Management Report and Recommendations 12/31/1996

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IMMP City of Lino Lakes, Minnesota Management Report, Page 38 There are two basic factors which contribute to increased billings from the MCES: 1. Changes in use of the system. The MCES has increased the 1997 estimated flow for the City of Lino Lakes by 10 %. 2. Increased cost to process sewage. The MCES's cost to process (per million gallons) increased to an estimated $1,318 in 1996 from an estimated $1,276 in 1995. This represents an increase of 3.3 %. The estimated cost for 1997 remained unchanged from 1996. The combination of the above factors has increased the City's estimated cost in 1996 by 9 %. During 1988 the City adopted a policy of charging a water user fee for core system improvements. The add -on charge is calculated based on a fixed amount per quarter. Prior to 1996, this charge was collected as revenue of the water enterprise fund along with normal ... charges. Such amounts were then transferred to the Area and Unit Charge Fund which financed (or will finance) such improvements. During 1996 the City implemented a new utility software system which allows the water user fee to be recorded directly to the Area and Unit Charge Fund. The water and sewer operations reflect retained earnings of $533,541 and $448,205, respectively. Retained earnings should not be equated with fund balance. The Utility operations are financed by user fees which are billed and collected only after the services are provided. This creates a timing difference between payment of expenses and collection of service charges (i.e., accounts receivable). Additionally, certain costs are paid in advance (prepaid expenses) and/or supply items are purchased in advance (i.e., inventories). These items create a timing difference between payment of expenses and cost recovery through service changes. Those items (commonly referred to as Working Capital needs) are noncash assets.