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Water Utility 22 City of Lino Lakes, Minnesota – Water and Sewer Rate Study Update Financial Projections The financial projections assumed the City would maintain a minimum cash balance in the Water Fund equal to th ree months of anticipated operating expenses and one-year’s debt service within the planning period. In addition, the City would fully fund depreciation and maintain positive operating income. These assumptions were made to ensu re that the Water Fund would have sufficient cash to fund operations going forward as well as meet debt service requirements. To determine the appropriate user rates needed for the repayment of debt service and operation of the Water Fund, we have projected future revenue and expenditures and have incorporated the anticipated future capital outlay needs for the time period covered by this study. The financial projections began w ith the Water Fund expenditures; subsequently, revenues were adjusted to provide the recommended income, cash flow, and level of ending cash balan ces. Our expenditure projections are generally based on an analysis of p ast trends, anticipated changes in operations, and our significant experien ce in preparing Water rate studies. Scenario 1 – Keep Current Block Rate Structure Our projections show that the existing block rate structure combined with projected growth in the customer-base, will provide sufficient revenues for the operation of the Water Utility through 2014. In order to obtain the goals stated above, we determined that a 2.0% increa se in user rates in each of the five blocks is needed annually 2013-2017. The projected rate increases are primar ily needed to fund depreciation while maintaining recommended reserve levels. The financial projections are shown on the following page.