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SA -25 <br />Bartle Wells Associates evaluated the financial impacts of 20% SFPUC drought based on: <br />a. water demand forecasts with passive conservation, <br />b. the SFPUC's Interim Water Shortage Allocation Plan, and <br />c. exorbitant SFPUC drought rates imposed in the early 1490s. <br />If the City was able to achieve 10% conservation during a 20% SFPUC drought, <br />wholesale water purchase could be $4 to $10 million higher than in a normal year. <br />Without any conservation, the City's annual water cost during a 20% drought could top <br />$20 million. At the same time, with 10% conservation, the City's water sales revenues <br />would decline by $1.2 to $1.7 million. <br />Minimum Fund Reserve Targets <br />The City should maintain its existing fund reserves to provide a financial safeguard for: <br />a. dealing with financial emergencies, and <br />b. enabling the City to financially weather a drought for one -year without rationing <br />water or imposing immediate, large rate increases. <br />This report recommends minimum fund reserve targets comprised of two components: <br />a. emergency operating reserves ($2 million per Council policy), and <br />b. drought contingency reserves. As described in the previous section, the City <br />could face an extreme financial burden due to a drought. <br />Total recommended minimum reserve targets range from about $10.7 to $14.4 million <br />over the next 10 years. These recommendations should be treated as financial targets; the <br />City may not meet the targets every year, but should always aim to meet the targets over <br />the long -run. <br />The recommended reserve levels will provide a prudent level of financial security and <br />generate a substantial amount of interest earnings for the water enterprise. A spend -down <br />of fund balances to help finance the recycling project would decrease financial security <br />and future financing flexibility, but would not reduce the level of annual rate increases <br />required. <br />Recommended Facilities Fees <br />The City's facilities fees have not been adjusted since July 1, 1994. The fee should be <br />updated to account for: <br />a. capacity in capital projects constructed since 1994, and <br />b. the cost of recycled water facilities providing capacity for new development. <br />This report calculates a new water facilities fee of $27,820 per acre -foot of annual water <br />demand, which equates to $9,197 per single family residence. The City's facilities fee <br />should be updated annually by indexing the fee to the Engineering News- Record <br />Construction Cost Index for the San Francisco area. <br />Additional information on the recycled water project and the financing plan is available <br />upon request from the Redwood City Public Works Services Department. <br />Water Financing Plan ES -7 02/24/03 <br />