1. Commercial-type activities of a government, such as public utilities:  Water and sewer authorities—either fully independent or component units of local governments  Departments within local governments—blended or discrete component units  Water and sewer rates (fixed and variable) and user fees (connection, septage hauling) should be sufficient to sustain system over the long-term.

2. Median Ratios for Authority Performance  Like private sector, ratios have been used by public utilities for comparative purposes for many years.  Rating agencies typically use utility-specific median ratios as “part of the story” as they evaluate an authority (or local government) for their ability to issue revenue bonds.  Fitch released its 2011 Median Ratios in January. They are available for self-evaluation at www.fitchratings.com.www.fitchratings.com

3. Virginia Water and Sewer Authorities  Public utilities in Virginia range from very small town systems to very large regional systems.  Draper Aden publishes a rate comparison study each year on www.daa.com. It allows public utilities to find comparably-sized utilities by their customer base.www.daa.com  Comparisons can also be made between public utilities who treat their own water/wastewater or those who simply provide a distribution/ collection system.

4. Augusta County Service Authority Comparative group for Augusta County Service Authority (ACS Authority):  Medium-sized utility (8-14,000 connections or 4 million gallons per day treated/consumed)  Western part of state (less urban)  Treat own water and wastewater at multiple facilities Questions: Did the ACS Authority have too much liquidity and too much debt?

5. Liquidity for Water and Sewer Authorities The immediate ability of an Authority to pay its current debts as they come due. One such median ratio is: Current ratio:Current Assets Current Liabilities Fitch reports that median current ratios of better than 2.1 (AAA) to 3.7 (A) are national benchmarks for retail water and sewer systems.

6. Comparisons for ACS Authority

7.  ACS Authority’s current ratio was within the Fitch range of 2.1 to 3.7.  ACS Authority’s current ratio was right at the average of 2.6 for the comparison group but higher than three.  Recommendation to bring liquidity closer to 2.1 now that major WWTP ENR upgrades completed.

8. Solvency for Water and Sewer Authorities  A determinant of an Authority’s ability to meet its service delivery and financial commitments both now and in the future. One such ratio is: Debt Ratio:Liabilities Net Assets  A ratio of 1.0 or less would generally be desired  Fitch has a number of more complicated ratios that it uses in its evaluation.

9. Comparisons for ACS Authority

10.  ACS Authority’s debt ratio was the median and right at the average of 0.51 for the comparison group.  Debt was driving rates higher but the other authorities were experiencing similar needs to fund expensive treatment upgrades.  Fitch’s similar ratio of total outstanding debt to net capital assets is below a 39 to 44% benchmark. ACS Authority falls within that range.

11. The high liquidity made ACS Authority vulnerable this spring to political pressures to fund non-core projects even though its five-year CIP fully utilized its cash reserves. ACS Authority decided to not make final draws on its last WWTP upgrade loan. That lowered its liquidity, increased its solvency, and reduced the amount of bond-covenant-required rate increases. ACS Authority will continue to use both local and national comparisons of key ratios as financial performance indicators. These ratios are respected by its Board of Directors to assist in decision-making. Conclusions for ACS Authority

12. Questions?