Adapting to change: Water utility financial practices in the early twenty‐first century

Abstract

Water and wastewater utility managers are encountering a host of financial challenges beyond their control. From the recent economic recession to the health of financial markets, aging infrastructure, and a changing climate, complex issues threaten utilities' financial health. Many water utilities are responding to address these challenges. To date, few studies have examined how widespread innovative financial practices are among the nation's public water systems and how these practices are helping utilities cope with mounting financial challenges. This article examines the major financial challenges facing water utilities and reviews the current state of the US water sector's financial management practices with the aim of strengthening policymakers' understanding of the drivers and impacts of available financial mechanisms. Utility financial practices are evaluated on the basis of their ability to minimize risk and create financial resilience in utility financial management.

Evaluating Water Delinquency Fees and Financial Assistance Programs Through an Equity Lens

“…In many cases, utilities establish affordability programs or customer assistance programs to provide financial assistance to low-income customers (Patterson & Doyle 2021, Rothstein et al 2021, Boyle 2014. These programs vary in scale in part because of state-level statutory language that enables, prohibits, or is unclear regarding how utilities using rate revenues can subsidize the rates of low-income customers (UNC EFC 2017).…”

Advancing Water Innovation Through Public Benefit Funds: Examining California's Approach for Electricity

“…In response to the water sector's many fiscal challenges, a variety of policy and financing strategies have been proposed (Boyle ), including polluter charges, special taxes, increased bond spending, and differential water rates (LAO ). While these approaches are important, the water sector must supplement these strategies with—and/or funnel these funds into—dedicated funds for programs and projects outside of utility operating costs.…”

“…Revenue bonds are dedicated to specific purposes and thus can be inaccessible for projects beyond standard operations. Revolving fund loans, including the Clean Water State Revolving Fund and Drinking Water State Revolving Fund, that are backed by federal dollars and matched by state monies have also been used to support infrastructure projects, frequently as one component of a diverse funding portfolio; since the 2009 federal stimulus package, however, federal funding allocations to the states for capital projects have declined (Boyle , Arbuckle ).…”

“…However, traditional water rates often do not account for the full costs associated with water delivery, placing economic and political stress on utilities to raise adequate funds (Ajami & Christian‐Smith , Beecher & Kalmbach ) and leading to the sector having an overall high ratio of capital investment to revenue (Ajami et al ). This conundrum, combined with decreased per capita demand that causes further financial hardship (Boyle , Beecher ), has resulted in many utilities being unable to fully recover their costs of service (AWWA ), let alone invest in programs and projects beyond normal operating procedures, such as alternative or multipurpose approaches to stormwater management, conservation programs, pilot projects, or research and development for new reuse or efficiency technologies.…”

“…Yet many political, regulatory, and technical constraints can prevent utilities from successfully implementing these pricing schemes (Pincetl et al , Grafton et al ). Some utilities have attempted to augment their income streams by providing supplemental services, such as property leases or consulting, but these can come with high financial risk (Boyle ). In recent decades, another fundraising strategy has been to levy impact fees on finance capital infrastructure, but these surcharges can be used only for specific projects (Mantz & Thomas ).…”