Written by: Allison Perch
Allison Perch is a Program Coordinator with the Environmental Finance Center at the University of North Carolina.
What can a small town do when the financial health of its water system is at risk? This is the question that Stephanie Finch, the town clerk and treasurer for the Village of Magdalena in New Mexico, faced in early 2015.
Magdalena has a population of 1,200 and its water system serves fewer than 450 water accounts. Located on Historic U.S. Route 60, it is known for its numerous galleries, stores, and hiking trails, as well as South Baldy Peak, which reaches 10,783 feet in elevation. The Village is rich with history of the Old West, including main-street shoot-outs and cattle drives.
In recent years, water revenues had not been sufficient to cover the operations and maintenance expenses of the water system, and the Village was not generating funds for capital projects from water revenues. The Village was considering applying for a loan to finance an upcoming capital project, which would add debt service payments to their expenses. Additionally, Finch was concerned that one of the Village’s largest non-residential customers might disconnect from the water system, resulting in potentially significant revenue losses in the upcoming year. Finch recognized that water rates must be raised but was unsure how high the rates must be in order to cover the budget deficit, potential loss of a large customer, and finance capital projects.
That’s where the Environmental Finance Center Network helped.
Finch worked with the Drinking Water Bureau at the New Mexico Environment Department, which got in touch with the Southwest Environmental Finance Center to assist the Village in planning for their capital project. To assist the Village in reviewing its water rates, the Village and NMED were referred to Shadi Eskaf, who is a Senior Project Director with the Environmental Finance Center at the University of North Carolina.
“One of the challenges for the Village of Magdalena is that they have one customer that uses a large amount of water and generates large revenues for the utility,” says Eskaf. “There was concern that that customer would stop purchasing water from the utility, exasperating their financial constraints. This is not a concern that might affect a lot of other water systems, but small water systems in particular are vulnerable to significant revenue declines if large customers disconnect.” Eskaf helped the Village plan for a scenario in which the customer disconnected, while assessing proposed new water rates to cover water system expenses and raising funds for capital projects.
“Shadi just asked me if I could send him information on our revenues, expenses for the past few years, and gallons of water that we pumped and that we sold. I just got him all this information that he was requesting and he did everything,” says Finch.
Eskaf used the EFC’s Water and Wastewater Rates Analysis Model to project whether the current water rates or proposed rates would generate enough revenues to meet projected operations and maintenance expenses, and to begin setting aside funds for capital projects. The tool helps to assess scenarios of water and wastewater rate changes for the next year (or five years) by projecting the utility’s expenses, revenues from rates, and fund balance for the next few years. Using the data from the tool, Eskaf showed that the current and proposed rates would fall short of the revenue requirements next year. After consultation with Finch and NMED, Eskaf tested alternative proposed new water rates. Ultimately, a set of new water rates were tested in the model to allow the Village to break even next year and generate sufficient funds for capital expenses.
During this process, Eskaf also discovered that the Village was undercharging some customers, resulting in unintentional revenue losses. The Village promptly corrected their billings.
Finch hosted public meetings with the Village’s elected officials and concerned citizens to propose raising the water rates. Eskaf worked with Finch to help her understand the information provided by the Water and Wastewater Rates Analysis Model so that she could clearly convey the reasons behind and benefits of higher rates to the public during these meetings. These benefits included covering previous losses, setting aside money for capital improvements, and becoming more financially stable.
“What was great was that he was available on the phone [during the first meeting] in case the board members or the mayor or anyone had any questions,” says Finch.
After the public meetings, the town’s officials voted to approve the water rate increase. With the new rates, the Village of Magdalena is now projected to generate approximately $33,000 per year to use for capital improvements to its water system, and balance its operating budget.
The best part of this assistance? It was provided entirely free of charge to the Village of Magdalena. Thanks to a cooperative agreement and funding by the U.S. Environmental Protection Agency, the Environmental Finance Center Network provides direct assistance to small water systems free of charge to the water system. The water system invests a few hours of its staff time to work with the EFCN.
Finch urges other small water systems to take advantage of the EFC Network’s Smart Management for Small Water Systems technical assistance program. “Why wouldn’t you spend a little bit of time to figure out where you stand and whether you need to raise your rates or not? Why wouldn’t you take that few extra minutes or few extra hours? Why wouldn’t you make a little bit of time to get a professional opinion on what you should do? Just someone to lay out the basics for you,” says Finch.
“Shadi is just an amazing man. He did so much for us and we’re really appreciative of that… and the help is free.”
To request technical assistance for your small water system, please visit: