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<br />Introduction <br />The City of Arden Hills requested that Ehlers & Associates assist staff in preparing <br />financial projections for the water and sanitary sewer system utilities. The purpose of the <br />rate study is to ensure that: <br /> <br />I. Rates are sufficient to pay for the ongoing operations and capital improvements, <br />and to maintain adequate cash balances; and, <br /> <br />2. The rate structure distributes the costs of operating the system across utility users <br />consistent with the policy objectives of the Council. <br /> <br />Background <br />The City has maintained a comprehensive long-range capital improvement program for <br />many years focusing upon replacement of existing infrastructure. The City's has paid for <br />cash for improvements. As a result, the City has relatively low cash balances, but no debt <br />obligations. <br /> <br />Municipal utility funds are considered "enterprise funds," meaning they are intended to <br />be operated as a private enterprise in which the fee revenue pays for all expenses. For <br />purposes of this study, we refer to each segregated utility as its own fund. <br /> <br />This base model incorporates expected capital improvements for the existing population <br />of the City. The draft capital improvement plans for water and sewer are located in <br />Appendices D and E, respectively, and include water utility repair costs in conjunction <br />with pavement management projects, water tower repainting, lift station improvements <br />and a SCADA system. The report demonstrates potential rate tiering options. <br /> <br />A second model to be completed as additional infoTIllation becomes available, will <br />incorporate additional grow1h, capital and operating costs for the Twin Cities Army <br />Ammunition Plant site development. <br /> <br />Assumptiolls <br />Following is a chart that summarizes the significant assumptions in the rate study. <br /> <br /> Water Utility Sanitary Sewer Utility <br />Growth and No new residential connections per No new residential connections per <br />Utility Usage year, Water usage will continue at year, Usage will continue at the 2007 <br /> the 2007 usage levels. While we usage level. While we understand <br /> understand that there are small that there are small areas available <br /> areas available for development, for development, this should not <br /> this should not provide a material provide a material amount of <br /> amount of additional revenues. additional revenues. <br />Operating Increase 5% annually (new demand City expenses increase 5% annually <br />Expenses plus inflation) 6% for personnel except personnel grows at 6%. I. <br /> with larger one-time increases MCES disposal fees increase 5% <br /> <br />2 <br />