What is Financial Capacity?
Financial capacity means the water system has the ability to acquire and manage sufficient funds to achieve and maintain compliance with Safe Drinking Water Act (SDWA) requirements and to meet the community's desired level of service. A system with adequate financial capacity will have the
revenue sufficiency to cover all costs and will invest in infrastructure replacement. It will have the
credit worthiness to allow the system to borrow money and will use established
fiscal management and controls to keep track of payments and receipts.
Why Is Financial Capacity Important?
Without good fiscal strength and sense, your water system could potentially put your community's public health at risk. Building financial capacity is as important for assuring long-term public health as protecting your watershed. The benefits of a fiscally strong water system are:
- Save costs associated with minimizing liability, prolonging the useful life of infrastructure, and running the system efficiently.
- Protect public health by ensuring consistent compliance with drinking water standards, including federal and state regulations and other applicable standards of performance.
- Provide service to existing customers and serve new customers in the future.
How Do I Improve My Water System's Financial Capacity?
Staying ahead of fiscal challenges and preventing them takes work. Run your water system like a successful business by clearly identifying your goals, assets and maintenance schedules. Use some of the following resources, which were developed for small water systems.
Financial Capacity Handouts
Budgeting Series
Budgeting Basics
Defines the four basic steps involved in good budget preparation and explains how expenses, reserves and revenues all need to be defined for a budget. - The Budget Process
Describes the four principles and goals needed to create and implement a budget.
- A Sample Budget
A brief overview of a typical budget for a small water system, including common revenues and expenses and a typical breakdown into categories.
Planning Series
- Asset Management
Describes the key questions to answer when creating a basic asset management plan and how to prioritize repair and replacement.
- Capital Improvement Planning
Reviews the process and key elements for creating an effective capital improvement plan.
- Rate Structure
Defines the six essential steps in developing the right rate structure.