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<br />;f?-s <br /> <br />the next bond issue, if these bonds are sold rates will have to be increased next year by <br />approximately 10% in order to satisfy this rate covenant, meet increased operating <br />costs and provide $2 million of surplus cash flow for repair and replacement of existing <br />infrastructure. <br /> <br />Alternatively, Council could direct staff to identify expense reductions in the water utility <br />system, transfer in resources from the general fund, or use existing net working capital <br />of the water fund to satisfy the rate covenant to mitigate the otherwise required rate <br />increase. <br /> <br />A rate increase for next year of approximately 12% will be necessary to provide <br />sufficient Net Revenues to allow for the sale of bonds in February 2007 for the next <br />component of the project. In order to fully finance this project and pay for expected <br />future wholesale water cost increases, the City's water rate consultant has projected <br />that an annual rate increase of 12% next year, followed by a 10% rate increase in <br />FY2007/08 and 8% in the five following years will be necessary. Approximately 25% <br />the rate increases over the next ten years will be necessary to pay for the cost of the <br />recycled water project. Increases in the City's wholesale cost of water are expected to <br />account for approximately 50% of water enterprise cost increases during this period. <br />The remaining 25% of these rate increases will pay for inflationary increases in costs <br />associated with operating the system and required continuing investment in the repair <br />and replacement of the water enterprises existing infrastructure. <br /> <br />Alternative <br />The Council may reject staff's recommendation to sell bonds to fund continuing <br />construction expenditures associated with the recycled water project. In such event, <br />construction of distribution improvements to deliver recycled water from the SBSA <br />facility will not proceed as planned. <br /> <br />fflP~ <br /> <br /> <br />'74J <br /> <br />Brian J. Ponty <br />Director of Finance and Financial Planning <br /> <br />Attachments: <br />I Capital Expenditure Schedule <br />II Projected Sources and Uses of Funds <br />III Summary of Principal Legal Documents <br />IV Preliminary Official Statement <br /> <br />5 <br />