The infamous “second wave” is no longer a hypothetical, and in many parts of the US and Canada it is upon us. No one needs a repeat of the shock 2020 had, so now is the time to adopt changes and enhance resiliency for the coming year. Proper planning prevents poor performance, so here’s what communities have learned so far:
- Adopt a long-term view. Make tough decisions now if necessary, with the goal of moving to smaller course corrections over time.
- Review cash reserve policies, to make sure they are appropriate for your community goals.
- Put thought towards succession planning and build resiliency in your staffing and organizational systems. End the knowledge silo, modernize and increase preparedness.
- Adopt systems that others in your organization can access and understand, and that are easy to convey to elected officials.
- Try to expect the unexpected through scenario modeling. There will likely be another emergency, and what if next time the pathogens are waterborne? Through exploring different scenarios, you will be better prepared for uncertainty. Knowledge is power.
Lessons Learned: Impacts COVID-19 for Water Utilities
November marked one year since the first case of COVID-19 was identified. The public crisis came to a head in North America in March of this year, which affected individuals, corporations, and municipalities alike, and would have been worse had it not been for front-line heroes like water system operators.
Our blog post Impacts and Opportunities of COVID-19 for Water and Wastewater Utilities explored the predicted effects on water utility financial stability due to the ever-changing virus. We anticipated moratoriums on service disconnections, diminished revenues, utilization of reserve funds, and an increase of absenteeism, as well as opportunities that might arise from these changes. Now, with some hindsight, it is time to evaluate the actual effects, and how to move forward in a world with Coronavirus. What can you do in 2021 to prevent further damage, or recover from 2020?
Financial Impacts on Water Utilities
The onset of the COVID-19 crisis saw increased residential water use — up to 44% in some areas — both indoor and outdoor, due to a pervasive shift to working from home, enhanced hygiene efforts, and an uptick in activities like gardening. That spike has leveled since, as people have adjusted to living with the virus, but it still remains higher than early-2020. And as more people transition to permanently working from home, we will see a long-term change in residential usage. In contrast, due to many businesses on pandemic-related closures or restrictions, commercial water and wastewater revenues decreased for many utilities in 2020.
Here are some areas to consider to mitigate these fluctuations and support financial stability.
Long-Term Financial Modeling
Modeling over a long-range is imperative to creating a financially resilient utility that focuses on proactive planning. When balancing your cash position over a long-term horizon (say 10-25 years), small course corrections to rates or spending are often sufficient to achieve your target balance.
However, emergency spending or unanticipated revenue shortfalls may require you to deviate from that approach and take drastic action in the short-term to get back on track.
To do so, we recommend building a long-term financial model that will give you confidence in the often-difficult decisions that need to be made today, to ensure recovery and stabilization in the future. You can do this yourself in Excel, engage with a rates consultant, or use Waterworth and our free trial.
Cash reserves are a critical part of the long-term financial sustainability and resiliency of any infrastructure-based organization. Throughout 2020, many communities turned to their reserves to stabilize decreases in revenue without burdening ratepayers. Was your community caught with insufficient reserves heading into the pandemic? As the economic impacts stretched longer than expected, are your cash reserves starting to dry up? Has this crisis indicated that it is time to review your cash reserve policies to be better prepared for the next emergency? If so, review our Developing Cash Reserve Policies white paper, alongside your community goals, to determine what updates should be made.
Many communities are in the tough position of deciding whether to move ahead with their capital plan, or postpone work and allot funds to more immediate expenses.
On one hand, postponing will allow you to keep more cash on hand. But on the other, infrastructure does not cease to age and will always require maintenance. Much like President Roosevelt’s “New Deal” that helped mitigate the financial effects of the Great Depression, pursuing capital projects can help stimulate the local economy and provide jobs, while tending to necessary infrastructure improvements.
It is also important to consider the repercussions of pushing today’s capital projects further and further down the line. This may impact your community’s ability to address future projects, intensify affordability challenges, and transfer the financial burden unfairly onto future generations.
Addressing aging infrastructure is a multifaceted issue that requires proper planning and risk assessment, commitment to proactive decision making and good communication with all stakeholders.
Organizational Impacts on Water Utilities
In addition to the financial hit of COVID-19, the crisis has also likely exposed cracks in your organizational infrastructure — that is your systems, protocols, staffing structures, and processes that support key functions.
Succession planning has become a key concern, as the pandemic sparked a retirement wave (the 3rd quarter of 2020 saw 28.6 million
baby boomers retire — 3.2 million more than Q3 2019). The AWWA’s water sector impact survey also found that 75% of utility respondents ranked “Absenteeism and Continuity of Operations” as their top challenge. Additionally, the importance of in-house ability to access and model the effects of revenue changes, or explore potential future scenarios, was highlighted.
Succession Planning and Mitigating Staffing Issues
With individuals commonly holding City positions for decades at a time, the transition of information and records to new employees can be confusing and complex. Many are also taking advantage of these events by retiring earlier than expected; Q3 2020 was the largest increase in Baby Boomer retirements ever, and means that more and more new staff will be onboarding during an already confusing time. Systematizing and streamlining the transfer of information will improve the onboarding of new staff, create easier exits for retirees, ensure the integrity of vital information they possess, and prevent knowledge silos.
Absenteeism and Knowledge Silos
Knowledge silos are the exclusive possession of information by one individual or department. They are the result of an organization’s mentality and structure. The risks for public finance or water system managers include lack of access to key data, knowledge gaps, missed opportunities for collaboration, delays in decision making, and reliance on one to few individuals for large deliverables.
Sound familiar? You’re not alone. As many employees are working from home and limited numbers are allowed in physical offices at one time, the increased need for collaboration and proper data sharing has highlighted the existing knowledge silos in many local government organizations.
Absenteeism compounds the issues previously mentioned, so it is important to have processes and tools in place that break down these barriers. When it comes to financial planning for your water utility, Waterworth’s models and analysis can be easily shared among city staff through its online, cloud-based platform. Log in and work from anywhere. And, our professional support team will help onboard and train additional or new staff members so they are able to contribute quickly.
As commercial revenues dipped, many utility’s planned schedules of rate increase were rendered outdated. If these plans were developed by a third-party, without insight to the rationale behind recommendation, city staff face difficulties exploring alternate scenarios and paths to recovery.
As a prudent steward of your water system, it’s important to have in-house access to an up-to-date financial model and information behind key recommendations. If rate analysis is purely outsourced, there is risk that a lack of transparency into a consultant’s calculations and assumptions will leave city staff in the weak position of being reliant on a third party to re-assess rates recommendations and not prepared for quick decision making.
Waterworth is a great tool to update rate studies, or if you strictly prefer to outsource, the platform can be used by consultants for analysis and placed back into the hands of city staff for use or updates as needed.
The first wave of COVID-19 had severe financial and organizational impacts on water utilities, and left the industry uncertain about the future. Could your community enhance its future readiness? Consider these lessons learned as we enter into the new year to increase the financial resilience of your community.