Background: Recently, Camano Water Association has seen an increase in queries regarding our Capital Improvement Plans (CIP) and spending. While we get a variety of questions regarding many different topics, one recurring theme seems to be that of our Base Fee/CIP fee. This information is furnished in order to address some of the common questions we have been receiving, while also preempting some other for the purposes of complete transparency.
What Are CIP Funds?: CIP funding is used to help finance a variety of projects that are critical to the running of CWA. While the scale of the project may differ, pricing can vary substantially regarding whether they are categorized as either one-time or ongoing expenditures. One-time projects tend to be updates to existing infrastructure that once addressed, should be able to provide years of benefit before needing to be looked at again. Ongoing projects are by their very nature, more difficult to affix a completion time or cost to. However, many projects, (both large and small) factor into our overarching twenty-year improvement plan. While the plan acts as a guide, project timetables are not set in stone and items may be rearranged to suit cashflow availability or a specific emergent need.
CIP Projects; Do They End?: Whether the projects are one-time or ongoing, they never really end. One-time expenditures may have a life measured in many years or even decades before they need to be reassessed whereas ongoing projects are critical and tend to have a much shorter assessment period. Ongoing projects generally fall within the category of essential infrastructure – the office location, treatment plant, wells, all the way down to the pipes and meters that reside outside your home. To use pipes as an example, CWA has 34,441 linear feet of pipe throughout its service area. That entire distance is constantly being assessed for age, build quality, leakage and even the possibility of replacement if another project would make that replacement viable according to quality/cost criteria.
How Are CIP Projects Funded?: The most obvious way that our CIP reserve is built and maintained is through the fee attached to every CWA water bill. While there are other ways that funding can be found, the CWA has decided to (whenever possible) self-fund its projects through this single revenue stream. There are many benefits to organizing our CIP Plan around this kind of funding, but the most immediate (and arguably most important) is that no further expenses need to be passed along to CWA members. Another is that by choosing to self-fund, projects remain under our control at a more granular level, meaning that scope, direction, amd timing of projects cam be adjuster or adapted to a greater degree without the need (or requirement) of outside consultation.
Would Outside Funding Reduce Costs?: In recent years, the CWA has looked at the possibility of outside funding for some of our larger projects but have consistently found the approach problematic. There are certain benefits – once approved for a loan (for example), money is immediately available, and that is beneficial for timing projects, but there are substantial drawbacks as well. Firstly, by virtue of taking out a loan, you are accepting interest over the term of your repayment. As such, if you need $4 million for your project, interest will increase spending toward the $4.X-5 million range. Interest alone is a substantial cost that would have to be recoupled through the CWA membership. Another problem with the loan system is that much of CWA’s assets would be inaccessible during the repayment period, meaning that there would be little or no money to draw upon should an emergency or unforeseen project arise. While the benefits and drawbacks of using a loan are significantly more nuanced than the above example, CWA believes that as long as self-funding is an available option, it is the best and smartest way to invest in and improve the infrastructure that our members trust us with.
The Value of CIP Projects: To the operational efficiency of a water company, CIP funds are a great way to approach vital projects. The everyday maintenance costs of a system like CWA’s are substantial and having access to a CIP fund is vital in granting us the operational freedom to both respond to immediate needs and plan for the future. CIP funded projects also directly impact the quality of our system as CIP funds are separate and distinct from other spending considerations. CIP is infrastructure only!
Random Aside: One of the biggest issues facing smaller water providers today is the problem of revenue deficiencies. Many companies, CWA included, are finding that shortcomings in fees, and even the unit cost of water, have not adequately been keeping up with inflation, etc. over the course of many years. Decades even. As such, many companies are finding that ageing infrastructures cannot be adequately supported and improved with available resources. Companies underpricing their water for consumers has had a compounding effect that in many cases has caused incoming revenue to fall drastically out of line with maintenance costs of ageing systems. For CWA, these challenges impact many of our decisions and plans, but we are constantly assessing the needs of our customers, our infrastructure and our community!