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MEMORANDUM
February 26, 2025
To: Adriana Robles, City of Salinas
From: Andrea Roess, Steve Runk, Nehal Thumar, DTA
Subject: Sewer Rate Analysis
The City’s current sewer rate structure has been in place for several years, with limited updates since its initial implementation. Over the years, the City has undertaken various studies to assess the adequacy of sewer rates in relation to the costs of op erating and maintaining the sewer system. Recently, the City hired DTA to evaluate potential rate structures and provide recommendations on how best to address funding gaps for sewer infrastructure upgrades and long-term sewer system needs.
I. Current Sewer Rate Structure
For Fiscal Year 2024 -25, the City’s sewer rate is set at $5.45 per Equivalent Dwelling Unit (“EDU”) per month. Based on data provided by Monterey OneWater (“Monterey One”), there are approximately 60,000 EDUs in the City. For reference, Monterey One is the sewer treatment provider in northern Monterey County. Monterey One is responsible for the treatment of wastewater while the City is responsible for collecting and transporting wastewater to Monterey One. This shared responsibility is r eflected on the monthly bill to property owners.
The current City sewer rate structure is intended to cover the City’s annual operation and maintenance (“O&M”) costs, as well as servicing existing debt obligations. The City sewer enterprise fund’s expected revenue and annual budget is projected to experience a shortfall of approximately $400,000 for Fiscal Year 2024-25 and will not meet the required 125% debt service coverage requirement on the existing bonds . In addition, the current budget does not include capital improvements required for system replac ements and upgrades. For reference, the existing rate of $5.45 per EDU would need to be increased to $9.54 to meet the 125% debt service coverage requirement on the existing bonds as well as fund $2 million for an O&M reserve fund as recommended by NHA Advisors, the City’s municipal advisor.
II. Rate Analysis
An essential element of the rate analysis is the capital costs and the timing of the facilities to be funded by the rate revenue. The Wallace Group (“Wallace”), the City’s engineering partner prepared a Capital Improvement Plan (“CIP”) outlining capital costs over a 10-year study period . The City then identified key infrastructure costs equal to $114.8 million (escalated value) to be funded through sewer rates and bonds over the 10 -year study period.
It is evident that there are many combinations of assumptions that affect the determination of a rate structure calculation that can potentially meet the revenue requirements on an annual basis. Factors including inflation, annual rate escalations, debt service and customer growth play into the determination of such a rate structure. DTA utilized a spreadsheet model to assist in analyzing various rate scenarios based on assumptions and analysis criteria as described in greater detail in Attachment 3 herein.
City of Salinas Sewer Rate Analysis
III. Proposed Sewer Rate Scenarios
DTA presents the following two rate scenarios based on the capital costs as described above:
o Scenario 1 – Fund annual O&M and a minimum level of capital costs through pay-as-you-go rate collections andthe maximum amount ofBonds assuming a minimum debt service coverage of 125% after final bond issue . This approach results in a large rate increase in the first year and escalates 2% annually thereafter.
o Scenario 2 – Fund annual O&M and a minimum level of capital costs through pay-as-you-go rate collections andthe maximum amount ofBonds assuming a minimum debt service coverage of 125%as well as an increase in the sewer rate of 4% annually.
Projections under both scenarios suggest that the City will have sufficient reserves to continue meeting debt service and capital needs by the end of FY 2034 -35. Please see the table below for a summary of the findings of each scenario:
Scenario Year 1
Monthly
Rate per
EDU
(2025)
Year 5
Monthly
Rate per
EDU
(2029)
Year 10
Monthly
Rate per
EDU
(2034)
Year 10 CIP
Fund
Balance
(2034)
Total Pay-
As-You-Go
for Facilities
Total
Bond
Proceeds
Total
Facilities
Funded
1- Costs funded between Pay-
Go and max Bonds (2% Annual
Rate Escalator)
$16.35 $17.70 $19.54 $7.5m $35.4m $79.4m $114.8m
2- Costs funded between Pay-
Go and max Bonds (4% Annual
Rate Escalator)
$15.00 $17.55 $21.35 $7.5m $34.8m $80.0m $114.8m
Please note that the rate shown above is a rate per EDU . This rate will be applied to the various land uses based on the EDU factor for each land use. For instance, one residential unit (1.00 EDU) would see a rate of $ 16.35 month, while a Hotel/Motel room (0.43 EDU) would see a rate of $7.03 per month.
Attachments :
1. Attachment 1 – Increase rate assuming maximum bonding capacity with minimum debt service coverage of 125% following final bond issue and annual rate increase of 2% (31% of costs funded through pay -as-you-go and 69% of costs funded with bond issues)
2. Attachment 2 – Increase rate assuming maximum bonding capacity with minimum debt service coverage of 125% and annual rate increase of 4% (30% of costs funded through pay-as-you-go and 70% of costs funded with bond issues)
3. Assumptions Utilized in the Rate Model
ATTACHMENT 1
SCENARIO 1:
INCREASE RATE
ASSUMING MAXIMUM
BONDING CAPACITY
WITH MINIMUM 125%
COVERAGE AFTER FINAL
BOND ISSUE AND
ANNUAL RATE
INCREASE OF 2%
(31% OF COSTS FUNDED
THROUGH PAY -AS-
YOU-GO AND 69% OF
COSTS FUNDED WITH
BOND ISSUES)
Study Year Number Current
Budget1 1 2 3 4 5 6 7 8 9 10
Calendar Year 2024-2025 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 2030-2031 2031-2032 2032-2033 2033-2034 2034-2035 Rate ($ per EDU -Monthly) 5.45$ 16.35$ 16.68$ 17.01$ 17.35$ 17.70$ 18.05$ 18.41$ 18.78$ 19.16$ 19.54$ 200.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% EDUs 60,558 60,558 61,164 61,776 62,393 63,017 63,647 64,284 64,927 65,576 66,232 Operations
Operating Revenue
City of Salinas Rate Revenue 3,960,518$ 11,881,554$ 12,240,377$ 12,610,037$ 12,990,860$ 13,383,184$ 13,787,356$ 14,203,734$ 14,632,687$ 15,074,594$ 15,529,847$ Investment Interest
Net Income Carry Forward from Prior Year 0 0 0 0 0 0 0 0 0 0 0 Inspection Fees
Total Operating Revenue 3,960,518$ 11,881,554$ 12,240,377$ 12,610,037$ 12,990,860$ 13,383,184$ 13,787,356$ 14,203,734$ 14,632,687$ 15,074,594$ 15,529,847$ 136,334,229$ Operational Expenses
Salaries and Benefits 1,954,090$ 2,100,647$ 2,258,195$ 2,427,560$ 2,609,627$ 2,805,349$ 3,015,750$ 3,241,931$ 3,485,076$ 3,746,457$ 4,027,441$ Supplies and Materials 241,000$ 259,075$ 278,506$ 299,394$ 321,848$ 345,987$ 371,936$ 399,831$ 429,818$ 462,055$ 496,709$ Outside Services 388,000$ 417,100$ 448,383$ 482,011$ 518,162$ 557,024$ 598,801$ 643,711$ 691,989$ 743,889$ 799,680$ Other Charges 397,500$ 427,313$ 459,361$ 493,813$ 530,849$ 570,663$ 613,462$ 659,472$ 708,932$ 762,102$ 819,260$ NPDES Allocation 536,920$ 577,189$ 620,478$ 667,014$ 717,040$ 770,818$ 828,629$ 890,777$ 957,585$ 1,029,404$ 1,106,609$ Total Operational Expenses 3,517,510$ 3,781,323$ 4,064,922$ 4,369,792$ 4,697,526$ 5,049,841$ 5,428,579$ 5,835,722$ 6,273,401$ 6,743,906$ 7,249,699$ 53,494,711$ Net Operating Income before Debt Service 443,008$ 8,100,231$ 8,175,455$ 8,240,245$ 8,293,334$ 8,333,343$ 8,358,777$ 8,368,012$ 8,359,286$ 8,330,688$ 8,280,148$ 82,839,518$ Debt Service
Current Debt Service 856,080$ 865,385$ 863,002$ 859,384$ 863,658$ 862,054$ 864,951$ 861,608$ 862,093$ 856,582$ 860,170$ 8,618,887$ First Issuance -$ -$ 2,832,990$ 2,832,990$ 2,832,990$ 2,832,990$ 2,832,990$ 2,832,990$ 2,832,990$ 2,832,990$ Second Issuance -$ -$ -$ -$ - $ 1,017,404$ 1,017,404$ 1,017,404$ 1,017,404$ 1,017,404$ Third Issuance -$ -$ -$ -$ - $ -$ -$ -$ 1,892,346$ 1,892,346$ Total Debt Service 856,080$ 865,385$ 863,002$ 3,692,374$ 3,696,648$ 3,695,044$ 4,715,346$ 4,712,002$ 4,712,487$ 6,599,323$ 6,602,911$ Debt Service Ratio (1.25 Minimum) 0.52 9.36 9.47 2.23 2.24 2.26 1.77 1.78 1.77 1.26 1.25 Net Operating Income After Debt Service (413,072)$ 7,234,846$ 7,312,453$ 4,547,871$ 4,596,685$ 4,638,299$ 3,643,432$ 3,656,010$ 3,646,799$ 1,731,365$ 1,677,237$ 42,684,997$ .
Transfer to Operating Reserve (2,000,000)$ -$ -$ - $ -$ -$ -$ -$ -$ Transfer to Capital Replacement Program (7,234,846)$ (5,312,453)$ (4,547,871)$ (4,596,685)$ (4,638,299)$ (3,643,432)$ (3,656,010)$ (3,646,799)$ (1,731,365)$ (1,677,237)$ (40,684,997)$ Net Year End Balance in Operating Account -$ -$ -$ -$ - $ -$ -$ -$ -$ -$ Fiscal Year 1 2 3 4 5 6 7 8 9 10
2024-2025 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 2030-2031 2031-2032 2032-2033 2033-2034 2034-2035 Operating Reserve Fund Balance
Carry Forward from Prior Year - $ -$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ Interest Earnings on Fund Balance 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ Less: Transfer Interest Earnings to Capital Fund 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ Less: Outlay - $ -$ -$ -$ -$ - $ -$ -$ -$ -$ -$
Year End Balance -$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ Fiscal Year 1 2 3 4 5 6 7 8 9 10
2024-2025 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 2030-2031 2031-2032 2032-2033 2033-2034 2034-2035 Capital Replacement Fund Balances
Carry Forward from Prior Year 0 -$ 1,071,724$ 32,208,550$ 16,578,055$ 52,013$ 8,906,534$ 3,513,557$ 52,494$ 19,623,900$ 11,590,980$ Transfer In from Operating Account 0 7,234,846$ 5,312,453$ 4,547,871$ 4,596,685$ 4,638,299$ 3,643,432$ 3,656,010$ 3,646,799$ 1,731,365$ 1,677,237$ 40,684,997$ Interest Earnings on Fund Balance 0 21,434$ 644,171$ 331,561$ 1,040$ 178,131$ 70,271$ 1,050$ 392,478$ 231,820$ 1,871,956$ Interest Earnings from Operating Reserve -$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 320,000$ Bond Issuance -$ 39,192,760$ -$ -$ 14,075,196$ -$ -$ 26,179,504$ -$ -$ Less: Capital Outlay for Projects -$ 6,163,122$ 13,389,822$ 20,862,537$ 21,494,288$ 9,900,014$ 9,254,539$ 7,227,344$ 10,295,947$ 10,196,763$ 6,037,883$ 114,822,258$ Year End Balance -$ 1,071,724$ 32,208,550$ 16,578,055$ 52,013$ 8,906,534$ 3,513,557$ 52,494$ 19,623,900$ 11,590,980$ 7,502,154$ Notes:
1. The current monthly rate per EDU of $5.45 is insufficient to meet operating expenses and debt service requirements. A monthly rate of $9.54 per EDU would be required to breakeven.
5.00% 5.00% 5.00%
30 30 30
3.50% 3.50% 3.50%
0.00% 0.00% 0.00%
6.51% 6.51% 6.51%
$43,550,000 $15,640,000 $29,090,000
Uniform Series Factor 0.065051 Uniform Series Factor 0.065051 Uniform Series Factor 0.065051 2,832,990$ 1,017,404$ 1,892,346$
BOND PROCEEDS 39,192,760$ BOND PROCEEDS 14,075,196$ BOND PROCEEDS 26,179,504$ 2 5 8
Assumptions: Criteria:
O&M Inflation Factor = 7.5% 1. Minimal year end balance at 10th year Total CIP Bond Proceeds PayGo Annual Rate Escalation= 2% 2. CIP funded through 31% rates and 69% bonds 114,822,258$ 79,447,459$ 35,374,799$ Annual EDU Growth Rate= 1% 3. Bonds Issued in Years 2,5 and 8 100.00% 69.19% 30.81% Minimum Debt Service Ratio= 1.25% 4. CIP based on costs and timeline provided by Wallace and adjusted by City Rate Stabilization Fund not required 5. Transfer of $2,000,000 to O&M reserve fund
ISSUANCE IN STUDY YEAR
BOND TERM (YEARS)
COST OF ISSUANCE (%)
BOND PREMIUM
RESERVE FUND
BOND AMOUNT
ANNUAL PAYMENT
COST OF ISSUANCE (%)
BOND PREMIUM
RESERVE FUND
BOND AMOUNT
ANNUAL PAYMENT
ISSUANCE IN STUDY YEAR
Totals
Totals
Years 1-10
City of Salinas - Sewer Rates/Max Bonding Capacity with minimum 125% coverage (31% PayGo with 69% Bonds) Calendar Years 2025-2034
AVERAGE COUPON
SECOND ISSUANCE
AVERAGE COUPON
THIRD ISSUANCE
AVERAGE COUPON
CIP Allocation
ISSUANCE IN STUDY YEAR
FIRST ISSUANCE
BOND TERM (YEARS)
COST OF ISSUANCE (%)
BOND PREMIUM
RESERVE FUND
BOND AMOUNT
ANNUAL PAYMENT
BOND TERM (YEARS)
ATTACHMENT 2
SCENARIO 2:
INCREASE RATE
ASSUMING MAXIMUM
BONDING CAPACITY
WITH MINIMUM 125%
COVERAGE AND
ANNUAL RATE
INCREASE OF 4%
(30% OF COSTS FUNDED
THROUGH PAY -AS-
YOU-GO AND 70% OF
COSTS FUNDED WITH
BOND ISSUES)
Study Year Number Current
Budget1 1 2 3 4 5 6 7 8 9 10
Fiscal Year 2024-2025 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 2030-2031 2031-2032 2032-2033 2033-2034 2034-2035 Rate ($ per EDU -Monthly) 5.45$ 15.00$ 15.60$ 16.22$ 16.87$ 17.55$ 18.25$ 18.98$ 19.74$ 20.53$ 21.35$ Annual Rate Escalation 175.23% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% EDUs 60,558 60,558 61,164 61,776 62,393 63,017 63,647 64,284 64,927 65,576 66,232 Operations
Operating Revenue
City of Salinas Rate Revenue 3,960,518$ 10,900,509$ 11,449,894$ 12,026,969$ 12,633,128$ 13,269,838$ 13,938,638$ 14,641,145$ 15,379,059$ 16,154,163$ 16,968,333$ Investment Interest
Net Income Carry Forward from Prior Year 0 0 0 0 0 0 0 0 0 0 0 Inspection Fees
Total Operating Revenue 3,960,518$ 10,900,509$ 11,449,894$ 12,026,969$ 12,633,128$ 13,269,838$ 13,938,638$ 14,641,145$ 15,379,059$ 16,154,163$ 16,968,333$ 137,361,675$ Operational Expenses
Salaries and Benefits 1,954,090$ 2,100,647$ 2,258,195$ 2,427,560$ 2,609,627$ 2,805,349$ 3,015,750$ 3,241,931$ 3,485,076$ 3,746,457$ 4,027,441$ Supplies and Materials 241,000$ 259,075$ 278,506$ 299,394$ 321,848$ 345,987$ 371,936$ 399,831$ 429,818$ 462,055$ 496,709$ Outside Services 388,000$ 417,100$ 448,383$ 482,011$ 518,162$ 557,024$ 598,801$ 643,711$ 691,989$ 743,889$ 799,680$ Other Charges 397,500$ 427,313$ 459,361$ 493,813$ 530,849$ 570,663$ 613,462$ 659,472$ 708,932$ 762,102$ 819,260$ NPDES Allocation 536,920$ 577,189$ 620,478$ 667,014$ 717,040$ 770,818$ 828,629$ 890,777$ 957,585$ 1,029,404$ 1,106,609$ Total Operational Expenses 3,517,510$ 3,781,323$ 4,064,922$ 4,369,792$ 4,697,526$ 5,049,841$ 5,428,579$ 5,835,722$ 6,273,401$ 6,743,906$ 7,249,699$ 53,494,711$ Net Operating Income before Debt Service 443,008$ 7,119,185$ 7,384,972$ 7,657,177$ 7,935,602$ 8,219,997$ 8,510,059$ 8,805,423$ 9,105,658$ 9,410,257$ 9,718,634$ 83,866,964$ Debt Service
Current Debt Service 856,080$ 865,385$ 863,002$ 859,384$ 863,658$ 862,054$ 864,951$ 861,608$ 862,093$ 856,582$ 860,170$ 8,618,887$ First Issuance -$ -$ 3,060,670$ 3,060,670$ 3,060,670$ 3,060,670$ 3,060,670$ 3,060,670$ 3,060,670$ 3,060,670$ Second Issuance -$ -$ -$ -$ - $ 1,034,968$ 1,034,968$ 1,034,968$ 1,034,968$ 1,034,968$ Third Issuance -$ -$ -$ -$ - $ -$ -$ -$ 1,685,483$ 1,685,483$ Total Debt Service 856,080$ 865,385$ 863,002$ 3,920,054$ 3,924,328$ 3,922,724$ 4,960,590$ 4,957,246$ 4,957,731$ 6,637,703$ 6,641,291$ Debt Service Ratio (1.25 Minimum) 0.52 8.23 8.56 1.95 2.02 2.10 1.72 1.78 1.84 1.42 1.46 Net Operating Income After Debt Service (413,072)$ 6,253,800$ 6,521,970$ 3,737,123$ 4,011,274$ 4,297,273$ 3,549,470$ 3,848,177$ 4,147,927$ 2,772,554$ 3,077,343$ 42,216,910$ .
Transfer to Operating Reserve (2,000,000)$ -$ -$ - $ -$ -$ -$ -$ -$ Transfer to Capital Replacement Program (6,253,800)$ (4,521,970)$ (3,737,123)$ (4,011,274)$ (4,297,273)$ (3,549,470)$ (3,848,177)$ (4,147,927)$ (2,772,554)$ (3,077,343)$ (40,216,910)$ Net Year End Balance in Operating Account -$ -$ -$ -$ - $ -$ -$ -$ -$ -$ Fiscal Year 1 2 3 4 5 6 7 8 9 10
2024-2025
Operating Reserve Fund Balance 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 2030-2031 2031-2032 2032-2033 2033-2034 2034-2035 Carry Forward from Prior Year - $ -$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ Interest Earnings on Fund Balance 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ Less: Transfer Interest Earnings to Capital Fund 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ Less: Outlay - $ -$ -$ -$ -$ - $ -$ -$ -$ -$ -$
Year End Balance -$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ Fiscal Year 1 2 3 4 5 6 7 8 9 10
2024-2025 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 2030-2031 2031-2032 2032-2033 2033-2034 2034-2035 Capital Replacement Fund Balances
Carry Forward from Prior Year 0 -$ 90,678$ 33,567,220$ 17,153,151$ 53,199$ 8,809,704$ 3,320,828$ 48,078$ 17,258,686$ 10,219,651$ Transfer In from Operating Account 0 6,253,800$ 4,521,970$ 3,737,123$ 4,011,274$ 4,297,273$ 3,549,470$ 3,848,177$ 4,147,927$ 2,772,554$ 3,077,343$ 40,216,910$ Interest Earnings on Fund Balance 0 1,814$ 671,344$ 343,063$ 1,064$ 176,194$ 66,417$ 962$ 345,174$ 204,393$ 1,810,424$ Interest Earnings from Operating Reserve -$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 40,000$ 320,000$ Bond Issuance -$ 42,342,580$ -$ -$ 14,318,182$ -$ -$ 23,317,667$ -$ -$ Less: Capital Outlay for Projects -$ 6,163,122$ 13,389,822$ 20,862,537$ 21,494,288$ 9,900,014$ 9,254,539$ 7,227,344$ 10,295,947$ 10,196,763$ 6,037,883$ 114,822,258$ Year End Balance -$ 90,678$ 33,567,220$ 17,153,151$ 53,199$ 8,809,704$ 3,320,828$ 48,078$ 17,258,686$ 10,219,651$ 7,503,504$ Notes:
1. The current monthly rate per EDU of $5.45 is insufficient to meet operating expenses and debt service requirements. A monthly rate of $9.54 per EDU would be required to breakeven.
5.00% 5.00% 5.00%
30 30 30
3.50% 3.50% 3.50%
0.00% 0.00% 0.00%
6.51% 6.51% 6.51%
$47,050,000 $15,910,000 $25,910,000
Uniform Series Factor 0.065051 Uniform Series Factor 0.065051 Uniform Series Factor 0.065051 3,060,670$ 1,034,968$ 1,685,483$
BOND PROCEEDS 42,342,580$ BOND PROCEEDS 14,318,182$ BOND PROCEEDS 23,317,667$ 2 5 8
Assumptions: Criteria:
O&M Inflation Factor = 7.5% 1. Minimal year end balance at 10th year Total CIP Bond Proceeds PayGo Annual Rate Escalation= 4% 2. CIP funded through 30% rates and 70% bonds 114,822,258$ 79,978,429$ 34,843,830$ Annual EDU Growth Rate= 1% 3. Bonds Issued in Years 2,5 and 8 100.00% 69.65% 30.35% Minimum Debt Service Ratio= 1.25% 4. CIP based on costs and timeline provided by Wallace and adjusted by City Rate Stabilization Fund not required 5. Transfer of $2,000,000 to O&M reserve fund COST OF ISSUANCE (%)
BOND PREMIUM
RESERVE FUND
BOND AMOUNT
ANNUAL PAYMENT
ISSUANCE IN STUDY YEAR ISSUANCE IN STUDY YEAR
BOND TERM (YEARS)
COST OF ISSUANCE (%)
BOND PREMIUM
RESERVE FUND
BOND AMOUNT
ANNUAL PAYMENT
City of Salinas - Sewer Rates/Max Bonding Capacity with minimum 125% coverage (30% PayGo with 70% Bonds) Fiscal Years 2025-2026 through 2034-2035
AVERAGE COUPON
SECOND ISSUANCE
AVERAGE COUPON
THIRD ISSUANCE
AVERAGE COUPON
Totals
Totals
Years 1-10
CIP Allocation
ISSUANCE IN STUDY YEAR
FIRST ISSUANCE
BOND TERM (YEARS)
COST OF ISSUANCE (%)
BOND PREMIUM
RESERVE FUND
BOND AMOUNT
ANNUAL PAYMENT
BOND TERM (YEARS)
ATTACHMENT 3
ASSUMPTIONS
Key assumptions for a 10-year study period:
7.5% Estimated Annual O&M Cost Inflation
3.0% Estimated Annual Capital Facilities Cost Inflation 2% Estimated Annual Rate Escalation for pay-as-you-go & bond scenario 1 and 4% for scenario 2 (i.e., costs funded between pay-as-you-go and bonds) 2% Estimated Investment Return on Reserve Balances
1% Annual Development Growth: The City and Wallace Group expects a modest increase in the number of EDUs over the next decade as the population grows.
Assumptions related to the bonding scenarios are as follows:
Bonds to be issued in Years 2, 5, and 8
Bond interest rate is equal to 5.00%
Construction proceeds equal to 90% of the bond issue amount Bond Term of 30 years
Minimum 125% debt service coverage
Rate model incorporates the following criteria:
Positive net operating income after debt service (i.e., net operating income is rate revenue less O&M and debt service)
Fund $2 million O&M reserve fund
Positive net operating income after debt service in any given year will be transferred to the Capital Replacement Fund
The beginning Capital Replacement Fund balance is $0(i.e., Capital Replacement Fund consists of net operating income deposited to fund plus interest earnings plus bond proceeds less costs for capital facilities)
Capital Replacement Fund expenditures over 10 years will be in accordance with the timeline provided by Wallace