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Page 5 Memo to Mayor and City Councilmembers September 19, 2006 Loan # I - This loan is needed to assure the City is repaid for sewer work it completed concurrent with the construction of new Vineyard A venue. As indicated in the Financing Program, it was anticipated that developers would provide all sewer funding and that the City would not provide for the upfront construction of these facilities. However, as part of the construction of Vineyard Avenue, this was completed and reimbursement of$I,178,625 allocated from the City's CIP Sewer Fund is necessary. Loan # 2 - As indicated, in July 2003, the Council approved the CIP project Vineyard Corridor Infrastructure Improvements: Water Tank, Supply Line and Pump Station (011023) in the amount of $3,885,000 for Vineyard Corridor water improvements. It was anticipated that at least $3,240,000 would be a loan for completing Specific Plan projects repaid from Corridor revenues. Anticipated Loan # 3 - This is a projected new loan of $3,048, 138 needed to complete future water improvements. As noted, it is not needed for the projects included for funding in the August 15 staff report. With this loan and the others, the CIP Water Fund has an estimated FY 2007 balance of $3,018,516. Also, as mentioned, the exact amount of this loan is dependent on the amount of Vineyard Corridor revenue received prior to completing these projects and final project costs. Potential Water Rate Adjustment As indicated above, part ofthe draft Financing Plan, and a portion of the funding for the repayment of Anticipated Loan # 3, assumes a rate adjustment to meet costs related to water improvements in the area, including over-sizing ofthe water reservoir from 1.0 million gallons to 1.4 million gallons due to the high demand put on the existing system by large residential water customers. Additional capacity was also added to the water turnout and pumping station to meet this additional demand. The cost of adding this capacity (incrementally over-sizing all of these facilities) is estimated to be $1.3 M. Of this amount, staffis recommending $645,000 be met as outlined in CIP (010123). The remaining $655,000 would potentially come from a water rate adjustment for large residential water consumers. The need for over-sizing the water facilities is a direct result of large existing residential water consumers and there are several ways for the Council as they elect to replenish these monies back to the Water Funds. Three ways available to the Council include Option 1) implement a fourth tier water rate in the City's current water rate schedule for these larger residential water consumers. A fourth tier water rate would include the extra cost of expanding the water system to accommodate the large existing residential user and could encourage water conservation; Option 2) increase the residential water connection fee to reflect the increase in the City's water system assets; or Option 3) increase the replacement/improvement accrual portion of the water rates to pay for these improvements to the City's water system. At this time, staff anticipates pursuing Option I, which is subject to Council approval, after notice is sent to all property owners/customers. SUMMARY As staff indicated previously, this Financing Plan requires additional information, including bids for construction, which will be developed in the future. However, in summary, future infrastructure will be funded from a combination of existing and projected Specific Plan fee revenue from new and existing development, reimbursements due the City for work already completed, a contribution from the CIP Water Fund in the amount of $645,00, and potentially a water rate adjustment. Completing all projects requires use of the existing CIP water project approved previously (0 II 023) for this work, and a future loan from the CIP Water fund. Upon completing all improvements, it is anticipated the City will have