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Long-Term Funding


Water, wastewater, and stormwater systems have many activities that must be completed each day, month and year. These activities take resources, both time and money. If there are sufficient resources, all the activities can be completed. But if the quantity of resources available does not match that needed to complete the activities, some activities will not be able to be completed or will only partially be completed. In this case, which is true for most, if not all, systems, the money must be spent as efficiently and effectively as possible so that the activities that are completed are the most critical and those that are left unfunded or partially funded are the least critical. To help decide how best to spend the limited dollars, a strategic framework is needed and that is the asset management approach that has been described throughout this guide.

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.) However, “efficient” and “lowest life cycle cost” do not mean no cost; rather these words signify a need to properly fund the system through a sustainable, long-term funding strategy. Therefore, the final core component of asset management is long term funding. This core component helps to develop a sustainable, long term funding plan so that 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 very 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. Other sources of funding are less secure or sustainable, such as impact fees, penalties, standby fees, or a transfer from the general fund. 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 look long-term. Since the majority (by cost) of the assets are long lived, its 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 pipe assets usually last at least 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, leaving out the need for significant investments in say years 21 to 25. If these investments are not recognized, the decision-makers may decide to put off a major construction project set for year 18 to past year 20 when that may be a serious misjudgment. 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, that is understandable. 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 at this time 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.

It can be difficult for a system to know what funds or funding sources are available for capital projects and even more so for maintenance activities. Funding sources include both private and public funds and systems often need to be creative when looking at various funding options.

As an asset moves through the various phases of the life cycle the funding needs change. Sometimes funding must come from within the system 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 system plan appropriately. It can also help to understand if enough is being invested in the system each year to meet the projected needs.

In order to access some of the funds that come from outside sources, a system needs to be able to engage the stakeholders and market itself. Sharing the system’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.

In order to obtain increased funding, and spend it as efficiently as possible, a system 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.