Municipal Fair Market Value Legislation Expands Resources for Municipalities

Tony Mancari
Aqua Ohio

Across Ohio, water and wastewater infrastructure is in disrepair, reliability and water quality is diminishing, compliance with health and environmental regulations is at risk, and government-owned utilities are behind the 8-ball. The situation threatens local budgets and the ability to attract employers.

Its not uncommon for leaders in communities to discover they need to invest tens of millions of dollars to upgrade their treatment plants to meet environmental and water quality standards. Complicating the situation further, EPA approved operators are becoming harder to find as the gap between retiring license holders and technicians entering the industry widens.

Thanks to recent action at the Ohio Statehouse, communities now have a defined process to relieve the burden of water and wastewater utility operations to utility operators regulated by the Public Utilities Commission of Ohio under Municipal Fair Market Value (MFMV). This action can make partnerships between communities and utility operators more attractive, bringing new financial resources and expertise to the table. This can relieve financial strain on a community’s budget and create new streams of revenue for use on core city services or for economic development initiatives.

Municipal Fair Market Value provides leaders a new framework to help them consider whether or not to monetize government-owned utilities. The biggest outcome of the new law is changes to how the value of the utility can be established. The new rules outline a much more comprehensive approach to establishing a utility’s value that involves detailed evaluations by three independent appraisers. Often, this improves the amount a regulated utility can pay the community for the operation, making an agreement more attractive than the old approach of only considering the depreciated value of investments.

Selling a burdensome utility can eliminate debt, generate resources to address more immediate needs and even supply an ongoing revenue stream to support economic development or other priorities. Local schools can even benefit when regulated utilities transfer real and personal property from tax-exempt, public ownership to begin generating taxes. With few resources available to address utility challenges and growing environmental compliance regulations—MFMV could be a needed lifeline. The regulated utility brings operational efficiencies and economies-of-scale along with sorely needed investment dollars to the table and therefore earns a return on those investments.

The fair market value approach has already begun to pay off for jurisdictions in ten other states that have enacted similar laws. Community leaders, especially those with budget or environmental compliance challenges, may want to explore the new opportunities created by the new Municipal Fair Market Value rules.  This new way of doing business may be the catalyst for growth and economic development for many city’s within the Buckeye state!

For more information about this exciting new opportunity officials can speak to their community’s fiscal advisor, state legislators or visit the website set up by the state’s largest regulated utility with operations in 19 counties, Aqua Ohio at WaterByAqua.com.