1985-08-28 Special Called Meeting

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Based on the stated assumptions now and in the previous study, an increase in the sewer rate is not projected for 1987-88. By the last year of the planning period, all obligations will be met and reserves will begin to increase again. The large revenue bond reserve requirement related to the present X6,000,000 issue will be funded at that time, providing for a re-building of reserves. WATER RATES. The original study indicated that there would not be a need for a rate increase for any of the three years in the planning period. The new assumptions will alter that scenario considerably. The revised rate model still shows no increase required in 1985-86. However, the working capital balance now reflects a decrease of $190,803 instead of an increase of X140,467 as shown previously. Again, this is not ideal and is possible only because of the adequate reserves maintained by the City. It would take an increase of 12.38 to prevent the working capital reserves from decreasing. Although it is not desirable to see reserves decreased, the financial plan reflects a respectable level. The last two years of the planning period are considerably different than was shown in the original study. To maintain the same working capital balances in those years after significant decreases in 1984-85 and 1985-86, the water rates will have to be raised by 21.18 in 1986-87 and by another 8.5~ in 1987-88. CONCLUSION The City can still present a responsible financial plan to the bond rating agencies and to the public even though several changes have been made. It needs to be emphasized that growth assumptions have been reduced to a level which matches current experience. The level of capital recovery fees used in the study is lower, but the importance of these fees as a financing alternative is no less significant. The ratepayer is paying 100 of the new debt cost in 1985-86 and approximately 62~ - 65~ in the following two years under the present scenario. Even so, the level of construction required to produce the reduced level of capital recovery fees is considerably higher than is now the case. Without these fees, the water rate increase will be 7.2x higher and the sewer rate increase will be 13.6 higher. The entire water and sewer rate structure as well as the capital recovery fee structure will need to be examined annually. It is my recommendation that the Council consider these increases as proposed. They represent a good balance of the dual objectives of keeping rates low and maintaining a financially healthy utility fund. I will be happy to discuss these schedules with you, your staff, and the Council. Sincerely, s ~~~~ CLb Lewis F . I'1cLain, Jr . ~ $~ ~~