Slide 1

March 1, 2007 Review of the Financial Parameters Affecting Policy Decision Making Water and Sewer Enterprise System Slide 2 1.Financial parameters and limitations 2.Utility system capabilities, strengths and weaknesses 3.Capital plan 4.Financial feasibility Informational needs in order to make policy leadership decisions Slide 3 Water and Sewer Enterprise System 1.Allocates resources, plans for contingencies 2.Contains data and information - to make good business decisions 3.Financial and capital decisions 4.Requirement to raise capital 5.Informs - planners, investors, banks, community 6.Rating agencies Business Plan Slide 4 Water and Sewer Enterprise System What financial resources are available to invest in the utility system? What types of investments should be made? What options are available to make water and wastewater resources more available and who pays? Policy leadership decisions Slide 5 Water and Sewer Enterprise System Lenders contractual requirements Financial structure and performance Credit quality standards - cost of borrowing Washington and Raleigh laws and regulations and BOCC policies Factors influencing policy decisions Slide 6 Water and Sewer Enterprise System Contractual Requirements Slide 7 Water and Sewer Enterprise System borrowed money for capital improvements mortgage secured by the utility system revenues - promises contractual agreement - general trust indenture enforce and monitor Countys compliance - lenders appointed a trustee Revenue Bonds Slide 8 Water and Sewer Enterprise System Revenue Bonds - Trustee Accounts Revenue Acct. $1.00 Debt Acct. 1 st Revenue 2 nd - Subordinate $0.30 Extension & Repair Acct. $0.03 Surplus - CIP $0.20 O&M Acct. $0.47 Slide 9 Water and Sewer Enterprise System Revenue Bonds - Rate Covenant Revenues + 20% Working Capital Operations & Maintenance + P&I + 20% >= A B C Sales1.001.001.00 Capacity Fees0.300.30 - Working Capital (20%)0.160.020.16 1.461.321.16 O&M 0.60 0.60 0.60 Debt Service0.700.700.70 +20%0.140.140.14 1.441.441.44 Slide 10 Water and Sewer Enterprise System lenders permission historical earnings test existing debt + new debt future earnings test consulting engineer report for the first two fiscal years liens or encumbrances NTE 20% of assets Revenue Bonds - Additional Bonds Test Slide 11 Water and Sewer Enterprise System political subdivision or public agency portions of the system - no longer necessary, useful or profitable Extension and Replacement Fund Revenue Bonds - Sale of the System Slide 12 Water and Sewer Enterprise System file with lenders and the LGC an annual audit report demonstrate compliance with rate covenant SEC continuing disclosure file with the lenders an annual budget inspection of the system by consulting engineers and the filing of the report with the lenders and the LGC risk management liability, property loss and damage, business interruption Revenue Bonds - Monitoring and Financial Budget Report Audit Report Engineering Reports Slide 13 Water and Sewer Enterprise System Credit Quality Standards Slide 14 Water and Sewer Enterprise System Credit Quality Standards lenders ===> evaluate risk no rating = no access to capital credit ratings impact borrowing costs higher ratings = lower borrowing costs each category in investment grade = $16K/$1MM Current CIP - $1.4MM A2, A and A+ AAA - Highest Quality AA - High Quality A - Strong Capacity BBB - Adequate Capacity BB - Low Speculative B - Speculative CCC & CC - High Speculation D - Default Slide 15 Water and Sewer Enterprise System indicators - fiscal, debt, economic, management, system no single, absolute indicator working capital (BOCC 365 days, 385 438 days NC) senior debt service coverage (credit compliance standard - 2.1X to 2.5X) all debt service coverage (BOCC 1.0X minimum credit compliance standard closer to 1.5X) contribution of equity to capital program (minimum 35%) rates (1.5% MHI) cost of service based rates and self-sufficiency master plans, CIPs and financial feasibility Credit Quality Standards Slide 16 Water and Sewer Enterprise System Laws, Regulations and Policies Slide 17 Water and Sewer Enterprise System G.S. 153A-276/277/284 establish and revise from time to time schedules of rents, rates, fees, charges, and penalties for the use of or the services furnished by a public enterprise rents, rates, fees, charges, and penalties may vary for the same class of service in different areas of the county may vary according to classes of service recoup capital costs for facilities in use/not in use (I.e. growth) cannot be arbitrary nor w/o basis (i.e. result from planned improvements) capacity component costs water and wastewater treatment plant, transmission and outfall facilities, pump and lift stations restricted to the use of capital costs for which capacity fees are imposed Laws and Regulations NC General Statutes - Rates and Charges - Capacity Fees Slide 18 Water and Sewer Enterprise System BOCC Policies PW Rules and Regulations Water and Sewer Line Extension Construction Policy Rates, Fees and Charges Easement Acquisition Self-help Automated Meter Reading Risk Management Sewer Cap I&I Reduction and Rehabilitation Billing and Collections Cashiering and Petty Cash Policy Water Conservation Bank Drafts Utility Line Locates & NC 1 Call Fire Hydrant Usage Harris Customer Information System Slide 19 Water and Sewer Enterprise System Financial Performance Slide 20 Water and Sewer Enterprise System Capital Improvement Plan Summary (2007-2011 : $181mm) Slide 21 Water and Sewer Enterprise System Capital Improvement Plan Detail Water Construction of 25 miles of water transmission main and lines (12 to 36) Expansion of the Catawba River Water Treatment Plant increasing the Countys allocation from 18MGD to 30MGD Construction of 8MGD Northern Union County Water Treatment Plant Construction of 3 elevated storage tanks with combined capacity of 4MG Sewer Rerating (+0.5MGD) and expansion (+3.0MGD) of the 12 Mile Creek Wastewater Treatment Plant (after completion a 6MGD plant) Expansion (+3MGD from 6MGD to 9MGD) 12 Mile Creek Wastewater Treatment Plant NO COSTS FOR TREATMENT OR CONVEYANCE OF YADKIN/PEE DEE BASIN SEWER ($78M) Slide 22 Water and Sewer Enterprise System Financial Forecast Slide 23 Water and Sewer Enterprise System Rate Affordability Compliance *Acceptable Water/Sewer Burden is equal to 1.5% of the County's median household income. This threshold is set by the North Carolina General Assembly through the NC Clean Water Revolving Loan and Grant Act of 1987 in establishing high-unit cost for utilities. Slide 24 Water and Sewer Enterprise System Debt Service Coverage BOCC Standard All Debt 1X; Credit Requirements Senior 2.1 to 2.5X Slide 25 Water and Sewer Enterprise System Working Capital Requirements BOCC Standard 365 days; NC systems 385-438 days (Source: LGC) Slide 26 Water and Sewer Enterprise System policy leadership decision making relevant and valid information deliberate considerations Summary Slide 27 Water and Sewer Enterprise System What financial resources are available to invest in the utility system? Size of CIP $181 and higher?? ==> PayGo, Debt and Capital Contributions What types of investments should be made? Historically, CIP includes backbone infrastructure projects that benefit large #s of customers What options are available to make water resources more available and who pays? Self-help 1 for extension of distribution system Next Steps .. Policy leadership decisions Slide 28 Water and Sewer Enterprise System Capital Improvement Plan Major wastewater decisions absent March meeting to review CIP Business Plan Revisions to CIP will require update Capacity Fees Revisions to CIP will necessitate update to fees; tiered 3/4 residential based on sq. ft. Rates CIP and Business Plan will likely necessitate review Water extension line policy Additional policy leadership decisions