Reliable water, sewer, and stormwater systems are essential to public health, a clean environment, and a strong economy. But these essential systems may be at risk—aging infrastructure, growth, strengthened regulations, and climate change are driving the need for significant upgrades and re-investment in the pipes, pumps, and equipment that are used to treat, deliver, and remove water safely from our homes and businesses. At the same time, fiscal restraint and public complacency impede the ability of local governments and water utilities to secure the financial resources required to sustain our water infrastructure assets.
Financial sustainability is a key principle for safeguarding water, sewer, and stormwater systems so they continue to protect public health and the environment, and contribute to economic development. It means having adequate funds to pay for the current cost of operating and maintaining our water and wastewater systems, and proactively planning to ensure there will be funds to eventually renew and replace systems as they come to the end of their useful life.
The British Columbia Water & Waste Association (BCWWA), together with Urban Systems, recently assessed the financial capacity of the province’s local governments to maintain, renew, and replace their water and wastewater infrastructure. The analysis used four financial indicators based on data from the 2013 audited financial statements for local governments in British Columbia. The indicators were selected based on a review of best practices in other jurisdictions, available information, and advice from knowledgeable professionals in the asset management field.
The assessment addressed the following questions:
• Are B.C. municipalities financially well positioned to meet their existing water and wastewater infrastructure investment needs to maintain current levels of service?
• Are water and wastewater rates recovering the full cost of service, including infrastructure renewal and replacement?
• How much investment is needed to sustain our water and wastewater infrastructure?
• Are municipalities financially resilient to withstand sudden or unexpected changes in revenues or costs for water and wastewater systems?
The results point to four conclusions about the financial sustainability of British Columbia’s water and wastewater systems:
1. Water and sewer fees are not covering the full costs of service delivery in many communities; in the worst cases, rates would need to nearly double in order to reach financial sustainability.
2. Many communities are vulnerable, as they have not set aside sufficient reserves to buffer against unexpected changes in operating costs or revenues.
3. Smaller communities have greater financial gaps than larger communities, as costs are shared across a small base of users.
4. British Columbia requires $13 billion of additional investment to renew and replace water and wastewater infrastructure when it comes to the end of its useful life.
The cumulative effect of decisions, policies, and actions over a long period of time has influenced the financial status of B.C.’s systems. Some of these factors include reliance on government grant funding for capital projects, lack of asset management planning, deferral of maintenance and investment, urban sprawl, and a lack of public support for full-cost pricing.
Building financial sustainability will take time. While the financial risks to our water and wastewater systems are not immediate for all communities, it is important to make sound choices today about priorities for existing tax dollars, and setting rates so that they cover the full cost of operating, maintaining, and replacing systems. Communities can take the following steps to strengthen their financial capacity to meet current and future water and wastewater infrastructure needs:
1. Adjust water and wastewater rates to cover the full cost of service, including the cost to renew and replace systems.
2. Develop and implement integrated asset management processes that assess the state of infrastructure, evaluate risks, and set priorities for investment in renewal and replacement of water and wastewater assets.
3. Rank water and wastewater renewal and replacement projects as top priorities for capital investment.
4. Adopt “smart growth” principles.
5. Foster collaboration among all levels of government to support communities to become fiscally self-reliant.
The BCWWA-Urban Systems report, entitled Are Our Water Systems at Risk? is the first of a series of annual assessments that will be used to evaluate trends in the financial position of British Columbia’s water and wastewater systems over time. It is intended to inform dialog among elected officials, utility managers, and the public about policies and priorities for infrastructure renewal and investment, and provides recommendations aimed at enhancing the fiscal sustainability of our water, sewer, and stormwater systems to ensure public water and wastewater systems continue to protect public health and the environment for generations to come. WC
Tanja McQueen is the CEO of the BC Water & Waste Association. This article appears in Water Canada’s March/April 2015 issue.