Viable Utilities

What is a Viable System?

A viable system is a utility that functions as a long-term, self-sufficient business enterprise, establishes organizational excellence, and provides appropriate levels of infrastructure maintenance, operation, and reinvestment that allow the utility to provide reliable water services now and in the future.

The Master Plan presents the state's roadmap for viable water and wastewater utilities that safeguard public health, protect the environment, support vibrant communities and encourage economic development.

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The new viable utility program provides funding to build a path toward viable utility systems using long-term solutions for distressed water and wastewater units in North Carolina.

The State Water Infrastructure Authority and the Local Government Commission have developed criteria to determine how local government units should be assessed for need and eligibility under the Viable Utility Reserve. Identified distressed units must:

  • Conduct an asset assessment and rate study
  • Participate in a training and educational program, and
  • Develop an action plan

The criteria were used to evaluate 496 local government units with water and/or sewer systems. This determination is an important first step in a closer evaluation of the utility's status. In addition, it is a factor in the allocation of $9 million in funding made available through Viable Utility Reserve legislation, Session Law 2020-79, signed into law by Governor Roy Cooper in July 2020.

VUR establishing legislation, signed by Governor Cooper in July 2020 (SL2020-79, House Bill 1087)

Initial funding for the Viable Utility Reserve (VUR) is $9 Million

VUR Process Overview- Implementation

The Viable Utility Reserve provides grants to:

  • Physically interconnect and extend public water or wastewater infrastructure to provide regional service.
  • Rehabilitate existing public water or wastewater infrastructure.
  • Decentralize an existing public water system or wastewater system into smaller viable parts.
  • Fund a study of any one or more of the following: rates, asset inventory and assessment, merger, and regionalization options.
  • Fund other options deemed feasible which result in local government units generating sufficient revenues to adequately fund management and operations, personnel, appropriate levels of maintenance, and reinvestment that facilitate the provision of reliable water or wastewater services.
  • Fund emergency grants for operating deficits.

 

 

The State Water Infrastructure Authority and Local Government Commission adopted the following Identification Criteria to be used to identify distressed units:

1. A unit whose fiscal affairs are under the control of the Commission pursuant to its authority granted by G.S. 159-181 (“under Commission fiscal control”), or

2. A unit that has not submitted its annual audits for the last two (2) fiscal years to the Commission as required by G.S. 159-34, or

3. A unit with a Total Assessment Criteria Score that: a) Equals or exceeds 9 for units providing both drinking water and wastewater services, or b) Equals or exceeds 8 for units providing only one service, either drinking water or wastewater, or

4. A unit for which other information is available to or known by the Authority or Commission that reflects and is consistent with, but does not expressly appear in, the Assessment Criteria to account for situations in which the Assessment Criteria score does not wholly or accurately reflect a system’s level of risk due to the limitations of available data.

 

Background

Session Law 2020-79 required the State Water Infrastructure Authority and Local Government Commission to develop criteria to assess and review local government units, and to utilize the assessment and review process to identify distressed units.

Local Government Units Assessment Scores (updated Sept. 27, 2022)

 

 

 

 

 

 

 

There are many challenges for water utilities across the state, such as declining population, loss of larger water customers, recruiting and retaining staff, and increasing costs for replacement of aging infrastructure.  The Viable Utility Program provides a process to address these challenges.

The state’s master plan provides a vision of utility viability to address the state’s water infrastructure needs.  How do utilities develop a business plan that addresses the numerous challenges they face and, at the same time, maintain viability?

  • The Viable Utility statutes (SL2020-79, House Bill 1087) provide a broad framework and process for ensuring the utility has a long-term financial plan that ensures viability.
  • May provide a better understanding of the true cost of providing water services with board members and customers.
  • Provides a mechanism for discussion of these issues with the utility’s board.
  • Many resource agencies are focused on assisting utilities as they face their challenges, including those utilities designated as distressed.  
 

  • In water infrastructure planning, it’s important to first know what you have along with the condition and location of what you have. With so much water infrastructure buried underground, it can be difficult to know which capital projects to prioritize.

  • Asset Assessment can help with getting the process started.

  • Aging infrastructure costs more and more each year- projects are more expensive to do in the future- it’s better to address them now.

  • Consistently, across the nation, the number one issue in water infrastructure is replacing infrastructure. The second issue is determining how to pay for this.

Once a local government unit (LGU) is designated as distressed, the division can leverage various funding programs to fit the individual LGU need.

Many kinds of assistance may be available to designated units

  • Rate Study

  • Merger /Regionalization options: Merger / Regionalization Feasibility Grants

  • Interconnection

  • Decentralization

  • Rehabilitation or replacement

  • Emergency operating funds (ONLY if the Local Government Commission has assumed financial control of the LGU)

Designation as distressed can facilitate development and implementation of action plans

  • Education and training for local leadership so they have information to share with citizens on the true cost of services they provide.

  • Long-term planning ensures viability.

  • Helps utilities break the cycle of relying on grants to alleviate difficult, acute or emergency infrastructure situations

As defined in Session Law 2020-79, a distressed unit is a public water system or wastewater system operated by a local government unit exhibiting signs of failure to identify or address those financial or operating needs necessary to enable that system to become or to remain a local government unit generating sufficient revenues to adequately fund management and operations, personnel, appropriate levels of maintenance, and reinvestment that facilitate the provision of reliable water or wastewater services.

As discussed above, the State Water Infrastructure Authority and the Local Government Commission adopted Identification Criteria to be used to identify distressed units. Units are considered distressed after formal designation by both the Authority and the Commission. Units that are designated must comply with the statutory requirements of the VUR program as described in Session Law 2020-79. The document below includes 95 units of local government that are currently designated as distressed.

 

North Carolina Local Government Units Designated as Distressed by the State Water Infrastructure Authority and the Local Government Commission and Eligible for VUR Funding as of Sept. 27, 2022

 

 

 

In addition to funding through the new Viable Utility Reserve, the Division offers a variety of funding programs and leverages them to find the best possible funding scenario to meet the needs of individual units. The programs are described at the link below.

The capital cost of water and wastewater infrastructure needs in the state ranges from $17 to $26 billion over the next 20 years- more likely at the higher end of the range.

  • Water Infrastructure needs = $10 to $15 billion

  • Wastewater Infrastructure needs = $7 to $11 billion

(These are capital costs only- the costs of operations, maintenance and on-going renewal/replacement are not included.)

Even if enough funds were available to address all of today's capital needs, funding by itself does not safeguard long-term viability. Comprehensive management of a water utility's infrastructure, organization, and finances is needed.