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43 <br />The City accounts for annual water enterprise expenses in the separate funds into which <br />expenses were appropriated, which include a bond-funded projects fund, a capital project fund <br />(funded from operations) and an operating fund. Capital additions and replacements are <br />appropriated to the capital project fund, as are certain other expenses not strictly necessary for <br />the operation of the enterprise. Capital expenses in each fund that do not meet the capitalization <br />threshold, as well as all water conservation program expenses, capital planning expenses and <br />meter replacement expenses, are treated as operating expenses and are shown as maintenance <br />and operating expenses in the City’s Annual Comprehensive Financial Report (“ACFR”). <br />Beginning with the fiscal year ended June 30, 2013, it is the City’s policy not to subtract <br />discretionary non-capitalized capital fund expenses from the total operating maintenance and <br />operating expenses when calculating the debt service coverage ratio of the water enterprise <br />operating fund. Additionally, starting with the fiscal year ending June 30, 2015, the City transfers <br />the appropriations related to water conservation and its smart meter replacement program from <br />the capital project fund into the operating fund. The expenses related to these programs will be <br />reflected as maintenance and operation costs for budget and financial reporting purposes. <br />Reserve Policy <br />The Enterprise has a policy to reserve a fund balance equal to 25% of Maintenance and <br />Operation Costs, plus $2,000,000. As of June 30, 2023, the unrestricted net position of the <br />Enterprise was approximately $38.6 million, which represents 108% of such fiscal year’s <br />Maintenance and Operation Costs. <br />8.A. - Page 57 of 255 <br />685