Fixed Asset Purchase Reserve Other Total Uses Net Cash Flow Debt Service Coverage: Cash Available for Debt Service (CADS) Net Income (Loss) Depreciation, or Reserve Interest Total Divided by: q (RDS): Principal plus Interest g Ratio CADS divided by RDS
YEAR 2
YEAR 3
YEAR 4
YEAR 5
TOTALS
Any More Questions Now? If Not Now, Get In Touch When You Do!
Dan Smith Utilities Financial Review Team TECQ dsmith@tceq.state.tx.us (512) 239-6949 239-
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Objective DEBT FREE FINANCING
• • • • • • • • Consider ALL Possibilities Brain Storming Reminder to Some New to Others Not ALL Options are Open to All Systems Foundations (why not) Everyone has Beneficial Input Participatory Sport (no spectators)
HOW TO FIND AND CREATE MONEY IN YOUR OWN BUDGET
Introduction
• • • • • • • The Budget User Fees Maintaining the “CASH REGISTER” Maintenance Tax Other Services “C” Word Rate Study/Review • • • • • • •
ESTABLISH A BUDGET
Start with One Year Five Year Forecast Review Monthly (Actual to Budget) Amend as Needed Shop Interest Rates Consider Cost Cutting Get Outside Review
– (not too close to see the trees)
CONSIDER USER FEES
(REQUIRS COST REVIEW)
CHECK CASH REGISTER
• • • • • • • Calibrate Master Meters Field Test 5/8-3/4 inch Meters Change at 1,000,000 Gallons Calculate Bill vs. Produce Monthly Meter ALL Locations Calculate Cost to Produce 1000 Gallons Adjust Minimum Bill to Equivalent Meter
• • • • • • •
TAP/CONNECTION FEE INSPECTION FEE IMPACT FEE or Equity Buy-In Fee FRANCHISE FEE BAD CHECK FEE METER TEST FEE STAND BY FEE
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Consider Maintenance Tax
• Municipalities Only (MUD’s & Cities)
– Use to fund operations – Tax deductible (water rates are not) – Affects ALL property owners – Can be implemented as Debt Service reduces – Funds “Preventive Maintenance Program” – Funds “Repair & Replacement – Must Have Taxing Authority
Consider Other Services
• Wholesale Water & Wastewater • Services Outside Boundary • Inspections
– Builders Inspection Program (Pre & Post) – Customer Service Inspection – Leak Detection (property owners side)
• Other Services - ???
Consider “C” word
• • • • • • •
Annual Rate Review
Conduct Rate Study Each Year Conduct Annual Budget Review (red pen) SHOP TILL YOU SAVE! Perform Cost Benefit Analysis Calculate Pay Back Period Calculate Return of Investment Adjust Rate to Match Inflation
• • • • • •
Consolidation Produces Economy of Scale Lower Cost of Operation Eliminates Duplicate Services Joint Management Physical Consolidation Contractual Services (No WC/Health Insurance)
HAVE FUN!
• • • • • • •
Conclusion
Keep Mind Open to Possibilities Consider Ideas Look for Creative Solutions Consider the Obvious Seek Outside Assistance Review Financial Reports Often YOU ARE NEEDED!!!!
• YOU ARE PERFORMING A SERVICE OF ENORMOUS PROPORTION • It is Serious Business • Directly linked to the Economic Viability of the Community. • What is the Value of Safe Drinking Water?
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TCEQ
(The Government Is Here To Help) • We be “The Government” • We are all on the same Team • FMT Assistance Program
Questions ?
• Phillip Givens
– Superior Water Management – Telephone - 281-419-9331 – Email – phillipgivens[at]earthlink.net
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