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<br /> Page 2 <br />PURPOSE: Proceeds of the Bonds will be used to finance the construction of Water Tower #3, <br />including site preparation, located within the City. <br />AUTHORITY: Statutory Authority: The Bonds are being issued pursuant to Minnesota Statutes, <br />Chapters 444 and 475. <br />Statutory Requirements: Pursuant to Minnesota Statutes, Chapter 444 and the resolution <br />awarding the Bonds, the City will covenant to maintain rates and charges in an amount <br />sufficient to generate revenues to support the operation of its water fund (the “Water <br />Fund”) and to pay debt service. The City is required to annually review the budget of the <br />Water Fund to determine whether currents rates and charges are sufficient and to adjust <br />them as necessary. <br />The City has five outstanding bond issues that have all or a portion of the debt service <br />payable from the Water Fund. The table below shows the calculation of net revenues <br />available for debt service from the City’s Water Fund for fiscal year ending <br />December 31, 2018. The maximum annual debt service payment of the outstanding bonds <br />and the Bonds being issued is estimated to be $801,320. Based on historical <br />performance, the City’s Water Fund is not generating sufficient revenue to cover both <br />water operations and the increased debt service for the Bonds. The City will rely on <br />additional funds from the Area & Unit Charge Fund (the “Trunk Fund”) to make the debt <br />service payments on the water fund debt, including the Bonds. Cash balances in the water <br />fund are also available in the short term to cover any shortfalls in revenues versus debt <br />service. <br /> <br /> <br />Water Fund - Net Revenues as of December 31, 2018 <br />Operating Revenues 1,217,589$ <br />Operating Expenses (1,332,755) <br />Operating Income (115,166) <br />Add: Depreciation 597,571 <br /> Investment Earnings 82,783 <br />Net Revenue Available for Debt Service 565,188$ <br />Estimated Maximum Debt Service 801,320 <br />Remaining Capacity for Annual Debt Service (236,132) <br />Debt Service Coverage w/ Pledged Revenues 0.71 <br />Area & Unit Charge Fund - Net Revenues as of December 31, 2018 <br />Operating Revenues*915,754$ <br />Operating Expenses (369,860) <br />Operating Income 545,894 <br />Add: Depreciation - <br />Net Revenue Available for Debt Service 545,894$ <br />*Includes Investment Earnings <br />Total Net Revenues Available for Debt Service 1,111,082$ <br />Estimated Maximum Debt Service 801,320 <br />Remaining Capacity for Annual Debt Service 309,762 <br />Debt Service Coverage w/ Available Revenues 1.39