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2. Financial Plan This section of the Report describes the proposed financial plan for the water and recycled water enterprise funds. To develop the financial plan, Raftelis projected annual revenues and expenses, modeled reserve balances, projected capital expenditures, and calculated debt service coverage to estimate the amount of additional rate revenue needed each year. Numbers shown in the tables of this section are rounded. Therefore, hand calculations based on the displayed numbers, such as summing or multiplying, may not equal the exact results shown. 2.1. Inflationary Assumptions Inflationary factors are used to escalate the revenue and cost categories across the planning period, which for this Study is from FY 2024 to FY 2026. The City's most recent adopted revenue and expense budgets are for FY 2024. Raftelis worked with City staff to escalate individual budget line items according to the appropriate escalation factor. The escalation factors used to project revenues are shown in Table 2-1 and expenses for the Study period are shown in Table 2-2. These factors are based on industry indices, such as general inflation based on the CIP, and input from City staff. Table 2-1: Revenue InflatioRAWIllors Line Revenue Escalation Factors FY 2024 FY 2025 FY 2026 1 Miscellaneous RevenLICS 0.0% 0.0% 0.0% 2 Meter Sales 1.7% 1.7% 1.7% 3 Interfund Reimbursements 0.0% 0.0% 0.0% 4 Reserve Interest Rate 1.0% 1.0% 1.0% Table 2-2: Expense Inflation Factors B C D Line Expense Escalation Factors FY 2024 FY 2025 1 General 5.0% 5.0% 5.0% 2 Salaries 3.0% 3.0% 3.0% 3 Health Benefits 7.8% 10.0% 6.0% 4 Other Benefits 3.0% 3.0% 3.0% 5 Water 6.0% 6.0% 6.0% 6 Utilities 5.0% 5.0% 4.0% 7 Capital 12.5% 12.5% 10.0% 2.2. Current Water Rates The City's current water rates were implemented February 1, 2023 and include a bi-monthly service charge based on meter size, a tiered usage rate charged for every ccf of water used, and a surcharge for recycled water charged for every ccf of water used. The recycled water surcharge is charged to SFR customers using Tier 2 or higher water usage and all other customers with their water usage. The City also has a water rate discount program for senior citizen and low income customers. Those who qualify and use at or below 30 ccf of water every bi-monthly billing period are discounted 30% for low income customers and 20% for senior customers. The discount program applies to the City's water fixed and variable charges and Zone 7 charges. WATER AND RECYCLED WATER RATE STUDY REPORT 15