12-Move to approve an ordinance setting the water and sewer rates

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4. These are real costs incurred by the City for the benefit of the non-city customers that with the elimination or reduction of the transfer they will not have to pay for because they are served by Lamar County Water Supply. If the transfers are reduced or eliminated, Paris residents and businesses would have to absorb that cost in General Fund taxes or fees. 5. If these transfers are taken out of the budget for a single year, it will cause rates to initially fall but then spike upward when they are resumed. Concurrently, property tax rates would have to be adjusted upward not only to absorb the loss of the transfer from the utility but also in recognition of the loss of outside City customer's current contribution to the transfer. Historically, both residents and business have expressed a preference for small annual increases to rates verses several years of no increase followed by a spike in rates. When the City used to conduct a rate study only every three years, the Water & Sewer Fund was consistently underfunded and customers complained about the rate spike that occurred every three years. In the 2011-12 fiscal year the City will pay off a significant amount of water and sewer related debt. There has been discussion that the City may issue new debt at that time to make needed infrastructure improvements. Given the changes in the bond market, especially the lack of bond insurers, the City may have to increase its bond coverage requirement in order to obtain favorable interest rates. In other words, instead of having to generate revenues equal to 1.1 times 0&M expenses plus debt expenses a higher standard would be set. Prior to the current 1.1 times standard, the standard was 1.25. The amounts collected by the Water & Sewer Fund and later transferred to the General Fund would count toward this coverage factor. Reduction or elimination of these transfers would adversely affect our ability to meet any increased coverage requirements. To use General Fund reserves to build up the Water & Sewer Fund in the short term would be contrary to enterprise fund accounting theory and by current accounting standards would have to be recorded as a liability of the utility to the General Fund. Any reserves beyond what should be maintained in the General Fund could be transferred to the Capital Projects Fund. Building up the Capital Projects Fund is a forward thinking long term approach for City finances that would likely reduce the need for future debt. 8. These types of transfers are specifically allowed under the AWWA M1 rate setting manual. In summary, these transfers are both necessary and a proper way to conduct the City's business. - ! 1(1~~T',