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Enterprise Funds The City currently has six' Enterprise Funds as follows: ■ Water/Recycled Water O&M Fund ■ Sewer O&M Fund ■ Callippe Preserve Golf Course Fund ■ Storm Drain Fund ■ ParaTransit Fund ■ Cemetery Fund The Operating Budget only includes the Operations & Maintenance (O&M) and Debt Service expenses of these enterprises. Capital improvements and replacements for the Water, Sewer and Storm Drain funds are accounted for in the Capital Improvement Program (CIP). The financial results of the CIP will be presented to the Council in a separate report. The following are the results from the four largest enterprise funds; Water, Sewer, Cemetery and Callippe Preserve. Water and Sewer Operating Funds Water/Recycled Water Operations and Maintenance (O&M) Fund. The Water Operating Fund ended FY 2020/21 with an operating fund balance of $14.6 million as shown in Table 7 which is $3.2 million more than that included in the FY 2020/21 Midyear budget. The $14.6 million equals 54 percent of the Water Fund's FY 2020/21 actual operating expenses. Adding the $3.2 million surplus to the FY 2021/22 reserve results in 42 percent of the FY 2021/22 budgeted operating expenses. The operating reserve policy adopted by City Council in November 2016 requires reserves equal to between 30 percent and 40 percent of operating expenses with a target of 35 percent. Thus, operating reserves exceed the maximum required reserves. As described below, staff recommends allocating approximately $1.3 million of the surplus which will leave approximately $11.5 million in operating reserves in the FY 2021/22 Water Fund operating budget which equals 38 percent of operating expenses. Water revenues are $1.2 million or 3.7 percent greater than projected due to more water sales than anticipated. Operating expenses including water purchases from Zone 7 were approximately $2 million less than budgeted of FY 2020/21. The net savings reflect (1) a $645,807 decrease in water purchases from Zone 7 than what was expected due to Zone 7 suspending water rate increases because of the COVID 19 pandemic. (2) $888,950 less expenditures for Repair and Replacement activities, (3) $317,725 attrition savings, and (4) $106,588 in miscellaneous other net savings. Staff recommends allocating approximately $1.3 million of the Water Fund surplus as follows. 1. $275,000 for a Drought Response Reserve: • $150,000 — Joint Recycled Water Fill Station (Pleasanton's contribution) The Water and Recycled Water Fund are two funds that are combined for presentation purposes. Page 7 of 14