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Financial Plan <br />The financial plan includes several components such as inflation impacts that increase <br />operating costs, revenues to maintain a solid financial position, and capital projects and <br />associated debt service for the next three years. Operations and maintenance costs are <br />proposed to increase due to inflation factors — see Table 1 below — and rising insurance <br />premiums. As shown in Table 2 below, financial drivers are based on the funding <br />necessary to operate, repair and maintain the water system, including replenishing the <br />reserve balances, and to implement critical near-term system infrastructure <br />improvements ($4.7 million in Fiscal Year 2023/24 and Fiscal Year 2024/2025, and $6.7 <br />million in Fiscal Year 2025/26). Specifically, this includes two staff positions to support <br />meter system operations and maintenance activities and one engineering position to <br />design and implement identified water projects. Notably, despite significant community <br />growth and increasing maintenance needs, staffing to support the enterprise continues <br />to be at a minimal level. Another significant driver for the proposed rate increase is <br />funding to continue to purchase 100 percent of the City's water from Zone 7 until <br />construction is completed for the selected Water Supply Alternatives project (as shown <br />on the first line in Table 2). <br />Table 1 <br />Expense Inflation <br />Factors <br />General 5% 5% 5% <br />Salaries 3% 3% 3% <br />Health Benefits 7.8%10%6% <br />Other Benefits 3% 3% 3% <br />Purchased Water 6% 6% 6% <br />Electricity 5% 5% 4% <br />Capital 12.5% 12.5% 10% <br />Table 2 <br />Purchased Water 23,800,021 25,417,735 25,150,627 <br />Water Supply Alternatives $2,000,000 2,250,000 2,475,000 <br />City O&M 11,605,056 12,155,062 12,692,975 <br />CIP and Debt 4,806,384 5,076,384 6,998,244 <br />Reserve Funding 0 0 0 <br />Total 42,211,461 44,899,180 47,316,846 <br />The City's Reserve Policy target is 35 percent of annual operations and maintenance <br />and five-year average cash-funded CIP. The proposed water rates over the next three <br />years meet the Reserve Policy target in FY 2026 as shown in Figure 3. <br />Page 8 of 19