Student Corner: Self Sustaining Enterprise Funds: Challenges and Solutions

Community and Economic Development – Blog by UNC School of Government

https://ced.sog.unc.edu

Student Corner: Self Sustaining Enterprise Funds: Challenges and Solutions

By CED Program Interns & Students

Published July 21, 2010

Lindsay Moriarty is a graduate student at UNC-Chapel Hill pursuing dual masters’ degrees in Health Behavior and Health Education and City and Regional Planning.  She is currently working with the Lumber River Council of Government through the Carolina Economic Revitalization Corps (CERC).

Enterprise funds are an important component to municipal budgets.  Most often these funds represent the revenue streams generated through the provision of public utilities such as water or electricity to local residents and business owners.  The money generated is then used to maintain the operation of that utility.  Using the example of water, residents are billed for the amount they use, and the funds are then used to operate the water treatment plant, pay the salaries of associated staff, and maintain the functioning of water lines and meters throughout the city.  At the very least, enterprise funds such as these ought to be self-sustaining.

Unfortunately, this is not always the case.  Because fixed costs for water infrastructure are high, small towns are particularly vulnerable to the challenges of maintaining self-sustaining enterprise funds.  In Rowland for instance, the water and waste water enterprise fund is losing money.  The cost of maintaining this utility exceeds the revenue generated from water and sewage use.  Instead of this utility paying for itself, Rowland continually has to dip into its budget to cover expenses.  Additionally, because this fund is not self-sustaining, it cannot afford the upgrades necessary to more accurately monitor water usage.  Upgrades of this nature might entail changing software packages, installing new meters, switching from manual to electronic metering systems, and maintaining and replacing water lines to meet modern standards.

Though rates for water and waste water are changed yearly, these increases do no cover the shortages created by maintaining and operating water facilities in Rowland.  Rather, the rates are adjusted to barely cover inflation, and do not take the broader picture into consideration.

The obvious solution is to overhaul the rate structure in its entirety.  However, a number of challenges render this task particularly difficult.   The most prominent of these obstacles is quite simple.  Until recently, Rowland did not have the resources to pay for a water-use analysis nor the capacity to conduct one themselves.  Because a rate overhaul demands a thorough understanding of the market in terms of the number and type of minimum, high and average use customers, rate classifications, seasonal differences and consumption patterns, this challenge was particularly stifling.  In addition to this, Rowland has a high percentage of low-income residents, many of which are very vulnerable to rate changes.  The mention of changing water rates is sure to elicit a strong response from the public, many of whom already have a combined minimum water and sewage bill of $46.50 per month.  This further complicates the situation and makes rate overhaul a very sensitive subject.

For the past several weeks I have been constructing an electronic database of water and waste water consumption.  When I have finished transcribing paper records into the database, I will conduct a thorough analysis of water consumption in the city.  Though this is only a first step in creating a self-sustaining enterprise fund, the findings from this analysis will guide Rowland through their current situation, possible solutions, and barriers still to face.  When complete, this database and the accompanying report will be a tool that Rowland can use to aid in decision-making about water and waste water management.