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Page 3 of 11 <br />City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org <br />Figure 1 <br />Total Revenue Requirement Projections <br />The City has a reserve policy for the Water Enterprise that requires that the target reserve balance is made <br />up of an operating reserve component and a capital reserve component. The operating reserve <br />component is 25% of annual operations and maintenance (O&M) expenses. The capital reserve <br />component is currently $2 million to provide working capital for pay-as-you-go construction projects. The <br />City is proposing to revise the existing policy to escalate the portion of the capital reserve component <br />according to the year-over-year change in the Construction Cost Index for the San Francisco Bay Area, as <br />provided by Engineering News Record <br />As shown in Figure 2, if current rate revenues remain unchanged, the City would require a heavier <br />dependency on Water Enterprise Fund reserves, and reserves would be reduced significantly (dashed <br />green line), falling below a recommended minimum threshold. However, with the proposed rate <br />increases, the projected fund balance (green solid line) remains above the City’s Reserve Target by the <br />end of the Recommended Period. With the proposed rate increases the reserve balance remains above <br />the reserve target at the end of the rate period to ensure adequate funding is available for the significant <br />costs associated with future capital improvements beyond FY 2027-28 as shown in Appendix A, Table 5 of <br />the Study. Maintaining a strong reserve position during this time allows the City to plan for continued <br />infrastructure investment without requiring sudden, steep rate increases in future years. <br />6.F. - Page 3 of 111 <br />80