New Mexico City Water Division Financial Strategy Development

In 1999, the one New Mexico city had recently finished financing and then re-financing the acquisition of its water system. The newly formed City Water Division soon found that the water system was in need of major repairs and that the revenues from water sales were wholly insufficient to pay for it all. In fact, the revenues were not sufficient to meet all of the financial coverage requirements of the bonds that had been issued to finance the acquisition; the City was in technical default of its bondholder covenants and had received notice from bond counsel demanding that the City comply with the covenants or face legal action.

Meeting the demands of the bondholders required an immediate and drastic rate increase. The impact on the City’s new water customers was as unwelcomed as it was unexpected. After the emergency rate increase, the City Council vowed to never let such a situation happen again. With the City’s support, MWH management consultants embarked on a long-range financial plan resulting in a detailed projection of water demands, rates, operating, and capital costs. The strategic plan incorporated all of the repairs required in the water system, the acquisition of a $200 million source of renewable water supplies, and established policies for cash reserves, performance metrics, and annual renewal of the plan. MWH developed an annual process that established a plan and then reported to the City Council on the Division’s performance to the plan.