It’s crunch time. Number crunching, that is.
Economic turbulence, new regulations, higher costs, Stimulus funding…it all makes for a heck of a budget nightmare. What will next year hold? Will you come out ahead, or will you need some help making it through?
In this edition of eBulletin, we’ll provide some suggestions on how to build a better budget to keep you afloat in rough economic waters. We'll provide a worksheet to give you an idea where you stand. We’ll also let you know where to get help on boosting your budget and tightening the purse strings.
Getting started
As we all know, creating and maintaining the budget is a year-long process. Just as a refresher, we’ve provided a link below to our Annual Budget Process Activity worksheet. This sheet provides a checklist of things to do during your budgetary year to keep your budget on track.
For most water systems, now is the time to finalize and approve the water and wastewater system budgets for the year. There’s a lot of work involved and a lot of questions to be answered. If your water or wastewater processing is purchased from a nearby system, will they be raising your costs? Do you have repairs you know you’ll need to make in the coming year? Is there a big project on the horizon? Will rates need to go up as reserves go down? Will you even have reserves?
The best way to go is to simply write out a general budget and see where you stand and where you need to go. To help, we’ve provided a worksheet below. The worksheet is in Microsoft Excel format. Formulas have been added to automatically calculate your figures, and you’ll be able to get a big picture once the numbers are filled in. The worksheet is available in our Tips and Tools section, and a link is provided below.
The cost of living
It’s easy enough to plan for the big expenses, and the expected ones. It’s the little things that can often squeeze a budget as the year progresses.
Plan for a standard “cost of living” increase in your budget. This will take into account typical expected increases in products and supplies. The current economy is helping keep the cost of living rate lower than usual right now. Plan for at least 2-3 percent.
However, if you want a more precise rate for next year, check the Department of Labor’s predictions based on its inflation calculator and the Consumer Price Index.
Detail reports show differences in the costs of certain items based on monthly and yearly changes. For example, the latest report (October 2009) shows that water and sewer and trash collection services increased 5.8 percent compared with October 2008, and 0.7 percent just since September. In other words, the average consumer paid nearly 6 percent more for water, sewer and trash collection this year than they did in 2008.
Will your rates need to increase 6 percent to make up for costs? Will your customers be the ones to pay that increase, or can you work it into your budget? That’s some of the questions you’ll have to consider.
That cost-of-living may also be considered when you debate raises for the staff. Salary increases take a lot of consideration. Will everyone get a raise, or only certain people? Will you provide raises on a sliding scale, or a flat percentage rate? Those decisions may depend on how the rest of the budget falls into place.
Additional Resources
Consumer Price Index Detailed Report Tables:
http://www.bls.gov/cpi/home.htm#tables [1]
Help with rates
Once the budget is complete, take a good look at your final tally for the year. Will you have plenty of cushion, or just enough to slip by? If your reserves are slim to none, you may have to consider raising your rates.
Rate increases are never fun for anyone, but it may be necessary if you lack the reserves needed to keep you afloat in case of emergencies. A break-even budget may seem OK in a perfect world, but in the real world, pumps break, pipes burst and vehicles break down. Chances are you’ll have to deal with more than one costly repair during the year. Without enough reserves, a serious repair can through your system into serious debt, and serious trouble.
Rate increases are a hard sell, but sometimes it helps to look at the bigger picture. Are your rates comparable to those of surrounding systems? Is the system from which you’re buying water or sewer services raising its rates? If so, how will you pay for the increase if you don’t raise rates?
The best solution may be to authorize a rate study by an outside party. Your local RCAP representative can help with this. Rate studies are one of many services RCAP offers to small water systems, often free of charge.
If you feel your rates may not keep up with the coming fiscal year, contact your local RCAP representative for assistance. A map on the RCAP page provides links and information to each RCAP regional affiliate. Contact your region’s affiliate for more information on rate studies. A link to the RCAP site and map is provided below.
It’s the little things
It’s easy to remember the big things in the budget – maintenance, chemicals, salaries, equipment. But sometimes, the little things can put you over the red line just as easily as the big things.
Take a look around the office. Check your supplies. What gets used the most, and what is used the least? What can be eliminated or recycled? Will you need a new computer this year, or printer? Do you really need 100 boxes of blue pens, or will 75 be enough? Would another, less expensive brand of office supplies work just as well as the name brands? Consider buying in bulk or from a local retailer, instead of online retailers with high shipping costs. You might also consider buying office supplies during the late summer right before school stars, when “school” supplies go on sale at most retailers. Items like pens, copy paper, folders and binders usually get deeply discounted at such sales. It could save a few dollars in the long run.
It’s hard to cut costs on chemicals, water system parts and other things needed to keep the system running. But other items may offer cost-cutting measures.
Oil prices have put the hurt on water systems in the last couple of years, with vehicles used during monthly meter readings raking up costs in maintenance and gas. Regular maintenance can improve gas mileage and prevent higher maintenance costs later. If the gas mileage is too low, consider trading for a more fuel-efficient vehicle. Check meter routes to see if there’s a better, more efficient way to go. You may be able to save on gas costs by streamlining routes.
If you want to know how much you’re spending on your vehicles in terms of gas mileage, try using the online gas mileage calculator. The link is listed below. The page will not only calculate your gas mileage, but it also will give you tips on how to preserve gas mileage.
Additional Resources
Gas Mileage Calculator
http://www.milesgallon.com/ [2]
Raking in revenues
Probably the most difficult part to running a small water system is collecting on past-due bills. It may be friends or family, people you’ve known for years. You know they’re laid off, down on their luck, struggling with other bills. It’s not easy to face that. Unfortunately, it’s necessary. Your water system depends on its revenue, and when that is lessened by those who don’t pay, it hurts the entire system and all its customers. Enough delinquencies could make it difficult for the system to meet its obligations, such as matching a grant or paying on a loan.
Put it into perspective. Add up the total of all the last bills for just one month. Even if that doesn’t seem like much, multiply that over 2-3 months, and you’ll quickly realize how much that could hurt your water system’s bottom line.
Demanding payment from a neighbor may be difficult, but think what will happen if your system needs to apply for an emergency loan, and a bad credit rating prevents that loan from happening. How will you serve the customers that do pay on time?
If need be, work out a payment plan with your customer, such as dividing up the past due amount and applying it to the next two or three bills. If delinquencies are high among your customers, higher late fees and reconnect fees may discourage missed payments. But first, it might be a good idea to do that rate study to see if your fees are too high or need other adjustments. Again, your local Rural Community Assistance Partnership representative can assist with rate studies and adjustments.
Do you have a large expansion near completion? If so, cautiously take into account any added revenue from it, provided that revenue is certain to occur in the next fiscal year. Often, startup costs, slowly-added customers and loan repayments reduce revenue for the first year. How much will you collect in hook-up fees? How much in monthly water bills? How much will it cost your system to hook up new customers? The last thing you want is to count on large revenue from a new project and get stuck by the end of the year.
Most importantly, make sure your billing system is up to date, accurate and easy to use. A poorly kept billing system could cause major issues further down the road when it comes time to apply for grants or loans. It also could allow for more delinquencies than usual if names or addresses are inaccurate or if new customers are not added correctly. If your billing is done by computer, make sure your software is regularly updated, to prevent and glitches from causing billing problems. (Often, such bug-fix updates are free from the software manufacturer.)
The bottom line
In tough economic times, cutting corners becomes a necessity. But it’s hard for water systems to do that without running into problems with quality and regulations. Still, little tweaks here and there, plus diligence with billing and delinquency systems, can make all the difference. Changing the way you do the little things could lead to decent savings down the road. It also could make the budget-building process a lot easier.
