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Bonne Terre,Missouri,December 21,2006,Page 4 of 5 <br /> 7. Retain required funds in interest bearing debt service and debt reserve accounts if <br /> required by your lender(s). Endeavor to build the balances shown as"Total Capital <br /> Improvement Reserves"in Chart 8 of this analysis,or the amounts your lender requires, <br /> whichever is greater. Please note,for the new project financing I assumed the city would <br /> finance its debt reserve as well so that amount is not included in the capital improvement <br /> reserves balance mentioned above. <br /> Discussion of the Bonne Terre, MO Proposed Sewer Rates Scenario 2.5 <br /> This scenario is based upon modest rate increases on an actual dollar basis with rates reaching a <br /> level that is still considered affordable.The sewer tap fee is modeled to increase substantially. <br /> However,while the sewer tap fee is modeled to rise,the final fee will be modest.The current fee, <br /> at $50, is simply way too low.With your tap fee set so low, current users are, in effect, heavily <br /> subsidizing new connections. <br /> Future rates will need to go up an average of five percent each year to keep revenues on track <br /> with inflation and future debt service needs. <br /> Chart 5 is the io-Year Costs and Revenues projection chart. It details current and future <br /> operating revenues and costs,including an adjustment to costs when the upgrades to the system <br /> are complete. <br /> Chart 7 is the Rate Adjustments and Incomes chart. It shows the proposed rates. <br /> Chart 8 shows your fund balances and other financial health indicators.Your sewer reserve <br /> balances may seem excessive but everyone needs to keep several things in mind when assessing <br /> these balances.Working capital or net revenues are needed to weather downturns in revenues <br /> and increases in costs. On a short-term basis this swing can easily be 35 percent in systems like <br /> yours.Thus,your working capital goal is 35 percent.The debt service fund is needed to fund <br /> capital improvements and debt service.The debt reserve fund is needed to secure your existing <br /> debt obligations.The replacement fund is needed to pay for the replacement and substantial <br /> repairs of equipment to keep the system operating properly. Debt reserves and replacement <br /> reserves are essentially not available for purposes other than those dedicated purposes.Thus, <br /> while your current position looks very strong,your accessible funds are much lower than that. <br /> The line graphs depict financial health indicators under the proposed rates.They are especially <br /> useful for spotting trends. <br /> Chart 17, Current Position shows your financial condition improving early on,then settling in at <br /> approximately$3,000,000. I remind you, most of these funds are dedicated to debt and <br /> equipment replacement. <br /> Chart 18 depicts your rates before and after the adjustments shown in this scenario. In your <br /> case,this chart depicts the more important changes of these rate adjustments.The proposed <br /> rates will be formatted as"proportional to use,"a requirement of the loan program the city will <br /> use for its upcoming improvement projects. <br />