FY 2018-19 and 2019-20 Adopted Operating and CIP Budget

Major Revenue Assumptions (continued)

As a result of the January 2016 rate studies for water and wastewater, the Council approved a five year annual rate adjustment plan to ensure that the integrity and reliability of these essential community assets can be maintained, aging and inefficient infrastructure can be addressed, and that sufficient annual operating revenue can meet annual operating expenses. Unlike the water fund, the drought conditions that have significantly impacted the water fund due to reduced water consumption have had a minimal impact on the wastewater fund. Rates are set from a three month average of water consumption during the winter months, which is typically the lowest period of water consumption. As a result, the Council has made the determination that the previously adopted 3.5% rate adjustment that would have gone into effect January 1, 2016 for wastewater not be implemented. The Council has approved nominal rate adjustments over the next five years. Operationally, the fund is forecasted to maintain appropriate reserve levels, including rate stabilization and system replacement fund reserves. However, a gap remains for funding for much needed capital projects. To address this funding gap, included in the FY 18-19 recommended budget is funding for a rate study. The goal is to develop a financial plan and strategy that ensures system reliability and protects public health and safety while keeping customer rates at a competitive level. Water Operations Fund (650) The Water Operations Fund receives revenues from user charges based on water usage. All expenditures for the operation of the water system, including maintenance and debt

service, are charged to the Water Operations Fund. Actual water revenue is dependent on customer usage. Due to the recent drought years, the City has adopted conservation measures which have reduced the amount of revenue from water sales. The City’s Water revenue is forecasted to steadily increase from $13.0 million in FY 17- 18 to $14.6 million in FY 19-20. The Water Operations fund is forecasted to meet the Council’s reserve policy in FY 18-19. While the fund is expected to meet the reserve level, there are not enough available funds projected in the immediate future for construction and improvement of the City’s water system infrastructure. This requires the City to prioritize projects to ensure that the integrity and reliability of the system be maintained, and aging infrastructure be replaced, while maintaining a high level of service delivery.

88 BUDGET SUMMARY