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2019 Water, Recycled Water, and Sewer Rate Study 2. Financial Plan <br />CPI), in reality any adjustments to the 3R Capital Reserves should be based on changes to <br />capital spending projections. <br />The target levels of the above policies are consistent with 1) the Stantec team's industry experience for <br />similar systems, 2) the findings of reserve studies conducted by the AWWA, and 3) a healthy level of <br />reserves for a municipal utility system per the evaluation criteria published by the municipal utility rating <br />agencies (e.g. Fitch, Moody's, and Standard & Poor's). This Study recommends that the Operating and <br />Maintenance Reserve as well as the Emergency Capital reserve targets be adopted by the City as formal <br />minimum fund balance policies, with the addition of the 3R Capital Reserve as a target reserve policy. <br />Once the reserve targets are established, they should be reviewed annually during the budgeting process <br />to monitor current levels and assure conformance with stated policies and practices. Decisions can be <br />made to maintain, increase, or spend down reserve balances, as appropriate, depending upon the impact <br />of such decisions to the upcoming budget period. <br />The total reserve targets by year are shown in Schedule 5 (Row 28) of Appendix A for the Water <br />Enterprise and Schedule 10 (Row 26) of Appendix B for the Sewer Enterprise. <br />2.3 PROPOSED RATE REVENUE INCREASES <br />All of the above information, including the significant increase in capital spending as described in Section <br />2.2.7, was entered into Stantec's FAMS-XL interactive modeling system. This module of FAMS-XL <br />produced a ten-year projection of financial requirements for each enterprise, which formed the basis for a <br />financial strategy of needed rate adjustments over the next 5 years for both the Water and Sewer <br />Enterprises. It is important to note that the above rate increases for the Water Enterprise do not include <br />the Pass -Through Adjustment Policy, as described in Section 4.6. <br />On the surface, rate increases may seem un-necessary for the Sewer Enterprise given the recent receipt <br />of $23 million from OCSD (see Section 2.2.7), however this Study is recommending a "spike" in capital <br />spending in FY 2020/21 and FY 2019/20 to draw down on those reserves and address the Sewer <br />Enterprise's most critical infrastructure needs. Once those reserves are spent down to target levels, the <br />Sewer Enterprise will transition to a more sustainable level of capital spending. <br />Both rate revenue adjustment schedules have been detailed in Table 2-2. <br />City of Santa Ana Stantec 115 <br />