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� • Attachement A <br /> growth related capital projects are, as the name implies, related to system <br /> growth and expansion. Growth related capital projects are typically paid for <br /> through customer connection charges or impact fees. The connection charges <br /> collected can be either applied directly to the capital expenditures, or it can <br /> be applied against debt service payments associated with the financing of the <br /> growth related capital facilities. <br /> In balancing the use of long term debt to rate financed capital projects, a <br /> number of financial aspects are taken into account. First, the utility's debt <br /> service coverage ratio is a financial measure or indication of the utility's <br /> ability to repay debt. The strength of the utility's debt service coverage ratio <br /> is a direct function of the amount of capital projects which are financed from <br /> rate revenues. At a minimum, EES assumes that a utility should fund an <br /> amount equal to or greater than the utility's annual depreciation expense for <br /> renewal and replacement capital projects. By following this financial "rule of <br /> thumb" the utility is not only assured of a strong debt service coverage ratio, <br /> but also at the same time, it assures that existing plant in service will be <br /> maintained at acceptable service levels. By properly funding for this <br /> component of the capital projects, it should provide to the utility greater <br /> flexibility in its ability to borrow for legally mandated or growth related <br /> projects. <br /> As a result of this study, EES will develop for the City a capital project <br /> financing plan which considers both the City's ability to borrow and repay <br /> debt, along with the customer's ability to absorb increased rates as a result of <br /> these capital projects. This study should also result in a philosophy or policy <br /> regarding the proper level of funding from rates for capital expenditures. <br /> In summary, given a better understanding of the overall magnitude of the <br />, needed capital projects, a financing plan can be developed to minimize rates <br />� and costs over time. Overall, EES will attempt to minimize rates, while at <br /> the same time maximizing the funds available for capital projects and system <br /> expansion. <br /> 1.3.4 Financial Planning Considerations <br /> Other financial planning issues which are critical to the City will also be <br /> examined. For example, the City's current reserve levels and debt service <br /> coverage ratios will be reviewed. Recommendations will be made to the City <br /> relative to those issues. These recommendations should be consistent with <br /> any recommendations or policies used by the City as a whole. Maintaining <br /> proper reserve levels and coverage ratios is important as it provides the City <br /> a cushion for unexpected occurrences. Reserves and coverage ratios are <br /> Scope of Seruices 1-5 <br />