2008 Water Rate and Fee Study - Lake Havasu City

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Section 4Financial PlanTable 4-2.Phased Increase to IDD Property Tax LevyFiscal Year Levy Per Acre Levy per ½ Acre2008-09 $100.74 $50.372009-10 156.74 78.372010-11 212.75 106.382011-12 268.85 134.43The proposed increases are necessary to fully fund operating and capital expenditures(including debt service and transfers) over the next three fiscal years while:1. Maintaining cash balances or reserves greater than 20% (70 days) of annual cashoperation and maintenance (O&M) costs. This requirement is a covenant of the2007 Water Infrastructure Finance Authority (WIFA) loan.2. Achieving a minimum of 1.20 times annual debt service or debt service coverage(DSC) ratio on existing and projected annual debt service. Attainment of thisratio provides some assurance that current period revenues will be sufficient torepay projected debt and is required by the WIFA and/or other bond holders.The first measure, a cash reserve ratio, is determined by dividing the end of year cashbalance by annual O&M expenses. The legal requirement is a reserve ratio of 20% and ismandated by the City’s loan agreement with WIFA. Appendix A summarizes theprojected end of year cash reserve ratio for the water fund.The second financial requirement is associated with the annual calculation of the DSCratio. DSC is a measure of a utility’s ability to repay its debt obligations. The proposedfinancial plan is designed to achieve a 1.20 times annual DSC ratio. At a ratio of 1.20,the revenues available for debt service would be 20% greater than the annual debt servicepayment. Appendix A summarizes the projected annual DSC ratio on existing andprojected annual debt service.While revenue increases in the most years of the study period are currently projected,adjustments to the increases projected may also be necessary depending on the level offuture CIP expenditures and a variety of other factors, including, but not limited to wateruse patterns, inflation, regulatory requirements, and availability of raw water. At aminimum, annual reviews should be used to periodically assess the condition of the waterfund and necessity of future rate revenue adjustments.The Water Fund expenditures are funded primarily by water charge revenues. Additionalrevenue sources include existing and anticipated increases to IDD property tax basedLake Havasu City2008 Water Rate and Fee Study49440144-2
Section 4Financial Planrevenues, a variety of miscellaneous charges and fees, interest income and water resourcedevelopment fee assessed to customers outside the IDD. Pages A – 1 through A – 5summarize the Water Fund financial plan.4.1.1.1. Water Charge RevenuesRed Oak projected existing rate revenues based on historical usage patterns and thecurrent water rate structure. These projections are adjusted based on customer growth aswell anticipated conservation and developed in a variety of worksheets included inAppendix A. Table 4-1 summarized projected increases to water rate revenues requiredas previously discussed. In section 6 of this report, a proposed water rate structure issummarized. The proposed structure is projected to generate the same amount of waterrate revenue required for FY 2009-10.4.1.1.2. IDD Property Tax RevenuesThe second primary revenue stream is the IDD property assessed per ½ acre. Table 4-2summarized the phased increases per acre.4.1.1.3. Development FeesThe Water Fund has an existing water resource development fee assessed to newdevelopment outside the IDD. This revenue stream is not sufficient to fully fund growthrelatedcapital cost requirements. A combination of debt and transfers from theoperations fund are required to fund the anticipated growth-related capital above theamount funded by projected development fee revenues.4.1.1.4. Miscellaneous Charges and Other RevenuesThe Water Fund has a variety of miscellaneous fee and charge revenues. The financialplan incorporates these revenues based on the FY 2008-09 budgeted revenues increasedby 1% per year throughout the study period.4.1.2. O&MPage A - 7 summarizes projected water utility O&M expenditures over the eleven yearstudy period. Projected O&M expenditures are based on the preliminary FY 2009-10budget and adjusted for anticipated inflation. O&M expenses include not only the directcosts associated with the water system, but also an allocation of City administration costs.In addition to inflation for current O&M costs, as the system grows and new facilities areconstructed, additional O&M costs will be required. Red Oak worked with City staff toproject the amount and timing and additional employees.4.1.3. CIPWater system capital improvement projects (CIP) are based on City staff provided lineitemCIP projections in current year dollars and summarized in page A – 13. Thedetailed project listing includes the dollar amount and timing over the eleven year studyLake Havasu City2008 Water Rate and Fee Study49440144-3
Page 1 and 2: Lake Havasu City2330 McCulloch Blvd
Page 3 and 4: Table of Contents6.4.1. Water Alloc
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