Understanding How Water and Sewer Operations are Funded 

A municipal enterprise water and sewer fund functions similarly to a water fund but encompasses both water and sewer services. This type of fund operates as an enterprise fund, designed to be self-sufficient, meaning it covers its operating and capital costs through revenues generated by user fees, charges, and other related income rather than relying on general municipal property taxes. 

PROPERTY TAXES DO NOT FUND THE WATER AND SEWER SERVICES. 

Here’s a breakdown of how it works:

1. Combined Revenue Sources

The fund draws revenue from both water and sewer services, which are typically billed together. Key revenue streams include:

·         Water usage fees: Based on metered consumption of water by households, businesses, and industries.

·         Sewer usage fees: Often calculated as a percentage of water consumption, since wastewater flow typically correlates with water usage.

·         Connection or tap fees: Charges for new connections to the water or sewer system.

·         Penalties: Fees for late payments or violations of water/sewer regulations.

·         Grants and loans: External funding from state or federal programs for infrastructure projects.

2. Cost Recovery

The enterprise fund is designed to achieve full cost recovery, which includes covering:

a) Water System Costs:

·         Pumping and treating water to meet drinking water standards.

·         Distribution system maintenance (pipes, reservoirs, and meters).

·         Compliance with federal (e.g., EPA Safe Drinking Water Act) and state water quality regulations.

b) Sewer System Costs:

·         Collection and transport of wastewater via sewer pipelines.

·         Treatment of wastewater to meet environmental discharge standards.

·         Maintenance of sewer infrastructure, including pumping stations and treatment plants.

c) Shared Costs:

·         Personnel, administrative, and customer service expenses.

·         Capital improvement projects, such as replacing aging pipes or upgrading treatment facilities.

·         Debt repayment for bonds or loans issued for major infrastructure projects.

·         Emergency reserves for unforeseen repairs or regulatory changes.

3. Rate Setting

Water and sewer rates are set based on cost-of-service studies, which assess:

·         Current and projected operating costs.

·         Capital needs for maintaining and expanding infrastructure.

·         Regulatory compliance costs.

·         Revenue sufficiency to meet the fund's financial goals.

4. Long-Term Planning

The fund supports sustainable operations by planning for:

·         Infrastructure renewal: Addressing aging pipelines, treatment plants, and other facilities.

·         Capacity expansion: Preparing for population growth and increased demand.

·         Environmental compliance: Adapting to stricter environmental and wastewater discharge regulations.

Advantages of a Water and Sewer Enterprise Fund

1. Self-Sufficiency: Minimizes reliance on taxes by operating through user fees.

2. Transparency: Clearly links revenues to the specific services provided.

3. Encourages Efficiency: Promotes conservation and cost-effective management through user-pays principles.

4. Equity: Charges users based on their actual consumption and impact on the system.

Challenges

1. Rate Affordability: Balancing cost recovery with residents' ability to pay.

2. Aging Infrastructure: Meeting the substantial costs of replacing outdated water and sewer systems.

3. Regulatory Pressures: Keeping up with evolving water quality and environmental standards.

4. Capital Needs: Securing funding for large-scale projects without excessively increasing rates.

In summary, a municipal enterprise water and sewer fund operates like a business within the government, ensuring both water and wastewater services are financially sustainable, reliable, and environmentally compliant. It requires careful management of revenues, costs, and investments to meet community needs effectively.