Management Report and Recommendations 12/31/1994

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City of Lino Lakes, Minnesota Management Report, Page 34 There are two basic factors which contribute to increased billings from the MCWS: 1. Changes in use of the system. The MCWS has increased the 1995 estimated flow for the City of Lino Lakes by 11 %. 2. Increased cost to process sewage. The MCWS's cost to process (per million gallons) increased to an estimated $1,276 in 1995 from an estimated $1,243 in 1994. This represents an increase of 2.6 %. The combination of the above factors has increased the City's estimated cost in 1995 by 15 %. 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. This charge is collected as revenue of the water enterprise fund along with normal charges. Such amounts are then transferred to the Area and Unit Charge Fund which financed (or will finance) such improvements. During 1994 the City transferred $183,667 to the Area and Unit Charge Fund. The area and unit charge fund transferred $91,548 to the water enterprise fund for debt service payments on the revenue bond issue to construct the water tower. The water and sewer operations reflect retained earnings of $276,830 and $173,400, 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.