Nearly one year after the state restructured the Birmingham-area water utility, the board over Central Alabama Water met Tuesday in Cleveland, in Blount County, to present a conflicting financial outlook.
In a report issued May 11 by S&P Global, the credit rating agency affirmed CAW’s AA- bond rating but removed its CreditWatch surveillance, on which it was placed with negative implications Feb. 11. Previously, the Birmingham Water Works had held a AA rating since 2013.
S&P cited receipt of financial updates, conversations with management and revisions to the 2026 operating and capital budgets as the primary drivers of the change.
These factors were reinforced by the utility’s first quarterly report for 2026, released Tuesday, which showed operating and maintenance expenses coming in below budget while revenues continue to decline.
Revenue and expenses
Expenses at the utility may be falling — but so is revenue.
The report showed that revenue, across nearly every category, has fallen short of budgeting.
Actual operating revenue for the first quarter of 2026 totaled $51.2 million, falling $3.6 million short of the $54.9 million budget target — a 7.1% decline.
According to Chief Financial Officer Lester Smith, the decline was driven almost entirely by the utility’s two largest customer classes: residential and commercial.
Residential revenue, constituting roughly half of total operating income, was $26.3 million, representing a $3.37 million difference, or a 12.8% decline. Commercial revenue also underperformed, coming in $797,921, or 5.2%, below expectations.
Operations and maintenance expenses for the first quarter came in at $32 million, $2.11 million, or 6.6%, below the budgeted $34.1 million. That total is $3.93 million, or 12.3%, less than the utility spent in the same period of 2025.
Administrative and general expenses, representing the utility’s largest costs for this quarter at $10.65 million, were $656,125 under budget and $955,512 below the prior year, representing a 9% year-over-year decrease.
Human costs and workforce restructuring
CEO Jeffrey Thompson said in a press release that every decision taken has been in the “best interest of the system.” The S&P has acknowledged that the financial outlook of the utility has improved but characterizes these moves as “unpopular cost-cutting measures.”
Staffing data presented at the meeting displayed the human costs of these measures.
With 440 full-time employees as of March 31, CAW was 23 positions under its revised budget of 463 approved by the board on March 20. It also represents a sharp decline in the 729 employees on staff in 2023.
Because of hiring freezes and mass-layoffs in March, CAW has eliminated more than 100 employee positions, representing a 36% reduction in the workforce. While CAW has not released a precise breakdown of the job titles, firings were companywide, impacting departments such as metering, distribution and customer service.
Technology, outsourcing, new costs
In response to workforce reductions and legacy system challenges, the board approved several new technology and outsourcing agreements, each with different implications for ratepayers.
The board approved a three-year agreement with DOXIM to implement a new customer payment portal platform, effective May 13 and ending May 13, 2029. While the estimated out-of-pocket cost to the board is $0, DOXIM will recover its costs through small transaction fees charged to customers when they use the portal.
A five-year agreement with Truckworx has gone into effect, outsourcing management of heavy vehicles at an estimated out-of-pocket cost of $230,000.
The Truckworx deal follows an earlier decision to dissolve CAW’s in-house fleet department and contract with Enterprise for fleet services. The board had said in its April 10 meeting that it would close its in-house fleet to save money. While it referred to the $35,000 contract with Enterprise, it did not say at the time that the second contract would be needed, to split the work between heavy and light vehicle services.
The rating question
In February, S&P downgraded CAW’s bond rating to AA- and placed it on CreditWatch, citing “the system’s weakening liquidity position and aging assets, coupled with a substantial reorganization of management.”
The outlook is “stable” now, but S&P says a rating upgrade is unlikely within the next two years. And CAW’s current lower bond rating means higher borrowing costs when the utility issues debt to fund capital projects — costs that are ultimately passed on to ratepayers.
CAW’s recent press release frames the S&P update as a “validation” and a “positive acknowledgment” that they are on the right path. But S&P classifies CAW’s risks as “slightly elevated” right now. S&P said the utility is currently “plagued” by its inability to issue bonds to fund it infrastructure needs such as the Lake Purdy Dam stabilization and pipe replacement.
The utility has already revised its original capital budget for 2026, cutting CAW’s capital spending 54%, from $75.8 million to $35 million.
These cuts come at a time when CAW’s infrastructure needs are both urgent and expensive, but it is unable to issue sufficient revenue bonds because of an ongoing federal lawsuit city officials filed challenging the state law restructuring the board.
The CEO’s press release emphasized that avoiding rate hikes has been a priority.
But S&P spoke of CAW “managing necessary rate increases.” At the same time, the agency flagged significant social and equity concerns: if water rates rise as much as may be required, they could “significantly outpace area incomes,” potentially triggering broader environmental, social and governance risk factors.
Taken together, S&P warns that, absent meaningful revenue growth and restored access to the bond market, CAW will likely have to cancel or delay major repair projects — or pursue rate increases that could prove both politically and economically difficult.