FAMS: Optimizing tough financial solutions for utility managers

Local government and utility managers don’t have it easy. Why? Because they face the task of addressing complex challenges while meeting the growing need for inclusion and full disclosure. And the room for error is shrinking—budgets are tight, utility fees and tax rates are high, and infrastructure needs are increasingly urgent. Plus, these challenges are compounded by the fact that much of our infrastructure was built decades ago and is reaching the end of its useful life.

The complexity is real: projects and programs must be prioritized, go and no-go decisions must be made, staffing and operational issues must be addressed and funded. Every need must be met within the constraints created by every other need. Given the tremendous reinvestment needs and limited availability of funds, the decisions around how best to deploy a community’s resources has never been more important.

To meet this challenge, our team has developed tools based upon hundreds of years of combined expertise to help communities address funding challenges in a strategic and cost-effective manner. Our team of financial experts understands that the success of any enterprise is often judged on how well it avoids financial turmoil while continuing to invest in its assets and delivering great service.

Our approach? We focus on helping government and utility managers respond to these operational needs. We simplify complex issues, maintain a focus on core principles, and make it easy to draw correct conclusions and communicate them. 

FAMS: Low utility rates without performance decline

Our Financial Analysis and Management System (FAMS) helps local governments identify cost solutions without sacrificing the sustainable financial performance communities need. How? By focusing on three key actions:

• Identify difficulties in advance
• Analyze the universe of options
• Plot an explicit path to achieve prioritized objectives

Our financial plans result in an actionable, long-range strategy for adjustments to utility rates. We focus on smooth, predictable rate adjustments to reduce customer impacts. Utility managers are empowered by knowing that their proposed rate increases are set at the lowest possible levels and that customer impacts have been recognized in the analysis.

To help highlight our experience, let’s look at a city in Florida that needed to build a reverse osmosis water treatment plant. The plant, of course, had a large ($70 million) price tag. So, we applied our FAMS model and identified the need for borrowing money through long-term debt as the best way to minimize rate adjustments.

With this knowledge, the local government called a referendum to formally consult with community members—a process required for long-term debt of this magnitude. The result? Our client learned that most of the community was debt averse. We used FAMS in live meetings to show stakeholders that utility rates would need to increase by approximately 50% for four years if the city were to cash fund the project. After that time, the rates could be adjusted down, but the high bill impact would be unpalatable those first few years.

The analysis clearly showed that with the correct borrowing arrangement, modest increases of 4% annually would pay the bills. Intergenerational equity was built by recovering the costs over time from both present and future users who would benefit from the plant over the next several decades. Check out a sample FAMS control panel below: