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26 The single largest operating cost for the water operation is the purchase of wholesale water from the City of <br /> 7 St. Paul. This cost is projected to increase by 4.5%. The City also expects to have moderate increases in <br /> R28 personnel and supply-related costs. These budgetary increases will be offset by a decline in budgeted <br /> 1�29 capital replacement costs, resulting in an overall decrease of 1.1%. <br /> 30 <br /> 3,1 However,the impact on the water rates will be substantially different. Although capital replacement costs <br /> 3d"? for budgeting purposes are expected to decline, the City's long-term capital financing program has been <br /> 33 significantly underfunded for many years. <br /> 34 <br /> 35 The Water Fund has been reliant on cash reserves as well as internal borrowings from the Sanitary Sewer <br /> 36 Fund to provide for capital needs during the past several years. The 20-Year CIP calls for an average <br /> 37 capital replacement need of$1.1 million annually. In contrast, current water rates only provide $300,000 <br /> ����8 annually. <br /> 39 <br /> o To alleviate this shortfall,the CIP Task Force recommended a one-time base rate increase of 62%in 2012. <br /> 1 This would generate an additional $800,000 annually and allow the Water Fund to provide for capital <br /> 4d"111111 improvements over the next 20 years. The base rate, which all customers pay independent of their water <br /> 3 consumption, would still need to be increased for future inflationary impacts. <br /> 44 <br /> 45 It is further recommended that the usage rate be increased by approximately 2.5%to offset the increased in <br /> 46 water purchase and other operating costs. <br /> 7 <br /> Sanitary Sewer Operations <br /> 49 The City maintains a sanitary sewer collection system to ensure the general public's health and general <br /> 50 welfare. The following table provides a summary of the 2011 and 2012 (Proposed) Budget: <br /> 51 <br /> 2011 2012 D• D• <br /> Personnel $331,739 $351,448 <br /> Supplies&Materials 37,999 45,050 <br /> Other Services&Charges 38900 419,200 <br /> Sewer Treatment Costs 2,75000 2,85000 <br /> Depreciation/Capital 90400 1,16500 <br /> Total $4,413,598 $4,830,698 $417,100 9.5% <br /> 53 The single largest operating cost to the sanitary sewer operation is the treatment costs paid to the <br /> 54 Metropolitan Council Environmental Services Division (MCES). The MCES has notified us that our <br /> 55 treatment costs are expected to increase by approximately 11% in 2012. This is due to the continued <br /> 56 presence of significant storm water infiltration into the sanitary sewer system. 2012 treatment costs are <br /> 57 based on measured wastewater flows from July 2010 through June 2011. Given the significant snowfall <br /> 58 this past winter and rainfall this spring, a substantial increase in infiltration made its way into the sanitary <br /> 59 sewer system and eventually to the wastewater treatment plan. The City also expects to have moderate <br /> 60 increases in personnel and supply-related costs. <br /> 61 <br /> 6d'? The 20-Year CIP calls for an average capital replacement need of$1 million annually. In contrast,current <br /> 63 sewer rates only provide $240,000 annually. <br /> 6 <br /> 65 To alleviate this shortfall,the CIP Task Force recommended a one-time base rate increase of 60%in 2012. <br /> Page 2 of 10 <br />