City of Morgan Hill Fiscal Years 2020- 2022 Recommended Operating and CIP Budgets

fiscal year end and will require a short-term loan from the General Fund of approximately $425,000. The net reduction in revenue for the current fiscal year is expected to amount to $1.2 million or 23 percent reduction from original budget of $5.3 million. The estimates for FY 2020-21 and FY 2021-22 are $4.1 million and $5.3 million, respectively versus our prior estimates of $5.4 million and $5.6, respectively. The cumulative impact for the three fiscal years is approximately $2.8 million. The advent of the pandemic only heightened the urgency to address the fund’s sustainability. Time is of the essence in addressing the fund’s sustainability. A comprehensive development fee study was previously recommended and planned for the upcoming fiscal year. Staff intends to engage a consultant to conduct a comprehensive fee study once the shelter-in-place order is lifted. Water and Wastewater Funds The Water and Wastewater Utilities are enterprise funds that derive all of their operating revenue from customer charges. As a result of the January 2016 comprehensive rate studies, followed by the 2019 wastewater rate update, the Council approved a five-year annual rates adjustment plan to ensure that public safety and health remain a priority, the integrity and reliability of these essential community assets can be maintained, and aging and inefficient infrastructure can be addressed. In addition, the approved rate adjustments provide proper reserve levels in accordance with Council policy and continue meeting legally required debt coverage. Water Fund The City’s Water revenue is forecasted to steadily increase from $15.6 million projected for FY 2020-21 to $16.3 million in FY 2021-22. January 1, 2020 was the last rate increase from the 2016 Council approved five-year rate adjustment plan. The projected revenues for the Recommended Biennial Budget include the CPI adjustment factor of 2.5 percent to keep pace with the expenditures and to ensure the City’s water system sustainability. Wastewater Fund On May 1, 2019, the Council approved the wastewater rate update which includes a five-year annual rates adjustment plan to address significant shortage in funding for the legally required repairs and improvements to the existing system. With the approved rates plan, the wastewater fund operationally is forecasted to be able to maintain appropriate reserve levels, including rate stabilization and system replacement fund reserves and fund much needed capital projects associated with the repair of the aging system. Other capital projects such as a second Relief Trunk Line to the Treatment Plant and Treatment Plan expansion in the six-year CIP are expected to be funded by impact fees and/or financed through bonding against future impact fees. Capital Improvement Program (CIP) The proposed FY 2020-21 through FY 2025-26 CIP totals $190.7 million. The primary project categories include 1) Parks and Recreation ($17.5 million), 2) Public Facilities ($6.6 million), 3) Storm Drainage ($13.8 million), 4) Streets & Roads ($40.3 million), 5) Wastewater ($93.8 million), and 6) Water ($18.7 million).

RECOMMENDED BUDGET MESSAGE 19