Assets and liabilities for irrigation enterprises are similar to those for Class "A" water utilities. Enterprise assets include both current and fixed assets. The basic difference between current and fixed assets is that current assets are usually capable of being liquidated for cash on short notice to cover some debt burden. Fixed assets are initially set at the original cost of developing the irrigation system, and then depreciated at some industry standard rate over the years. The straight-line method uses a certain percentage per year, typically ten percent per annum.
Many irrigation enterprises do not depreciate their property using any particular business standard, or do not carry a depreciation account. This means that the reporting of fixed assets varies across the IEMPS sample. However, our feeling is that when both potential under-valuing and over-valuing are taken into consideration, the IEMPS sample reflects a fairly reliable estimate of currently valued assets and liabilities held by this business community.
Generally, most irrigation enterprises have made use of balance sheets to document their assets and liabilities over the years, except for the very small enterprises. Typically, long-time local accounting firms in small rural towns who have experience working with these enterprises are used for accounting services and to conduct audits. The smaller enterprises tend to have an office in a local irrigator's home kitchen or den. Until the recent advent of inexpensive computer business software, small enterprises had no way of properly maintaining accounts even though they may have been required by state law to file business reports with a state agency.
The total assets held by irrigation enterprises in the intermountain region are currently not known. However, one can begin to estimate this value by carefully examining those enterprises that have good records, and then conservatively prorating a value per irrigated acre across all irrigated lands in the region that are served by irrigation enterprises. Obviously, the importance of this exercise is to assess the possible implications of the reallocation of water out of agriculture, relative to the assets that have been developed over 100 years to support irrigated agriculture.
Figure 1 shows the total assets (fixed and current) and liabilities (long-term and short-term) for a subset of twenty-eight (28) of the thirty-four irrigation enterprises in the IEMPS, for the year 1995. These twenty-eight enterprises had detailed balance sheets for that year. In 1995, this subset reported a combined fixed asset value of $214,202,003, or approximately $156 per irrigated acre (service area acre).
This asset value generally does not include large regional reservoir storage facilities developed through federal or state funds. It only includes the canal systems providing direct water service to farms. However, these IEMPS estimates generally include the value of small reservoir facilities developed by canal companies and "stand-alone" irrigation districts. These estimates also include the direct farm delivery canal systems of irrigation districts developed through Reclamation's revolving fund.
Current assets for the same subset of twenty-eight (28) enterprises amounted to $23,501,098, or approximately $17 per irrigated acre. Applying both current and fixed asset figures to the total sample, we arrive at $237,703,101 in total assets. This dollar value must be considered when assessing the effect of reallocating water out of these enterprise service areas to other uses. Furthermore, we are beginning to see the implications and possible costs associated with expanding irrigated agriculture onto new and undeveloped lands in the future due to food production needs for an increasing population.
We feel these estimates are very conservative of present assets in primary canal infrastructure. If we prorate the value of fixed assets alone to all irrigated lands in the five states studied, we would arrive at a value of about $1.4 billion for 1995. Again, this does not include the value of many large reservoir storage facilities in the region that are designated for multiple purpose uses; such as for power production and recreational uses, in addition to irrigation. It includes mainly the value of primary canal system assets used to provide water to farms and normally reported by irrigation enterprises in their annual reports.
Some irrigation is conducted in the region with private wells. However, we found the intermountain region to be a general exception to the Great Plains in this regard. Private wells are believed to serve a relatively small portion of irrigated lands in the intermountain region, and the water supplied by these private wells is usually supplemental to surface supplies provided to these farms by irrigation enterprises. Put another way, growers utilizing private wells must generally pay an annual water assessment/tax to their local irrigation district or canal company anyway.
As of 1995, long-term liabilities held by these 28 irrigation districts and canal companies amounted to $34,681,633, or about $25 per irrigated acre. Short-term liabilities amounted to about $7 per irrigated acre (Figure 1). If we prorate these figures across all regional irrigated acreage as we did for assets, this value would come to about $289,218,376 in long-term and short-term liabilities for 1995.
Figure 2 shows that irrigation districts tend to hold more assets and carry more debt than canal companies. We would expect this because irrigation districts generally have the power under state statutes to issue bonds and thereby pledge as security the lands of the water users who are members of irrigation districts. These legal powers in turn allow irrigation districts to borrow greater sums of money at lesser rates, and for more extended terms. Figure 2 may alert us to some of the potential fiscal problems facing mutual canal companies. These companies often express concern about the possible lack of good sources of capital, with favorable rates for long-term debt financing to upgrade their irrigation infrastructures.
Figure 3 shows historical trend in assets and liabilities for a smaller group of eight (8) irrigation enterprises that have complete balance sheets since 1945. When the trend is adjusted for inflation, we see a steady decline in the value of assets in this business community. Depreciation of irrigation facilities has obviously occurred over the years due to annual wear and tear. However, some modest rehabilitation is occurring. The relatively constant trend in long-term and short-term liabilities reflects this phenomenon. However, this re-investment does not appear sufficient to address the general decline in the value or depreciation of these assets, or to keep up with inflation.
More care is now being taken by irrigation enterprises in the proper valuation of their fixed assets. The concept of a depreciation account is becoming more generally used over the years. As this form of record keeping becomes more widespread, it may be anticipated that the data will show even greater declining values of irrigation infrastructure assets. Figure 4 shows comparable trends in assets and liabilities for a larger group of fourteen (14) irrigation enterprises, for the years 1970 to 1995.
Figure 5 shows the total asset to liability ratio for this nonprofit business sector. This ratio has increased slightly and averages about 3.3 to 1 over the last twenty-five years. It is not clear yet what this means, relative to other comparable nonprofit entities; such as rural and urban domestic water supply districts, etc. Figure 6 shows the solvency ratio and current ratio for 1945 to 1995.
Figure 7 shows the current asset to current liability ratio for 1970 to 1995. Although nonprofit irrigation enterprises generally meet their costs through annual land taxes or assessments, there is frequently a reserve account held for emergency purposes. It would be expected that the current ratio would remain about the same over the years. This has generally been the case. There has been no drawing down of current assets in recent years, indicating that these enterprises may be holding in reserve about the same amount of current assets they did in the past. However, the current ratio tends to fluctuate from year to year.
The investigation of trends in farm income at the county level, and reported elsewhere on this website, is designed to further assess the economic health and solvency of irrigation enterprises. Farm income is used to pay for the operation and maintenance of these irrigation facilities. Consequently, as farm income goes down, the potential revenue needed to finance this irrigation infrastructure also decreases.
The future of irrigation enterprises and the physical assets they operate and protect are directly tied to farm income. In addition, what tends to occur is that current assets, often in the form of reserve interest-bearing accounts, may be drawn down during periods of reduced farm income rather than to meet emergencies associated with the operation of the irrigation enterprise. Also, assessments may be lowered in years following low net farm income, and current assets are liquidated to make up the difference in meeting the annual irrigation enterprise budget.
In many ways, it is not surprising that irrigation enterprise investment levels have generally not kept pace with other types of special district investments (Figure 8). Farm income has been relatively flat, if not absolutely declining since World War II, when adjusted for inflation (Figure 9). Many commodity prices in the intermountain region have changed little in the past fifty years. Although yields have increased, so have the costs of the individual farm operation and the need to further capitalize the farm to remain competitive. This has often left little farm income for improvements in irrigation enterprise infrastructure, by way of annual land taxes/water assessments.
Typical current assets include cash and cash equivalents, special deposits such as certificates of deposit, working funds, temporary cash investments, accounts receivable (e.g., typically assessments to be paid by water users on delinquent accounts), prepaid insurance and tax prepayments, etc. Irrigation enterprises may also have some small investments in utilities, investments in associated or neighboring irrigation enterprises and in special sinking funds. Many irrigation enterprises now hold certificates of deposit (CDs) that are rolled over from year to year. These certificates of deposit represent a sort of contingency fund. They may be used to cover expenses when annual assessments are paid at the end of the year instead of at the beginning of the year. Some of the smaller irrigation enterprises bill annual assessments at the end of the year. These interest-bearing accounts may also be used to cover annual cost over-runs or to meet emergency expenses during the irrigation season.
Fixed assets generally include the canal system owned by the enterprise, along with any associated property and equipment. Kinds of equipment under the category of fixed assets include office buildings and shops; lots, land and right-of-ways; dwellings for field staff employees when these are provided by the irrigation enterprise; office furniture and equipment; ditch rider vehicles, drag lines, earth movers, back hoes and the like. Finally, the value of construction work in progress may be carried as an asset. In some cases, water rights are not given an asset value by irrigation enterprises, leading to some under-valuation of the fixed assets of these enterprises; and of this business sector as a whole.
Current Liabilities
Typical current liabilities include accounts and notes payable, customer deposits and prepayment of assessments, accrued payroll taxes and a variety of small miscellaneous items.
Non-Current (Fixed) Liabilities
Fixed liabilities include all long-term debt, such as federal contracts payable, state contracts payable and local and/or regional private sector loans or bank loans, notes, etc.