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for key internal service funds. The reserve levels may be updated once staff has conducted a comprehensive update of the various replacement schedules. Below are the key recommended changes to the policy. The updated policy (Attachment 2) and the current policy (Attachment 3) are attached for Council reference. • Changed the General Fund reserve target from 25.0% to 20.0% and changed the 20.0%-30.0% reserve range to 16.7°/x-25.0%. • Replenishment of reserves for the General Fund and Enterprise Funds should take place within three years as the GFOA recommends one to three years. The current policy does not specify the number of years for fund restoration. If the water or sewer reserve level falls below 30.0%, a rate study will be required to be completed in 12 months or less. • The reserve policy is subject to annual review and modifications will require Council approval. Water and Sewer Funds Through the FY 2022/23 Mid-Year Budget Review report, staff informed the City Council at the February 21, 2023, meeting about the funding challenges for the Water Utility program, with the latest projection forecasting the reserve level to end the current fiscal year at 23.0 percent, which is below the minimum recommended reserve level of 30.0 percent. Staff is preparing to conduct a comprehensive water rate study. The results of the water supply study and potential cost increase, together with anticipated capital needs for both utilities, will be incorporated into the rate study. The goal is to maintain the high level of water and sewer services and continue to invest to maintain the infrastructure. The rate study is not scheduled to be completed until late summer or early fall; however, staff will include recommended adjustments in the proposed budget based on preliminary analysis. Once the rate study is completed, any recommended budget amendments, as necessary, and proposed rate adjustments, will be presented to the City Council for consideration. Preliminary Four-Year Capital Improvement Program Overview The Capital Improvement Program serves as a strategic resource allocation plan for capital projects and promotes long-term planning. Capital investments are critical in building and maintaining infrastructure for a livable, vibrant community. Staff is in the process of preparing a Four-Year Capital Improvement Program that covers FY 2023/24 through FY 2026/27. The proposed CIP will be presented to the City Council for consideration at the May 16, 2023, Council meeting. To frame the discussion at the May meeting, staff has prepared a summary of proposed expenditure and revenue categories included in the CIP as presented in Table 1 below. Page -� of