The past year has forced local government utilities to make difficult decisions about how to maintain operations while providing essential services during an infectious disease pandemic, as discussed in several of our past blog posts (here, here, and here).
Financial viability is a cornerstone of a utility’s ability to weather a proverbial storm that disrupts revenue flows. A viable system is one that functions as a long-term, self-sufficient business enterprise while providing reliable water services. The EFC has been on the look-out for stories of utilities and municipalities that are making steps towards financial viability, even in the midst of challenges like COVID-19.
The town of Ahoskie, located in rural Hertford County, has been implementing financial best practices over the past few years to decrease expenses and pay off debt, which set them up to survive a financially straining event like a lockdown. Below is a part of their story, here is a video that highlights the work they’ve done, and here is a more in-depth report. More resources regarding evaluating costs can be found at this webpage.
In 2005 a newly elected town council was intent on investing in large capital projects to update the infrastructure of the town. Some of these infrastructure improvement projects included the following:
- Construction of a new police station;
- Construction of new fire stations and purchasing of 2 new fire trucks;
- Construction of a new wastewater treatment plant;
- Street repair and repaving.
To finance these improvements, the town incurred $21.2 million dollars of debt. By the end of June 2017, the town council recognized that Ahoskie was in a very difficult financial situation. At that time, Ahoskie’s available General Fund balance had been declining for three consecutive years. The town was having to make transfers between its General Fund and Water & Sewer Fund to cover shortfalls. Transfers between Funds signal to the Local Government Commission, or LGC, that a municipality is not financially viable and has not been managing their finances well. This can impact the town’s ability to access funding through subsidies, bond issuances, and loans.
In 2017, erasing the debt by reducing other expenses was the town’s main priority, meaning that any potential capital improvements to its water and wastewater infrastructure were to be postponed. That year, Kerry McDuffie was hired as the new town manager, to help them analyze expenses and set a path for recovery. With the approval of the elected officials, McDuffie and others took a hard look at spending and figuring out ways to reduce expenses and pay off the debt.
Paying Down $21 Million in Debt
One of the first steps that Ahoskie took to reduce their debt was to bring in third party assessors, such as the EFC and the LGC. Both of these entities are able to examine the efficiency of various functions of its departments and determine how many workers were needed to operate the wastewater plant. The following list details some examples of the personnel expenses that were analyzed:
- By evaluating workflow and essential function the town reduced 2 positions at the wastewater treatment plant and at Town Hall.
- Corrected the over-staffing of the wastewater treatment plant and outsourced mowing of hay on the spray fields- accounting for personnel, equipment, and fuel costs, this saved the town $300,000 per year.
- Installed automatic dialers at several sewer lift-stations.
- The town changed the Public Works uniforms from collar dress type shirts to high visibility t-shirts. This together with using the state contract for uniforms saved over $7,300 per year
- The Parks and Recreation Department was eliminated, with the maintenance responsibilities absorbed by Public Works and the program management taken over by volunteers. Using volunteers for running programs proved to work quite well and was well-received by the community.
As town manager, Kerry McDuffie looked at extraneous and overpaid expenses across all departments. A few examples of expenses that were reduced without impacting town functions are listed below:
- In 2019, the town outsourced its 911 dispatch services to the county. After moving the dispatch center, the town discontinued its high speed T1 internet service in favor of a less expensive but still reliable connection. To date the police station has not experienced any interruptions with the new service.
- The NC Rural Water Association assessed the energy efficiency of the wastewater treatment plant. The rate code that Dominion Energy was charging the town led to higher-than-needed charges. By switching the rate code from a basic commercial user to a time of use account, the town received annual energy savings of $36,000.
- By outsourcing the printing costs for utility bills, Ahoskie saved $13,000 per year on leases for postage and a folding machine to stuff envelopes.
|Water Utility or General Town||Expense||Annual Savings|
|Wastewater/Water||Printing and sending Utility Bills||$13,000|
|Wastewater||Increased efficiency at WWTP and elimination of positions; outsourced hay mowing on spray field
|General||T1 Internet Service||$13,200|
Public Response to the Debt Situation
In 2017, many residents of the town were aware of the financial situation that the municipality was facing. However, a number as high as $21 million raised suspicions around the legitimacy of the expenses that were being claimed as the reason that the debt was so large, which led to speculations of possible corruption among the elected officials. One of the strategies used to increase transparency and understanding was to hold town halls. At these town halls a 4×8 foot bulletin board that showed the different sources of debt using multicolored pieces of paper. By showing the public what the sources of debt were- a new fire station, an upgraded wastewater treatment plant- and how they amounted to $21 million, fears of corruption were stamped out. They focused on paying off the small debts first and the board worked to communicate to the public the direction that the town was heading.
Ahoskie’s Financial Health Today
Since 2017, the town’s finances have recovered to the point where they warranted a response from a top official with the North Carolina LGC. In early 2020, Sharon Edmundson, Director of the LGC’s Fiscal Management Section, wrote a letter addressed to the mayor of Ahoskie, commending “the town for the significant improvement in the General Fund balance for the second year in a row”1. In April 2021 the Ahoskie Town Council received approval from the LGC for a refinancing agreement that will be used to pay off two previously issued utility system GO bonds held since 2011 by the United States Department of Agriculture (USDA). This loan was used to construct the town’s Wastewater Treatment Plant. Although this plan will increase debt service payments by approximately $40,000 per year, because of the shorter loan term, it will lower the number of annual payments from 31 remaining years to 20 years, and along with the lower interest rate, will save the town about $3.5 million over the life of the loan. While it cannot be said for certain, Ahoskie could have very well have missed out on this refinancing agreement if they had not made the financial strides that were accomplished in the past three years.
Today, Ahoskie’s debt has been cut from $21 million to $17 million. Their conscious efforts to cut down costs and save money has not only allowed the town to pay off a sizable portion of their debt, but it also increased their margin for responding to emergencies—such as COVID-19. Today, the Water and Sewer fund balance is independently supported with a positive balance. When businesses were forced to shut down during the COVID-19 lockdown, the town’s consumption of water and wastewater significantly declined. The utilities lost approximately $8500 per month for 3 months in late fees and penalties from residential customers. This loss was attributed to the fact that under Executive Order 124/142 the town was no longer able to bill late penalties. The days cash on hand for the water and wastewater fund was 0 in 2016, 2017, 2018, but then increased to 33 days in 2019 and 165 days in 2020. Suffice to say, if the town hadn’t found ways to lower their expenses to build their Water and Sewer fund balance, their ability to pay operational costs would have been severely weakened. The work that has been done in the past few years is encouraging and the signs are showing that if Ahoskie can continue its budget tightening practices, it can build the Fund balances and achieve long-term financial viability.
Omid Barr is a Master’s student in the Gillings School of Public Health concentrating in Environmental Health Solutions. He received his B.S. from the University of Maryland in 2018. At the EFC, Omid is evaluating the potential for communities to raise more revenue from utilities in a way that is equitable and provides resiliency and protection from water-related disasters. He is also examining the revenue resiliency of utilities in the face of the COVID-19 crisis.