Download 06.10.11 What Story Do Your Govt FS Tell. Debbie. Dr Hughes

BUSINESS TYPE ENTERPRISES
Commercial-type activities of a government, such
as public utilities:
 Water and sewer authorities—either fully
independent or component units of local
governments
 Departments within local governments—blended
or discrete component units
 Water and sewer rates (fixed and variable) and
user fees (connection, septage hauling) should be
sufficient to sustain system over the long-term.
Median Ratios for Authority Performance
Like private sector, ratios have been used by
public utilities for comparative purposes for
many years.
 Rating agencies typically use utility-specific
median ratios as “part of the story” as they
evaluate an authority (or local government) for
their ability to issue revenue bonds.
 Fitch released its 2011 Median Ratios in
January. They are available for self-evaluation
at www.fitchratings.com.

Virginia Water and Sewer Authorities
Public utilities in Virginia range from very small
town systems to very large regional systems.
 Draper Aden publishes a rate comparison study
each year on www.daa.com. It allows public
utilities to find comparably-sized utilities by
their customer base.
 Comparisons can also be made between public
utilities who treat their own water/wastewater
or those who simply provide a distribution/
collection system.

Augusta County Service Authority
Comparative group for Augusta County Service
Authority (ACS Authority):
 Medium-sized utility (8-14,000 connections or
4 million gallons per day treated/consumed)
 Western part of state (less urban)
 Treat own water and wastewater at multiple
facilities
Questions: Did the ACS Authority have too much
liquidity and too much debt?
Liquidity for Water and Sewer Authorities
The immediate ability of an Authority to pay its
current debts as they come due. One such
median ratio is:
Current ratio:
Current Assets
Current Liabilities
Fitch reports that median current ratios of better
than 2.1 (AAA) to 3.7 (A) are national
benchmarks for retail water and sewer systems.
Comparisons for ACS Authority
C omparativ e Analy s is of C urrent R atios
6
5.1
5
A uthorities
4
4.5
3.5
3.0
3
4.7
2.9
2.6
2.5
2
1.2
2.1
2.1
10
09
1.4 1.4
1.0 1.0
1
0
10
09
A ugus ta
C ounty
08
10
09
08
B edford C ounty
10
09
08
F auquier
C ounty
10
09
08
R ivanna
(A lbemarle
C ounty)
08
W es tern V A
(R oanoke
C ity/C ounty)
Comparisons for ACS Authority
ACS Authority’s current ratio was within the
Fitch range of 2.1 to 3.7.
 ACS Authority’s current ratio was right at the
average of 2.6 for the comparison group but
higher than three.
 Recommendation to bring liquidity closer to 2.1
now that major WWTP ENR upgrades
completed.

Solvency for Water and Sewer Authorities
A determinant of an Authority’s ability to meet
its service delivery and financial commitments
both now and in the future. One such ratio is:
Debt Ratio:
Liabilities
Net Assets
 A ratio of 1.0 or less would generally be desired
 Fitch has a number of more complicated ratios
that it uses in its evaluation.

Comparisons for ACS Authority
C omparative Analys is of D ebt R atios
A uthorities
0.9
0.8
0.8
0.8
0.7 0.7
0.7 0.7
0.7
0.6
0.5 0.5 0.5
0.5
0.4
0.3 0.3 0.3
0.3 0.3 0.3
0.3
0.2
0.1
0
10
09
08
A ugus ta
C ounty
10
09
B edford
C ounty
08
10
09
08
F auquier
C ounty
10
09
08
R ivanna
(A lbemarle
C ounty)
10
09
08
W es tern V A
(R oanoke
C ity/C ounty)
Comparisons for ACS Authority
ACS Authority’s debt ratio was the median and
right at the average of 0.51 for the comparison
group.
 Debt was driving rates higher but the other
authorities were experiencing similar needs to
fund expensive treatment upgrades.
 Fitch’s similar ratio of total outstanding debt to
net capital assets is below a 39 to 44%
benchmark. ACS Authority falls within that
range.

Conclusions for ACS Authority
The high liquidity made ACS Authority vulnerable this
spring to political pressures to fund non-core projects
even though its five-year CIP fully utilized its cash
reserves.
ACS Authority decided to not make final draws on its last
WWTP upgrade loan. That lowered its liquidity,
increased its solvency, and reduced the amount of
bond-covenant-required rate increases.
ACS Authority will continue to use both local and national
comparisons of key ratios as financial performance
indicators. These ratios are respected by its Board of
Directors to assist in decision-making.
Questions?