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8,A 43 <br />Cash Flow Projections <br />Cash flow projections were developed in order to estimate the long -term revenue <br />requirements of the water enterprise and to determine necessary water rate adjustments. <br />Bartle Welly Associates evaluated a number of financing scenarios. The "base case" <br />financing scenario developed in this report is based on the following assumptions. <br />Base Case Financing Scenario <br />1 Based on construction of Kennedy /Jenks recommended Altemative E recycling project <br />2 Assumes single -phase construction schedule <br />3 Assumes City will receive $5.0 million in grant funding for the recycling project with <br />remaining project costs to be funded with revenue bonds <br />4 Water use based on John Whitcomb's demand forecast with passive conservation <br />5 Assumes that City Council will adopt some form of an active conservation program; cash <br />flow projections include $500,000 in annual program costs as a preliminary placeholder <br />6 The City's long -term policy objective is to price recycled water and potable water at the <br />same rates. However, the City anticipates offering a 5-year rate reduction for recycled <br />water purchases to encourage conversion from potable to recycled water use. <br />7 Based on rapid Council decisions and implementation in 2003 <br />Bartle Wells Associates also developed financial projections for a no grant scenario. <br />Without the $5.0 million grant, the City will need to issue more revenue bonds, pay more <br />debt service, and increase rates to account for the higher debt service payments. <br />Projected Water Rate Increases <br />The base case cash flow projections indicate the need for three consecutive 9% rate <br />increases followed by steady annual 6% rate increases through 2011 /12. The increases <br />will enable Redwood City to: <br />a. roughly maintain its current level of fund reserves, <br />b. fully fund its operating and capital programs, and <br />c. meet future debt service obligations and coverage requirements. <br />Projected Rate Adjustments <br />2003/04 2004/05 2005/06 2006/07 2007/08 2008109 2009/10 2010/11 2011/12 <br />9% 9% 9% 6% 6% 6% 6% 6% 6% <br />The City needs to start phasing in rate increases beginning 2003/04, even if all financing <br />details have not been finalized. Failure to raise rates this year will result in the need for <br />substantially higher rate increases next year. For example, bypassing a 9% increase in <br />2003/04 results in the need for an 19% rate increase in 2004/05. The City should <br />consider adopting 3 to 5 years of rate increases during the current fiscal year. <br />Water Financing Plan ES -5 02/24/03 <br />