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<br />76'- /ð <br /> <br />Pursuant to outstanding bond covenants, the City cannot issue additional bonds without <br />meeting the requirements of an Additional Bonds Test. The test protects outstanding <br />bondholders by requiring the City to demonstrate adequate repayment capacity prior to <br />issuing additional parity debt. BW A has detennined that the City can issue a maximum <br />of a little over $26 million of bonds for the upcoming February 2006 bond issue based on <br />the Additional Bonds Test. Projections indicate the City can meet the test for each of the <br />anticipated future bond issues. <br /> <br />The City should continue pursuing potential grants and subsidized loans, which provide a <br />lower-cost option than bond financing. Existing water enterprise operating fund reserves <br />should not be drawn down to fund the project. However, the City should consider using <br />Facilities Fees to offset debt, especially if a substantial amount of fees are collected over <br />next few years. <br /> <br />Cash Flow & Rate Projections <br /> <br />Updated cash flow projections were developed to detennine the long-tenn revenue <br />requirements ofthe water enterprise and project necessary water rate adjustments. <br />Underlying policy, financial, and other assumptions are detailed on the attached tables. <br /> <br />The updated projections indicate the City should increase rates by 12% on July 1, 2006. <br />The 12% adjustment represents an increase in overall rate revenues. Future rate <br />projections are shown for planning purposes. The future year projections are roughly in <br />line with prior estimates, but escalate a little higher to account for higher, updated <br />SFPUC wholesale water rate projections. <br /> <br />Projected Water Rate Adjustments <br /> <br />Adopted Recommended Projected <br />2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 <br /> <br />12% <br /> <br />12% <br /> <br />10% <br /> <br />8% <br /> <br />8% <br /> <br />8% <br /> <br />8% <br /> <br />8% <br /> <br />8% <br /> <br />6% <br /> <br />The projected rate increases will enable Redwood City to: <br /> <br />a. fully fund the water enterprise's operating and capital programs, including the <br />City's active conservation program and the recycled water project, <br /> <br />b. roughly maintain current levels of water operating fund reserves adjusted for <br />inflation, <br /> <br />c. meet future debt service coverage requirements. <br /> <br />The City will need to detennine how various components of the rate structure will be <br />adjusted to achieve the overall 12% rate increase recommended for 2006/07. Based on <br />the final rate adjustments implemented, rate impacts may vary based on customer class, <br />type of usage, and amount of water consumption. The City can continue adopting rate <br />adjustments on a year-by-year basis or can choose to adopt a multi-year rate increase <br />every few years. <br /> <br />5 <br /> <br />,_h ,--"-, -,,-.,"' -, "' "°___, ._-"-,, ____'_0_._".."__"."'0_' ", <br />