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Mayor Hanson and Members of the City Council <br />January 4, 1991 <br />Page 2 <br />schedules too low in that we are not providing for future <br />capital expenditures. Also, as we develop a capital <br />improvements program for infrastructure, a source of <br />funding will be needed for these improvements. The water <br />and sewer capital replacement fund would accomplish this <br />goal. <br />My recommendation would be to transfer the lesser of: <br />1. The actual amounts indicated as depreciation on <br />the operating statement for each fund; or <br />2. Net income from operations before depreciation. <br />By doing so, we would never take net income from operations <br />below zero. I am also recommending that we designate <br />non - resident water and /or sewer connection charges to this <br />fund. In the case of Schroeder Milk's connection fee, this <br />amount would then be payable to this fund rather than to <br />the operating account or to a debt service account. I am <br />also proposing that we only establish one fund for the two <br />entities and that the amounts could be utilized in either <br />water or sewer areas as needed. Lastly, I would recommend <br />that we fund depreciation as stated for the sewer fund in <br />the 1989 financial statement in the amount of $84,411. (A <br />copy of the financial statement indicating this amount is <br />attached for your review.) I am not proposing that we do <br />the same for the water fund due to the cash balances <br />available in that fund as of December 31, 1989. <br />Finally, it should be noted that I have discussed this <br />matter with Bob Voto, our City Auditor, and he agrees with <br />this proposal as a manner of funding future capital <br />expenditures. I have also discussed this matter with Brad <br />Farnham of Juran and Moody and he has informed me that bond <br />rating agencies would look favorably upon this type of <br />designation. <br />Therefore, I am asking the Council to make these <br />designations of past balances and allocations of future <br />depreciation amounts and connection fees with an affective <br />date of 12- 31 -90. I am also asking that the transfer of <br />previous depreciation amounts from the sewer fund be made <br />as of that date as well. Please let me know if you have <br />any comments or questions. <br />JRH:kpv <br />Enclosure <br />Page 27 <br />