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Worksheet Grade 12 Social Studies & Civics

Onslow Regional Water's Budget Gap: A Grade 12 Finance Worksheet

A grade 12 worksheet where students trace a fictional water district's budget gap, compute the rate increase needed to close it, and test it for affordability.

Objectives

  1. Students will calculate a water district's annual budget gap and the rate increase needed to close it.
  2. Students will test a proposed bill against a household affordability threshold.
  3. Students will evaluate the trade-offs between rate funding and bond financing.

Vocabulary

Revenue requirement
The total amount of money a utility must collect from customers each year to run the water system safely. Rates are set so that all the bills together add up to this amount.

Also: operating budget, capital plan, revenue bond, pay-as-you-go, affordability, rate increase

Teacher overview

A water utility's budget has two parts: the operating budget that keeps water flowing each year, and the capital plan that replaces aging pipes and plants over the long term. When the capital plan grows faster than revenue, a gap opens, and the utility must raise rates, borrow, or let its pipes age. This worksheet walks students through the finances of the fictional Onslow Regional Water District, which faces exactly that gap. Students compute the shortfall, find the rate increase that would close it, and then judge whether the higher bill would burden the district's lowest-income households.

Onslow Regional Water's Budget Gap: A Grade 12 Finance Worksheet — Grade 12 Social Studies & Civics
Name: ____________________________ Date: ______________

Student Worksheet

The fictional Onslow Regional Water District serves 15,000 households. Its operating budget is $6 million per year. Each household now pays a water bill of $480 per year. Onslow's engineers say the district must spend $30 million over the next 10 years to replace aging water mains, but the district currently sets aside only $1.2 million per year for that work. Use these figures for all items.

  1. In your own words, define a utility's "revenue requirement" and name its two main parts.
  2. Onslow collects $480 per year from each of its 15,000 households. Calculate the district's total annual revenue.
  3. Onslow's capital plan needs $30 million spread evenly over 10 years. Calculate how much the plan requires each year.
  4. Subtract the $1.2 million the district already sets aside from the yearly capital need you found in item 3. This is the annual budget gap. What is it?
  5. To close that gap through rates alone, divide the gap across all 15,000 households. How much more must each household pay per year?
  6. Add the increase from item 5 to the current $480 bill. What is the new annual bill, and what is the percent increase over the old bill?
  7. A household in Onslow earns $24,000 per year. Calculate 4.5 percent of that income, the level at which a widely used rule of thumb, built from two EPA benchmarks, treats combined water and sewer costs as a high burden.
  8. That same household's combined water and sewer bill after the increase would be $1,200 per year. Compare it to your answer from item 7. Is the household above or below the high-burden line?
  9. Instead of raising rates now, Onslow could issue a $30 million revenue bond and repay it over many years. State one benefit and one drawback of borrowing rather than paying as it goes.
  10. Weighing your answers, evaluate one intended outcome and one unintended outcome of Onslow adopting the full 25 percent rate increase.

From Water for Schools (waterforschools.org). This material is in the public domain (CC0) and may be copied, edited, and shared freely.

Answer Key
  1. Answer: The revenue requirement is the total amount a utility must collect to cover its costs. Its two main parts are the operating budget (yearly running costs) and the capital plan (long-term pipe and plant replacement).
  2. Answer: $7,200,000 per year. 15,000 households x $480 = $7,200,000.
  3. Answer: $3,000,000 per year. $30,000,000 / 10 years = $3,000,000 each year.
  4. Answer: $1,800,000 per year. $3,000,000 needed minus $1,200,000 already set aside = $1,800,000.
  5. Answer: $120 per household per year. $1,800,000 / 15,000 households = $120.
  6. Answer: The new bill is $600 per year, a 25 percent increase. $480 + $120 = $600, and $120 / $480 = 0.25, or 25 percent.
  7. Answer: $1,080 per year. 4.5 percent of $24,000 is 0.045 x $24,000 = $1,080.
  8. Answer: Above the line. The combined bill of $1,200 is greater than the $1,080 high-burden threshold, so this household would be considered highly burdened.
  9. Answer: A benefit of a bond is that the cost is spread over the future users who will benefit from the new pipes, so today's ratepayers do not pay it all at once; a drawback is that interest makes the total cost higher than paying directly.
  10. Answer: Answers vary. An intended outcome is that mains get replaced before they fail, avoiding emergency repairs; an unintended outcome is that the higher bill pushes lower-income households like the one in item 8 above the affordability threshold.

Differentiation

Support

Provide a partially completed calculation sheet with items 2 and 3 already worked, and give students a labeled formula strip (revenue = households x bill; annual need = total / years; gap = need minus current) to reference while they finish the remaining items.

Extension

Ask students to design a two-tier version of the increase that raises the bill less for the lowest-income households and more for high-use households, then show that their design still closes the full budget gap.

ELL supports

Pre-teach "budget gap," "capital plan," "revenue bond," and "affordability" with a simple annotated bill. Allow students to answer items 1, 9, and 10 with short phrases or a labeled diagram, and provide a worked example of a percent-increase calculation.