July/August Quality on Tap by Texas Rural Water Association

Quality on Tap!

July/August 2014

Drought Meets Economic Boom: A Perfect Storm For Rural Water Companies Also Inside: An Introduction to WSC Exemption Status Under 501(c)(12) Ables Springs WSC Celebrates its 50th Anniversary Veteran Unemployment Rates High; How Texas Water & Wastewater Utilities Can Help www.trwa.org

TRWA Today

TRWA BOARD OF DIRECTORS

Fred Aus Executive Director

Officers Clay Hodges Pat Allen

Allison Kaminsky Communications Director President Hunt (Dist. 7) Vice President Guadalupe (Dist. 9)

Brian Macmanus

Secretary Cameron (Dist. 6)

Barry Miller

Treasurer Gonzales (Dist. 5)

James Morrison

Immediate Past President Walker (Dist. 13)

District Directors John Frantz

Hartley (Dist. 1)

Bruce Alexander

Medina (Dist. 2)

Chris Boyd

Denton (Dist. 3)

Delores Goode Charles Beseda

TRWA STAFF

Lampasas (Dist. 4)

Teresa McAnally Member Services Director Lance Harrell Information Technology Lara Zent Deputy Executive Director and General Counsel Pauline Word Legal Assistant Larry Bell Technical Assistance Director Raymond Curtis Wastewater Trainer Alex Eaves Wastewater Techncian Paul King Circuit Rider James Smith Circuit Rider William White Circuit Rider Celia Eaves Environmental Services Director Deborah McMullan Source Water Protection Specialist Steven Mindt Technical Assistance and Training Specialist Refugio Rodriguez FMT Specialist Janice Gibbs, CPA Finance Director

Hill (Dist. 8)

Pam Cantrell Administrative Assistant

Kent Watson

Brazos (Dist. 10)

Angela Harris Administrative Assistant

Kevin Spence

Franklin (Dist. 11)

Michael Vollmar Professional Development and Training Director

Vickie Armstrong

Kaufman (Dist. 12)

Melody Bennett Administrative Assistant

Jerry Pickard

Sabine (Dist. 14)

Len Klandrud Instructor George Patterson Instructor Dian Phinny Instructor

Established in 1969, the Texas Rural Water Association (TRWA) is a statewide nonprofit trade association with an active membership consisting of more than 750 nonprofit water supply corporations, special utility districts, municipal utility districts, small-town water departments, investor-owned utilities and individual members. In addition, more than 200 water industry suppliers participate in TRWA activities as associate members. TRWA members provide water and wastewater service to 2.5 million customers throughout Texas. TRWA is dedicated to helping directors, managers and operators provide efficient service and clean, safe drinking water to their customers. Through onsite technical assistance, education and information exchange, TRWA helps its members better meet their needs as well as the needs of their customers. 2

Quality on Tap! - July/August 2014

CONTACT THE EDITOR Quality on Tap is a bimonthly publication of the Texas Rural Water Association. Your comments and opinions, as well as editorial and advertising inquiries, are welcomed and should be directed to the Editor, Allison Kaminsky, at (512) 4728591 or at editor@trwa.org. Find TRWA on Facebook â&#x20AC;&#x153;Likeâ&#x20AC;? our Page and join the conversation at: www.facebook.com/TexasRuralWaterAssn

Follow TRWA on Twitter! Find us at @TexasRuralWater for all water industry news and @TRWALegislative for legislative updates relevant to you!

Quality On Tap! 5

In Every Issue: President’s Message Letter from the Executive Director

Keep it Legal

Advertiser Index

Plan Ahead

Answers to your legal questions

TRWA’s Calendar of Events

Drought Meets Economic Boom: A Perfect Storm for Rural Water Companies By Jake Good, CoBank Utilities across Texas are looking for innovative financing solutions as they manage the challenges caused by the four-year drought.

Ask Larry

Answers to your technical questions

Features:

to WSC Exemption Status Under 14 Introduction 501(c)(12)

By Robert Gaines, CPA This article explores the criteria and pitfalls that can create issues maintaining the 501(c)(12) status in any given reporting year.

Unemployment Rates High; How Texas Water 17 Veteran and Wastewater Utilities Can Help By Lily Roblin, Texas Rural Water Foundation As more of our troops return home from the Middle East, the need for jobs for veterans is increasing.

Ables Springs Water Supply Corporation Celebrates its 50th Anniversary Ables Springs celebrated its anniversary this year with a community event that had over 300 in attendance.

TRWA Briefs

TRWA Appoints New Board Members; TRWA Visits with Regional EPA and Rural Water Executives; TRWA Courses Qualify for College Credit through University of Phoenix; Shop Online to Support the Texas Rural Water Foundation. Quality on Tap! - July/August 2014

President’s Message Keep the Momentum Going

The Galveston Technical conference was another success this year. There were sold out hotel rooms, a waiting list for vendors to get a space in the exhibit hall and timely operator material that all helped to prove that TRWA members love coming to the Galveston Tech Conference.

“I think you will be surprised at how much the Foundation has accomplished in such a short time.”

There were three new TRWA board members appointed at the board meeting that was held in conjunction with the conference this year. They are: Bruce Alexander, Superintendent of East Medina County SUD, District 2; Delores Goode, General Manager of Kempner WSC, District 4; and Jerry Pickard, General Manager of G-M WSC, District 14. All of these board members have brought new energy to the TRWA board and I am looking forward to working with them as we head into the 2015 legislative session. If you haven’t visited the Texas Rural Water Foundation website, please do. I think you will be surprised at how much the Foundation has accomplished in such a short time. The website and current programs and projects are a reflection of the hard work and dedication of the Foundation’s team and the AmeriCorps VISTAs. I believe the Foundation will play an important role in the Association’s future by leveraging new money for existing and new programs and allowing TRWA to partner with other organizations, associations and foundations to benefit our membership. Watch the mail for your Fall Management and Districts Conference materials and, as always, “KEEP TEXAS RURAL!”

Clay Hodges President Texas Rural Water Association

Quality on Tap! - July/August 2014

Letter from the Executive Director All Hands on Deck

I know it’s been a busy summer for all of you in the rural water and wastewater industry in Texas, and things are no different here at TRWA. I want to thank everyone who participated in TRWA’s Training and Technical Conference in Galveston in July and helped make it such a great week! It was great to see so many of you, and I hope to see many more folks at our upcoming Fall Management and Water Districts conferences. And I want to echo the comments of TRWA Board President Clay Hodges in welcoming TRWA’s newest Board members, Bruce Alexander (Dist. 2), Delores Goode (Dist. 4) and Jerry Pickard (Dist. 14). A group of TRWA staff went through several days of training from National Rural Water Association in Mobile, Alabama back in June. One of the highlights was the opportunity to tour the U.S.S. Alabama, a battleship that served in the Pacific Theater throughout World War II. The Alabama had a crew as large as 2,500, and it also had a distillation plant capable of producing up to 40,000 gallons of freshwater per day for boiler feedwater makeup. I understand it also used evaporators to produce potable water for the crew’s use. It was amazing to see all the technology and all the manpower that was in place for this self-contained, floating community. And it struck me that the U.S.S. Alabama was essentially a rural water system of about 750 connections, with a limited supply of quality drinking water—only they were doing it all in the middle of a war zone. It made some of the challenges we face in rural water seem much more surmountable. But for us to achieve our goals, it will take “All Hands On Deck,” and that’s why we at TRWA appreciate each of you. Because when everyone in rural water does their function to the best of their ability and as a team, there’s no end to what we can accomplish. Please let us know what we can do to serve you better. We at TRWA are here to help you in any way we can. In addition to the conferences I mentioned, please consider taking one of our classroom classes to advance your technical knowledge. Work with us as we prepare for the 2015 Texas Legislature and get to know the many new lawmakers who will be taking office next January. Let’s keep fighting together to Keep Texas Rural!

“When everyone in rural water does their function to the best of their ability and as a team, there’s no end to what we can accomplish.”

Fred Aus Executive Director Texas Rural Water Association Quality on Tap! - July/August 2014

Quality on Tap! - July/August 2014

Drought Meets Economic Boom: A Perfect Storm For Rural Water Companies Providers Seek New Project Funding Solutions By Jake Good, CoBank

ater and wastewater utilities across Texas are looking for innovative financing solutions as they manage the challenges of tight supply caused by the four-year drought and rapidly increasing demand created by the state’s booming economy. According to a recent drought report issued by the Texas Water Development Board (TWDB), 60 percent of the state is experiencing moderate to exceptional drought conditions. Although the numbers are decreasing – 87 percent of the state was in this precarious position a year ago – the drought shows no real signs of abating. Combined, the state’s reservoirs are just twothirds full. While 23 reservoirs – mostly in North Central and East Texas – are at capacity, 13 reservoirs are less than 10 percent full. The North Fork Buffalo Creek and Electra Reservoirs along the U.S. 287 corridor northwest of Wichita Falls are completely dry. Maybe only California exceeds Texas in the severity of its drought. Meanwhile, Texas’s economic boom also shows no signs of slowing down. Many other states are struggling with slow growth and high unemployment, but Texas posted real GDP growth of 3.7 percent in 2013 compared to 1.8 percent nationally. The state also boasts an unemployment rate of 5.5 percent compared to a national rate 6.1 percent. The Texas unemployment rate is especially impressive in light of its rapidly growing population. According to the U.S. Census Bureau, 1.3 million people moved to the state from 2010 to 2013, more than any other U.S. state. Moreover, Texas’s population has increased by more than 20 percent over the past decade, more than twice the rate of U.S. population growth. The challenges posed by the continuing drought and booming economy have combined to create a perfect storm – without the much-needed rain – for many rural Texas water providers. With rapidly increasing demand, stringent EPA requirements and rapidly aging infrastructure – which leads 8

Quality on Tap! - July/August 2014

to water loss of as much as 65 percent in some communities – the challenges for rural water providers are daunting and unprecedented. There is, however, some reason for optimism. As rural communities take on water projects to increase capacity, the prospects for funding projects are quite good – if you know where to look. One of the bright spots for rural water providers seeking funding is the current interest rate environment, which continues to favor borrowers. However, change is coming. Since the 2008 financial crisis, the U.S. Federal Reserve has used so-called “quantitative easing” to keep long-term interest rates artificially low in order to inflate asset values, promote investment and spur economic growth. Later this year, however, the “QE2” bond buying program is scheduled to come to an end. Going forward, long-term interest rates will be determined more by macroeconomic conditions rather than by stimulus from the central bank. While that’s a positive for the overall economy, it means a higher degree of volatility and uncertainty for borrowers when it comes to interest rates. Fortunately, water projects and rural water providers are attractive prospects from the standpoint of many lenders. Water, of course, is an essential service for people, and water corporations generally have long-standing relationships with their customers and tend to have predictable cash flow. Rural water systems’ Boards of Directors can often increase rates without a vote from their rate payers, which provides each system the ability to address increased cash flow needs and makes them attractive from a debt servicing perspective. Additionally, cooperation between the various funding sources may prove to be beneficial for rural water systems. According to draft rules issued by the TWDB for its $2 billion State Water Implementation Fund for Texas (SWIFT), the proposed project scoring system gives higher scores to systems that seek to leverage funding across more than one source. If, for example, an

assessing creditworthiness – understand how lenders define revenues and expenses and integrate those definitions and calculations into financial planning and management processes.

applicant is working with another funding source (such as CoBank or the USDA), they have a higher potential for obtaining SWIFT funds. One example of a Texas water company making smart financing decisions is McCoy Water Supply Corporation, which serves the residents of Atascosa, Wilson and Live Oak Counties about 45 miles south of San Antonio. McCoy recently sought new funding sources to address its community’s water issues. “We’re at the start of the Eagle Ford Shale and between the new businesses and residents coming into the area, our water demand and new growth is skyrocketing,” said Gene Camargo, the company’s general manager. “As a rural water company we weren’t geared for the kind of growth we were experiencing and we needed some quick answers. “We’ve traditionally received funding from the USDA, but we reached out to CoBank, who can deliver funds in 8-12 weeks, for a bridge loan to cover the time it was taking to execute a new USDA loan,” he added. “While the USDA funds came through before we needed the bridge loan, CoBank’s knowledge of us – which they had gleaned from their work with the USDA – led us to the perfect opportunity to refinance four of our outstanding USDA notes. For a shorter term and an additional $72 per month, we’re saving over $750,000 in interest over the life of those loans. Instead of using our money to pay interest, we’re turning it over for brick and mortar projects – such as distribution lines and infrastructure – which is improving our ability to serve.”

•

Understand non-financial risks – the community’s economic health, customer diversity, water supply and demographic trends – and use prudent, conservative, and realistic assumptions about these nonfinancial, economic risks.

Even if the drought ends and the economic boom subsides, the strains on Texas’s water infrastructure will persist for the long term. The state’s population is expected to grow from 26 million to more than 46 million by 2060 – an increase of almost 80 percent – so the imbalance between supply and demand is unlikely to go away. The smart water providers are those that are looking to future, improving the fiscal and managerial components of their operations, and looking at all of their financing options. Jake Good is a relationship manager and vice president for the Water Services lending team in CoBank’s Rural Infrastructure Banking Group. He has more than 13 years of experience in the financial sector. CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states through 14 regional offices, including locations in Austin and Lubbock, TX. You can reach Jake at (303) 793-2226 or at jgood@cobank.com.

Last, but certainly not least, there’s the question of how rural water providers can put their best foot forward to improve their chances of obtaining funding. According to a report compiled by CoBank’s Knowledge Exchange Division and Raftelis Financial Consultants, Inc., a highly regarded consultancy serving the water utilities industry, water providers should implement the following best practices to improve their creditworthiness: •

Implement financial management practices that anticipate liquidity needs, set specific reserve fund policies, establish revenue targets to address those liquidity needs, and proactively adjust their rates to achieve revenue targets.

•

From the debt service coverage perspective – which is the most important metric for Quality on Tap! - July/August 2014

Ask Larry

A Q&A column with TRWA Technical Assistance Director Larry Bell

Can we charge an average usage on a meter we cannot access, such as the highest usage in the last 12 months, or must we use another method? Can we charge a fee each time we cannot get access to read a meter, including when we are trying to disconnect for nonpayment? Our intent is to get better cooperation from the customers. We recently resolved one access issue involving an unmanageable dog, but we still do not feel we have recourse should that customer decide not to cooperate in the future. A: Each system has the right to access its meter and other equipment as needed 24 hours a day, seven days a week. If the meter is inside a fence or access is hindered by an unrestrained dog, the TRWA sample tariff allows the system to estimate a bill for up to three months. The customer should be notified that hindering access to the meter is a violation of the tariff and service will be disconnected if the violation continues after that period. Hindering access includes a locked fence, dogs and other conditions that prevent the reading and servicing of a meter. Here is the sample tariff language for your reference. The Member shall provide access to the meter or sewer tap location as per the easement and service agreement. If access to the meter is hindered or denied preventing the reading of the meter, an estimated bill shall be rendered to the Member for the month; and a notice shall be sent to the effect that access could not be gained. If access is denied for three (3) consecutive months after proper notification

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to the Member, then service shall be discontinued and the meter removed with no further notice. Conditions that may hinder access include, but are not limited to, fences with locked gates, vehicles or objects placed on top of meters or meter boxes, and unrestrained animals. Q: As a follow-up to my hindering access question, can we move the meter to a place outside the fencing/unaccessible area without the customer’s consent to alleviate this issue? Can we charge them to reconnect the meter? A: If the customer refuses to grant or provide access to the meter, the system has several options. One option is to have the customer pay to install a “remote read meter” that would allow the system’s staff to read the meter from outside the fenced area. Another option is for the customer to pay to relocate the meter to a location where access can be provided to the system’s employees. A third and most common option is the customer pays to install a gate right at or very near the meter or an offset in their fence so that portion of the fence moves and the meter is accessible from outside the fence. The system should not have to pay for any costs to relocate the meter, route the fencing around the meter, a gate or installation of a remote read meter. The bottom line is that it is the customer’s responsibility to provide access to the meter at all times for repairs and service and not just during daylight hours. The model U.S. Department of Agriculture Rural Development (USDA-RD) Service Application and Agreement form, which your system uses and the customer signed, specifies that the customer must provide this access. Sometimes leaks happen at night or on the weekend and the system must have access to the meter location 24-7 to make these type repairs. Q: What do we tell customers who feel our rates and fees are too high? We have other residents in our service area who are not customers, but want a stand-by meter installed Continued on page 12

Quality on Tap! - July/August 2014

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in case their wells go dry. They want to keep this meter inactive and not pay a monthly meter charge. Should we allow this? A: As for what to tell customers about why rates and fees are high, it is always best to have your system budget handy, as well as a simple information sheet to show customers the true expenses of operating the WSC. Rates have to be justified by actual expenses and anticipated expenses to fund new improvements mandated by Texas Commission on Environmental Quality (TCEQ) to ensure compliance with federal and state laws. Rates also have to generate a certain amount to repay any outstanding debts and loans to the USDARD, Texas Water Development Board or other funds borrowed to pay for improvements. You also may consider creating an information sheet showing what improvements are needed and the engineer’s estimates or actual costs associated with completing these improvements. Be sure to include ongoing maintenance costs, such as repeat tank painting and cleaning and inspections. These public educational materials also should explain why an improvement is needed, such as a new well needed to supplement capacity, for backup or to increase water production. Fees also should be cost based. As an example, a reconnect fee must be justified by the actual labor and vehicle expenses necessary to drive out to lock and unlock meters plus the employee time necessary to process the paperwork, notices and travel to the site. If your reconnect fee is $100 then there must be some itemized break-down of what costs are incurred by the system to do each reconnect. This same justification also must be readily available for all other types of fees the system may charge including late fees, equity buy-in fees, meter test fees, returned check fees and meter installation fees. You also asked about non-customers wanting an inactive meter for emergencies arising from their own wells. If your tariff includes a policy allowing a customer/member to have a meter installed but remain inactive then you’d have to go by those policies, but that is not common practice. More typically systems will lock out a meter and then stop billing the customer until the customer requests that service be re-established. The TRWA sample tariff allows for a seasonal reconnect fee to be assessed to any customer who 12

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requests their meter be disconnected or locked out for any period up to nine months in a 12-month period. This fee requires the person to be a current customer and to pay the base rate times the number of months that service will be suspended. The TRWA sample tariff does not otherwise address or allow for “inactive” or “standby meters.” Non-customers need to understand the value and costs of providing water service and should share in the costs of supporting the entire system. Q: We are a purchased water system and are required to have two Class “C” operators because we have more than 1,000 connections. The TCEQ regulation says we “…must employ at least two operators who hold a Class “C” or higher license and who each work at least 16 hours per month at the public water system’s treatment or distribution facilities.” Does employ mean directly on our payroll or are we are permitted to contract two from outside services? A: The TCEQ rules do not require an operator to be an employee of the system. Your operators may be independent contractors or employees of a management company provided these have the proper level and type of license to operate your water system. Some systems hire contract management companies to ensure compliance with the TCEQ’s license level requirements until they have the resources to employ their own operators with the correct license levels. It is up to each system’s board of directors whether or not they want to have employees or contract with independent licensed operators or operation companies. If you have a technical question you would like answered, please e-mail Larry.Bell@trwa.org.

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Quality on Tap! - July/August 2014

An Introduction to WSC Exemption Status Under 501(c)(12) By Robert Gaines, CPA

his article explores the criteria and the pitfalls that can create issues maintaining the 501(c)(12) status in any given reporting year. Under US Treasury regulations, of which the Internal Revenue Service is one of several enforcers, exempt status is granted with several caveats. It is not, once achieved, never lost. This article will address several standards within the 501(c)(12) water supply corporation arena that the board of directors and office staff must examine intermittently during any given reporting year to ensure compliance. Districts (SUD; MUD; WCID; etc.) and investor-owned utilities (IOUs) are not included within this requirement. Further, when I use the terms “utility” and “WSC,” I am referring equally to either water supply or sewer service corporation providers. Gross revenue (income) is the key measure and, as with any other corporation, is usually based on a “unit” of sale. In our immediate discussion, gross revenue will be defined as sales of utility services and the related monthly billing items associated with the operation of a utility (late fees; transfer fees; reservice fees; etc.). One of the qualifications asserted in your initial exempt organization application is the concentration of these revenues from members. Specifically, member revenue, by statute, is to be at least 85% of total revenues each reporting year. This is the WSC’s “bright line” test and it must be passed every year or, for that year the test is failed; your 501 (c) (12) exempt organization converts to a regular corporation (we call them “C” corporations) and a tax liability will be calculated using the regular tiered corporate tax rates of 15%, 25%, 34%, etc. In the subsequent year, your WSC will automatically revert to an exempt organization if the 85% ratio is re-established (Revenue Ruling, or Rev Rule, 6599). As a board member or office manager, you may be scratching your head thinking that all of your revenues are from member billings for utility services. But, as I will discuss in this article, they are not. To have member-sourced revenues means you have some mechanism to grant member status to people who desire to become a member 14

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of your utility. That is generally defined through your bylaws and is disclosed within your service agreement. The Service Agreement will enumerate the costs of being allowed to utilize the WSC’s utility infrastructure, which may include a membership fee, meter tap and equity buy-in fee. The only important element for our discussion is the purchase and ownership of the membership. There have been multiple court cases since 1916, the year such organizations were permitted, defined originally as “mutual (or cooperative) ditch or irrigation organizations.” The court (usually the Tax Court, unless otherwise noted) actually defined your organizational operational principles as follows: A. Democratic control. This involves the “one member, one vote” basis; periodically (annually) held democratic elections. B. Operation at cost. Organization is required to allocate its excess operating revenues among the members. Texas law prohibits this if the corporation has unpaid indebtedness. C. Subordination of capital. The capital is owned by the members, not shareholders or equity investors. Subsequent refinement of the above principles was established when Rev Rule 72-36 was issued. The additional requirements are: A. Adequate records must be maintained of each member’s rights and interests in the assets.

B. Distribution is to be done in proportion to the member’s business done with the utility. C. Cannot retain more funds than its needs to meet current expenses and losses. D. Dissolution will be in the same patronage proportion with all members. As an aside, subsequent Rev Rulings permit a dissolution to be effected by surrendering the members’ total interests in the WSC to a local government or another WSC without impacting the exempt status. A WSC must have this type of language in its bylaws in order to take advantage of the Texas ad valorem (property) tax exemption. Meeting and adhering to the aforementioned criteria is the foundation block of the 501(c) (12) exemption. So what are the types of non-member income that a water supply corporation must monitor? The following, while certainly not an exhaustive list, are fairly common and repetitive sources of non-member revenue in a WSC’s operations. Patronage Dividends These dividends are usually sourced from other mutual or cooperative-based organizations. Your worker compensation or other insurance policies may be underwritten by a mutual insurance company, and depending on their operating performance, may issue a patronage dividend to your WSC. Because the insurance company is not a member, it is non-member revenues. Some electric and telephone cooperatives distribute patronage dividends. Because they are not members of the WSC, the dividends are also non-member revenues. Interest and Dividend income What little you do get is non-member income because the bank, credit union or other financial institution is not a member of the WSC. Now sometimes a financial institution may become a member because they receive water service or obtained a membership through a court action resulting from a foreclosure, bankruptcy filing, or other legally enforceable action. We will assume, for purposes of my illustration, the financial institution becomes a member (takes title to property; executes a transfer of membership; etc.). If this same bank also holds $250,000 in a CD, paying interest to the WSC at 1.25% annually, does the $3,125 interest paid by this bank to the WSC count as revenue from a member? The answer is “no,” because the bank’s interest income is unrelated to the operation of the WSC’s utility business. By

definition, interest income is not member income, because it is not for services described in the 501(c) (12) regulations. Leasing of Water Tower Space (Cell Towers) When cell tower vendors pay a WSC for highpoint access for antenna locations, or leasing land for cell tower erection, these will count as nonmember income. Sales of Assets Every so often, as vehicles wear out, a replacement program will involve the purchase of new (or newer) service vehicles. The WSC may decide to auction or otherwise dispose of the old assets to the highest offer. Even if sold to a member, the sales of the assets will result in non-member income. When you take the “scrap” for recycling, that is also non-member revenue. Recently, a client sold a portion of its original distribution assets (a storage tank and pump station) to a city. The city, in turn, utilized the storage tank and pump station in its utility service function to city residents. Unfortunately, there appears to be no distinction in how the sold assets are used by the buyer; only the non-member status, so the WSC had to pay taxes the year it sold these assets to the city. This same issue was addressed by a federal district court in California. The case involved Cate Ditch Company (Cate) which was a qualified irrigation ditch company, and had this exemption from 1930 until 1956, the year at issue. Cate sold pipeline, easements and equipment, which resulted in almost 92% of its revenues being comprised of sales proceeds (gain on sale) of these capital assets. The sole issue before the Court was whether or not Cate retained its tax exempt status in 1956. The Court’s conclusion reads… “there is no inquiry into corporate purposes; there is merely Continued on page 16

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Continued from page 15

a requirement that at least 85% of the taxpayer’s income consist of amounts from members for the sole purpose of meeting losses and expenses.” The final words from the court were: “This result is reluctantly reached, as it is a harsh one for the taxpayer. However, the remedy is for Congress to provide.” Cate Ditch Company v. U.S., 194 F.Supp. 688 (1961). It has been 53 years and Congress has not seen fit to provide a remedy. I am satisfied with the current status because it works. There are very few cases like this, indicating just how seldom these anomalies of the exempt statutes occur. Conclusion I hope I have succeeded in my goal of educating the governing bodies and office staff on these rules. I recommend that you set up an account to track non-member income. Since a substantial number of WSCs use QuickBooks, I am addressing the QuickBooks user, but the principal is uniform in its application. Create a “Patronage Dividends; Other Non-Member” account (or edit an old, unused for several years account) as (TYPE) “Other Income”

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Quality on Tap! - July/August 2014

and this will appear at the bottom of the Statement of Activities. You do not need to change anything about reporting your utility billings. In conclusion, failing the 15% test in a given year is not the end of the world. It is the end of your exempt status for that reporting year and a tax return (Form 1120) will be due along with the income tax assessed to water supply corporation on the return. Your filing due date will be accelerated to March 15 (calendar year end), or 2 ½ months after your fiscal year end. Robert Gaines is a certified public accountant and a board member for Armstrong Water Supply Corporation. His accounting expertise is auditing, accounting and tax issues of rural water utility entities. He works with the Belton, Tx CPA firm, Alton D. Thiele, P.C. Robert consults with rural water utility entities regarding accounting and compliance issues and QuickBooks implementation issues. He can be reached at 254.939.0701; 325.203.1065; rgaines5152@gmail.com. He welcomes any suggestions and criticisms regarding this article. If you would like to have more in-depth articles, please contact him with your suggestions.

Veteran Unemployment Rates High; How Texas Water & Wastewater Utilities Can Help By Lily Roblin, Texas Rural Water Foundation

s more of our troops return home from the Middle East, the need for jobs for veterans is increasing. According to a recently released report from the U.S. Bureau of Labor Statistics, the unemployment rate among veterans who were deployed after September 11, 2001 was 9 percent in 2013, about 2 percent higher than the national average. Among these veterans, young men have been especially hard hit—one out of every four veterans under the age of 25 was unemployed in 2013. Young female veterans do not have it any easier, with their unemployment rates consistently higher than the national average for their non-veteran counterparts. At the Texas Rural Water Foundation, we have been focusing on veteran unemployment issues since the inception of our Veteran Employment Program (VEP). In partnership with AmeriCorps VISTA, the VEP works to find career opportunities for veterans at water and wastewater utilities. An entry-level operator position in our industry not only provides a veteran with a consistent source of income, but it also provides the veteran with an opportunity to establish a career at a utility. Consider our program first for job openings at your utility. The VEP also can find veterans for other positions at your utility, such as administrative or managerial. In spite of Texas having one of the highest populations of veterans in the country, our state has worked hard to provide opportunities for veterans both young and old. The veteran unemployment rate in Texas is lower than the national average, but in spite of that low percentage, it’s taken from our state’s large population of veterans—leaving us with still high numbers of veterans seeking work. These veterans are an excellent labor pool to pull from when considering personnel needs at your water utility. Veteran unemployment has become a national, bipartisan issue in the past few months. This February, former President George W. Bush announced his Foundation’s initiative to encourage civilian businesses to hire veterans from both of the wars

that began under his administration. In April, First Lady Michelle Obama and Dr. Jill Biden announced the roll-out of new resources for veterans looking for work. Hiring returning veterans is an issue everyone can agree on, and a need the water and wastewater industry in Texas can help fulfill. By hiring a veteran through our program, your utility can offer not only a job, but a career path to one of our country’s veterans. For more information, contact veteran employment specialists Lily Roblin or Anjelica Sepulveda at 512472-8591 or foundation@texasrwf.org. References “Economic Snapshot: Texas.” Joint Economic Committee. United States Congress, Mar. 2014. Web. “Employment Situation of Veterans News Release.” U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, 20 Mar. 2014. Web. 25 Apr. 2014. Links: 1. http://www.bls.gov/news.release/archives/ vet_03202014.htm cited 2. http://www.jec.senate.gov/public//index. cfm?a=Files.Serve&File_id=1dcce7b3-2a02-48fb830b-5887a5c4f776 cited 3. http://www.isaf.nato.int/images/media/ PDFs/2104-04-01%20isaf%20placemat-final.pdf Quality on Tap! - July/August 2014

Keep It Legal Answers to Members’ Questions by Lara Zent, TRWA General Counsel and Deputy Executive Director

received several questions about the confidentiality of personal information of customers, employees and board members at my presentation about the Public Information Act at the Office Professionals Conference in June. I’m addressing these issues and providing more thorough responses in this column. I also received requests to post sample confidentiality request forms on TRWA’s website that water systems may utilize to provide to their customers, employees and board members. These sample forms have now been posted and may be found at www.trwa.org under the “Resources” tab and on the “Legal Services” main page. Q: Would you please clarify for me whether our nonprofit water supply corporation is subject to the Texas Public Information Act requirement to release employee information such as name, address and salary? It is my understanding that the Act only applies to state or government employers. If our WSC is subject to the Act and to releasing our employees’ information, would you direct me to where this is stated in writing? A: The Texas Public Information Act, Chapter 552 of the Government Code, Section 552.003 definitions, subsection (1)(A)(ix) defines a “governmental body” for purposes of the Act to include, “the governing body of a nonprofit corporation organized under Chapter 67, Water Code, that provides a water supply or wastewater service, or both, and is exempt from ad valorem taxation under Section 11.30, Tax Code.”

One of the first goals of the Texas Rural Water Association when it was formed in 1969 was to advocate for an ad valorem (property) tax exemption in the law for our water supply corporation members. This is typically a privilege enjoyed by governmental entities. The tradeoff for getting this tax break is that WSCs are required to comply with open government laws, the Public Information and Open Meetings Acts. So, if your water supply corporation does not pay property taxes, you must comply with the Public Information Act and Open Meetings Act. The requirement to receive this exemption is set forth in the Texas Tax Code Section 11.30. It requires a water supply corporation to have a provision in its bylaws that states that upon dissolution of the corporation, the assets will be transferred to an entity that provides water or wastewater service or both, and that is exempt from ad valorem taxation. The U.S. Department of Agriculture Rural Development model bylaws contain this provision at Article XV, and the majority of our WSC members have this bylaw provision. Under the Public Information Act, employee salary information must be disclosed. Specifically, Section 552.022(a) provides that “the following categories of information are public information… (2) the name, sex, ethnicity, salary, title, and dates of employment of each employee and officer of a governmental body.” Salary information does not fall under the categories of information an employee or board member may request to be kept confidential under Section 552.024 of the Act. Only their home address, home telephone number, emergency contact information, social security number and information that reveals whether the person has family members may be kept confidential and may be withheld if the employee has submitted a written request to that regard. The confidentiality request form must be already on file at the time the request for information is made in order for the information to be withheld. Section 552.024 of the Act now allows a

Quality on Tap! - July/August 2014

governmental body to redact this information from any document requested by a member of the public without requesting an Attorney General opinion. However, you are required to inform the requestor that they may appeal this decision to the Attorney General and you must provide the requestor with this explanation on a form created by the Attorney General. The Attorney General’s prescribed form is available to download at https://www. texasattorneygeneral.gov/open/ord_forms.shtml. One final note regarding this election is that Section 552.024(b) requires an employee or board member to make the election to keep information confidential within 14 days of when the employee or board member begins employment, is elected or appointed; or for a former employee, 14 days from the date they end service. This is inconsistent with Section 552.024(e), which provides that an employee or official or former employee or official who wishes to close or open public access to their information may make that request in writing to the main personnel officer at any time and not just within the 14-day period. The Attorney General, in reading these two provisions together, has determined that the election may be made at any time and not just during the initial 14-day period. So, if any of your

employees or board members have not yet filled out a confidentiality request form (or drafted a letter to that regard), it’s not too late for them to do so. Q: As a nonprofit water supply corporation, we are concerned about releasing customer records in response to a Public Information Act request, including during the time-period before our elections. Also, what if we are under a court order saying such records cannot be released or there’s an abusive husband trying to find his wife? Aren’t there exceptions for these types of situations? A: In Texas, customers of utilities, which include cities, districts, water supply corporations and investor-owned utilities, have the right to request that certain information be kept confidential under Section 182.052 of the Texas Utilities Code. Utilities are obligated to inform customers of this right and to provide them with a form on which customers may request confidentiality by marking an appropriate box on the form and returning it to the utility. The information protected by this statute, if requested by the customer in writing, includes their address, telephone number, and social security number. Continued on page 20

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Continued from page 19

The statute also allows customers to request that information related to their units and volume of usage and amounts billed and collected be kept confidential (with the exception of customers who use water supplied from portions of a sole-source aquifer, meaning from the Edwards Aquifer). Even if a customer requests confidentiality, the utility must still release these records to an official or employee of the state, a political subdivision of the state, or of the United States acting in an official capacity; to another entity that provides water, wastewater, sewer, garbage, electricity or drainage service to a consumer reporting agency; to a contractor or subcontractor approved by and providing services to the utility, the state, a political subdivision of the state , or the United States; to a person for whom the customer has contractually waived confidentiality for personal information; and to employees of the utility acting in the course of their employment. See Utilities Code Section 182.054. We also advise that Section 182.052 of the Utilities Code protects personal customer information from being released to a member of the public generally, but that water supply corporation member addresses must be made available to other members during the period of time leading up to a water supply corporation election. Section 22.158 of the Texas Business Organizations Code requires a list of voting members and their addresses be made available to other voting members starting two days after the corporation provides notice to its members of the meeting and through the date of the meeting. If you receive a request for customer information that you seek to withhold from disclosure due to a written request from the customer to keep their

information confidential, a court order prohibiting the release or other legal reason, you must request an Attorney General opinion. You have 10 business days to request an opinion and provide the legal exception that applies. The law also requires you to submit your arguments for withholding the records and provide the records you are seeking to withhold within 15 days, but I recommend doing this within the initial 10-day period, if possible, so you only have to submit one letter. You also must notify the requestor that you are seeking an Attorney General opinion and provide them with a copy of the letter request(s). The Attorney General is required to issue a decision within 45 business days after they have received the request for a decision, but may also extend the time period by 10 business days if they need to do so. You must comply with their decision whether it is to withhold or release the records. If you have a legal question you would like answered, please e-mail legal@trwa.org.

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Quality on Tap! - July/August 2014

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Quality on Tap! - July/August 2014

Ables Springs Water Supply Corporation Celebrates its 50th Anniversary

n May of this year, Ables Springs Water Supply Corporation celebrated 50 years of supplying water to its community. The system celebrated the occasion with a community event, complete with entertainment, food and beverages, and historical displays about the area and its founders. Approximately 300 guests were in attendance at the celebration, which was hosted at the Ables Springs Volunteer Fire Department. Ables Springs WSC was chartered by the State of Texas in 1964 to address the growing need for potable water in the area as the natural springs diminished. The system built their Farm-to-Market 429 tower in 1982 and added their State Highway 34 tower in 1999 to address growing customer needs. In 2012, the system added Ables Springs WSC and TRWA staff and board gather to commemorate 50 years of providing water to the Ables Springs community. a chlorinator building and an in-ground storage tank to better serve their customer base, and joined the North Texas Municipal Water the system, but the community’s founders and District. The system has grown to supply water to the area’s rich history. Kaufman County’s own an estimated 1,100 members over 88 square miles Jean Ann Ables-Flatt, prominent historian and located throughout Kaufman, Hunt and Van Zandt genealogist, gave a special presentation about the counties. area, and gift bags containing historical information were given to all attendees. The 50th Anniversary marked the first celebration for the WSC, and system officials “We thought 50 years would be a good time to thought it would be a good opportunity to bring say thank you to the members,” said Tricia Smith, the community together to not just celebrate Vice-President of the system’s board of directors.

Nearly 300 attended the celebration, complete with entertainment, food and beverage, and family-friendly activities. 22

Quality on Tap! - July/August 2014

The event also had many family-friendly activities such as bounce houses, face painting and firefighting equipment displays. Community members were encouraged to bring items representing life to today’s Ables Springs to include in a time capsule that was buried Local historian Jean Ann Ablesat the system. Flatt gave a presentation about The time capsule, the area’s history. which contained items such as pictures, water bills, banners, flags and TRWA pins, will be exhumed at the centennial in 2064. Special guests included TRWA Executive Director Fred Aus, TRWA District 12 Director

As part of the day’s festivities, the system buried a time capsule full of everyday items donated by the community.

Vickie Armstrong, TRWA District 12 Alternate Director Shirley Blakely, several general managers from area water systems, and local judges and commissioners. Does your system do something that stands out? E-mail editor@trwa.org or call 512-472-8591 and tell us your story! You could see your system highlighted in the next issue of Quality on Tap!

Quality on Tap! - July/August 2014

TRWA Briefs TRWA Appoints New Board Members On July 14, 2014, the Texas Rural Water Association’s Board of Directors convened in Galveston and appointed three new directors to fill unexpired terms in TRWA Districts 2, 4 and 14. Bruce Alexander has been appointed to serve as District Director to TRWA’s District 2, representing over 50 member water and wastewater utilities spanning 41 west Texas counties. Bruce has been the Superintendent of East Medina County Special Utility District for the past six years, and is an appointed member of the Edwards Aquifer Recovery Implementation Program Stakeholder Committee representing all EAA municipal permit holders west of Bexar County, an appointed member of the San Antonio Water System (SAWS) Aquifer Storage & Recovery (ASR) Regional Advisory Group and serves on the Executive Board of the South Texas Regional Water Alliance. He holds class “B” operator licenses in both groundwater and wastewater and a customer service inspector license. The District 2 Director position will be up for election for a threeyear term at the Association’s Annual Meeting in March 2017. Delores Goode, General Manager of Kempner Water Supply Corporation, was appointed to represent District 4, which encompasses nine central Texas counties representing over 55 member systems. Delores has been GM of Kempner WSC for nearly three years, and has over 19 years of experience in the water utilities business. She has worked in water treatment and water distribution, and has provided technical assistance and training

Quality on Tap! - July/August 2014

for water systems across the state of Texas under contracts with the Environmental Protection Agency and the Texas Commission on Environmental Quality. She holds a Bachelors of Science degree in Business Administration, along with an “A” water license and GIS/GPS mapping certificate from TCEQ. The District 4 Director position will be up for election for a three-year term at the Association’s Annual Meeting in March 2015. G-M Water Supply Corporation General Manager Jerry Pickard will serve as Director for TRWA District 14, representing over 50 members across seven counties in East Texas. Jerry has been with G-M WSC for 19 years, 12 of which he has served as the system’s general manager. The District 14 Director position will be up for election for a three-year term at the Association’s Annual Meeting in March 2015. District Directors govern and supervise the affairs of the Association, attend Board and committee meetings throughout the year, determine and guide policies and plans consistent with the objectives and purpose of the Association, and make recommendations to the membership based on the positions adopted by the Board. Directors are also responsible for the dissemination of information to members within their district and to the public generally regarding Association business and pertinent information regarding legislation, regulatory programs and challenges facing the industry.

TRWA Visits with Regional EPA and Rural Water Executives In May, TRWA Executive Director Fred Aus, along with the other Rural Water Association Executive Directors in EPA’s South Central Region, met with Ron Curry, Administrator for EPA Region 6 at his headquarters in Dallas. EPA Region 6 serves Arkansas, Louisiana, New Mexico, Oklahoma and Texas. This was the first time the executives of the regional associations gathered together to formally meet Curry, who was appointed to the office in 2012. Hailing from New Mexico, Curry is the first non-Texan Regional Administrator since the inception of the Agency. Though Curry earned his stripes working for the New Mexico Environment Department, he is no stranger to the top environmental issues that impact Texas. Aus is confident that TRWA and the adjoining state rural water associations will continue to work in concert with the regional EPA office to service the needs of the rural water and wastewater industry.

You may be able to apply additional relevant learning, work and life experiences toward college credits. Qualify by creating a professional training portfolio or writing an experiential learning essay. To learn more about PLA and which Texas Rural Water Association courses may be eligible for credit, visit phoenix.edu/trwa or call 866-354-1800 to speak with a University of Phoenix representative.

From left to right: Fred Aus (Texas), Dennis Sternberg (Arkansas), Ron Curry (EPA Region 6 Administrator), Bill Connor (New Mexico), Pat Credeur (Louisiana) and James Gammill (Oklahoma).

TRWA Courses Qualify for College Credit through University of Phoenix Texas Rural Water Association offers the training; you get the credit. Your experience may count toward your degree. Some of your most important learning occurs outside the classroom–often on the job. As a result of a new partnership between University of Phoenix and Texas Rural Water Association, members like you can transform your real-world knowledge and training into college credit through Prior Learning Assessment (PLA). Certain Texas Rural Water Association training may qualify for college credit toward degree programs at University of Phoenix. You may be eligible to receive additional credits toward your associate or bachelor’s degree for prior training and certificates completed with Texas Rural Water Association.

Certain states limit cumulative degree program credits awarded through Prior Learning Assessment. PLA credit can only be applied toward undergraduate programs. For details please contact a University of Phoenix representative at 866-354-1800.

Utility Management Certification Program Join us in congratulating Jeremy Whitson, Field Operations Manager of Shady Grove WSC, the newest member employee to join the ranks of the elite few who hold a Utility Management Certification (UMC) in Texas. In 2010, National Rural Water Association and Water University launched the UMC Program to create a national certification standard for water and wastewater utility managers. A manager who attains certification through the program will have demonstrated competency in three core areas on which the EPA gauges a system’s ability to provide compliant service – financial, managerial and technical sustainability. Operators and other utility personnel interested in utility management also benefit from the UMC program. With topics ranging from rate setting and human resource management to permits and emergency preparedness, the UMC program offers students the opportunity to enhance their knowledge, effectiveness and professionalism. If you are interested in learning more about this certification, please visit www.trwa.org.

Quality on Tap! - July/August 2014

Classified Ad

General Manager & Class “C” Operator Wanted Oak Hills Water Supply Corporation

Oak Hills WSC is seeking a qualified individual with proven leadership ability to become their next General Manager. The General Manager will have the role of planning, setting and maintaining capital operating budgets, as well as managing the plant and field operations, and the administrative staff. Qualified individuals must have outstanding references, a minimum of a high school diploma or equivalent, a bachelor’s degree is a plus and a current Class “A” Water License is preferred. Individuals must have a minimum of five years experience working with groundwater production and distribution, as well as five years of proven leadership and supervising personnel. Oak Hills WSC is also seeking a Class “C” Operator. Please Contact: (210) 260-8117 To apply, please send résumé and salary requirements to: Fax: (830) 393-1825 E-mail: mcbride.8117@gmail.com Mail: Andy McBride 1102 Tenth St. Floresville, TX, 78114

Advertiser Index

AIA Insurance Agency........................................... Page 7 American Flow Control................................................. 11 Burgess & Niple.............................................................25 Capps Insurance Agency.............................................. 11 Childress Engineers......................................................15 CoBank...........................................................................21 Daniel & Brown, Inc.......................................................16 DN Tanks........................................................................16 DSA Coatings.................................................................21 Dunham Engineering......................................................9 Environmental Improvements......................................19 Hayes Engineering........................................................24 Hayter Engineering.......................................................20 J.F. Fontaine & Assoc., Inc...........................................14 Jim Cox Sales, Inc.........................................................13 KSA Engineers...............................................................10 Maguire Iron...................................................................21 Oak Hills WSC Classified Ad........................................26 Pittsburg Tank & Tower Maintenance Co., Inc............20 RG3 Meters................................................................6, 23 Russell Drilling Co., Inc................................................16 Tabor & Associates.......................................................18 Tank Connection............................................................ 11 Texas Rural Water Foundation..................... Back Cover TraC-N-Trol, Inc..............................................................25 Velvin and Weeks..........................................................12

Plan Ahead CONFERENCES: October 15-16, 2014 Fall Management Conference; Water Districts Conference; Omni Colonnade Hotel, San Antonio

November 5-6, 2014 Fall Management Conference, Hilton Dallas Rockwall Lakefront, Dallas

January 21-22, 2015 TWCA/TRWA Water Law Seminar, Omni Hotel Downtown, Austin

OPERATOR TRAINING COURSES: Water Credit Courses

Basic Water Works Operations: Lorena, November 11-13 Groundwater Production: Converse, September 3-5  Jewett, September 23-25 Surface Water Production 1: Denton, September 23-25  New Braunfels, September 30-October 2 Surface Water Production 2: Mt. Vernon, September 16-18  Denton, October 21-23  New Braunfels, November 18-20 Water Distribution: September 9-11 Water Utility Management: Harlingen, October 28-30  San Antonio, December 2-4 Water Utility Safety: Mesquite, September 9-11  Harlingen, September 30-October 2  San Antonio, October 7-9 Water Utility Calculations: San Antonio, October 21-23

Water and Wastewater Credit Courses

Chlorinator Maintenance: Denton, November 4-6 Customer Service Inspections: Harlingen, December 16-17 Pump and Motor Maintenance: November 11-13 Valve and Hydrant Maintenance: Mesquite, October 14-16  San Antonio, November 4-6 Sustainable Management of Rural and Small Systems Workshop: Terrell, September 11

Wastewater Credit Courses

Basic Wastewater: San Antonio, October 14-16  Harlingen, November 11-13 Wastewater Collections: San Antonio, September 16-18

Public Funds Investment Act Courses Renewal: San Antonio, October 14 Renewal: Dallas, November 4

1616 Rio Grande| Austin, TX 78701-1122 Telephone: (512) 472-8591 | Fax: (512) 472-5186 www.trwa.org

Resourceful

Be ! n a r e t e V a Hire

Many veterans already have the skills needed to work in the water industry.

Help them continue to serve. Contact the Texas Rural Water Foundation Veteran Employment Program: 1616 Rio Grande Austin, TX 78701 www.texasrwf.org • foundation@texasrwf.org • 512-472-8591