SAN DIEGO COUNTY SANITATION AND MAINTENANCE DISTRICTS REORGANIZATION FINANCIAL FEASIBILITY REPORT

Transcription

1 SAN DEGO COUNTY SANTATON AND MANTENANCE DSTRCTS REORGANZATON FNANCAL FEASBLTY REPORT Prepared for: 5555 Overland Avenue San Diego, California Prepared by: 9275 Sky Park Court San Diego, California PBS&J Project No.: By: Karyn L. Keese Financial Services Manager

2 Acknowledgements PROJECT TEAM : Daniel Brogadir Jeff Bosvay Nannette Bauer Jack Cohen Louis Conde Velisa Jeffries Jiljean Walther LUEG Program Manager Unit Manager, Wastewater Management Analyst Senior Civil Engineer Engineering Technician Administrative Analyst Administrative Secretary PBS&J: Karyn Keese Dean Gibson Mark Elliott Steve Gagnon Amelia Law Client Financial Services Manager Project Manager Project Director Project Manager Utility Finance Program Assistant i Consolidation Financial Feasibility Report

3 Table of Contents Acknowledgements... i Section 1 ntroduction Authorization and Purpose Methodology Background...2 Section 2 Financial Assumptions and Operation and Maintenance Budgets Financial Assumptions Capacity Fee Revenue Operation and Maintenance Budgets...3 Section 3 Equivalent Dwelling Units...5 Section 4 Capital mprovement Program...7 Section 5 Reserves Balances County Reserve Policy and Considerations...8 Section 6 Rates and Revenue...10 Section 7 Financial Projections...12 Section 8 Regional Rate Comparison...14 Section 9 Conclusions...15 Figures Figure 71 Year Ending Reserve Balances...13 Figure 81 Comparison of Regional Monthly Wastewater Rates...14 Tables Table 21 Financial Assumptions...3 Table 22 Consolidated District Operating and Maintenance Budget...4 Table 31 Ordinance and Flow EDUs by District and in Total for FY Table 51 FY Starting Reserve Balances for the Consolidated District...8 Table 61 Current District Rates and Proposed Consolidated Rate and Revenue...11 Appendix Financial Feasibility Model ii Consolidation Financial Feasibility Report

4 Section 1 ntroduction 1.1 Authorization and Purpose The (County) retained PBS&J to help analyze the financial feasibility of reorganizing the County s nine (including Harmony Grove) dependent wastewater sanitation and sewer maintenance districts. The reorganization involves annexing eight districts into the Spring Valley Sanitation District and charging one rate the current Spring Valley wastewater rate for all customers. Throughout this report, this one rate may be referred to as the consolidated rate and the reorganized district may be referred to as the consolidated district. The County s sewer maintenance and sanitation districts are as follows: Alpine Campo East Otay Mesa Harmony Grove Julian Lakeside Pine Valley Spring Valley Winter Gardens The purpose of this report is to assess the financial feasibility of annexing the current districts into the Spring Valley Sanitation District. t assesses the feasibility by modeling various rate scenarios (one consolidated rate) to ascertain whether the rate is sufficient not only to cover operation and maintenance (O&M) and capital needs, but also to maintain operating and capital reserves at minimum required levels. 1.2 Methodology This financial feasibility report assesses the viability of district reorganization by modeling cash sources (revenues) and uses (expenses) and the resulting yearend operating reserves (i.e. working capital) and capital reserves. The County provided the following data for each district to form the basis of this analysis: 1) O&M expense budgets, 2) equivalent dwelling units (EDUs) for current users, 3) capital improvement program (CP) assumptions, 4) reserve balances, and 5) current rates. 1 Consolidation Financial Feasibility Report

5 ntroduction tems 1 through 4 for all districts were combined with the Spring Valley Sanitation District to create a single district, and various rate modeling scenarios were created to examine the effect on rates and cash reserves. The results were reviewed and discussed with County staff. This report presents the results of the final Countyreviewed rate scenario. However, the results of this scenario are not indicative of future rate adjustments by the County. The County will review rates yearly and will periodically adjust rates as needed based on many factors including inflation, capital needs and San Diego s Metro wastewater treatment costs. t is important to note that this report is not a wastewater rate study as it does not provide rates for nonresidential user classes (i.e. restaurants, laundromats, car washes, hospitals etc.). Rates for other user classes are dependent on the strength of their wastewater discharge as measured by biochemical oxygen demand and suspended solids in milligrams per liter. The percentage increases and rates discussed herein approximate the increases under one scenario for single family residential users. Commercial user rates and adjustments could vary based on their wastewater strengths on a proportional basis to single family user rates. 1.3 Background An initial investigation of the feasibility of combining the existing nine districts into one concluded that such a reorganization is feasible and offers numerous benefits, including: the ability to set a single uniform rate and provide a standard level of service across all district service areas; increased financial and rate stability; and it provides a uniform governance structure and increased flexibility for planning, repair and replacement capabilities. This financial feasibility study assumes that the consolidated rate would be effective starting FY based on the current anticipated schedule from the County. 2 Consolidation Financial Feasibility Report

6 Section 2 Financial Assumptions and Operation and Maintenance Budgets 2.1 Financial Assumptions The O&M expenses for FY through FY were estimated by applying inflation to the proposed FY operating budget. The inflationary factors are shown in Table 21. nterest earnings were estimated based on the interest rates shown in Table 21. Table 21 Financial Assumptions Assumption FY FY FY FY FY FY General nflation N/A 1.0% 1.3% 1.7% 2.0% nterest Earnings N/A 1.0% 1.3% 1.7% 2.0% Operating Reserve Goal 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% nflationary assumptions were provided by the County Treasurer s Office and reflect the mild inflationary environment of the past couple of years. The United States, including the San Diego area, experienced mild deflation for calendar year nterest earnings for FY match the expected return for FY which was provided by the Office of the County Chief Financial Officer. nterest earnings were then assumed to track inflation. Modeling results could vary significantly if actual inflation differs substantially from assumed inflation. An operating reserve of 50% reflects the reality that the County bills customers on the County Assessor parcel tax roll. The County s customers pay wastewater user charges along with their property taxes in December and April of each year. Thus, the County needs a sizeable working capital reserve since revenues are realized only twice a year. The capital reserve goal is equal to an average year of capital expenditures or approximately 5.1 million to 5.8 million. 2.2 Capacity Fee Revenue Recent data from the County shows no or low housing unit growth in many of the districts. Therefore as a conservative measure approved by the County, this report does not include revenue from wastewater capacity fees. Capacity fees for the sanitation district reorganization are presented in a separate report. 2.3 Operation and Maintenance Budgets The O&M budget for each district was combined to create the consolidated district budget for FY through FY as shown in Table 22. The O&M budgets for each individual district are presented in the Appendix. 3 Consolidation Financial Feasibility Report

7 Financial Assumptions and Operation and Maintenance Budget Table 22 Consolidated District Operating and Maintenance Budget Consolidated District Budget ndividual District Rates Consolidated Rate Effective Account Effective Description of Expense Code FY FY FY FY FY FY FY Agriculture 8,500 8,500 8,585 8,699 8,844 9,020 9, Public Liability 49,077 49,077 49,568 50,227 51,061 52,082 53, Maintenance Of Equipment 1,215,236 1,215,236 1,227,388 1,243,713 1,264,358 1,289,645 1,321, Routine Maintenance of Structures 2,207,114 2,190,130 2,212,031 2,241,451 2,278,659 2,324,233 2,382, Major Maintenance Project (non CP) 1,912, , , , , , , Professional & Specialized Services 2,246,397 2,250,063 2,272,564 2,302,789 2,341,015 2,387,835 2,447, nterdepartmental Costs 177, , , , , , , Contracted Services 438, , , , , , , Consultant Contracts 1,244,266 1,197,250 1,209,223 1,225,305 1,245,645 1,270,558 1,302, Publications and Legal Notices Special Departmental Expense 10,774,138 10,768,375 10,876,059 11,020,710 11,203,654 11,427,727 11,713, Safety Devices 7,000 7,000 7,070 7,164 7,283 7,429 7, Gas & Electricity 141, , , , , , , Water 8,547 9,060 9,151 9,272 9,426 9,615 9, Purchasing SF Non Merchandise 6,000 6,000 6,060 6,141 6,243 6,367 6, Fac. Mgt. Real Property SF Costs 5,000 5,000 5,050 5,117 5,202 5,306 5,439 Total 20,442,029 19,352,662 19,546,189 19,806,153 20,134,935 20,537,634 21,051,075 Percent ncrease 1.0% 1.3% 1.7% 2.0% 4 Consolidation Financial Feasibility Report

8 Section 3 Equivalent Dwelling Units EDU assumptions are an important component of the financial model. The amount of revenue generated is a function of the wastewater rate per EDU times the number of EDUs. Therefore, it is important to have an accurate estimate of EDUs. EDUs are the basis for sewer charges with 1 EDU equal to 240 gallons per day (by ordinance) for every district except for Julian, in which each EDU is equal to 120 gallons per day. Table 31 shows the ordinance EDUs for Residential customers and flow EDUs for all other customers assumed for each district in this reorganization feasibility study. There is a subtle distinction between flow and ordinance EDUs for nonresidential customers. Ordinance based EDUs are assigned by the County at the time of sewer connection and are based on the type of sewer use and/or the square footage of the building. Flow EDUs are those derived from actual meter and/or water use data. n some cases, a commercial customer may feel that their sewer use is not proportional to their square footage and that the County assigned EDUs are overly conservative. Water use data or metered flow is then reviewed to ascertain a more accurate EDU count for that customer. The total EDUs column in the far right of Table 31 includes a combination of nonresidential flow EDUs and ordinance EDUs for residential customers and districts without flow EDUs such as Campo and Julian. 5 Consolidation Financial Feasibility Report

9 Equivalent Dwelling Units Table 31 Ordinance and Flow EDUs by District and in Total for FY East Otay Harmony Pine Spring Winter Alpine Campo Mesa Grove Julian Lakeside Valley Valley Gardens Total EDUs EDUs EDUs EDUs EDUs EDUs EDUs EDUs EDUs EDUs Residential 1, , ,574 3,482 44,759 Multifamily ,594 Car Wash Barber & Beauty Salons General Commercial ,672 Warehouse Hospitals/Convalescent Homes Laundromats Nurseries Hotels/Motels w/o Dining Auto Shopping Centers Bar w/o Dining Commercial Laundry Movie Theater Lumber Yards Convenience Stores w/deli ndustrial Laundry Hotel w/ Restaurant Auto Steam Cleaning Bakery or Bakery/Deli Restaurant & Bar w/food Food Stores Mortuary Churches Schools Membership Organizations Food Seperation Appeals Total 2, , ,628 3,811 52,019 Note:EDUs show n are know n as Flow EDUs 6 Consolidation Financial Feasibility Report

10 Section 4 Capital mprovement Program The CP expenditures influence financial model results because capital projects are a use of cash. A higher CP would draw down current reserves and require earlier rate increases. The County analyzed its CP expenditures for all wastewater districts for the last 6 years as a basis for projecting future CP expenditures and found that the average expenditure for this time period was 3.75 million per year. The County also estimated that it will spend approximately million on capital projects over the next 20 years. This equates to approximately 5.1 million per year. n this light, the County estimates that, on average, it will invest approximately 5 million per year in capital infrastructure. This amount of capital expenditure is reflected in the financial feasibility model. 7 Consolidation Financial Feasibility Report

11 Section 5 Reserves Balances Starting reserve balances, both operating and capital, are also a critical component of the reorganization financial feasibility model. The County provided beginning FY reserve balances for the current wastewater districts. These were combined to create the consolidated district reserve balances as shown in Table 51. The operating reserve was created by setting aside enough funds to surpass the operating reserve goal, which, as stated in Section 2.1, is 50% of yearly O&M expenditures (10.3 million). The remaining funds (57.5 million) were allocated to the capital reserve. The financial model assumes that the capital reserve goal is equal to the 5year rolling average of capital expenditures or approximately between 5.1 million and 5.8 million. Table 51 FY Starting Reserve Balances for the Consolidated District Reserve Amount Operating 10,250,000 Capital 57,460,602 Total 67,710, County Reserve Policy and Considerations Board of Supervisors Policy 99 (Expenditure and Use of Revenue for Replacement and mprovement of Sanitation District Facilities) defines the financial planning and budgeting requirements to provide funding for replacement and improvement of sanitary sewer systems and facilities within the County s sanitation and maintenance districts. Routine replacement or repair of sewerage systems and facilities is funded by annual sewer service charges. Replacement of facilities is required when facilities reach the end of their useful life (2560 years). The County, like other jurisdictions, sets aside a portion of sewer service charges to address future needs. Facility improvements can also be funded by connection fees, developer contributions, assessments, and bonds. According to the policy, the annual contribution to the capital reserve is based on the uniform annual payment required to fully fund anticipated major replacements in the fiveyear capital improvement program, and operating reserves should be at least 50% of each district s annual operating budget. Policy 99 provides that separate replacement and expansion accounts be maintained for each district. The existing sanitation districts have approximately 22 million in replacement and expansion reserves not including fund balance. The Spring Valley Sanitation District alone has 8 Consolidation Financial Feasibility Report

12 Reserves Balances approximately 12 million in replacement and expansion reserves and over 23 million in operating reserves. ndividual district reserves have been collected with the intent of making capital improvements within that particular district. t may be considered inequitable to redistribute these previously collected reserves to other areas within the new consolidated district. Therefore, reserves collected prior to the effective date of the reorganization will only be spent on improvements within that particular district from which they were collected. Upon creation of the reorganized district, a new reserve fund will be established and these funds will be spent on capital improvements within the new (reorganized) district. 9 Consolidation Financial Feasibility Report

13 Section 6 Rates and Revenue This study, for a particular rate scenario, assumes a single family residential rate, estimates rates for other user classes, and calculates the resulting revenue. t then assumes percentage increases in revenue in ensuing years. Section 7 compares the resulting revenues with operating and capital expenses and calculates the endofyear reserve balances. As stated in the introduction, this reorganization financial feasibility report is not a wastewater rate study in the sense that it does not calculate rates for each of the County s different commercial revenue codes (i.e. carwashes, laundromats, restaurants, etc.). Nor does it calculate rates based on the cost to serve customers. The percentage increase shown is for the single family residential user class only, however rates for other user classes will likely increase proportionally. Actual rates for commercial users are based on the strength of their discharge as measured by biochemical oxygen demand and suspended solids (in milligrams per liter). Table 61 shows the initial rate of 28 per month and current rates for existing districts. The financial projections in Section 7 assume 5% rate increases thereafter. The initial rate after all districts are annexed into Spring Valley is proposed to be the current Spring Valley rate (28/month) which is approximately the weighted average for the existing eight districts. The revenue generated during the first year of consolidation (FY ) is approximately equal to the estimated revenue for current fiscal year FY This rate is lower than most current district rates, as shown in Table 61, with the exception of East Otay Mesa and Winter Gardens. Winter Gardens is a unique rate setting case. During the last sewer user rate case, prepared in 2004, it was determined by County staff that Winter Gardens had excessive reserves and lacked any significant capital projects. Thus the monthly rate in 2004 was lowered from 22 per month to its current rate of 18 per month. However, due to inflationary factors, the current level of revenue is insufficient to fund O&M expenditures. Section 7 shows the resulting reserve balances as a result of the above described rate scenario. 10 Consolidation Financial Feasibility Report

14 Rates and Revenue Table 61 Current District Rates and Proposed Consolidated Rate and Revenue District Current Monthly Rate FY & Proposed FY Monthly Rate Dollar Difference nitial % ncrease Alpine % Campo % EOM % Julian % Lakeside % Pine Valley % Spring Valley % Winter Gardens % Approximate Revenue 18,118,078 17,980, Consolidation Financial Feasibility Report

15 Section 7 Financial Projections This section integrates the assumptions described in Sections 2 through 5 and the rate scenario presented in Section 6 into a 7year financial projection of yearend operating and capital reserve balances. FY , the first year of the reorganization, is shown near the center of Figure 71. Figure 71 assumes 5% rate increases each year beginning FY As described in Section 5, the reserves for all districts were pooled and an operating reserve of approximately 10 million was established with the remaining funds allocated to capital reserves (totaling approximately 57.5 million at the start of FY ). For the assumed rate scenario, the capital reserve declines each year since revenues are not sufficient to cover both capital and operating expenses. Revenues do cover O&M expenses with the exception of the initial year of the reorganization, FY , in which they fall short by approximately 475,000. For the interested reader, the Appendix shows the full long range cash flow projection. n FY , note that the operating reserve is just below its goal. The capital reserve is above its goal. However, note that, for modeling purposes, the capital reserve goal is equal to an average year of capital expenditures (5.1 million to 5.8 million) which is the minimum recommended by industry standards. The end goal of the reorganized district is to fund both O&M as well as capital expenses. Capital expenses are not adequately funded under the current or future rates presented in this study. To reach this objective of covering capital needs, the County will slowly raise rates (and use cash reserves) in a controlled manner as opposed to holding rates constant, depleting cash reserves and implementing large rate adjustments in the future. 12 Consolidation Financial Feasibility Report

16 Financial Projections Millions Figure 71 Year Ending Reserve Balances Operating Reserve Operating Reserve Goal Capital Reserve Capital Reserve Goal FY 0910 FY 1011 FY 1112 FY 1213 FY 1314 FY 1415 FY 1516 Operating Reserve 10,000,931 10,052,164 9,573,953 9,754,635 10,577,776 10,781,325 10,562,064 Capital Reserve 48,165,704 43,822,876 39,211,105 34,615,447 29,987,954 26,531,561 24,006,044 Operating Reserve Goal 10,221,015 9,676,331 9,773,094 9,903,076 10,067,468 10,268,817 10,525,537 Capital Reserve Goal 5,932,835 5,135,085 5,222,847 5,333,241 5,463,813 5,612,018 5,775,072 Note: Assumes 5% rate increases beginning FY and FY is the first year of the reorganization. 13 Consolidation Financial Feasibility Report

17 Section 8 Regional Rate Comparison Figure 81 compares regional sewer rates with the proposed rate for the initial year of the district reorganization. The figure also shows the current rates for the individual districts. Note that the figure compares the current rates for neighboring agencies with the FY consolidated rate. Many agencies will likely raise their rates before FY thus pushing the consolidated district rate further down on the graph. Certain agencies, like some of the County districts, send their sewage to San Diego s Metropolitan Wastewater System (Metro) including Chula Vista, Del Mar, El Cajon, La Mesa, Poway, Otay Water District and Padre Dam Municipal Water District. These agencies provide a better comparison to the consolidated district rate since they also share in Metro s treatment costs. The County s largest districts, Lakeside, Alpine, Winter Gardens, Spring Valley and East Otay Mesa, are members of the Metro system. f adopted, the initial proposed monthly consolidated district rate of 28 per month would be below that of many other wastewater agencies in the region. Figure 81 Comparison of Regional Monthly Wastewater Rates (Assumes 10 HCF Water Consumption) Valley Center MWD Del Mar Rancho Santa Fe CSD Julian Campo Padre Dam MWD Pine Valley San Diego City of Vista Poway 2010 Poway 2009 City of Escondido La Mesa Chula Vista 2010 Chula Vista 2009 Lemon Grove Oceanside Alpine Lakeside Vallecitos MWD Otay WD 2010 Consolidated District Spring Valley Otay WD 2009 El Cajon East Otay Mesa City of Carlsbad Winter Gardens Consolidation Financial Feasibility Report

18 Section 9 Conclusions This financial feasibility study evaluated the viability of reorganizing the current sanitation and maintenance districts by annexing all districts into the Spring Valley Sanitation District. t assumes a 28 per month charge for all single family residential customers, starting FY , with 5% rate increases thereafter. Actual rates, which are dependent on many factors, including inflation, capital needs and the City of San Diego s Metro wastewater treatment costs, will be determined by the County in the future. Under the assumptions put forth in this report, the reorganization of County sanitation districts is considered feasible since the yearend reserve balances put forth in Section 7 show that the consolidated district would meet its operating reserve goal and surpass its capital reserve goal for the 5year period following reorganization (and beyond to FY ). The Appendix shows the full cash flow analysis until FY mplementation of a consolidated sewer district would result in no change for a majority of customers (existing Spring Valley customers), lower rates for most other customers, and higher rates for only East Otay Mesa and Winter Gardens customers. Benefits include rate stability and increased flexibility for planning, funding, and implementing capital improvements. The full financial feasibility model is included in the Appendix. 15 Consolidation Financial Feasibility Report

19 Appendix Financial Feasibility Model Consolidation Financial Feasibility Report

20 Consolidated District Model Long Range Plan Assume Ordinance EDUs not including capital assumes flow EDUs including capital FY12='f3'F~Y ,052,164 Beginning Balance 10,250,000 10,000,931 Revenues Revenue from User Fees Sanitation Service Connection (Recog in Exp Res) Other Revenue nterest ncome 18,118,078 17,840,892 18,732,936 19,669,583 20,653,062 21,685,716 22,770,001 23,908,501 25,103,926 1,126,565 1,126,565 1,126,565 1,126,565 1,126,565 1,126,565 1,126,565 1,126,565 1,149, , , , , , , , , , % Total Revenues Expenditures Total Expenditures before Capital Total Operating Expense 19,446,528 19,446,528 18,118,078 1,281, ,624 9,573,953 20,958,075 19,403,895 20,442,029 20,442,029 19,352,662 19,352,662 19,546,189 19,546, % 19,806,153 19,806,153 Net ncome 51, ,682 Fund Balance before Transfers 10,000,931 10,052,164 9,754, % Transfer to Capital Fund Transfer from Oper. Reser to Capital Reserve Total Transfers Fund Balance after Transfers Operating Reserve Goal Remaining Funds not in Reserve Total Oper. Goal 10,250,000 9,723, ,736 9,723,264 Actual Operating Reserve Balance Spare Total in Reserves Fully Funded Oper and Emer. ( = 0) % Funded Beginning 10,000,931 10,221,015 10,221,015 10,000,931 9,723,264 10,000, ,084 9,723, % 97.85% (478,210) 9,573,953 = = = 9,573,953 9,773,094 9,676,331 9,573,953 10,052,164 9,676, ,833 9,676,331 9,676, % 9,573, ,141 9,754,635 1,453,549 10,577,776 12,031,325 1,250,000 1,250,000 10,781,325 10,268, ,508 10,268,817 10,577,776 10,067, ,308 9,903,076 10,067,468 10,067,468 10,268,817 9,754,635 10,067,468 10,268, , % 97.96% 2.0% 20,537,634 20,537,634 9,754,635 9,903,076 21,991, ,140 = 9,773, % 20,134,935 20,134,935 10,781, % 10,562,064 23,081,814 24,160,618 10,540,075 25,298, % 22,333,085 22,333, % 10,505,558 26,493, % 23,003,078 23,003,078 10,495,611 26,359,123 1,126, ,390 27,748, % 23,693,170 23,693,170 21,051,075 21,051,075 21,682,607 21,682,607 2,478,011 2,965,483 3,490,053 4,054,908 12,812,064 13,040,075 13,505,558 13,995,611 14,550,519 3,000,000 3,000,000 3,500,000 3,500,000 3,750,000 3,750,000 10,540,075 10,841,303 10,841,303 10,505,558 11,166,543 10,495,611 11,501,539 11,166,543 11,501,539 10,800,519 11,846,585 10,525,537 10,540,075 10,525,537 10,540, ,228 10,505,558 10,495,611 10,800,519 10,505, , % 10,495,611 1,005, % 10,800,519 1,046, % 21,504,225 19,271,801 17,310,466 3,000, ,606 3,537,606 3,500, ,795 3,981,795 3,750, ,762 4,182,762 5,601,970 5,770,029 5,770,029 5,943,130 5,943,130 6,121,424 17,310,466 6,310,577 15,371,804 6,499,894 2,030,739 2, ,250,000 10,562,064 10,525,537 36,527 10,525, % % 2,500,000 2,500, % 11,846,585 Reserve 57,460,602 Reserve Balance Revenues and Transfers n Transfer from Operations Fund to Capital Fund nvestment Earnings Total Rev. and Transfers n Expenditures and Transfers CP Projects Spare Total Expenditures 48,165,704 = 43,822, , , , ,229 39,211,105 34,615,447 29,987,954 26,531,561 24,006,044 2,250, ,289 2,913,289 2,500, ,151 3,100,151 5,306,152 5,438,806 5,438,806 5,601,970 1,250, ,759 1,849,759 5,202,110 5,306, , , , ,616 Out Ending Balance Capital Replacement Capital Reserve Goal (249,069) 19,986, % 10,577,776 9,754,635 20,192,960 Capital Replacement 19,067,979 FY1415 Reserve 4,542,844 4,542,844 57,460,602 5,800,981 9,294,898 9,294,898 48;165,704 5,932,835 5,000,000 5,000,000 43,822,876 5,135,085 5,050,000 5,050,000 39~211,105 5,222,847 5,117,165 5,117,165 34,615,447 5,333,241 5,202,110 29,987,954 5,463,813 Page 1 of 2 26,531,561 5,612,018 24,006,044 5,775,072 21,504,225 5,948,324 19,271,801 6,126,774 6,121,424 Consolidation Financial Feasibility Report

21 20,442,029 g:"294]98 29,736,927 (4,342,828) FY ,352,662 5,000,000 24,352,662 (4,611,771) FY ,546, b~0(rO 24,596,189 (4,595,657) FY ,806,153 5:T117'f65 24,923,318 (4,627,494) FY ,134,935 5;202,110" 25,337,045 20,192,960 20,061,067 19,408,074 20,267,050 21,183,198 22,150,746 23,179,301 24,267,780 25,397,297 26,583,749 27,838,643 19,446,528 4,542,844 23,989,372 Revenue Total Revenue Reserve Balances Operating Reserve Operating Reserve Goal Capital mprovement Reserve Capital Reserve Capital Reserve Goal Total Reserve Reserve Goal V c (3,456,393) (2,525,517) (2,501,819) (2,232,424) (1,961,335) (1,938,662) FY FY 1718 FY 1516 FY 1819 FY 1920 FY ,537,634 21,051,075 21,682,607 23,003,078 23,693,170 22,333,085 5~306,152 " 5;438,806 5,601,'970 5,1'70.029"5)4'3,130 n21,424 25,843,786 26,489,881 27,284,577 28,103,114 28,946,208 29,814,594 10,250,000 9,723,264 10,000,931 10,221,015 10,052,164 9,676,331 9,573,953 9,773,094 9,754,635 9,903,076 10,577,776 10,067,468 10,781,325 10,268,817 10,562,064 10,525,537 10,540,075 10,841,303 10,505,558 11,166,543 10,495,611 11,501,539 10,800,519 11,846,585 57,460,602 5,800,981 67,710,602 48,165,704 5,932,835 58,166,635 19,361,851 43,822,876 5,135,085 53,875,039 18,817,167 39,211,105 5,222,847 48,785,058 19,127,362 34,615,447 5,333,241 44,370,083 19,006,164 29,987,954 5,463,813 40,565,729 17,544,568 26,531,561 5,612,018 37,312,886 17,356,217 24,006,044 5,775,072 34,568,108 17,358,737 21,504,225 5,948,324 32,044,300 17,900,303 19,271,801 6,126,774 29,777,359 17,965,543 17,310,466 6,310,577 27,806,077 18,300,539 15,371,804 6,499,894 26,172,323 18,645, g..res0r\lo 60 Ol 60 c ~ ~ ~ Operating Reserve ~ Capital Reserve Operating Reserve Goal Capital Reserve Goal ~ ~ SO 50 r ,. 20 i 10 _..,< t,.. J _. FY 1213 FY 1314 FY 1415 FY 1516 Operating Reserve 10,000,931 10,052,164 9,573,953 9,754,635 10,577,776 10,781,325 10,562,064 Capital Reserve 48,165,704 43,822,876 39,211,105 34,615,447 29,987,954 26,531,561 24,006,044 Operating Reserve Goal 10,221,015 9,676,331 9,773,094 9,903,076 10,067,468 10,268,817 10,525,537 Capital Reserve Goal 5,932,835 5,135,085 5,222,847 5,333,241 5,463,813 5,612,018 5,775,072 nflation Return on Cash Balance Net ncome blf Capital (Total Rev minus Expen) Transfer from Operating Reserve to Capital Revenue FY N/A N/A (249,069) 18,118,078 FY ,840,892 t 0,,., Operating c=:j Capital Reserve Reserve.Operating Reserve Goal Capital Reserve Goal FY1617 FY1718 FY1819 FY ,540,075 10,505,558 10,495,611 10,800,519 21,504,225 19,271,801 17,310,466 15,371,804 10,841,303 11,166,543 11,501,539 11,846,585 5,948,324 6,126,774 6,310,577 6,499,894! 1.0% 1.0% (478,210) 18,118,078, FY FY FY FY FY FY FY FY % 1.0% 51,233, FY 1112 FY FY 1011 FY r 10 FY 0910 consolidate District Rate Yearly Monthly Monthly Dollar Change Percent Change % 1.3% 180,682 18,732, % 1.7% 823,140 19,669,583 Page 2 of 2 2.0% 2.0% 1,453,549 1,250,000 20,653,062 2,030,739 2,250,000 21,685, % 2,478,011 2,500,000 22,770, % 2,965,483 3,000,000 23,908, % 3,490,053 3,500,000 25,103, % 4,054,908 3,750,000 26,359,123 Consolidation Financial Feasibility Report

22 ... Consolidated District Model Long Range Plan Assumptions ~ ~F~Y~E~0~9~~F~Y=E~1~0 FYE11FYE12FYE13FYE14FYE15FYE16FYE17FYE18FYE19FYE20 Expenditure nflation 1 General Operating nflation N/A N/A 0.0% 1.0% 1.3% 1.7% 2.0% 3.0% 3.0% 3.0% 3.0% 2 nterest on Funds/Reserves N/A Reserve Targets 3 Operating Reserve (% of Oper Expenses)* 50.0% * Reserve Targets taken from Board of Super Policy 199 FREEZE! 4 Cash Financed Capital Projects 5 Funding to Maintain (or drawndown) Oper Reserve 6 Total N/A FREEZE! N/A + N/A + 1.0% 1.0% 1.3% 1.7% 2.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% Key 1: This is used to inflate the budget line items starting with FYE : This is the return earned on cash balances in the operating reserve and capital reserve 3. This is the goal for the operating reserve = hold 50% of yearly expenses Page 1 of 1 Consolidation Financial Feasibility Report

23 County Sanitation and Sewer Maintenance District Fund Balance and Capitals Reserves January 2010 Winter East Olay Rancho Campo Campo Hills Sorino Vallev Lakeside Aloine Gardens Mesa Julian Pine Vallev Camoo Sewer Water Water Total Ending Fund Balance (available) 23,592,592 16,830, ,544 2,899, , ,778 39, , , ,455 45,536,280 Replacement Reserves 3,048,837 1,721, ,640 5,621, ,680 48, ,200 10, ,939 11,548,593 Exoansion Reserves 8,715, , , , , ,000 10, ,625,729 Total 35,357,017 19,221,298 2,110,924 8,993, , ,411 88, , , ,394 67,710,602 Reserve Amount Total 67,710,602 Take what is needed for Operating Reserve»»> Operating 10,250,000 Remiander goes in the the Capital Reserve >>>>> Capital 57,460,602 Total 67,710,602 Beginning Balance FY Cash Page 1 of 1 Consolidation Financial Feasibility Report