09.02 - Utility Rate Study Proposals

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`.. Cash Balances and Financing Capital Improvements Water and Wastewater Capital Improvements The capital improvement plans for the water and wastewater funds are attached in Exhibit B. The City is planning for routine capital replacement costs of $50,000 per year for water and $50,000 per year for wastewater. In addition, the rate study includes costs for water meters and installation and upgrades to the water treatment plant. Target Cash Reserves — Water and Wastewater Funds The proposed rates impose the lowest rate increases that will still leave the City's water system in good financial health. The projected cash balances for the funds, a measure of financial health, are shown in following graph. Total Cash Balances: Operating Funds 6,000,000 5,000,000 - 4,000,000 3,000,000 2,000,000 1,000,000 - 0 2010 2011 2012 2013 Proposed rates were designed in order to maintain a balance of at least $500,000 in the Water Fund and at least $800,000 in the Wastewater Fund. The Wastewater Fund balance is projected to decline as tax revenues are no longer transferred to that fund. However, the cash balance will remain adequate to provide operating and capital reserves. The large decline in Water Fund cash from 2010 to 2011 represents expenditure of loan proceeds. Water fund reserves are expected to remain stable at 2011 levels. The proposed rates will provide sufficient revenue to pay routine operating expenses, pay for capital improvements to upgrade and expand the system, and provide prudent cash balances. Adequate cash balances allow the City to: • Survive changing circumstances in the economy and the weather without rapidly increasing rates; • Use a cash to pay for a portion of capital improvements and reduce the frequency of borrowing; 7 i Water O Sewer I I 2014 2015 2016 Proposed rates were designed in order to maintain a balance of at least $500,000 in the Water Fund and at least $800,000 in the Wastewater Fund. The Wastewater Fund balance is projected to decline as tax revenues are no longer transferred to that fund. However, the cash balance will remain adequate to provide operating and capital reserves. The large decline in Water Fund cash from 2010 to 2011 represents expenditure of loan proceeds. Water fund reserves are expected to remain stable at 2011 levels. The proposed rates will provide sufficient revenue to pay routine operating expenses, pay for capital improvements to upgrade and expand the system, and provide prudent cash balances. Adequate cash balances allow the City to: • Survive changing circumstances in the economy and the weather without rapidly increasing rates; • Use a cash to pay for a portion of capital improvements and reduce the frequency of borrowing; 7