City of Fernley City Council Meeting Enterprise Funds Financial Condition December 19, 2007

Executive Summary Projected cash flows in the Water, Sewer and Alternative Water Fund are sufficient for debt repayment, despite the downturn in residential development (decrease in residential connections to the utility systems) with associated reductions in projects related to growth

Facts The Series 2007 $50M bond issue is designed for interest only payments until 2-1-09 (first principal payment 2-1-09) The favorable Moody’s bond rating of Aaa with an underlying rating of A3 resulted in very competitive rates on the bond sale Interest earned on invested bond proceeds currently exceeds interest expense accrued on the bonds (until significant amounts of the proceeds are used for projects, this is the source of money for bond payments) Bonds are amortized over 30 years

Facts The Rate Resolution passed on June 20, 2007 contains four user fee increases effective July 1, 2007, 2008, 2009, and 2010 Staff indicated that a rate analysis (for both user fees and connection fees) will occur annually during the budget process with either a formal study by outside consultants or through in-house estimates There is presently no indication that the user fees or connection fees in the Resolution should be adjusted

Facts The Capital Improvement Plan (CIP) was used as a basis for the rate analysis and contains projects that can be deferred if growth does not occur

Facts The Sewer CIP contains an estimated $32,031,934 in projects over the five year study period of which approximately $22 M could be deferred if growth stops The Water CIP contains an estimated $101,730,967 in projects over the five year study period of which approximately $29 M can be deferred if growth stops Deferrals result in the “old way” of no connections until developers construct infrastructure and “buy” a portion of the existing system

Facts The 2007 Series Bond issue was allocated $5.5M (11%) to the Sewer Fund and $44.5M (89%) to the Water Fund The $5.5 M in the Sewer Fund was earmarked for the Sewer Interceptor Upgrade Project The $44.5 M in the Water Fund was earmarked for the Water Treatment Facility An additional $25M is needed for the piping projects associated with the transportation of raw water to the facility and delivery of treated water from the facility

Facts The current bond authorization project of $50 M does not mean that the City will immediately borrow another $50 M It is likely that another issue of $25 M will occur in the next six to twelve months to complete planned projects If growth does not occur and the next $25 M are not needed for projects, the City will not borrow the next $25 M

Facts Depreciation is a non-cash expenditure “Funded Depreciation” means that money is collected in an amount equal to annual depreciation to use on replacements when old assets have reached the end of their useful lives To the extent that “Funded Depreciation” is not currently used on replacement projects, that money can be used for debt repayment until market conditions rebound

Sewer Fund Cash Flow Projections-Low Growth

Water Fund Cash Flow Projections Low Growth

Information Sources Audited Financial Statements www.cityoffernley.org/CAFR Budget www.cityoffernley.org/budget Rate Study www.cityoffernley.org/ratestudy