#02 - Utility Financial Management Plan Updates

Home Browse Search

sufficiency, cash balances, debt load, and operating expense recovery were our main points of analysis. Sewer Fund For this internal review we focused most of our attention on the aforementioned goals of revenue- sufficiency and cash balances. In the Northland model from last year, the projected balance of the Sewer Fund was approximately $ 8.5 million after 10 years, so in keeping with that model, we set a loose target of maintaining $ 7 – 10 million in the fund. Given that we don’t project the CIP out more than 10 years, that allows us to complete a $2-3 million project outside our projection range and still have at least $5 – 7 million in that fund. Per on-going conversations regarding the city’s current overall debt load, we also wanted to avoid issuing new debt unless necessary or beneficial. Our current model does not include any new debt. There would be an opportunity to issue up to $3 million in debt for projects in order to manage cash flow or take advantage of low interest rates. The table below projects cash in the sewer fund with a standard rate increase of 3% per year. This model shows continued declines in cash reserves during this period. Those reserves would be below our goal of $7 million by 2029, below the cash reserve policy around 2033, and reaching zero by 2035. 3% for 10 years Again, these projections are all based on assumptions and could change drastically if there is unexpected development, so this particular scenario is maybe unlikely, and future updates to this plan will track that likelihood. In order to reach our goal of $7 million at the end of the 10-year period, there would need to be either unplanned development or a significant rate increase. The below tables show various rate increase implementation options and the resulting cash balances. We examined models that looked at larger increases in the first year or two, and a model that spread the increase evenly over 10 years.