Post by Gabriella Santana, Graduate Research Assistant at the UNC EFC
This is the first blog in a two-part series presenting takeaways from North Carolina’s Viable Utilities Program. This post describes key findings relevant to other states on small system viability. The second post will examine the problem small systems all wish they had – growth!
Water utilities across North Carolina and other states are facing many challenges such as declining populations, loss of larger water customers, recruiting and retaining staff, and increasing costs for replacement of aging infrastructure. North Carolina’s State Water Infrastructure Authority has implemented the Viable Utilities Program (VUP) to provide “funding to build a path toward viable utility systems using long-term solutions for distressed water and wastewater units in North Carolina.”
The Environmental Finance Center at the University of North Carolina at Chapel Hill (UNC EFC) received funding from Environmental Protection Agency to support the VUP with their data management. UNC EFC interviewed state staff, utilities, and organizations like the NC Rural Water Association and the NC League of municipalities to learn what helps ensure utilities are viable. UNC EFC staff organized the feedback into categories as described in an earlier blog post. Using these categories, UNC EFC identified key characteristics that contribute to system viability.
- Appropriate rate comparisons. Proactive management of rates is critical to small utilities and dashboards allow utilities to compare themselves to other utilities. However, there is a temptation for utilities to compare themselves to others that are nearby. UNC EFC cautions against this; a better comparison would be one between similar populations served and source water types. For example, because surface water is typically more expensive to treat than ground water, a utility with surface water sources should compare themselves to another utility using surface water.
- Financial awareness. Another important finding during our interviews is that utilities should be aware of the state of their finances and how that affects their ability to grow. In previous blog posts, UNC EFC outlined a few key financial indicators that are important for water and wastewater systems such as operating ratio, debt service coverage ratio, current ratio, and days of cash on hand. Expect more on financial metrics this summer!
- Workforce retention. Another key challenge to utilities is losing important parts of their workforce. Utilities are facing a labor shortage due to an increasing number of retirements in the aging workforce. Many of the operators of small systems perform different tasks, so a retirement or extended leave can have a significant negative effect on the operation of a system. To combat this problem, the EPA created the new Innovative Water Infrastructure Workforce Development Grant Program in 2021. Last October, the EPA selected ten organizations to receive $3.8 million in funding through this program to help build the water workforce and connect individuals to career opportunities in the drinking water and wastewater utility sector as well as expand public awareness about opportunities within this utility sector.
The North Carolina Viable Utilities Program is a great resource for utilities that are struggling with growth. Proactive management of rates and careful financial management can help utilities remain viable. Small utilities have some options to retain and replace staff and we look forward to results from EPA’s Innovative Workforce Development Grant Program.
Many of the challenges we have described in this blog could be solved by growth, but growth isn’t always easy. Stay tuned for Part 2!
Need technical assistance? The Environmental Finance Center Network is here to help!
The Environmental Finance Center Network offers free one-on-one technical assistance for small water systems. If you have an interest in our support, fill out our interest form here.
Visit https://efc.sog.unc.edu/technical-assistance/ to read more about technical assistance from the UNC EFC.