Stacey Isaac Berahzer - Environmental Finance Center Stacey Isaac Berahzer Senior Project Director Environmental

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  • http://efc.sog.unc.edu

    GAWP Leadership Academy – Level 2, Day 5

    Stacey Isaac Berahzer Senior Project Director Environmental Finance Center at the University of North Carolina

    10/03/13 GAWP Headquarters

    40 Second Introductions

    1. Name? 2. Organization? 3. Responsibility? 4. One thing I hope to get out of this session

    is …

    Outline

    • Introduction • Accounting • Financial Reporting • Budgeting • Funding Methods • Affordability (of rates) • Full Cost Accounting (covered in Level 1) • Asset Management/Benchmarking

    3

    Introduction - Public Water and Wastewater Characteristics

    • These utilities are enterprises • They raise bulk of their revenues generally

    from bills and other fees • They have a high percentage of fixed costs • They protect public health and environment • They are service industries • They are production industries • They are self-regulating monopolies • They are balanced by democracy

    4Slide compiled by UNC EFC

  • ACCOUNTING

    5

    Government Accounting • GAAP – Generally Accepted Accounting

    Principles – establishes the rules & conventions that guide

    the form and content of general-purpose financial statements

    • GASB – Governmental Accounting Standards Board – the primary standard-setting authority for

    gov’t, excluding the federal gov’t

    6Slide compiled by UNC EFC

    Fund Accounting

    • An accounting system that is unique to state & local gov’t

    • A government’s resources are segregated into categories, (i.e. “funds”) to identify both the source of funds and the use of funds

    • State and local governments use three broad categories of funds: governmental funds, proprietary funds and fiduciary funds

    7Slide compiled by UNC EFC

    Fund Accounting

    FU N

    D S

    Government

    General

    Special Revenue

    Debt Service

    Capital Projects

    Permanent

    Proprietary Enterprise

    Internal Service Fiduciary …

    8Slide compiled by UNC EFC

  • Fund Accounting

    • Examples of Government Funds: – General Fund – each gov’t has one account for

    all resources that are not required to be accounted for in other funds. Includes most major gov’t functions such as police, fire, sanitation etc.

    – special revenue – established to account for resources that are legally restricted for specific purposes, e.g. lottery money for education

    – capital projects – used when buying/building major capital facilities

    9Slide compiled by UNC EFC

    Exercise 1– “Fun with Funds”

    Activity Fund(s) Police An electric utility system Construction of a new wastewater plant Public Transit Municipal motor vehicle pool (maintenance)

    10

    Which fund(s) should be used to account for the following activities:

    Slide compiled by UNC EFC

    Depreciation

    • Loss of use & value; or • “The systematic & rational allocation of the

    cost of tangible noncurrent operating assets over the period benefited by the use of the asset”

    Source: Government and Not-for-Profit Accounting: Concepts and Practices, By Michael H. Granof, Saleha B. Khumawalas

    11

    GASB 34

    • Passed in 1999; should have been implemented by every local gov’t by FY 2004

    • It states that gov’ts need to include depreciation in the financial statements, in order to: – Evaluate whether the government's current-year

    revenues were sufficient to pay for current-year services

    – See the cost of providing services to its citizenry – Understand the extent to which the government

    has invested in capital assets… Source: GASB 34 Preface and Summary, GASB

    12

  • Capitalizable Asset

    • Two years or more of useful life and has materiality (e.g. cost $500 or more; or cost $10,000 or more)

    13Slide compiled by UNC EFC

    FINANCIAL REPORTING

    14

    Financial Planning and Reporting Tools

    • Annual reports • Financial Statements • Accounting reports • CIPs • Cash flow plans • Annual budgets • Performance measures

    15Slide compiled by UNC EFC

    Planning Tools - Examples

    • 10 Year Needs • 5 Year Capital Improvement Plan • 8 year Financial Plan • 1 Year Budget

    16Slide compiled by UNC EFC

  • Budgeting

    • Budget - An instrument to implement and manage public policy by obtaining and appropriating the necessary resources for service delivery

    • Budget Process – activities that encompass the development, implementation, and evaluation of the budget for the provision of services

    17Slide compiled by UNC EFC

    Budgeting Tools

    • Inflationary Adjustment – converting current dollars into constant (real) dollars based on a selected index

    • Consumer Price Index – an indicator that measures the change in prices paid for a fixed basket of goods and services as purchased by average urban consumers

    • Construction Cost Index - calculated by Engineering News-Record; tracks the change in price for a specific combination of construction labor, steel, concrete, cement and lumber

    18Slide compiled by UNC EFC

    GFOA

    • Government Finance Officers Association • Offers awards in several categories for

    proper finance documents • Mission – “to enhance and promote the

    professional management of governments for the public benefit by identifying and developing financial policies and best practices and promoting their use through education, training, facilitation of member networking, and leadership”

    19Slide compiled by UNC EFC

    Exercise 2 – Reading Financial Statements

    20

  • COMMON FUNDING METHODS

    21

    Who Really Pays

    • Current customers (you) • New customers • Future customers (the next generation) • The people that own and buy products

    from industries (including you) • US tax payer (including you and some

    lady who lives in San Francisco, CA!)

    22Slide compiled by UNC EFC

    How the Payments are Made

    • Save in advance and pay • Pay as you go (current receipts) • Pay afterwards (someone loans you

    money) • Grants

    23Slide compiled by UNC EFC

    Where Do You Get Your Capital?

    • Reserve funds • Current year’s revenues • Government grants and loans • Commercial debt market

    24Slide compiled by UNC EFC

  • Where Does the Money Come From?

    • Loans • Grants • Bonds • User fees • Assessments • Impact fees • Taxes

    25Slide compiled by UNC EFC

    About Grants

    26

    NOT a good way to  find a grant!

    Grants Aren’t Completely Free Money

    • Application for the grant can be expensive – staff time and money

    • Applications can take months to process

    • Often lots of strings attached

    • Often require a percentage match

    • Lots of competition

    • Difficult to sustain

    27

    http://efc.sog.unc.edu/project/gff

    Click here to access  the following table

    28

  • 29

    Bonds

    • A written promise to repay borrowed money (on a definite schedule and usually at a fixed rate of interest for the life of the bond)

    • Different types exist: – General Obligation (GO) – Revenue

    30Slide compiled by UNC EFC

    The Trouble with Loans/Bonds is …

    they need to be repaid!!

    31Slide compiled by UNC EFC

    User Fees

    • Charged regularly to all customers: industrial, commercial and residential

    • Customers’ bills relate to their consumption (usually)

    • Utilities can develop rates based on their expected costs

    • Example – water/sewer/stormwater utility fees

    32Slide compiled by UNC EFC

  • Assessments

    • A recurrent charge to a sub-group of the population

    • The sub-group receives benefits from an environmental service or improvement not enjoyed by others in the area

    • Close cost/benefit relationship  equity

    33Slide compiled by UNC EFC

    Impact Fees

    • One-time charges to new users • Typically assessed when building permits

    are issued • Close cost/benefit relationship  equity

    34Slide compiled by UNC EFC

    Taxes

    • Charged against: – Income (federal/state level) – Property (local level) – Sales (state level, with surcharges at the local level)

    • Local Sales Tax – Example: SPLOST

    35Slide compiled by UNC EFC

    Taxes - SPLOST

    • Special Purpose Local Option Sales Tax • 1% county sales tax (municipalities may get

    involved as well) • Available since 1980s • Must be approved by referendum • NOT applicable to O&M costs

    36Slide compiled by UNC EFC

  • Taxes – Tax Increment Financing

    • All “new” property taxes for an area are reinvested into the same area

    • Particularly applicable to urban, blighted areas • Example: Atlantic Station, Atlanta

    – On the Atlantic Steel Mill brownfield site in Midtown Atlanta

    – Redeveloped 138 acres into a “live-work-play” area – 2,800 new trees planted – Detention facilities to reduce peak run off

    37Slide compiled by UNC EFC