AgdaPkt 2016-06-13 Interview and Joint SA PFA

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7.A. - Page 83 • For financial planning purposes, the projections include a minimum operating fund reserve target equal to 25% of annual operating and maintenance expenses plus an additional $2 million for emergency funding needs. Based on prior input from the City's finance department, a new CIP reserve target is established at one year of annual capital expenditures, which for planning purposes is projected at $7 million. Maintaining a prudent minimal level of fund reserves provides a financial cushion for dealing with unanticipated expenses, revenue shortfalls, and non-catastrophic emergency capital repairs. • Debt service coverage is calculated for a) the City's debt service obligations for SVCW bonds, which are directly secured by the net revenues of the City's sewer utility, and b) the City's share of total debt service for SVCW's capital program, which also includes SRF loans and a line of credit, legally secured by SVCW but allocated to each member agency based on their share of participation in each financing. The table also shows debt service coverage with the inclusion of unencumbered fund reserves as net revenues available for paying debt service. Debt service coverage is calculated based on net revenues remaining each year after payment of operating and maintenance expenses, divided by annual debt service. A table showing 10-year sewer utility cash flow projections is shown on the following page . The rate projections shown on the table are designed to keep revenues aligned with the City's future cost of providing service, provide adequate funding for the City's capital needs and the financing needs of SVCW's capital improvement program, and maintain roughly balanced budgets. Due to proposed modifications to the City's sewer rate structure, the impacts of projected rate increases will vary based on customer class and water use. B Sewer Utility Finances& Rates 56 r Water&Sewer Financial Plans&Rate Studies