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provide for the financing necessary to maintain and replace the capital assets and infrastructure of each utility's operations. Implementing a cash "ceiling" adds another dimension to the model. Reasons for accumulating large cash balances may include possible expansion of the utilities, large debt service payments, cash purchases instead of issuing debt, concerns with the timing of receipt of revenues such as higher delinquencies and foreclosures, and other reasons as approved by the City Council. Cash for future utility improvement projects is being reserved in separate Capital Project Funds. The cashflow projections for these funds are included in the Utility Rate Analysis. A "ceiling" wasn't previously included in the model since there was no intention for cash balances to accumulate unnecessarily. Also the long-term projections for the balances have had precedence over the short-term projections. I recommend that the emphasis of the model and rate structure remain with the three priorities as mentioned previously. My concern is that an overemphasis on the parameters, both the minimum and the ceiling, could result in erratic, unpredictable rate changes. Tolerances for variances should be viewed to include when the balances are projected to be within the established parameters. The current approach is a long-term one. As long-term trends become evident, the rates can be adjusted as needed. The more time that exists before a deficit or other financial crisis arrives, the more time that corrective action could be implemented. In other words, any potential correction or rate adjustment could be smaller and more subtle. is A number of other changes to the model have been made in addition to adding a "ceiling". They are as follows: 1. Deleting rate changes proposed for 2008. 2. Updating the 2008 data to match that which has been projected by the Public Works Department during the preparations of the 2009 Budgets. 3. Updating the 2009 data to match the City Manager's Recommended 2009 Budgets. 4. Sewer rates are proposed to be increased faster. 5. Stormwater rates are proposed to be decreased. My current recommendations are as follows: Water — increase 3%, from $1.32 to $1.36 per 1,000 gallons; Sewer — increase 7%, from $2.72 to $2.91 per 1,000 gallons of water; Stormwater --- decrease 10%, from $14.65 per quarter to $13.19; and Street Lights — increase 7%, from $5.81 per quarter to $6.22. The results of these changes are that a single family home using 22,000 gallons of water (which is the average) in 2009 would be billed $113.35 per quarter compared to $109.34 for 2007 and 2008, a total increase of 3.67% over two years. The last rate increase was in the beginning of 2007. Attached are replacement pages for your "Utility Rate Analysis" three ring binder. Please replace the pages from your binder with the new updated ones. 11