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<br />
<br />Water Rate Cost-of-Service Study
<br />Section 3. Revenue Requirements
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<br />HF&H Consultants, LLC | July 8, 2025 | Page 21 of 53
<br />still be sufficient to maintain a ratio above 1.20, lower increases would be insufficient to cover
<br />the O&M and capital expenses to operate the City’s water system.
<br />Figure 3-8. Debt Service Coverage
<br /> Note: Non-operating revenue includes backflow administrative and testing fees, and transfers from
<br />the Sewer Fund and General Fund.
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<br />RESERVE FUND BALANCE
<br />Figure 3-9 shows the annual fluctuations (solid green line) in the fund balance that are
<br />caused by the differences between the revenue requirement and revenue from rates with the
<br />rate increases; the dashed green line is the projected fund balance without rate increases.
<br />The revenue and rate increases in Figure 3-7 were derived to balance increasing rates while
<br />maintaining a level of reserves that continues to meet the City’s reserve target (blue line) by
<br />FY 2029-30. Over the Study Period, the Water Enterprise projects to utilize $11.0 million from
<br />current reserves, while continuing to meet its debt coverage requirements and the City’s
<br />reserve target. Maintaining a fund balance above or equal to the City’s reserve target helps
<br />to protect the City’s credit rating, which lowers the cost of financing, thereby benefiting rate
<br />payers.
<br />As shown by the dashed green line in Figure 3-9, without revenue increases, the FY 2023-
<br />24 starting fund balance of $44.9 million is projected to drop below the City’s reserve target
<br />by FY 2027-28. With rate increases, the reserve balance (solid green line) decreases more
<br />gradually over the Study Period, as the City uses reserves to fund the projected revenue
<br />requirement. The recommended rate increases are balanced with the use of reserves.
<br />Reserves help offset the increased costs projected, reducing the potential for larger increases
<br />to be borne by ratepayers.
<br />By the end of FY 2027-28, with recommended increases, the Water Enterprise Fund reserve
<br />balance projects to be $25.9 million. The projected Water Enterprise Fund reserve balance
<br />exceeds the reserve target by the end of FY 2027-28. However, the City plans to continue to
<br />draw from reserves to address future capital project funding to reduce future increases to
<br />rate payers. Appendix A, Table 1A extends the projection of the reserve balance through FY
<br />2034-35. By FY 2029-30, the Water Enterprise Fund reserve balance will decrease to
<br />approximately $17 million and be much closer to the City’s reserve target at that point of $14
<br />million.
<br />FY 2025-26 FY 2026-27 FY 2027-28
<br />Rate Revenue w/ Increases $51,236,452 $54,538,877 $57,530,573
<br />Non-Operating Income* $1,648,725 $1,699,695 $1,752,254
<br />Interest Income $352,856 $315,027 $275,464
<br />Total Funds Available $53,238,033 $56,553,599 $59,558,291
<br />O&M Expenses ($41,266,135) ($41,804,432) ($42,695,938)
<br />Net Revenue $11,971,898 $14,749,167 $16,862,352
<br />Debt Service $3,782,913 $3,779,913 $3,777,213
<br />Debt Coverage Ratio 3.16 3.90 4.46
<br />ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A
<br />REV: 11-05-25 MI
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