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increase that Council adopted in 2010 and implemented in September 2010. However, the water rate increase carne too late to help the Water Fund in 2009/10FY. Therefore, the City did not meet its bond covenant in the 2009/10FY and needed a reduction in expenditures in order to do so. The logical candidate of expenditures to reduce were the overhead charges from the General Fund. Annually, the City charges the Water Fund and other enterprise operations an overhead charge for administrative services provided by the operating staff funded in the General Fund (i.e., payroll, City administration, engineering, City attorney's support, etc.). It should be noted that not meeting the City's bond covenant requires a water rate increase (which the City did implement) and could result in a downgrade in the City's bond rating. The result of reducing the overhead charges for the 2009/10FY was a decrease in the 2009/10FY General Fund revenues and General Fund balance and an offsetting reduction of expenditures in the Water Fund and an increase in the Water Fund balance. Once again as a result of these actions, the City was able to meet its bond covenant for the 2009/10FY and avoid any potential downgrade in its bond rating. To avoid this issue in the future, staff will be bringing forward an action item in March to pay off the Bonds with existing reserves in the Water Fund. The outstanding amount to pay off the bonds as of March 2, 2011 is $644,325. Submitted by: Approved by: lam) Emily E. Wagner Nelson Fialho Director of Finance City Manager Page 4 of 4