Water Systems for Small Communities

A Puzzle Guide for Local Officials
Bulletin 910

Business Plan or Capacity Assurance Plan

Joni Molter, USDA-Rural Development
Holly Doughman, USDA-Rural Development
Karen Mancl, Professor Food, Agricultural and Biological Engineering, The Ohio State University

A water system produces a product, has customers, collects revenue, and has employees like any business. Therefore, it should have a business plan.

A business plan is a formula or blueprint that a business follows to insure that it continues to be viable and grows. The U.S. Congress felt that providing safe drinking water is so important that a business plan is now required under the 1996 Safe Drinking Water Act amendments. The requirements tie receiving money from the Drinking Water State Revolving Loan Fund to the development and implementation of a plan to ensure the viability of a water system.

In response to the requirements, the Ohio Environmental Protection Agency is drafting business plan rules called "Capacity Assurance Plans," which bring together three components.

1. The General Plan identifies the scope of the water service and is intended to limit the number of surprises that occur as a water system operates by looking ahead 5 to 10 years. This plan requires continual updates and should include:
   • A description of the existing facilities.
   • An assessment of current and foreseeable actions needed to comply with the Safe Drinking Water Act.
   • A description of the alternatives considered and the rationale for alternative selection.
   • The facilities to be constructed in phases.
   • Any plans for expansion.

2. The Management Plan specifies the financial and personnel commitments needed to effectively manage and operate a public water system. The management plan includes:
   • Documentation of ownership accountability, including legal authority to construct, operate, and maintain the system.
   • A commitment to proper operation and maintenance, including meeting the certified operator requirements, emergency contingency plans, and an operation and maintenance manual.
   • The capability to communicate with and respond to customers and regulators.
   • A plan to use outside contacts and resources.

3. The Financial Plan for the next 5 years and records for the last 5 years. The plan should include:
   • Annual budgets.
   • Annual income statements.
   • Cash flow.
   • Amortization schedule for outstanding debt.
   • Evidence of financial resources to keep the system in regulatory compliance.
   • Documentation of the legal organizational structure, including the capability to borrow money, issue bonds, and credit rating.

A business plan should be easy to assemble from existing documents. By bringing together the three components, the complete picture of the water system can be assessed to make sure they are coordinated. The business plan shows the customers, the Ohio Environmental Protection Agency, and potential investors that the system has the capacity to assure safe water to Ohio's citizens.