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Robert Segal

Robert Segal

Bob Segal, President of Robert S. Segal, CPA PA, has over 35 years of experience in accounting and business. Founded in 1994, Segal CPA is the only North Carolina CPA firm that is dedicated exclusively to seeking out cost reductions and revenue opportunities without affecting personnel or the bottom line.

Five Ways to Increase Utility Revenues

Robert Segal,

Five Ways to Increase Utility RevenuesMany local governments sell utility services to its residents and businesses and sometimes to others in the surrounding area. Utility services could include electricity, piped natural gas, water, sewer, solid waste (garbage) collection, stormwater fees, landfill fees, and recycling fees.  If the government sells utilities that require an infrastructure component, the government is always setting aside funds to improve, maintain, or enlarge the infrastructure. The simplest way to save for those infrastructure improvements is to increase the rates and set the funds aside for specific projects.

But is this the only way to fund utility infrastructure improvements?  Let’s consider the formula for utility revenues: rate times volume equals revenue. If one decides that increasing the rate is not appropriate, then volume needs to increase.  But can the government increase its volume? Most think not. Consumers only purchase the amount of electricity or water that they consume.  You can’t make them purchase more water than they need.

So let’s think about it from another point of view:  Does the government account for all the water it produces and then sells? If you make 10M gallons this month but only sell 8M gallons, that means 20% of the volume is unaccounted for and is considered non-revenue water.  The industry rule is that a 10% unaccounted for percentage is normal. A lower percentage is better and a higher percentage is not good. Therefore, selling an additional 1M gallons per month (the amount of unaccounted for water that is above the normal 10%) at $5/1,000 gallons (combined water and sewer rate) produces $60,000 annually.
 
This is the challenge:  How does the government increase the volume without forcing the consumer to drink more water or use more electricity?

Five Ways to Increase Volume

Meter replacement: It seems that many governments are replacing their old meters with radio read meters or something even more modern. The assumption is that the old meters lose 1% accuracy for every year they are in use. In theory, a 15 year-old meter may only be reading 85% of the water passing thru the meter. But most of these total meter replacement projects replace only the residential meters.  Has the government considered replacing its high volume commercial meters, those 2 inches or larger?

Calibration:  Speaking of 2 inch or larger meters, not only do they slow down with age, the meter calibration may become less accurate.  All of the larger meters should be placed on a regular schedule for calibration.  By calibrating frequently, the expensive larger meters will read more accurately and bill more water.

Required meter reading:  Does the government require every meter to be read every time even if the residence is vacant?  This should be a requirement for good internal controls. How do you know someone has not turned on the water or electricity when they realized the residence was vacant and connect it to the house next door?

Water pressure:  The more water pressure in the system, the more water is lost thru leaks.  By decreasing the water pressure, leakage is reduced and less gallons need to be produced. However, local fire departments always want as much water pressure as possible. But do you have to have that much pressure every hour of every day?  By placing pressure monitors throughout the system, the pressure can be changed in times of emergency.

Own every meter:

Maybe this happens more than I realize, but the following is a true story:  

The county wanted to purchase water from one of its municipalities and then resell the water.  The municipality did not want to pay to extend the water line and purchase the very large water meter. The county offered to purchase the meter to entice the municipality, and the county offer was accepted. However, when we arrived, we found that the meter had been in use for 15 years and never calibrated. When the municipality went to calibrate the meter, the county denied them access to the meter claiming it was a county meter, and the municipality had no legal right to calibrate the meter. This meter has the second largest water volume in the municipal system. One year later, the meter still has not been calibrated.

We recently visited a small town with its own water and sewer system. The combined retail water and sewer rates exceeded $5/1,000 gallons. When several textile plants closed, the town lost 35% of its volume. But the debt payments on the water and sewer plants were still due. The town’s answer was to increase the rates to their remaining customers. But the town also had 40% unaccounted water. If they could have identified the unaccounted for water, they would not have had to increase the retail rates.
 
How does your municipality stay on top of maximizing utility revenues? We welcome your comments and any examples you are willing to share.


Do You Know the Equation for Increased Municipal Revenues?

Robert Segal,

Equation for Municipal RevenuesOver the past 19 years of consulting with local governments, I have noticed that almost every financial crisis is handled the same way. Since Human Resources (HR) makes up approximately 70% of the local government’s expenses, then the easiest way to solve the crisis is to reduce HR expenses. The local government still has the same amount or more work, but with fewer people to handle it.  What critical things do not get accomplished with the reduced staffing?

In the book, Decisive, by Chip and Dan Heath, there is a discussion (pages 58-62) of companies that, when faced with the most recent financial crises, focused on “prevention” rather than “promotion.” Prevention orients the company toward avoiding negative outcomes (reducing expenses) while “promotion “orients the company toward pursuing positive outcomes (multitracking). Their research found that 76% of the promotion companies “outrebounded” prevention companies. Those companies that assumed multiple strategies during crises recovered more quickly than those that adopted a single strategy.

Seldom have we seen a local government adopt a revenue growth model during a financial crisis.  But should they?

A basic rule of accounting is that Revenue = Rate times Volume. It seems safe to assume that no elected Board would vote for a rate increase unless under severe distress. By rate, we mean the following: property tax rate, water and sewer rates, cost rate of business licenses, etc.  Let’s also assume that the local government does a good job of collecting those known revenues.  

Are there Undiscovered Revenues Available?

Maybe the local government should consider multiple tracks to solve the crisis rather than just reducing HR expenses. By finding more volume—and therefore revenues—they can grow themselves out of the crisis.

Do you believe every business in your jurisdiction has the required license? Or that the businesses reported the correct amount of gross revenues, upon which the license fee is calculated?  Why are there contingent fee consultants who offer to discover unlicensed businesses and provide audit services, but who only receive compensation when the additional revenues are collected?

Does every company voluntarily list all of their business personal property?  Why are there companies that local governments hire on a contingent fee basis to audit those listings?  The local governments don’t have the manpower to do it themselves, and the consultant only gets paid if additional property is collected.  Sounds like a win-win situation. Why are there other contingent fee companies (that do nothing but search for companies that have never listed in your jurisdiction), but who share in any additional property taxes that are collected?

The property tax records of some municipal governments are maintained by their county governments, and these municipal governments assume that the municipality can have zero impact on their volume of listed property. Wrong! Wrong! Wrong!  Some county tax departments are as understaffed as the municipality and can’t discover every local business that is unlisted. Why shouldn’t the municipality be constantly on the lookout for new businesses and notify the tax department immediately?

(Story: we had a municipality that refused to send their building permit information to the county tax department, and the tax department refused to drive up and down the municipality’s streets searching for construction and renovations. Withholding the permit data helped neither the county nor the municipality. Neither collected property tax revenues. The municipality never explained why they refused to provide the permit information.)


Are you maximizing your utility franchise revenues?

Robert Segal,

Utility-Franchise-RevenuesMany states allow a local government to receive a utility franchise revenue (some governments call it a fee or tax) which is typically based on a percentage of gross revenues.  Sometimes the utility includes the revenue in the rates and other times it appears as a separate line charge on the monthly utility bill that the taxpayer receives.  The utility collects the charges and depending on the State, either (1) sends the funds to the State which distributes the fund to the local governments or (2) sends the funds directly to the local government.

What types of utility franchise revenues could your local government collect?
  • Electricity
  • Natural gas
  • Telecommunications
  • Cable services
  • Water & sewer
  • Solid waste collection
Typically the franchise is provided to the utility company on an exclusive basis and provides access to local right-of-ways.

So how does a local government maximize its utility franchise revenues?  Consider the following ideas:

  1.  Local governments are required to notify the utility companies if and when an annexation is completed.  Utilities require a map, a description with metes and bounds or both.  We have seen where the local governments have religiously sent the requited data to the utility and it never gets recorded.  Why?  Usually it is addresses to the utility company with no personal name. The mailroom does not know what to do with it and probably gives it to the wrong person who says “nice letter” and throws it away.  Solution: Every time a boundary (annexation) change is sent to the utility companies, include a certification on the transmittal letter saying the change was recorded and an effective date and require the certification by returned to the sending person.  Maintain a file of transmittal letters that are replaced with the signed certifications.  Periodically review the file of transmittal and contact those utilities that have not returned the signed certification.  What is the definition of gross receipts to which the franchise percentage is applied?

  2. We were recently reviewing the franchise agreements for two municipalities in the same state but services by different electric companies.  (One company had recently purchased the other company was now a subsidiary.)  One defined gross receipts as the “sale of electricity” while the other defined it as “metered electric service”.  What is the difference?  Lighting is usually not a metered service.  The “sales of electricity” company paid the franchise percentage on lighting revenues while the “metered electric service” did not.  Solution: The franchise agreement should include the broadest possible definition of gross receipts.

    Similarly, we have seen certain cable companies include all their gross revenues and others not include advertising revenues or others.  Some of the agreements are so old, the newer revenues did not exist when the franchise agreement was written.

    Frequently, the utility companies don’t provide much information regarding how the franchise revenue is computed.  Maybe three lines: (1) gross revenues (as they interpret the franchise agreement), (2) the franchise percentage and (3) dollar amount of franchise revenues.  We look at the check, compare it to last year’s check, see it about the same and therefore assume it must be correct.

  3. Does your franchise agreement give the local government the right to audit/verify the franchise revenue?

    We have been told by the utility companies that they would not answer any questions about the franchise revenues since the franchise agreement said nothing about an audit or verification.

    Just last week, we were visiting with a finance officer on another matter when she said they had a revised franchise agreement going to council that evening for approval.  The proposed franchise agreement was provided by the utility company and approved by the client’s attorney.

    We asked her if the proposed agreement included the “metered services” definition and audit authorization.  Surprisingly, the utility written agreement used the limited gross revenue definition and included no audit authorization. (I apologize for the sarcasm.)

    We would appreciate any comments if others have encountered any of the three issues and what you did to correct the situations.
       

Maximize Your Revenues with Contingent Fee Consultants

Robert Segal,

Maximize Revenues with Contingent Fee ConsultantsMost people are familiar with consultants who charge a fixed fee or hourly rate to answer a question or fix a problem.  There are several issues with this model which are not in the best advantage of the client:
  • Whether fixed or hourly, payment is required even if the problem is not corrected. 
  • Since the fee will be paid regardless of outcome, there is no incentive to perfect the end product. In some cases the resulting report that is delivered might be impractical, irrelevant, useless or all of the above. Some of these reports are even counter-productive.  The consultant recommends something and management then has to justify to its governing board, why the recommendation is not correct.

A Better, Risk-Free Model

An alternative to the fixed (or hourly) fee consultant is a contingent fee consultant (CFC).  Contingent fee consultants analyze a problem, make recommendations and are only paid if the recommendation is accepted and implemented.  The CFC is assuming 100% of the risk by investing their time in the project, with no assurance that their work will be accepted and they will be compensated.  The contracting party, however, has zero risk, since they are only paying for results.  They have nothing invested and nothing to lose.

In order for a CFC to be successful, the CFC must document a result that is well defined in the contract.  It is easy to document a fee when it is based on a unit price savings.  Assume you were paying 10 cents per minute for long distance and the CFC recommends a 7 cent per minute plan.  If the new plan is accepted and implemented, the CFC would receive a percentage of the 3 cent per minute savings for a period of time.  If the proposed 7 cent plan was not accepted, the CFC would receive no compensation.

Always Contract for Achieved Results

Some CFCs charge their fee based on actual results while others base their fee on projected results.  Never, ever sign a CFC contract based on projected results.  Why would you pay for something that may never happen?  But yet, we know people who are paying for projected results and are now not enjoying the experience.

For a successful contingent fee contract, the contingency must be based on a documentable result.  For examples: the 3 cents per minute savings in the example above.  If it is a revenue based contingency, the fee should be based on new revenues as evidenced by new checks/receipts.  Just because the CFC says something will happen, it is not documented until the check clears the bank.  No checks, no results and therefore no fee.

Specialized Expertise

There are a variety of contingent fee consultants in today’s marketplace.  Most specialize in one specific type of revenue or expense. Some examples include:

  • Utilities (telecom, electricity, natural gas and water/sewer)
  • Freight
  • Sales tax
  • Property tax
  • Waste
  • Medicare/Medicaid

Utilizing CFCs is one of the most practical, easiest, ‘all upside’ choices for increasing revenues and reducing expenses for municipalities and governmental agencies. If you haven’t evaluated this option in the past, you owe it to your taxpayers to have a consultation to explore the possibilities.

 

 


Local Governments Revenue Opportunity: Tower Rents

Robert Segal,

BobSegal-Local-Governments-RevenuesCell towers are springing up like weeds because the public is demanding more and faster broadband services. Some may look like very tall weeds, but they are more like bad evergreen trees. As people are receiving more video on their smartphones, ipads, and other devices, the demand for more bandwidth is growing exponentially. Where do the tower companies find locations in residential neighborhoods?  

Many four-legged towers need only a space of 50′ by 50′, or only 2,500 square feet. Does your jurisdiction have any unused 2,500-square-foot parcels?

Tower companies like to lease land from local governments and school districts for their towers. Why?  Usually the land will be owned by the government (or school district) for a very long period, and the tower company does not have to worry about the parcel being sold and having to deal with a new owner.

All of the tower companies have websites where you can list sites that you would consider for leasing. They usually require a parcel number or GPS location. We frequently see towers located in the back corners of water plants, wastewater plants, or schools.

If your local government has unused land, you should consider contacting the tower companies.

Tower companies:

  •   Crown Castle
  •   American Tower Company
  •   SBC Communications

 

Three Revenue Generating Ideas for City and County Governments

Robert Segal,

153703349If looking for ways to generate money with existing property, sometimes the writing is on the wall.

Look for unconventional methods of using current property and assets.

This can prove lucrative with minimal effort and up-front cost. Kill two birds with one stone. Brainstorm potential alternatives for assets that are already in service, breathing new life into them and taking advantage of the property and resources already at your disposal.

Generate More Tax Revenue From Unlisted Property Today

Robert Segal,

462556355The process of generating tax revenue from unlisted property is relatively simple. It takes some time to discover the unlisted property, but the revenue potential trumps the time spent.

Typically, cities and counties require business personal property to be listed and assessed each year for property tax purposes. This responsibility for compliance (listing the property) falls on the shoulders of the owner of the personal property.

Revenue can be generated through unlisted property stemming from numerous basic items, such as registering a vehicle within the city. Once it is discovered that a business has unlisted property within the city, the government should start process to rectify the situation as quickly as possible.

Understanding Business Licenses Will Add Revenue to Your Bottom Line

Robert Segal,

154141152As you may have learned in one of my recent articles, businesses operating in a jurisdiction may be required to purchase a business or privilege license. This includes out-of-town businesses operating in the city, even if they don’t have a physical presence there. Meaning a business may not have an actual office in the jurisdiction, but the business operates in the jurisdiction regularly. Essentially, anyone engaging in business activities may be required to obtain a business license, whether or not a place of business is maintained within city limits.   One an unlicensed business is discovered, many local governments require the unlicensed business to purchase licenses for each period in which the business the operated inside the jurisdiction and may assess a late filing penalty.  Although as a government you require businesses to have a license in order to operate legally within your jurisdiction, it really goes beyond city hall. This fact should be included in correspondence with businesses when communicating the need to obtain a license. Customers expect that businesses will obtain the proper licensing required to do business and so should you.  Licenses are to be displayed in a public area so customers can confirm compliance.

The What and Why Behind Updating Business Licenses

Robert Segal,

GraphIf businesses are operating without a business or privilege license in your county or city, rectifying the situation could be easier than imagined – and prove to be the right move to increase your revenue.

As a local government, you probably require businesses to obtain business licenses not only to keep tabs on the businesses operating within your boundaries, but also to ensure that businesses whose activities place demands on infrastructure will share in maintaining basic services such as law enforcement and fire protection.