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<br />MINIMUM RESERVE POLICIES <br />Local government revenues are often cyclical in nature. Reserves are the portion of fund balances <br />for utility systems that are required to satisfy the utility’s projected cash flow needs during the <br />budget year, future capital outlays, debt payments, and debt service coverage requirements without <br />impacting continued operations of the utility. These funds are intended for foreseen financial needs <br />as well as to minimize risk associated with emergencies, economic downturns, and unforeseen <br />events that could create fiscal hardship. <br />Many utilities, rating agencies, and the Government Finance Officers Association (GFOA) best <br />practice recommendations emphasize the importance of having risk-based policies or strategies to <br />respond to significant, unplanned, unavoidable costs or revenue losses from unusual or adverse <br />periods, unanticipated system failures, or natural disasters. Reserves also support a strong bond <br />rating by signaling to investors that the utility has resources to repay debt, even with potential <br />disruptions. <br />The financial management plan reflected herein assumes that the minimum operating fund reserve <br />will equal 20% of annual O&M expenses for the City. This reserve level is according to City policy, and <br />is generally consistent with our industry experience and a healthy level of reserves for a municipal <br />utility system per the evaluation criteria published by the municipal bond ratings agencies. <br />Maintaining this level of reserves retains the City’s ability to access the municipal bond market for <br />future capital bond funding. <br />FUTURE BORROWING & VEHICLE/EQUIPMENT FUNDING <br />The City intends to cash fund all of its capital and vehicles throughout the projection period, so no <br />debt assumptions were used in this analysis. However, an assumption was made that the City will <br />establish a fleet/equipment program with an equal level of investment into a capital reserve or <br />funding program in each year of the projection period and all required vehicle/equipment <br />replacements will be funded from this reserve. <br />ANALYSIS <br />DESCRIPTION <br />In order to initialize the RSA, we obtained the City’s historical and budgeted financial information, <br />historical billed accounts, multi-year capital improvement program, and the City’s current financial <br />and debt policies. We also spoke with City staff regarding other assumptions and policies that would <br />affect the financial performance of the City, anticipated customer growth, reserve policies, capital <br />funding sources, earnings on invested funds, escalation rates for operating costs, impacts of <br />potential regulatory and legislative initiatives, etc. <br />SCS then input this information into our Revenue Sufficiency Model. The Revenue Sufficiency Model <br />creates a multi-year projection of the City’s current user charge revenues to determine whether the <br />level of existing revenues can meet the projected financial requirements during each year of the <br />9