Every year, the finance team at the North Texas Municipal Water District (NTMWD) develops updated wholesale water rates that cover the full range of costs involved in sourcing raw water from multiple locations, treating it to ensure it's safe to drink, and delivering it to our Member Cities and Customers. As a wholesale water supplier, NTMWD's rates form the foundation that Member Cities and Customers use to establish the water rates billed to residents and businesses.
Rate planning begins each fall as the finance team develops 10-year strategic financial plans that encompass the current budget, inflation projections and the capital improvement plan. Through this process, the District calculates the projected rate per 1,000 gallons of water. These long-term financial plans give Member Cities and Customers an early outlook to support their own rate planning efforts.
In January, there’s a budget kick-off meeting that starts the official budget process. By April each department submits their budget requests. Then, the finance team starts crunching the numbers.
“Once the budgets are finalized, we go back and take the total cost for producing and delivering the water divided by the annual number of gallons required and come up with the rate,” said Michael Klea, Assistant Finance Manager.
This explanation makes the process sound simpler than it is, as there are multiple factors that contribute to determining water rates, the largest of which is the District’s Capital Improvement Program (CIP).
Klea explained that the projects, which he describes as the “backbone of the systems that supports water production and delivery,” make up more than half of the costs in the water system.
The infrastructure that provides safe, reliable water today was yesterday’s capital improvement project. The ongoing growth in our area will require continued investment in building and maintaining infrastructure needed to provide the water supplies and wastewater services that foster thriving communities.
While CIP costs are a major driver of water rates, new infrastructure projects are required to maintain essential services for North Texas, including the NTMWD service area. Some of the fastest-growing cities and counties in the nation are included in the District—a trend that is projected to continue.
CIP costs include funding for current fiscal year projects, cash-funded or debt-funded, and past projects that were financed through bonds for which the District is paying the principal and interest.
Along with the capital improvement projects, Klea and the team must factor in other expenses like chemical costs, the electricity it takes to move the water, the maintenance required to keep systems operational and the manpower needed to make it all happen.
Throughout the budgeting cycle, staff communicates with the Board of Directors and the Member Cities and Customers. Once budgets are finalized, the finance team then consolidates this information into a comprehensive budget document. Ultimately, the Board reviews and approves the annual budget each year. The team has been recognized by the Government Finance Officers Association for the transparency and quality of their budget documents, which are available to the public.
Klea explained that for the team at the District, water rates and the budget that determines them are about more than just the numbers. He describes the budget as a guidebook that tells the story of what the District does as an organization, and how the work gets done safely, efficiently, and cost-effectively.
“We're a public entity and we have a dual mandate,” he said. “First, we have to provide safe drinking water and essential services, but we also have to keep our costs in line, and make sure that we are providing good value to the public.”