Long-Term Funding

Water, wastewater, and stormwater systems have many activities that must be completed each day, month, and year. These activities require both time and money. Unlimited resources ensure that all activities can be completed; however, endless time and money do not exist. The funding, staff, and time available must be used efficiently and effectively to ensure that priority activities are completed and that the most critical assets are maintained and replaced when needed. To help decide how best to spend the limited dollars, a strategic asset management framework is needed. 

The asset management framework is required to determine how to maintain the desired level of service in the most efficient way possible (i.e. the lowest life cycle cost.) “Efficient” and “lowest life cycle cost” do not mean no cost. These words signify a need to properly fund the system through a sustainable, long-term funding strategy. This core component supports efforts that ensure the level of service desired by the customers can be provided and the necessary resources are available to complete the activities described in the current state of the assets, criticality, and life cycle costing. 

The two key concepts associated with this core component are “long-term” and “sustainable.” It is important that the funding be sustainable, meaning that it comes from renewable sources. Most often, in the case of water and wastewater systems, renewable funding is in the form of user charges or user fees. As long as customers are being served and are able to pay their regular bills, there is a recurring source of funds. It is for this reason that water and wastewater systems are generally considered safe and secure investments. It is important that this recurring or renewable funding be used for most, if not all, day-to-day activities for the system. It is important that user fees be examined regularly (yearly is best) and rates should be increased to at least match the level of inflation. The best-case scenario is that rate increases match actual increases in water expenses but in many cases, rate increases are tied to a set percentage or to an unrelated metric such as the consumer price index. 

Additionally, the funding plan needs to consider long-term needs. Since the majority (by cost) of the assets are long lived, it is best if  the funding plan covers a time frame that matches the life of the longest-lived assets. In many cases, this can be 75 to 100 years as pipes and storage tanks can last that long. Clearly, costs that far into the future are rough, order of magnitude estimates at best. However, they can provide guidance to elected leaders and decision-makers that there is a need to fund projects far into the future. What is most important to avoid is a situation in which the funding plan covers 10 or 20 years only. If investments for time past year 20 are not recognized, the decision-makers may decide to put off a major construction projects that could put assets and service in jeopardy. Putting off the project may leave the system with too large of a debt requirement to meet all the needs in those later years. If it is not possible to project out 100 years, considering funding for at least 50 years, and no fewer than 20 years, is recommended. 

Alternatively, if the system does not yet have enough data to develop planning level replacement costs for the 100-year period right away, the goal should be to do as many years as possible and then work up to a funding plan for the 100-year window. Because green infrastructure is still relatively new compared to gray infrastructure, planning costs over the next 50 to 100 years in the future may be difficult. One option is to make the best guess possible and revise the estimates as more information becomes available. The practice of costing future green infrastructure investments will mature as systems start practicing asset management more routinely. 

Funding options vary from within the utility or municipal budget to external grants and loans ro community approved bonds. Knowing the difference between each funding opportunity and the costs that each option can cover is important so that staff and decision makers can utilize available funding sources appropriately and effectively. Creative approaches to utilizing both public and private funding can support seamless transitions between projects while continuing with daily maintenance and operations. 

Things to consider when evaluating various funding opportunities: 

1. As an asset moves through the various phases of its life cycle, the amount of funding needed may change. Sometimes funding must come from within the utility budget and other times it must come from outside sources. Understanding which types of funding might be used during each life cycle phase can help a utility plan appropriately. It can also help us to understand if enough is being invested in the utility each year to meet the projected needs. 

1. Stakeholder engagement is essential in developing support for large projects. Sharing the utility’s goals and understanding the benefits of completing projects as well as the risks of not moving forward can help clearly communicate to decision-makers and other stakeholders the purpose and need for funding. 

1. The utility must have a plan that outlines the need for the project, as well as how the funds will be used. Otherwise, the system is unlikely to see change in the budget or the ability to make change in the community.