CITY OF SEBASTOPOL
Water and Sewer
Rate Study
i Rate Study ‐ Final Report
July 26, 2019
TABLE OF CONTENTS
TABLE OF CONTENTS ...................................................................................................................................... i Section 1 – Executive Summary ..................................................................................................................... 1
1.1 Study Overview ....................................................................................................................................... 1
1.2 Financial Plans ........................................................................................................................................ 1
1.3 Cash Reserve Targets .............................................................................................................................. 2
1.4 User Rates ............................................................................................................................................... 2
1.5 Findings and Recommendations ............................................................................................................ 2 Section 2 ‐ Introduction ................................................................................................................................. 5
2.1 Introduction ............................................................................................................................................ 5
2.2 Goal and Objectives ................................................................................................................................ 5
2.3 Overview of the Rate Study Process ....................................................................................................... 5
2.4 Organization of this Report .................................................................................................................... 6
2.5. Reliance on Data .......................................................................................................................................... 6 Section 3 – Overview of Financial Planning Principles, Processes and Issues .................................................. 7
3.1 Introduction ............................................................................................................................................ 7
3.2 Discussion of General Financial Planning Principles ............................................................................... 8
3.3 The Revenue Sufficiency Process ............................................................................................................ 9
3.3.1 Determination of the Revenue Requirements ............................................................................. 10
3.4 Financial Management Goals of the City .............................................................................................. 11
3.4.1 Cash Reserve Targets .................................................................................................................... 11
3.4.2 Debt Service Coverage .................................................................................................................. 12
3.4.3 Financial Management Conclusions ............................................................................................. 12 Section 4 – Rate Study Development and Results ........................................................................................ 13
4.1 Revenue Sufficiency Analysis ................................................................................................................ 13
4.1.1 General Methodology .................................................................................................................. 13
4.1.2 Data Items .................................................................................................................................... 13
4.1.3 FY 2018‐19 Beginning of Year Cash Balance ................................................................................. 14
4.1.4 FY 2018‐19 Budget ....................................................................................................................... 14
4.1.5 Capital Improvements Plan (CIP) .................................................................................................. 15 ii Rate Study ‐ Final Report
July 26, 2019
4.1.6 Outstanding Debt ......................................................................................................................... 15
4.1.7 General Assumptions ................................................................................................................... 16
4.2 Rate Design Analysis ................................................................................................................................... 20
4.2.1 General Methodology .................................................................................................................. 20
4.2.2 Review of Existing Rate Structure ................................................................................................ 20
4.2.3 Rate Design Analysis ............................................................................................................................ 22 Section 5 – Conclusions and Recommendations .......................................................................................... 27
5.1 Conclusions ................................................................................................................................... 27
5.2 Recommendations ........................................................................................................................ 27 1 | Page
Section 1 – Executive Summary
The City of Sebastopol (City) provides water and sewer service to approximately 3,400 customers. The City’s water and sewer enterprise funds are self‐supporting and fund the operations and maintenance (O&M) associated with the two utilities, capital projects and repayment of any associated debt, and routine repair and replacement of aging system components for the water and sewer systems. Water and Sewer user rate revenue provides a stable secure revenue source for the two utilities, is the primary revenue source for the operations of both utilities and can only be used for the two utilities. Revenue from water and sewer user rates cannot be used for any other general or special purpose. The main objective of this study was to develop five‐year financial plans that helps to ensure the water and sewer utilities are generating sufficient revenue over the five‐year period to cover the costs of operating the utilities. These financial plans include recommended rate revenue adjustments to ensure continued revenue sufficiency and stability. These are discussed in further detail in the body of this report.
1.1 Study Overview
The City contracted with Willdan Financial Services (“Willdan”), to complete a water and sewer rate study comprised of the following objectives:
Five‐Year Financial Plan: Identify the revenues required by each utility to meet the respective annual costs of operation, maintenance and system expansion.
Rate Update: Review and update the City’s existing water and sewer rates and comment on their adequacy to meet projected revenue requirements and the City’s objectives.
1.2 Financial Plans
The five‐year water and sewer financial plans were developed based on projected revenues and expenditures, system growth and recent consumption and discharge trends. The projections reflect the best available information and assessments developed and refined through numerous meetings and teleconferences between Willdan and City staff. Upon completion of the financial plans it was determined that revenues that would be generated through projected system growth, existing user rates and projected system utilization alone will not be sufficient to meet anticipated system expenditures, and additional rate revenue increases will be required.
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1.3 Cash Reserve Targets
Through the study process Willdan worked with City staff to identify and recommended financially prudent cash reserve targets for each utility to help ensure the financial viability of the water and sewer enterprise funds. The cash reserve targets include:
Operating Reserve: Cash reserve equivalent to 90 days of annual operations and maintenance expenses.
1.4 User Rates
As identified in section 1.2, additional rate revenue increases are projected during the five‐year study period.
The study also proposes refinements to the existing user rates, which are discussed in Section 4.2.3.
1.5 Findings and Recommendations
It is recommended that the City update the cashflow portion of this study each year to ensure projected revenue is sufficient to fund projected expenses going forward as assumptions made during this analysis may change and have a material impact on the analysis. As customer usage and discharge patterns change, or the composition of the City’s customer base changes, the City should conduct an in‐depth cost of service analysis to ensure appropriate allocation of costs to customer classes. The proposed revenue increases, and rates are illustrated in Table 1‐1 through 1‐3.
Table 1‐1
Projected Rate Revenue Increases
Fiscal Years Ending June 30
Description
Water Rate
Revenue Increases
Sewer Rate
Revenue Increases
2018‐19 0.0% 0.0%
2019‐20 4.0% 7.0%
2020‐21 3.0% 5.0%
2021‐22 3.0% 4.5%
2022‐23 2.0% 4.5%
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Table 1‐2
Proposed Water Rates
Fiscal Years 2019‐20 through FY 2022‐23
Bi‐Monthly Base Charge
Bi‐Monthly Charge ‐ $ Existing 19‐20 (1) 20‐21 (2) 21‐22 (2) 22‐23 (2) 5/8 x 3/4‐inch $49.11 $45.49 $46.96 $48.37 $49.33 1‐inch 82.03 76.16 78.14 80.79 82.41
1 ½‐inch 163.37 151.67 156.22 160.91 164.13
2‐inch 261.56 242.83 250.11 257.62 262.77
3‐inch 572.72 531.71 547.66 564.09 575.37
4‐inch 817.99 759.41 782.20 805.66 821.78
Volume Rate
Volume Rate ‐ $/100 CF 18‐19 19‐20 (1) 20‐21 (2) 21‐22 (2) 22‐23 (2) 0‐100 CF $0.00 $3.12 $3.22 $3.31 $3.38
100 to 3,000 CF 3.03 3.12 3.22 3.31 3.38
> 3,000 CF 3.20 3.12 3.22 3.31 3.38
(1) Effective January 1, 2020
(2) Effective July 1, 2020 and every July thereafter
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Table 1‐3
Proposed Sewer Rates
Fiscal Years 2019‐20 through FY 2022‐23
Bi‐Monthly Base Charge
Bi‐Monthly Charge ‐ $ Existing 19‐20 (1) 20‐21 (2) 21‐22 (2) 22‐23 (2) 5/8 x 3/4‐inch $74.50 $66.81 $70.15 $73.31 $76.61
1‐inch 124.28 111.60 117.18 122.46 127.97
1 ½‐inch 247.84 222.27 233.38 243.88 254.86
2‐inch 396.77 355.86 373.65 390.46 408.03
3‐inch 868.30 779.19 818.15 854.97 893.44
4‐inch 1,240.69 1,112.89 1,168.53 1,221.11 1,276.06 Flow Rate
Residential 0 ‐100 CF $0.00 $6.73 $7.06 $7.38 $7.71 Residential > 100 CF 6.60 6.73 7.06 7.38 7.71
Dining Facility (Take Out) 0 – 100 CF 0.00 6.73 7.06 7.38 7.71 Dining Facility (Take Out) > 100 CF 7.42 6.73 7.06 7.38 7.71 Dining Facility (On Premise) 0 – 100 CF 0.00 6.73 7.06 7.38 7.71 Dining Facility (On Premise) > 100 CF 9.19 6.73 7.06 7.38 7.71 All Other 0 – 100 CF 0.00 6.73 7.06 7.38 7.71
All Other 100 – 50,000 CF 6.60 6.73 7.06 7.38 7.71 All Other > 50,000 CF 5.49 6.73 7.06 7.38 7.71
(1) Effective January 1, 2020
(2) Effective July 1, 2020 and each July thereafter
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Section 2 - Introduction
2.1 Introduction
Willdan Financial Services (“Willdan”) was retained by the City of Sebastopol, California (“City”) to conduct a Water and Sewer Rate and Financial Study (“Rate Study”) for the City’s water and sewer utilities (“Utilities”).
This report details the results of the Rate Study analysis for the forecast period, fiscal year (FY) 2018‐19 through FY 2022‐23, the results of which are presented in this Rate Study Report.
The results of the Rate Study presented herein are a financial plan and suggested rate adjustments designed to provide revenues sufficient to fund the ongoing operating, maintenance and capital costs necessary to operate the City’s water and sewer utilities, while striving to meet the financial requirements and goals set forth by the City’s for the water and sewer enterprise funds.
Based on discussion with City staff, this report presents the recommended financial plans and adjustments to meet the City’s objectives.
2.2 Goal and Objectives
The primary goal of the Rate Study was to develop financial plans for each of the two utilities that evaluate the adequacy of the current revenue streams to meet ongoing costs (operations & maintenance, debt service and capital), and to maintain industry standard financially prudent cash reserves. More specifically the Rate Study was undertaken to:
Conduct the analysis in accordance with industry standards consistent with American Water Works (“AWWA”) and Water Environment Federation (“WEF”) guidelines; Develop financial plans consistent with industry standards and best practices while recognizing the needs specific to the City; and
Recommend rates that adhere to and meet Proposition 218 requirements which requires a matching between the fees being assessed to customers and the cost they place on the systems.
2.3 Overview of the Rate Study Process
The rate study process for each of the two utilities consists of two primary study components. First, a determination of the adequacy of system revenues to meet system expenses during the study forecast period must be made. The result of this analysis, known as the Revenue Sufficiency Analysis, is an assessment of the ability of the existing revenue stream to meet the projected financial requirements of the system during the 6 | Page
forecast period and, to the extent required, the identification of the magnitude and timing of any required rate adjustments.
Next, a determination of the adequacy of existing user rates and charges to meet the City’s goals and objectives, and a review of these current rates and charges.
2.4 Organization of this Report
This Rate Study presents an overview of the rate‐making concepts employed in the development of the analysis contained here. The analysis is followed by a discussion of the data, assumptions and results associated with each component of the analysis. Finally, appendices with detailed schedules are presented for further investigation and insight into the data, assumptions and calculations which drive the results presented in this Rate Study. The report is organized as follows:
• Section 1 – Executive Summary
• Section 2 – Introduction
• Section 3 – Overview of Utility Rate‐Making Principles, Processes and Issues • Section 4 – Rate Study Development and Results
• Section 5 – Conclusions and Recommendations
• Appendix A –Water System Financial Plan
Appendix B – Sewer System Financial Plan
Appendix C – Water Cost of Service Analysis and Rate Design Appendix D – Sewer Cost of Service Analysis and Rate Design
2.5. Reliance on Data
During this project the City (and/or its representatives) provided Willdan with a variety of technical information, including capital cost and demographic data. This data was used by Willdan in the process of developing the financial plans and recommended rates adjustments. Willdan did not independently assess or test for the accuracy of such data, historic or projected, but worked with City staff to better understand the data and its sources and believe it to be the best available information at the time of the study.
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Section 3 – Overview of Financial Planning
Principles, Processes and Issues
3.1 Introduction
The scope of this study included the development of water and sewer financial plans for the planning period FY 2018‐19 through FY 2022‐23.
The scope of this study also included the development of cost‐based water and sewer user charges through a cost of service and rate design analysis. Utility rates must be set at a level where operating, maintenance and capital expenses are met with the revenues received from customers; and that revenues generated from utility rates are used only for this purpose. This is a significant point, as failure to achieve this level could lead to insufficient funds being available to adequately maintain the system. A comprehensive rate study typically consists of following three interrelated analyses:
I. Financial Planning/Revenue Requirement Analysis: Create a five‐year plan to support an orderly, efficient program of on‐going maintenance and operating costs, capital improvement and replacement activities, debt financing, and retirement of any outstanding debt.
In addition, the long‐term plan should fund and maintain appropriate reserve balances to adequate levels based on industry standards and the City of Sebastopol’s fiscal policies and specific needs.
II. Cost of Service Analysis: Identifies and apportions annual revenue requirements to functional cost components based on the demand placed on the utility system.
Rate Design: Develops an equitable and proportionate fixed/variable schedule of rates for the City’s customer base. The policy objectives are harmonized with cost of service objectives to achieve the delicate balance between customer equity and financial stability goals. The balance of fixed and variable charges ensures that the City has a stable revenue source (the fixed charge) and the variable component of the rate structure helps to ensure those customers who place higher costs on the system (through higher water and sewer use) incur a higher bill reflective of their system use.
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This Rate Study utilized generally accepted rate‐making principles and standards established by the industries governing bodies, American Water Works Association (AWWA) in its “M1 Principles of Water Rates Fees and Charges” manual and by the Water Environment Federation (WEF) in its “Financing and Charges for Sewer Systems, Manual of Practice No. 27 (2004)”. The principles used resulted in the development of rates and charges which are projected to: 1) generate sufficient revenue to meet the financial requirements of the water and sewer utilities, and 2) address the need to recover costs from users in a manner which is proportionate to the cost of providing service on a fair and equitable basis relative to the service provided, and which does not exceed the cost of providing the service. A discussion of some of the key principles of rate‐making, and how the processes employed herein are guided by those principles, is presented below.
3.2 Discussion of General Financial Planning Principles While the individual rates for each of the utilities vary based on a variety of factors, rates should be consistent with general rate‐making principles set forth in utility rate‐making practice and literature. The principles by which rate practitioners are guided is that rates designed for any utility should strike a reasonable balance between several key factors. In general, rates designed should:
Generate a stable rate revenue stream which, when combined with other sources of funds, is sufficient to meet the financial requirements and goals of the utility; Be based upon the proportionate cost of providing the service and not exceed the cost of providing the service;
Rate Design Analysis
Considers both the level and structure of the rate design to collect the appropiate and targeted level of revenues Cost of Service Analysis
Allocates the revenue requirements to the fixed/variable cost components based on cost of service.
Revenue Requirement Analysis
Compares the revenues to the expenses of the utility
to determine the overall rate adjustment required
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Be fair and equitable – that is, they should generate revenue from customer classes which is reasonably in proportion to the cost to provide service to that customer class; Be easy to understand by customers; and
Be easy to administer by the utility.
Striking the appropriate balance between the principles of rate‐making is the result of a detailed process of evaluation of revenue requirements and cost of service, and how those translate into the rate design alternatives which meet legal requirements and the specific objectives of the utility under the circumstances in which it operates. A review of the City’s existing rates and their adherence to these principles is discussed in Section 4.2.2 of this report.
3.3 The Revenue Sufficiency Process
In order to evaluate whether existing rates and charges which will generate sufficient revenue to meet the fiscal requirements of the water and sewer utilities, a determination of the annual rate revenue required must be completed. The first step in the process is the Revenue Sufficiency Analysis. The Revenue Sufficiency Analysis compares the forecasted revenues of the utility under its existing rates to its forecasted operations and maintenance, capital, and reserve costs to determine the adequacy of the existing rates to recover the utility’s costs.
The process employed in the Revenue Sufficiency Analysis involves a rigorous review of operating, maintenance and capital budgets for the utility, and results in the identification of revenue requirements of the system, such as operating expenses, capital expenses (minor and major), debt service expense (including a provision for debt service coverage), transfers in and out, and the maintenance of both restricted and unrestricted reserves at appropriate levels. These revenue requirements are then compared to the total sources of funds available during each year of the forecast period to determine the adequacy of projected revenues to meet projected revenue requirements. To the extent that the existing revenue stream is projected to be insufficient to meet the annual revenue requirements of the system during the projection period, a series of recommended rate revenue increases are calculated which if enacted, would provide revenue sufficient to meet those needs.
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3.3.1 Determination of the Revenue Requirements
Considerations in Setting Revenue Requirements
There are a multitude of considerations, ranging from financial to political to legal that must be analyzed or discussed during the revenue requirements process of a rate analysis. This section provides an overview of the considerations that are reviewed during this process.
Capital Budgeting and Financing
Capital needs are identified in the City’s Water and Sewer Capital Improvement Plan which is updated on an annual basis. As part of its budget and planning process, the City identifies capital improvements that are necessary for the continued delivery of clean, safe, drinking water, and collection and treatment of sewer flows. The Capital Improvement Plan is funded by a variety of sources including, utility rates and capital reserves.
Capital Funding: Debt vs. PAYGO
The selection of the appropriate funding strategy for capital projects is primarily a policy decision between use of cash (“Pay‐as‐you‐go financing” or PAYGO), the issuance of debt, or a combination. PAYGO is the use or build‐up of cash to fund capital improvements. With debt financing, capital improvements are funded with borrowed funds (usually through the issuance of bonds) with the obligation of repayment, typically with interest, in future years. Development of an optimal capital financial plan depends on the definition of optimal. Each funding mechanism has a different impact on water rates in the short and long run, different net present values, risks, and legal obligations. Due to the borrowing costs associated with debt, cash funding can be cheaper in the end( by not having to incur interest costs on borrowed money) ; however, debt typically ensures greater generational equity for larger and longer lasting capital projects (by contributing to annual debt payments, new customers who connect to the system help pay for the infrastructure that was installed prior to their arrival, but still benefits them).
The City, as is typical for a public utility, operates its water and sewer utilities on a “cash basis”. Under the “cash basis” approach, revenues and expenses are recognized at the time physical cash is received or paid out. Revenue requirements are determined for a specified period of time (in the case of the City an annual fiscal year), by summing the total anticipated expenses to be paid out during the fiscal year. Where cash flows and balances are insufficient, the revenue requirements analysis recommends the needed additional cash flows to meet all funding goals. The two primary categories of expenses are as follows:
Realities
Principles
Policies
Bond (Legal) Covenants
Laws/Regulations
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• Operations and Maintenance (O&M) expenses, such as salaries and benefits of utility personnel, transfers out, existing and anticipated debt service, and reserves; and • Capital expenses, such as the annual capital improvement program, including waterline replacements and sewer treatment plant related projects.
Financial Planning
In the development of the revenue requirements, certain parameters are utilized to project future expenditures, growth in customers and consumption, and necessary revenue adjustments. The City’s budget documents are used as the baseline, which are then projected over a planning horizon to account for fluctuations in costs from year to year as well as any adjustments to debt service payments. Growth assumptions and prudent financial planning are fundamental in ensuring adequate rate revenue to promote financial stability. The financial model developed for this study considers the City’s existing debt service coverage ratio and operating cash balances (cash on hand). As existing debt is redeemed, additional debt may be utilized to fund additional capital improvements required due to aging infrastructure.
3.4 Financial Management Goals of the City
The establishment of specific financial management goals of a utility is a key step in developing financial plans which will ensure the financial health of the utility remains strong. The financial management goals of the City are described below.
3.4.1 Cash Reserve Targets
In order to maintain financially stable and sustainable utilities, the City has identified a reserve target for each utility that it strives to maintain. The reserve target is identified in Table 3‐1.
Table 3‐1
Reserve Targets
Reserve Purpose
Minimum
Balance
Water and Sewer
Operating Reserves
Manage timing differences
between revenue receipt and
expense payments
90 days of
O&M
While it is not essential that the City meet the operating reserve on annual basis (it is not a legal requirement), prudent financial planning suggests that the City should strive to maintain the operating reserve and should not dip below the minimum balance on a continuous basis. 12 | Page
3.4.2 Debt Service Coverage
The City currently has outstanding water and sewer related debt which contains covenants requiring the City to maintain rates and charges such that a debt service coverage ratio, defined as Current Year Net Revenues divided by Maximum Annual Debt Service, be maintained at a minimum of 1.20. The coverage requirement of 1.20x is associated with all outstanding debt for each specific year the coverage is being calculated. The recommended revenue increases presented herein results in the achievement of this goal in each year of the forecast period. While the operating reserve target identified in section 2.6.1 is a City policy, the debt service coverage requirement is a legal obligation that must be met on an annual basis.
3.4.3 Financial Management Conclusions
The City’s utilities should strive to satisfy both tests (while only debt service coverage is a legal requirement) as each test provides a different perspective on the utilities’ revenue needs and overall financial viability. An appropriate level of revenue requirements may result in an overlapping of the tests such that each separate set of objectives are met. As an example, the need to maintain a 1.20 times debt service coverage may generate a positive cashflow allowing for the funding of the identified cash reserve targets. Similarly, the need to meet and maintain the cash reserve targets may generate sufficient cashflow to meet the required debt service coverage ratio on an annual basis. The ability of the utilities to satisfy both sets of requirements will reduce overall financial risk, increase stability and help with a long‐term strategy of utility financial planning. 13 | Page
Section 4 – Rate Study Development and Results
4.1 Revenue Sufficiency Analysis
4.1.1 General Methodology
In order to develop rates and charges which generate sufficient revenue to meet the fiscal requirements of the City, a determination of the annual required revenue from rates which, when combined with other sources of funds, will provide sufficient funds to meet those fiscal requirements must first be completed. This process is typically referred to as a Revenue Sufficiency Analysis.
The process employed in the Revenue Sufficiency Analysis resulted in the identification of revenue requirements of the system, such as operating expenses, capital expenses (minor and major), debt service expense (including a provision for debt service coverage, as applicable), transfers out and the maintenance of both restricted and unrestricted reserves at appropriate levels. These revenue requirements were then compared to the total sources of funds during each year of the forecast period to determine the adequacy of projected revenues to meet requirements. To the extent that the existing revenue stream is not sufficient to meet the annual revenue requirements of the system, a series of rate revenue increases are calculated, which I implemented, would provide revenue sufficient to meet those needs.
4.1.2 Data Items
Key data items reviewed, discussed and incorporated into the Revenue Sufficiency Analysis were:
Financial management goals of the City
FY 2018‐19 Beginning of Year Fund Balances;
FY 2018‐19 Adopted Budget;
Capital Improvement Needs based on City’s plans;
Outstanding Debt Schedules;
General assumptions related to:
Customer growth;
Cost escalation factors;
A discussion of the use of each of the above data items is presented below. 14 | Page
4.1.3 FY 2018-19 Beginning of Year Cash Balance
To better understand the available funds the City’s utilities had on hand to start the forecast period, a detailed review of cash balances as of the beginning of FY 2018‐19 was conducted and discussed with City staff. A summary of the fund balances associated with the water and sewer utility enterprise funds for the beginning of FY 2018‐19, as adjusted for use in this analysis, is presented in Table 4-2 below.
Table 4‐2
Beginning Fund Balance
Fiscal Year Ending June 30, 2019
Description Water Sewer
Cash Balance $2,367,968 $2,543,174
4.1.4 FY 2018-19 Budget
Staff provided Willdan with the FY 2018‐19 Adopted Budget, and associated line‐item detail, as the basis for the financial projections for the forecast period. The line‐item projected expenses for FY 2018‐19 were used as the basis for the projection of future budgetary line‐items for the remainder of the forecast period.
Cost escalation factors were reviewed by staff and were used to project increases in line‐item costs beyond the FY 2018‐19 budget. Those factors were applied based on line‐item cost classifications.
A summary of the FY 2018‐19 budget, and subsequent projected budgetary expenses is presented below in Table 4‐3. A more detailed presentation of the line‐item budgeted and projected revenues and expenses is presented in Schedules A‐2 through A‐4 and B‐4 through B‐4 respectively, in the Appendices. 15 | Page
4.1.5 Capital Improvements Plan (CIP)
The City provided Willdan with a forecast of capital requirements for the study period. The CIP provided by the City was provided in current day dollars and has been escalated for future years using an inflationary rate of 3.00%. The CIP items were identified as being non‐growth‐related, growth‐related or a combination of both.
The water inflated CIP for FY 2018‐19 through FY 2022‐23 totals $0.823 million. The sewer inflated CIP for FY 2018‐19 through FY 2022‐23 totals $2.650 million. A summary table of the CIP (in inflated dollars) for the FY 2017‐18 – FY 2022‐23 forecast period is presented below in Table 4‐4. The CIP is presented in Schedules A‐5 and B‐5, respectively, in the Appendices.
Table 4‐4
Capital Improvement Plan
Fiscal Years Ending June 30 ($ thousands)
FY 18‐19 19‐20 20‐21 21‐22 22‐23 Total
Water $478 $46 $0 $0 $298 $823
Sewer 1,011 46 371 546 675 2,650
Note: Values are rounded to the nearest $1,000
4.1.6 Outstanding Debt
The City, like many utilities, has utilized long‐term debt to fund capital assets in the past. The City has both outstanding water and sewer debt and the financial plans anticipate need for the issuance of new sewer related debt ($684,000 between FY 2021‐22 and FY 2022‐23), based on planned capital projects. Issuance of debt provides a reasonable generational matching between the use of the facilities or infrastructure to be constructed and the rate payers who will be benefiting from the assets. Because the debt is retired over time, Table 4‐3
Operating Budget
Fiscal Years Ending June 30
Description 2018‐19 2019‐20 2020‐21 2021‐22 2022‐23 Water
O&M $2,098,186 $2,017,822 $2,052,607 $2,114,185 $2,177,610 Debt Service and Loans 291,978 261,438 300,474 286,391 286,391 Cash Funded Capital 478,190 46,350 0 0 298,260
Total Expenses $2,868,354 $2,325,610 $2,353,081 $2,400,576 $2,762,250 Sewer
O&M $2,341,700 $2,428,833 $2,607,466 $2,800,499 $3,234,814 Debt Service and Loans 695,010 685,610 724,260 705,856 709,941 Cash Funded Capital 1,010,522 46,350 371,315 368,795 168,826 Total Expenses $4,047,232 $3,160,793 $3,703,041 $3,875,150 $4,113,581 16 | Page
new customers who connect to the system in the future will share (through their rates) in the cost of the assets that they will benefit from through their use of the system.
4.1.7 General Assumptions
In order to develop the financial and rate projections, certain assumptions were made with regard to elements of the revenue sufficiency analysis. A summary of those assumptions is presented below.
4.1.7.1. System Growth
The City anticipates growth of the water and sewer systems of approximately 0.5% per year and an additional
1.1% increase in 2021 with the opening of a new hotel.
4.1.7.2. O&M Escalation Factors
Willdan worked with City staff to identify reasonable cost escalation factors to be applied to operations and maintenance expenses in recognition of increasing costs over time. It was determined that a 3% inflationary factor represented a reasonable estimate of annual cost increases during the study period.
4.1.7.3. Debt Service Coverage
The City’s bond covenants require a 1.20 times debt service coverage on a combined water and sewer utility basis. Our analysis shows that the water and sewer utilities revenues are sufficient to meet or exceed this requirement for the FY 2018‐19 through FY 2022‐23 period on existing debt and new debt. The debt service coverage ratios are summarized in Table 4‐5 below.
Table 4‐5
Debt Service Coverage by Fiscal Year
FY Target 18‐19 19‐20 20‐21 21‐22 22‐23
Water 1.20 1.26 2.47 3.63 4.47 4.46
Sewer 1.20 24.36 25.02 30.15 74.54 18.71
4.1.7.4. Results of the Revenue Sufficiency Analysis
After a thorough review of the above‐mentioned data elements, a draft of the Revenue Sufficiency Analysis was developed and reviewed with City staff. This draft provided the forum in which various alternative assumptions were discussed, tested and evaluated for both their reasonableness and their impact upon the ultimate financial health of the utilities.
The resulting financial plan presented herein is the embodiment of the data, assumptions and review process undertaken with City staff through the course of several meetings. Table 4‐6 provides a summary of the annual 17 | Page
revenue requirements (O&M, debt service and CIP) for both the water and sewer utilities incorporating the assumptions in Section 4.1.7 of this report as compared to the revenues under existing rates and system growth.
Table 4‐6
Revenue Requirements vs. Revenue Under Existing Rates
Fiscal Years Ending June 30 ($ thousands)
18‐19 19‐20 20‐21 21‐22 22‐23
Water
Beginning Cash Balance $2,368 $1,779 $1,721 $1,671 $1,584 Revenue Under Existing Rates 2,279 2,268 2,304 2,313 2,323 O&M, Debt Service & Cash Funded Capital 2,868 2,326 2,353 2,401 2,762 Net Cashflow (589) (58) (49) (88) (439)
Ending Cash Balance $1,779 $1,721 $1,671 $1,584 $1,144 Sewer
Beginning Cash Balance $2,543 $1,534 $1,411 $800 ($156) Revenue Under Existing Rates 3,038 3,038 3,092 3,098 3,108 O&M, Debt Service & Cash Funded Capital 4,047 3,161 3,703 4,052 4,484 Net Cashflow (1,009) (123) (611) (956) (1,286)
Ending Cash Balance $1,534 $1,411 $800 ($156) ($1,443) Note: Values are rounded to the nearest $1,000
The revenues and expenditures identified in Table 4‐6 represent revenues under existing rates and system growth and operating expenditures. As noted in the table, revenues increasing by just system growth is not sufficient to meet ongoing expenses. Revenue are projected to increase by 0.5% per year due to new connections, while O&M expenses are projected to increase by 3% a year. There are additional cash inflows and outflows for both utilities which are identified in Table 4‐8 ‐ Net Operating Fund Results.
4.1.7.2. Rate Revenue Increases Required
Our analysis of the water and sewer utilities indicate that assuming all capital expenditures occur as projected, there will not be sufficient operating revenue to fund ongoing operations and maintenance, routine repair and replacement of aging system components, planned capital improvements, and debt service throughout the study period. In part this is because anticipated growth is projected to be less than the expected cost increases associated with operating expenses. Therefore, we recommend increases each year for both the water and the sewer utilities in order to maintain pace with increasing operating costs, fund capital needs and pay annual debt service.
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Table 4‐7 below reflects our projections of revenue increases required during the forecast period in order for the City to meet its ongoing operational costs.
Table 4‐7
Projected Rate Revenue Increases
Fiscal Years Ending June 30
Description
Water Rate
Revenue Increases
Sewer Rate
Revenue Increases
2018‐19 0.0% 0.0%
2019‐20 4.0% 7.0%
2020‐21 3.0% 5.0%
2021‐22 3.0% 4.5%
2022‐23 2.0% 4.5%
A more detailed presentation of the pro forma, including a fund balance reconciliation is presented in Schedules A‐1 and B‐1 of the appendices.
4.1.7.3. Summary of Revenue Sufficiency Analysis
The resulting financial plans, including recommended revenue adjustments. are presented in Table 4‐8, and provide for funding of projected revenue requirements during the forecast period.
A more detailed presentation of the financial plan, including fund balance reconciliations for each fund, is presented in Schedules A‐1 and B‐1 in the appendices.
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Table 4‐8
Projected Net Operating Fund Results
Fiscal Years 2018‐19 to 2022‐23
($ thousands)
Description 18‐19 19‐20 20‐21 21‐22 22‐23
Water
Beginning Cash Balance $2,368 $1,779 $1,765 $1,877 $2,026
Total Revenue 2,279 2,312 2,465 2,549 2,611
Operating Expenses 2,098 2,018 2,053 2,114 2,178 Net Revenue 181 295 413 435 433
Less:
CIP, Debt Service (Existing) and Loans 770 308 300 286 585 Net Cash Flow (589) (13) 112 149 (151)
Ending Cash Balance $1,779 $1,765 $1,877 $2,026 $1,875 Sewer
Beginning Cash Balance $2,543 $1,534 $1,517 $1,288 $1,045
Total Revenue 3,038 3,144 3,474 3,643 3,822
Operating Expenses 2,342 2,429 2,607 2,800 3,009 Net Revenue 696 715 867 843 813
Less:
CIP, Debt Service (Existing & New) and Loans 1,706 732 1,096 1,086 922 Net Cash Flow (1,009) (17) (229) (243) (109)
Ending Cash Balance $1,534 $1,517 $1,288 $1,045 $936 Note: Variances are due to rounding values to the nearest $1,000
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4.1.6.7. Revenue Sufficiency Analysis Conclusions
Based on the revenue requirements identified in our analysis, it is our opinion that:
Revenue projections based on existing rates are insufficient to meet the revenue requirements for FY 2018‐19 through FY 2022‐23;
Rate revenue adjustments are needed for both utilities in order to keep pace with increasing O&M and capital costs; and
The proposed rate revenue increases identified in Table 4‐7, are needed to ensure debt service coverage and operating reserve targets are met based upon the assumptions contained in this report.
4.2 Rate Design Analysis
4.2.1 General Methodology
With the rate revenue requirement determined in the Revenue Sufficiency Analysis, the development of specific rates and charges was completed as described below.
First, the rate design goals of the City were reviewed to identify areas the City wanted to address over the forecast period included in this Rate Study. Next, an assessment of the existing rate design was completed to identify areas which have worked well for the City with regard to their specific goals and objectives, and the general goals and objectives of utility rate‐making. In addition to the City’s goals, rate design should seek to achieve the following industry standard objectives:
Generate a stable rate revenue stream which, when combined with other sources of funds, is sufficient to meet the financial requirements and goals of the utility; Be fair and equitable – that is, they should generate revenue from customer classes which is reasonably in proportion to the cost to provide service to that customer class; Be easy to understand by customers; and
Be easy to administer by the utility;
Be compliant with California State law, specifically Proposition 218, whereby the rates must be based upon the proportionate cost of providing water and sewer service.
4.2.2 Review of Existing Rate Structure
The City’s current water rates are comprised of two components, first a bi‐monthly base charge which varies by meter size and includes the first 100 cubic feet (CCF) and second a volume rate per 100 cubic feet of 21 | Page
additional water use. The volume component of the rate structure is comprised of increasing rates for 3 tiers of water usage; 0 to 100 cubic feet (included with the base charge) 100 cubic feet to 3,000 cubic feet of volumetric use and use above 3,000 cubic feet. The volume rate component of the water rate structure is the same for all customer classes. The City’s sewer rate structure is comprised of a bi‐monthly base charge which varies by meter size and includes the first 100 cubic feet of discharge. The flow component rate varies based on class (residential, dining facility take out, dining facility on premise, all other up to 50,000 cubic feet and all other over 50,000 cubic feet).
4.2.2.1. Allocation to Cost Categories
Water costs are allocated based on their need to meet base demand, peak demand (max day and max hour water needs), as well as customer service costs such as billing and collection. Table 4‐9 summarizes the cost of service for the City’s water costs.
Table 4‐9
Water System ‐ Summary of Functional Allocations to Cost Categories Fiscal Year 2019‐20
Functional Cost Base Max Day Max Hour Meters &
Services
Billing &
Collection Total
Source of Supply $46,350 $0 $0 $0 $0 $46,350
Treatment 251,094 53,806 ‐ ‐ ‐ 304,900
Transmission &
Distribution 27,161 5,820 43,069 ‐ ‐ 76,050
Administration (1) 807,936 ‐ ‐ 414,468 414,468 1,636,872 Debt Service 261,438 ‐ ‐ ‐ ‐ 261,438
Non‐Operating
Revenue/Changes in
Reserves (2) (31,799) (1,360) (982) (9,455) (9,455) (53,050) Total $1,362,181 $58,266 $42,087 $199,390 $199,390 $2,272,560 Units
(CCF/Meters/Bills) 371,122 1,913 5,739 26,745 20,562 Cost per Unit $3.67 $30.46 $7.33 $15.14 $19.70
(1) Administration costs include O&M costs such as salaries, supplies and cost allocations from the General Fund.
(2) A positive value results in an increase of reserves through rates, while a negative value indicates use of non‐operating revenue and existing reserves to meet annual expenses in addition to rates.
Table 4‐9 illustrates the allocated costs to provide water service to customers. Total costs are allocated to functional categories such as treatment or transmission and distribution and then to cost categories such as base or max day.
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Sewer costs are allocated based on their need to meet general capacity requirements, as well as customer related costs such as billing and collection. Table 4‐10 summarizes the cost of service‐based allocation of the City’s Sewer costs.
Table 4‐10
Sewer System ‐ Summary of Functional Allocations to Cost Categories Fiscal Year 2019‐20
Functional Cost Volume and
Capacity
Customer
Service/Billing
& Collection
Total
Collection & Treatment $103,600 $0 $103,600
Administration (1) 649,267 649,266 1,298,533
Subregional O&M (2) 513,350 513,350 1,026,700
Debt Service 671,526 14,085 685,610
Transfers 46,350 ‐ 46,350
Changes in Reserves (3) (25,277) (14,991) (40,268)
Total $1,958,815 $1,161,710 $3,120,525
Units (CCF/Bills) 220,332 20,658
Cost per Unit $8.89 $56.24
(1) Administration costs include O&M costs such as salaries, supplies and cost allocations from the General Fund.
(2) City of Santa Rosa Subregional Water Reclamation treatments costs (pass through to the City)
(3) A positive value results in an increase of reserves through rates, while a negative value indicates use of non‐operating revenue and existing reserves to meet annual expenses in addition to rates.
4.2.2.1. Summary of Cost of Service Analysis
The Cost of Service Analysis presented herein sets forth how to appropriately recover the rate revenue requirements for FY 2019‐20 and subsequent years. The allocations presented herein were used, along with the other goals and objectives of the utility, in the development of the water and sewer rates and charges presented in the next section.
4.2.3 Rate Design Analysis
4.2.3.1. General Methodology
With the rate revenue requirement determined in the Revenue Sufficiency Analysis, and allocations previously described in the Cost of Service Analysis, the development of specific rates and charges was completed as described below.
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First, the rate design goals of the City were reviewed to identify areas the City wanted to address over the forecast period included in this Rate Study. Next, an assessment of the existing rate design was completed to identify areas which have worked well for the City with regard to their specific goals and objectives, and the general goals and objectives of utility rate‐making.
With an evaluation of the existing rate structure, and the goals of the City going forward, the analysis required for the development of alternative rate structures was then completed. Cost of service and rate design schedules can be found in Appendices C and D. It is important to note that the revenue requirement portion of the study identifies the additional revenue that is needed, while the cost of service and rate design portions of the study identify how the revenue will be generated, in other words each class of customer will have rates designed that are based on the proportionate cost of providing service to them, and which do not exceed the cost of providing service to them.. As such, the overall percentage system‐wide revenue increase identified in the revenue requirements analysis may not directly translate to the same percentage increase in rates for each customer classes.
4.2.3.2. Proposed Water Rate Structure Changes
Through discussions with City staff it was determined that improvements could be made to simplify the existing water rate structure. The current water rate structure is comprised of multiple tiers. The proposed rate structure is simplified and is comprised of a single uniform volume rate for all water use and all customers.
Table 4‐11 illustrates the proposed monthly water fixed charges through FY 2022‐23.
Table 4‐11
Proposed Water Rates
Fiscal Years 2019‐20 through FY 2022‐23
Bi‐Monthly Base Charge
Bi‐Monthly Charge ‐ $ Existing 19‐20 (1) 20‐21 (2) 21‐22 (2) 22‐23 (2) 5/8 x 3/4‐inch $49.11 $45.49 $46.96 $48.37 $49.33 1‐inch 82.03 76.16 78.14 80.79 82.41
1 ½‐inch 163.37 151.67 156.22 160.91 164.13
2‐inch 261.56 242.83 250.11 257.62 262.77
3‐inch 572.72 531.71 547.66 564.09 575.37
4‐inch 817.99 759.41 782.20 805.66 821.78
Volume Rate
Volume Rate ‐ $/100 CF 18‐19 19‐20 (1) 20‐21 (2) 21‐22 (2) 22‐23 (2) 0‐100 CF $0.00 $3.12 $3.22 $3.31 $3.38
100 to 3,000 CF 3.03 3.12 3.22 3.31 3.38
> 3,000 CF 3.20 3.12 3.22 3.31 3.38
(1) Effective January 1, 2020
(2) Effective July 1, 2020 and every July thereafter
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The bi‐monthly base charge is assessed to all customers regardless of class or volume of water used and acts to ensure safe and reliable water systems such that customers can be assured of ongoing system maintenance and available water when the service is needed.
The proposed fixed charges increase by meter size based on the ratio of flow capacities by meter size as identified by AWWA. It should be noted that a 1‐inch meter has the ability to provide more water per minute (greater capacity) than a ¾‐inch meter and the cost of service analysis calculated a higher rate for a 1‐inch meter compared to a ¾‐inch meter. The volumetric portion of a customer’s bill is being refined to be applied to all water usage in a uniform rate, with the existing tiers being eliminated.
The full water cost of service analysis can be found in Appendix C.
4.2.3.3. Proposed Sewer Rate Structure Changes
Similar to the water rate structure, through discussions with the City, it was determined the existing sewer rate structure has opportunities for simplification. The bi‐monthly base charge that varies by meter size is proposed to remain but will no longer include an allotment for sewer discharge. The flow‐based component of the rate structure is proposed to be simplified to a uniform rate that applies to all customers rather than the multiple customer classes that exist today. Table 4‐12 summarizes the proposed sewer rates based on the class cost of service analysis that was conducted.
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Table 4‐12
Proposed Sewer Rates
Fiscal Years 2019‐20 through FY 2022‐23
Bi‐Monthly Base Charge
Bi‐Monthly Charge ‐ $ Existing 19‐20 (1) 20‐21 (2) 21‐22 (2) 22‐23 (2) 5/8 x 3/4‐inch $74.50 $66.81 $70.15 $73.31 $76.61
1‐inch 124.28 111.60 117.18 122.46 127.97
1 ½‐inch 247.84 222.27 233.38 243.88 254.86
2‐inch 396.77 355.86 373.65 390.46 408.03
3‐inch 868.30 779.19 818.15 854.97 893.44
4‐inch 1,240.69 1,112.89 1,168.53 1,221.11 1,276.06 Flow Rate
Residential 0 ‐100 CF $0.00 $6.73 $7.06 $7.38 $7.71 Residential > 100 CF 6.60 6.73 7.06 7.38 7.71
Dining Facility (Take Out) 0 – 100 CF 0.00 6.73 7.06 7.38 7.71 Dining Facility (Take Out) > 100 CF 7.42 6.73 7.06 7.38 7.71 Dining Facility (On Premise) 0 – 100 CF 0.00 6.73 7.06 7.38 7.71 Dining Facility (On Premise) > 100 CF 9.19 6.73 7.06 7.38 7.71 All Other 0 – 100 CF 0.00 6.73 7.06 7.38 7.71
All Other 100 – 50,000 CF 6.60 6.73 7.06 7.38 7.71 All Other > 50,000 CF 5.49 6.73 7.06 7.38 7.71
(1) Effective January 1, 2020
(2) Effective July 1, 2020 and each July thereafter
The full sewer cost of service can be found in Appendix D.
The City’s current and proposed residential combined monthly water and sewer bill assuming 700 cubic feet of water and 300 cubic feet of sewer discharge is shown in Figure 4‐1 below. The City’s monthly bill falls within the mid‐range of its neighbors.
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Figure 4‐1 Combined Water (7 CCF) and Sewer (3 CCF) Monthly Bill
$28.48
$42.85 $39.04 $42.74 $44.66
$57.57 $64.14 $59.96
$44.79
$36.81
$53.97 $50.45 $53.60
$41.75
$57.71 $68.56
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
Windsor Rohnert Park Petaluma Sebastopol ‐
Current
Sebastopol ‐
Proposed
Cloverdale Santa Rosa Healdsburg
Comparison of Monthly Water and Sewer Bills
Water Sewer
27 | Page
Section 5 – Conclusions and Recommendations
5.1 Conclusions
Projected operating revenues and operating expenses for the forecast period were developed by, and/or in consultation with, City staff and are based upon reasonable projections; The projected capital project expenses have been developed by City staff, to address anticipated water and sewer system needs;
Based on Conclusions 1 and 2 above, we are of the opinion that the financial projections presented herein address the water and sewer utilities’ ability to meet its ongoing obligations with regard to:
Operating and maintenance expenses, including repair and replacement of aging system components;
Non‐operating expenses;
Capital project expenses, and
Provision for key financial policies, including:
o Maintenance of at least 90 days of operating reserve balances for both utilities; o Legal debt service coverage of at least 1.20.
The proposed rates presented herein are in conformance with industry standard rate‐making practices, Proposition 218 and/or the City’s rate policies with respect to:
The fair and equitable recovery of costs through water and sewer rates; Water and sewer rates based upon the proportionate cost of providing services, and Generation of sufficient revenue to recover system revenue requirements and reserve requirements.
5.2 Recommendations
It is recommended that the City implement the proposed rates and charges presented in this Report for FY 2019‐20, beginning with the first adjustment in January 2020, followed by an adjustment in July 2020. It is recommended that the City update the revenue sufficiency analysis portion of this study each year to ensure projected revenue continues to be sufficient to fund projected expenses going forward as assumptions made during this analysis may change and have a material impact upon the analysis. It is recommended that the City update the cost of service analysis portion of this study every three to five years to ensure costs are recovered consistent with cost of service principles and customer characteristics.
APPENDIy A
City of Sebastopol
Projected Operating Results - Water SystemFiscal Years 2019 - 2023 Line Estimates
No. Description 2019 2020 2021 2022 2023
Sources of Funds
1 Beginning-of-Year Cash 2,367,968 $ 1,778,614 $ $1,765,337 $1,877,439 $2,026,219 Operating Revenues
2 Operating Revenue 2,228,000 $ 2,272,560 $ 2,426,805 $ 2,512,110 $ 2,575,103 $ Total Operating Revenues 2,228,000 $ 2,272,560 $ 2,426,805 $ 2,512,110 $ 2,575,103 $ Non-Operating Revenue
3 Non-Utility Income 37,000 35,520 34,099 32,735 31,4264 Interest Income 14,000 4,253 4,279 4,510 4,416 Total Non-Operating Revenue 51,000 $ 39,773 $ 38,378 $ 37,245 $ 35,841 $ Total Revenues 2,279,000 $ 2,312,333 $ 2,465,183 $ 2,549,355 $ 2,610,944 $ Operating Expenses 5 Administration (1) 1,514,474 $ 1,615,872 $ 1,638,598 $ 1,687,756 $ 1,738,389 $ 6 Treatment 278,800 304,900 314,047 323,468 333,172
7 Customer Service 21,000 21,000 21,630 22,279 22,9478 Transmission & Distribution 95,100 76,050 78,332 80,681 83,1029 Loans 188,812 - - - - Total Operating Expenses 2,098,186 $ 2,017,822 $ 2,052,607 $ 2,114,185 $ 2,177,610 $ Net Result of Operations 180,814 $ 294,511 $ 412,576 $ 435,170 $ 433,334 $ 10 Non-Operating Expenses11 Capital Improvements - $ - $ - $ - $ - $ 12 Transfers Out to Capital Fund 478,190 46,350 - - 298,26013 Existing Debt Service 103,166 103,165 103,165 89,082 89,082 14 Loan Payments 188,812 158,273 197,309 197,309 197,309 Total Non-Operating Expenses 770,168 $ 307,788 $ 300,474 $ 286,391 $ 584,650 $ Net Available After Non -Operationg Expenses (589,354) $ (13,278) $ 112,102 $ 148,780 $ (151,317) $ Other Uses 15 New Debt Service - $ - $ - $ - $ - $
Total Other Uses - $ - $ - $ - $ - $ Net Available After Other Uses (589,354) $ (13,278) $ 112,102 $ 148,780 $ (151,317) $ End-of-Year Cash 1,778,614 $ 1,765,337 $ 1,877,439 $ 2,026,219 $ 1,874,902 $ 16 Target Cash - Operations 517,361 497,545 506,122 521,306 536,945 17 Target Cash - Repair & Replacement - - - - -
Target Cash $517,361 $497,545 $506,122 $521,306 $536,945 18 Debt Service Coverage Ratio (Operations) 1.26 2.47 3.63 4.47 4.46 19 Debt Service Coverage Ratio (All Debt) 1.26 2.47 3.63 4.47 4.4620 Target Debt Service Coverage Ratio 1.20 1.20 1.20 1.20 1.20 (1) Includes costs such as salaries, supplies and General Fund allocations City of Sebastopol, CA Water Financial Plan A-1
City of Sebastopol
Revenues - Water System
Water Financial Model
Line Estimated
No. Description 2019 2020 2021 2022 2023
Operating Revenues
Water
1 Operating Revenue 2,228,000 $ 2,272,560 $ 2,426,805 $ 2,512,110 $ 2,575,103 $ 2 Other Revenues 37,000 35,520 34,099 32,735 31,4263 Total Operating Revenues 2,265,000 $ 2,308,080 $ 2,460,904 $ 2,544,845 $ 2,606,529 $ Non-Operating Revenue
4 Non-Utility Income - $ - $ - $ - $ - $ 5 Interest Income 14,000 4,253 4,279 4,510 4,4166 Total Non-Operating Revenue 14,000 $ 4,253 $ 4,279 $ 4,510 $ 4,416 $ 7 Total Revenues 2,279,000 $ 2,312,333 $ 2,465,183 $ 2,549,355 $ 2,610,944 $
OPERATING REVENUES
Charges for Services
9 Rate Revenue 2,228,000 $ 2,228,000 $ 2,317,120 $ 2,426,805 $ 2,512,110 $ 10 Growth 0.00% 0.00% 1.68% 0.50% 0.50%
Revenues Adjusted for Growth 2,228,000 $ 2,228,000 $ 2,356,122 $ 2,438,942 $ 2,524,611 $ 11 Revenue Increase 0.00% 4.00% 3.00% 3.00% 2.00%
12 Percent of Year w/Rate Increase 0.0% 50.0% 100.0% 100.0% 100.0%13 Revenues under old rates 2,228,000 $ 1,114,000 $ - $ - $ - $ 14 Revenues under new rates - 1,158,560 2,426,805 2,512,110 2,575,10315 Total Charges for Services - After Revenue Increase 2,228,000 $ 2,272,560 $ 2,426,805 $ 2,512,110 $ 2,575,103 $ 16 Total Charges for Services - If Increase Effective for Full Year 2,228,000 $ 2,317,120 $ 2,426,805 $ 2,512,110 $ 2,575,103 $ 17 Other Water Revenue26 Other Water Revenue 37,000 35,520 34,099 32,735 31,42627 - - - -28 - - - -28 Interest Income29 Water-Interest Income 14,000 4,253 4,279 4,510 4,416 - - - - -
30 Total Operating Revenues 2,279,000 $ 2,312,333 $ 2,465,183 $ 2,549,355 $ 2,610,944 $ City of Sebastopol, CA Water Financial Plan A-2
City of Sebastopol
Estimated & Projected Uses of Funds - Water System
Water Financial Model
Line Estimated
No. Description 2019 2020 2021 2022 2023
OPERATING EXPENSES - SUMMARY
1 Administration 1,514,474 $ 1,615,872 $ 1,638,598 $ 1,687,756 $ 1,738,389 $ 2 Treatment 278,800 304,900 314,047 323,468 333,1723 Customer Service 21,000 21,000 21,630 22,279 22,9474 Transmission & Distribution 95,100 76,050 78,332 80,681 83,1025 Loans 188,812 158,273 197,309 197,309 197,3096 Source of Supply 478,190 46,350 - - 298,260 Total OPERATING EXPENSES - SUMMARY 2,576,376 $ 2,222,445 $ 2,249,915 $ 2,311,494 $ 2,673,179 $ Debt Service 7 Existing Debt $103,166 $103,165 $103,165 $89,082 $89,082 Total Debt Service 103,166 $ 103,165 $ 103,165 $ 89,082 $ 89,082 $ Total Operating Expenses - Summary 2,679,542 $ 2,325,610 $ 2,353,081 $ 2,400,575 $ 2,762,261 $ OPERATING EXPENSES - DETAILOperations Division 8 Salaries 240,400 $ 236,300 $ 243,389 $ 250,691 $ 258,211 $ 9 Salaries - Part Time 25,000 25,000 $ - $ - $ - $ 10 Overtime 10,000 10,000 10,300 10,609 10,92711 Standby 10,000 10,000 10,300 10,609 10,92712 Benefits 112,200 123,100 126,793 130,597 134,51513 Contract Services 116,800 108,900 112,167 115,532 118,99814 Misc. Supplies / Services 136,250 136,100 140,183 144,388 148,72015 Meter Replacement Program 21,000 21,000 21,630 22,279 22,94716 Fire Hydrant Replacement Program 15,750 15,750 16,223 16,709 17,21017 Backflow Prevention Program 3,150 4,500 4,635 4,774 4,91718 Conference & Training 3,000 3,000 3,090 3,183 3,27819 Meetings & Travel 6,000 6,000 6,180 6,365 6,55620 Telecommunications 6,550 6,750 6,953 7,161 7,37621 Utilites - Gas & Electric 162,000 196,000 201,880 207,936 214,17422 Allocated Liability Insurance 24,350 28,500 29,355 30,236 31,14323 Allocated Wrkrs Comp Insurance 15,000 17,700 18,231 18,778 19,34124 Capital Outlay 76,200 55,800 57,474 59,198 60,97425 Transfer to CIP 478,190 46,350 - - 298,260 City of Sebastopol, CA Water Financial Plan A-3
City of Sebastopol
Estimated & Projected Uses of Funds - Water System
Water Financial Model
Line Estimated
No. Description 2019 2020 2021 2022 2023
Non-Operating Division
26 G & A Allocation - City Council 26,284 29,468 30,352 31,263 32,20027 G & A Allocation - City Manager 43,640 44,960 46,309 47,698 49,12928 G & A Allocation - City Attorney 7,168 7,375 7,596 7,824 8,05929 G & A Allocation - City Clerk 23,290 25,794 26,568 27,365 28,18630 G & A Allocation - Finance 349,763 381,834 393,289 405,088 417,24031 G & A Allocation - Planning 25,555 26,593 27,391 28,213 29,05932 G & A Allocation - Building 33,943 41,132 42,366 43,637 44,94633 G & A Allocation - Engineering 96,815 106,998 110,208 113,514 116,92034 G & A Allocation - Fire 61,451 75,891 78,168 80,513 82,92835 G & A Allocation - PW Corp Yard 213,528 218,832 225,397 232,159 239,12436 G & A Allocation - PW Govt Bldg 24,006 30,281 31,189 32,125 33,08937 G & A Allocation - Non Departmental 20,281 24,264 24,992 25,742 26,51438 CREBS - loan repayment 31,024 31,024 31,024 31,024 31,02439 Infras Amort - loan repayment 70,802 69,560 79,299 79,299 79,29940 Well 7 Amort - loan repayment 86,986 57,689 86,986 86,986 86,986 TOTAL OPERATING EXPENSES - DETAIL 2,679,542 $ 2,325,610 $ 2,353,081 $ 2,400,575 $ 2,762,261 $ City of Sebastopol, CA Water Financial Plan A-4
City of Sebastopol
Capital Improvement Plan
Description 2019 2020 2021 2022 2023
Water - Identified Needs
Well 6: Arsenic Treatment (Planning) $0 $0 $0 $0 $0
Well 6: Arsenic Treatment (Construction) - - - - -
Hayden Main: Repl 4" Pine Crest to McFarlane 478,190 - - - -Well 6 Fence: Security Fence Surrounding Well - - - - -Florence: Water Line Replace South - - - - 165,000Florence: Water Line Replace North - - - - 100,000Maps: Update Water Line Maps - 45,000 - - -Well 4 - - - - - Total Capital Project Costs 478,190 $ 45,000 $ - $ - $ 265,000 $ Total Escalated Capital Project Costs 478,190 $ 46,350 $ - $ - $ 298,260 $ City of Sebastopol, CA Water Financial Plan A-5
City of Sebastopol
([istinJ 'ebt
2019 2020 2021 2022 2023
Vacuum Amort $14,084 $14,084 $14,084Well 6 Amort $89,082 $89,082 $89,082 $89,082 $89,082Total $103,166 $103,165 $103,165 $89,082 $89,082 City of Sebastopol, CA Water Financial Plan A-6
APPENDIy B
City of Sebastopol
Projected Operating Results - Sewer SystemFiscal Years 2019 - 2023 Line Estimates
No. Description 2019 2020 2021 2022 2023
Sources of Funds
1 Beginning-of-Year Cash 2,543,174 $ 1,533,942 $ $1,516,674 $1,287,651 $1,044,753 Operating Revenues
2 Operating Revenue 3,015,000 $ 3,120,525 $ 3,444,368 $ 3,617,365 $ 3,798,957 $ 3 Other Revenues 13,000 13,000 12,480 11,981 11,5024 Total Operating Revenues 3,028,000 $ 3,133,525 $ 3,456,848 $ 3,629,346 $ 3,810,459 $ Non-Operating Revenue
5 Non-Utility Income6 Interest Income 10,000 10,000 17,170 14,025 11,6687 Total Non-Operating Revenue 10,000 $ 10,000 $ 17,170 $ 14,025 $ 11,668 $ 8 Total Revenues 3,038,000 $ 3,143,525 $ 3,474,018 $ 3,643,371 $ 3,822,126 $ Operating Expenses
9 Administration (1) 1,197,385 $ 1,298,533 $ 1,402,189 $ 1,515,121 $ 1,638,209 $ 10 Subregional - O & M (pass through) 1,070,515 1,026,700 1,098,569 1,175,469 1,257,752 11 Collection 73,800 103,600 106,708 109,909 113,207
12 Total Operating Expenses 2,341,700 $ 2,428,833 $ 2,607,466 $ 2,800,499 $ 3,009,167 $ 13 Net Result of Operations 696,300 $ 714,692 $ 866,552 $ 842,872 $ 812,959 $ Non-Operating Expenses
14 Capital Improvements - $ - $ - $ - $ - $ 15 Existing Debt Service 28,169 28,169 28,169 0 0 16 Transfers Out to Capital Fund 1,010,522 46,350 371,315 368,795 168,82617 Loans Payments 666,841 657,441 696,091 705,856 709,941 18 Total Non-Operating Expenses 1,705,532 $ 731,960 $ 1,095,575 $ 1,074,651 $ 878,767 $ 19 Net Available After Non-Operating Expenses (1,009,232) $ (17,268) $ (229,023) $ (231,779) $ (65,808) $ Other Uses
20 New Debt Service - $ - $ - $ 11,119 $ 42,834 $ 21 Total Other Uses - $ - $ - $ 11,119 $ 42,834 $ 22 Net Available After Other Uses (1,009,232) $ (17,268) $ (229,023) $ (242,898) $ (108,642) $ 23 End-of-Year Cash 1,533,942 $ 1,516,674 $ $1,287,651 $1,044,753 936,111 $ 24 Target Cash - Operations 577,405 598,890 642,937 690,534 741,986 25 Target Cash - Repair & Replacement
26 Target Cash $577,405 $598,890 $642,937 $690,534 $741,986 27 Debt Service Coverage Ratio (Operations) 24.36 25.02 30.15 74.54 18.71 28 Debt Service Coverage Ratio (All Debt) 24.36 25.02 30.15 74.54 18.7129 Target Debt Service Coverage Ratio 1.20 1.20 1.20 1.20 1.20 (1) Includes costs such as salaries, supplies and General Fund allocations City of Sebastopol, CA Sewer Financial Plan B-1
City of Sebastopol
Revenues - Sewer System
Sewer Financial Model
Line Estimated
No. Description 2019 2020 2021 2022 2023
Operating Revenues
Sewer
1Operating Revenue 3,015,000 $ 3,120,525 $ 3,444,368 $ 3,617,365 $ 3,798,957 $ 2 Other Revenues 13,000 13,000 12,480 11,981 11,502 Total Operating Revenues 3,028,000 $ 3,133,525 $ 3,456,848 $ 3,629,346 $ 3,810,459 $ Non-Operating Revenue
3 Non-Utility Income - $ - $ - $ - $ - $ 4 Interest Income 10,000 10,000 17,170 14,025 11,668 Total Non-Operating Revenue 10,000 $ 10,000 $ 17,170 $ 14,025 $ 11,668 $ Total Revenues 3,038,000 $ 3,143,525 $ 3,474,018 $ 3,643,371 $ 3,822,126 $
OPERATING REVENUES
Charges for Services
5 Rate Revenue 3,015,000 $ 3,015,000 $ 3,226,050 $ 3,444,368 $ 3,617,365 $ 6 Growth 0.00% 0.00% 1.68% 0.50% 0.50% Revenues Adjusted for Growth 3,015,000 $ 3,015,000 $ 3,280,351 $ 3,461,593 $ 3,635,366 $ 7 Revenue Increase 0.00% 7.00% 5.00% 4.50% 4.50%
8 Percent of Year w/Rate Increase 0.0% 50.0% 100.0% 100.0% 100.0% 9 Revenues under old rates 3,015,000 $ 1,507,500 $ - $ - $ - $ 10 Revenues under new rates - 1,613,025 3,444,368 3,617,365 3,798,95711 Total Charges for Services - After Revenue Increase 3,015,000 $ 3,120,525 $ 3,444,368 $ 3,617,365 $ 3,798,957 $ 12 Total Charges for Services - If Increase Effective for Full Year 3,015,000 $ 3,226,050 $ 3,444,368 $ 3,617,365 $ 3,798,957 $ Other Sewer Revenue
13 Transfers In - - - - -14 Other Sewer Revenue 13,000 13,000 12,480 11,981 11,50215 - - - -16 - - - - Interest Income
17 Sewer-Interest Income 10,000 10,000 17,170 14,025 11,668 - - - - -
Total Operating Revenues 3,038,000 $ 3,143,525 $ 3,474,018 $ 3,643,371 $ 3,822,126 $ City of Sebastopol, CA Sewer Financial Plan B-2
City of Sebastopol
Estimated & Projected Uses of Funds - Sewer System
Sewer Financial Model
Line Estimated
No. Description 2019 2020 2021 2022 2023
OPERATING EXPENSES - SUMMARY
1 Administration 2,267,900 $ 2,325,233 $ 2,500,758 $ 2,690,590 $ 2,895,960 $ 2 Collection 73,800 103,600 106,708 109,909 113,2073 Transfers 1,010,522 46,350 371,315 368,795 168,8264 Loans 666,841 657,441 696,091 705,856 709,941 Total OPERATING EXPENSES - SUMMARY 4,019,063 $ 3,132,624 $ 3,674,872 $ 3,875,150 $ 3,887,934 $ Debt Service 5 Existing Debt 28,169 $ 28,169 $ 28,169 $ - $ - $
Total Debt Service 28,169 $ 28,169 $ 28,169 $ - $ - $ Total Operating Expenses - Summary 4,047,232 $ 3,160,793 $ 3,703,041 $ 3,875,150 $ 3,887,934 $ OPERATING EXPENSES - DETAILOperations Division 6 Salaries 157,950 $ 167,700 176,085 $ 184,889 $ 194,134 $ 7 Overtime 7,000 10,000 10,500 11,025 11,5768 Standby 10,000 10,000 10,500 11,025 11,5769 Benefits 72,800 84,500 88,725 93,161 97,819 10 Contract Services 70,600 63,850 65,766 67,738 69,77111 Subregional - O & M 1,070,515 1,026,700 1,098,569 1,175,469 1,257,75212 Misc. Supplies / Services 64,750 73,000 75,190 77,446 79,76913 Conservation Rebate Program 5,000 5,000 5,150 5,305 5,46414 Conference & Training 3,000 3,000 3,090 3,183 3,27815 Meetings & Travel 8,500 8,500 8,755 9,018 9,28816 Utilites - Gas & Electric 41,100 50,000 51,500 53,045 54,63617 Utilites - City - 7,200 7,416 7,638 7,86818 Telccommunications 3,550 3,750 3,863 3,978 4,09819 Allocated Liability Insurance 15,900 14,000 14,700 15,435 16,20720 Allocated Wrkrs Comp Insurance 9,800 17,800 18,690 19,625 20,60621 Capital Outlay 32,700 46,400 47,792 49,226 50,70322 Transfer to Sewer CIP 1,010,522 46,350 371,315 368,795 168,826 City of Sebastopol, CA Sewer Financial Plan B-3
City of Sebastopol
Estimated & Projected Uses of Funds - Sewer System
Sewer Financial Model
Line Estimated
No. Description 2019 2020 2021 2022 2023
Non-Operating Division
23 G & A Allocation - City Council 30,665 34,379 37,817 41,599 45,75824 G & A Allocation - City Manager 43,640 44,960 49,456 54,402 59,84225 G & A Allocation - City Attorney 4,301 4,425 4,868 5,354 5,89026 G & A Allocation - City Clerk 20,379 22,570 24,827 27,310 30,04127 G & A Allocation - Finance 340,559 371,785 408,964 449,860 494,84628 G & A Allocation - Planning 15,333 15,956 17,552 19,307 21,23729 G & A Allocation - Building 33,943 41,132 45,245 49,770 54,74730 G & A Allocation - Engineering 79,730 88,116 96,928 106,620 117,28231 G & A Allocation - PW Corp Yard 155,698 159,565 175,522 193,074 212,38132 G & A Allocation - PW Govt Bldg 24,006 30,281 33,309 36,640 40,30433 G & A Allocation - Non Departmental 20,281 24,264 26,690 29,359 32,29534 Infras Lease 62,941 62,941 62,941 62,941 62,94135 Subregional - Debt Service 603,900 594,500 633,150 642,915 647,000 Transfers Out
36 Transfers - - - -
TOTAL OPERATING EXPENSES - DETAIL 4,047,232 $ 3,160,793 $ 3,703,041 $ 3,875,150 $ 3,887,934 $ City of Sebastopol, CA Sewer Financial Plan B-4
City of Sebastopol
Capital Improvement Plan
Line Proj
No. No. Description 2019 2020 2021 2022 2023
Sewer - Identified Needs
1 0603-35.00 Zimpher Creek: Sewer Relocation Study 100.0% 0.0% 0.0% - - - - -2 0604-37.00 Zimpher Creek: Construction: Sewer Re-Route 100.0% 0.0% 0.0% - - 250,000 - -3 0608-41.42 Johnson Street: Replace a Sewer Main 100.0% 0.0% 0.0% 1,010,522 - - - -4 0610-70.00 Zimpher Creek: Construction: Sewer Reconstruction 50.0% 0.0% 50.0% - - - 325,000 300,0005 0611-80.00 Zimpher Creek: Construction: Sewer Repair East 100.0% 0.0% 0.0% - - 100,000 175,000 -6 0612-81.00 Florence: Sewer Repair South 0.0% 0.0% 100.0% - - - - 200,0007 0613-82.00 Florence: Sewer Repair North 0.0% 0.0% 100.0% - - - - 100,0008 0614-90.00 Maps: Update Sewer Line Maps 100.0% 0.0% 0.0% - 45,000 - - -9 Total Capital Project Costs 1,010,522 $ 45,000 $ 350,000 $ 500,000 $ 600,000 $ 10 Total Escalated Capital Project Costs 1,010,522 $ 46,350 $ 371,315 $ 546,364 $ 675,305 $ Operating
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Existing
Bonds
City of Sebastopol, CA Sewer Financial Plan B-5
City of Sebastopol
Existing Debt - Sewer
2019 2020 2021 2022 2023
Vacuum Truck 28,169 28,169 28,169Total $28,169 $28,169 $28,169 $0 $0 City of Sebastopol, CA Sewer Financial Plan B-6
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Temecula, California 92590-4856
800.755.6864 | 951.587.3500 | Fax: 888.326.6864
www.willdan.com