Water System Finance – Overview

While the Southwest Environmental Finance Center is not a funding agency, we are available to assist water systems with financial capacity development to solve some of the difficult issues of water system finance. Financial capacity development assistance can include:

  • Water Rate Studies and Assistance with Rate Setting
  • Identification of Sources of Outside Funding
  • Water Audits to Determine Water Loss and Non-Revenue Water
  • Managerial and Financial Leadership Training and Assistance
  • Long-Term Capital Planning
  • Trainings in Asset Management, Water Loss and Capacity Development

Under the United States Environmental Protection Agency (EPA) capacity development model, financial capacity is demonstrated in a water utility when it shows competence in its

  • Ability to collect sufficient revenues to meet both current and medium term expenses
  • Credit worthiness and ability to secure external funding, and
  • Fiscal management.


These factors, which indicate financial capacity, contribute to a water system’s sustainability.

Financial capacity for a water utility means having the financial resources needed to continue to supply customers with safe drinking water in both the short and long term. This implies keeping enough cash on hand to cover current obligations, such as payroll and bills for supplies and operations, as well as current debt service payments. It also means predicting short and medium term future expenses and maintaining sufficient cash flow to meet those expenses. In addition, it means planning well into the future to upgrade and replace facilities, as well as expand to meet the community’s growth needs or comply with new regulations. For many small water utilities, adequate financial capacity can be difficult to achieve. Such systems often struggle with small populations with low income levels. However, there are many resources available to help small systems operate on business principles and practices.

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