Jersey WaterCheck was created by Jersey Water Works (JWW) to tell the story of our state’s water and water infrastructure needs. It blends information from publicly available data provided by government agencies, self-reported survey data from utilities and municipalities, data gathered from utility websites, and the results of a statewide public opinion survey. This has resulted in perhaps the most comprehensive and innovative collection of data in the water sector today. Individual utilities do not often have data from all of these sources easily accessible and visualized for themselves, let alone data from other utilities across the state.
The data gathered by Jersey WaterCheck can help state regulators and individual communities make better policy decisions, because they will understand themselves better. But, throughout the process of collecting the data, Jersey Water Works also gained valuable insight to help shape policy decisions. Some data that would be useful for understanding the story of our state’s water and wastewater infrastructure needs are simply not readily available, and we must use caution in comparing data between utilities, because they may be measured quite differently.
Let’s consider an issue of great importance: infrastructure investment. The American Society of Civil Engineers’ (ASCE) 2021 Report Card for America’s Infrastructure gives drinking water infrastructure nationally a grade of C- and wastewater infrastructure nationally a grade of D+. ASCE estimates that New Jersey will have $16.8 billion of drinking water infrastructure need and $5.3 billion of wastewater infrastructure need in the next 20 years. A 2020 study by ASCE and the Value of Water Campaign identified chronic under-investment in drinking water and wastewater infrastructure across the country. Because of the need to improve infrastructure investment, New Jersey implemented the Water Quality Accountability Act (WQAA) in 2017, which requires public water systems with more than 500 service connections to create and implement an asset management plan designed to inspect, maintain, repair, and renew its infrastructure.
Under the goal of Effective and Financially Sustainable Systems, Jersey WaterCheck sought to answer two key questions: at the system level, what are the actual annual capital expenditures for drinking water infrastructure, and what are the actual annual capital expenditures for wastewater infrastructure? These figures per water or wastewater system would then be totaled to produce a statewide number. It would be easy to obtain a list of projects funded in any year by the New Jersey Infrastructure Bank or by USDA’s Rural Development program, but Jersey WaterCheck sought to capture all infrastructure investment, not just investment financed through a governmental lending program. The metrics include debt service on loans, as well as cash expenditures for capital from current receipts and from reserves.
These relatively straightforward questions, however, proved to have more complicated answers. For one thing, utilities in New Jersey have not been required to report on their annual capital expenditures. In this regard, New Jersey is not an outlier. We are not aware of any state that requires utilities to report on annual capital expenditures for water and wastewater, and New Jersey—through the WQAA—is one of only a handful of states that require utilities to complete asset management plans.
However, data on capital expenditures for New Jersey utilities are available from multiple sources, and Jersey WaterCheck sought to maximize the information reported by combining self-reported data from a utility survey with information from internal budgets, annual financial statements, and Division of Local Government Services annual reports. The resulting information is not consistent, and comparisons should be made with caution. We all know the expression about comparing apples to oranges, but this approach left us with perhaps an even more varied basket of fruit. Here are three key issues:
First, there isn’t a consistent definition of what is considered a capital project. Some utilities may use a dollar target, such as any expense over $5,000. Others may consider anything as “capital” if it can be depreciated. Certainly, there are some large-scale projects, like treatment plants, reservoirs, and elevated storage tanks, that almost everyone would classify as capital expenditures. But, what about items like meters and hydrants? Each item is not that expensive individually, but all the meters or hydrants within a single water utility can add up to result in a significant expense.
Second, the ownership and governance structure of the utility can impact which generally accepted accounting principles it follows, which can impact how capital projects are reported on annual financial statements. Privately-owned utilities typically follow the Financial Accounting Standards Board (FASB) accounting principles, while publicly-owned utilities typically follow the Governmental Accounting Standards Board (GASB) accounting principles or the regulatory basis prescribed by the Division of Local Government Services. Furthermore, individual auditors and financial staff may define capital projects in different ways, regardless of the basis of accounting used. In addition, many utilities in the state submit budgets in a standard format to the Division of Local Government Services, which includes a one-year capital budget and a proposed five-year capital plan. However, it is unclear whether these numbers reflect budgeted capital expenditures of projects that will take place in that year or whether the numbers just represent capital needs.
Third, because water and wastewater infrastructure can be expensive and often has a long, useful life, most utilities choose to pay for capital expenditures with debt. How, then, should we count capital expenditures for projects funded with the proceeds of loans or bonds—when the project is installed, or when the debt is paid back? Let’s say a utility needs to install a two-million-gallon storage tank, and the project will cost about $4.5 million dollars. Most likely, that utility will borrow money for that capital project. If we are measuring the amount of capital spending in a given year, would we count the entire $4.5 million cost the year the tank is installed, or would we count the annual debt service payments over the length of the debt? Either approach is an acceptable way to measure capital investment, but utilities across the state would need to be consistent in which approach they use in order for the metrics to be more reliable.
Water and wastewater utilities are already required to report a series of operational and financial data on an annual basis. To get a clearer and more consistent answer on annual capital expenditures for water and wastewater, utilities could be asked to report a figure to the state that is based on a consistent definition of what constitutes a capital project, that follows a single method of accounting for expenses, and that follows a unified way of counting debt-funded projects. That would allow the state to understand how much money is being spent on water and wastewater infrastructure annually.
Determining annual capital expenditure would be a great step forward. A further step would be to determine whether that level is adequate to maintain water and wastewater service over time. Data on actual expenditures can be compared with data from the asset management plans mandated under WQAA that show how much infrastructure should be replaced each year. That will help tell the story of whether the state’s water and wastewater infrastructure will continue to serve our communities for years to come.