Presentation to CITY OF PALM COAST, FLORIDA

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Presentation toCITY OF PALM COAST, FLORIDA

• FINANCIAL FORECAST AND
• CAPITAL FACILITIES FEES ANALYSIS
• Prepared in Conjunction With the Utility System
  Revenue Bonds, Series 2007
• December 19, 2006
• Presented By
• Public Resources Management Group, Inc.

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AGENDA

• Series 2007 Bonds
• Financial Forecast
• Background and Purpose
• Customer Statistics / Revenue Projections
• Capital Improvement Funding
• Adequacy of System Rates
• Debt Service Coverage
• Capital Facilities Fees Analysis
• Conclusions and Recommendations
•   

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SERIES 2007 BONDS

• Fund certain capital improvements to the water
  and wastewater system
• Total Construction Fund proceeds 45,635,000
• Primary Projects include
• Water Treatment Plant No. 3 29,950,000
• Land Acquisition 7,200,000
• Beachside Wastewater Facilities 5,200,000
• OKR Master Pump Station FM 2,000,000
• Raw Water Mains 1,285,000
• Total Loan Principal
  50,765,000
• Includes capitalized interest through September
  30, 2008
• Coupon Rates ranging from 4.09 to 4.86
• Term of 30 years
• Issuance Requires Preparation of Financial
  Forecast

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• FINANCIAL FORECAST

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BACKGROUND AND PURPOSE

• Prepared in Anticipation of the Issuance of the
  Series 2007 Bonds
• Evaluate the Sufficiency of Rates
• Five-year Financial Forecast and Funding Analysis
  
• FY 2007-2011
• Meet System Expenditures
• Fund Capital Improvement Plan
• Satisfy Rate Covenants Defined in the Bond
  Resolution
• Maintain Financial Stability of System

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BACKGROUND AND PURPOSE (Cond)

• Analysis included Forecast of
• Customer Statistics and Revenues
• Operating Expenses
• Capital Improvement Funding
• System Cash Flow and Fund Balances

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CUSTOMER STATISTICS

• During FY 2006, the City Served on Average
• 38,796 Water Accounts
• 29,912 Sewer Accounts
• Active Account Growth of System (to FY 2006)
• Compounded Growth Rate of 11.60 since 2000
• Utility Customer Growth Projections

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CUSTOMER STATISTICSREVENUES PROJECTIONS (Cond)

• Projected revenues from rates based on the
  following
• Customer and Sales (use) Forecast
• Current rates and charges as Adopted at time of
  Acquisition
• No Change for Five Years Ends in Fiscal Year 2008
• An Annual Price Indexing Adjustment of 2.2 was
  assumed for Fiscal Year 2009 2011
• Applied to Monthly User Charges, Capital
  Facilities Fees, and Miscellaneous Charges

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CUSTOMER STATISTICSREVENUES PROJECTIONS (Cond)

• Proposed rate adjustment of 12.5 proposed for
  Fiscal Year 2009 to Recover
• Increased debt service requirements associated
  with projected Utility System
• Revenue Bonds
• Inflationary Effects on Operating Expenditures
• Increase in Capital Improvement Plan/Costs
• Construction Cost have Materially Increased
• Increased Regulations
• Additional Capital Needs (Identified after
  owning system Improved level of service)
• Blend of Pay-as-you-go Capital and Debt Financing
  
• Includes First Year of Price Index Adjustment
• Generally Consistent with Capital Finance Plan
  (SRF) Loan) Presented in May 2006

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CUSTOMER STATISTICSREVENUES PROJECTIONS (Cond)

• Existing Monthly Water and Wastewater Rates have
  not been adjusted since 1995
• Exception Water Conservation Rate Structure in
  2005
• Represents 13 years without change in rates
• Projected Increase in Inflation from the time of
  the System Acquisition (Nov. 2003 to 2009)
  approximates 14.5
• Projected Increase in Inflation from last rate
  increase (1995 to 2009) approximates 38.5

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OPERATING EXPENSES

• Forecast Based on FY 2007 Adopted Budget
• Forecast Recognized
• System Growth in Accounts Served/Flows
• Inflationary allowances
• Labor Cost Increases and Personnel Additions
• Contingency Allowance of 2.0 was included in the
  Forecast to Account for Unanticipated Expenses

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CAPITAL IMPROVEMENTPROGRAM FUNDING

• The Citys Capital Improvement Plan was assumed
  to be funded with a combination of the following
  sources
• Capacity Fees
• New Development
• Series 2007 Bonds
• Water Projects
• SRF Loans
• Low Interest / Wastewater Projects
• Renewal and Replacement Fund Deposits
• From Operations
• Operating Reserves
• Available Funds

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ADEQUACY OF SYSTEM RATES
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PROJECTED OPERATING RESULTS
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WATER AND WASTEWATER COMPARISON Typical 5/8
Meter Monthly Bill At 5,000 Gallons
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• PROPOSED CAPITAL FACILITIES FEES

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PURPOSE OF CAPITAL FACILITIES FEES

• Application Common in Utility Industry
• Historically Used by Utility as a Capital
  Financing Tool
• Recover Capital Cost of Capacity Allocable to New
  Users
• Must Meet Rational Nexus Provisions Dictated by
  Case Law
• Fees Must be Reasonable
• Support Capital Needs for System Growth
• Growth Must Pay Its Own Way
• Long Term Effect Stabilize Rates for Service
  (e.g., Reduces Need for Future User Rate
  Increases
• Shifts Portion of Cost Recovery Burden to
  Development
• Links to Financing of Capital Expenditures for
  Future Users
• Reduces Debt Service Component of Rates for
  Existing Users

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MAJOR OBJECTIVES

• Can Only Be Used to Provide Funding for Expansion
  of Water and Sewer Service
• Should Not Be Used to Fund Capital Needs Related
  to Deficiencies in the Existing System or Pay for
  Any Operating Costs
• Should Be Based on System-Level Capital Cost
  Requirements Anticipated for Providing Service to
  New Development

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CRITERIA

• Based on CIP Prepared by Citys Consulting
  Engineers and Identified in the Five-Year
  Financial Forecast
• CIP Planning Horizon Fiscal Year 2007 Fiscal
  Year 2011
• Only Water Production/Wastewater Treatment and
  Backbone Transmission Costs Recognized
• Distribution/Collection Project Costs Were not
  Recognized
• Generally Not System-Wide Costs
• Benefit Specific Customers Or Funded By Specific
  Charge (e.g., Meter Installation)
• Generally Contributed to Utility as Part of
  Development Process
• Supports Benefit Rule Identified by Case Law

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PROPOSED WATER AND WASTEWATERCAPITAL FACILITIES
FEES

• Water System Capital Facilities 10.80 Per
  Gallons of Requested Capacity or 2,430/ERC
• Wastewater System Capital Facilities 13.78 Per
  Gallon of Requested Capacity or 2,480/ERC
• Combined Proposed Fees Represent Increase From
  Current Fees

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WATER AND WASTEWATERCAPITAL FACILITIES FEES
COMPARISON
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COMPARISON OF WATER AND WASTEWATERCAPITAL
FACILITIES FEES (Cond)

• Some Reasons Why Capital Facilities Fees Differ
  Among Utilities

• Source of Supply
• Proximity to Source of Supply
• Type of Treatment
• Availability of Grant Funding to Finance CIP
• Administrative Decision to Maintain Fees at a
  Level Below What Could Justifiably Be Charged

• Age of System/Level of Renewals and Replacements
• Utility Life Cycle (Growth-Oriented vs. Mature)
• LOS Per ERC Standards
• Density/Size of System

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WATER AND WASTEWATERCAPITAL FACILITIES FEES
COMPARISON
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MONTHLY RATESCONCLUSIONS AND RECOMMENDATIONS

•  
• Existing System Rates Are Not Adequate To Meet
  System Expenditures Throughout The Forecast
  Period.
• Adopt The Proposed 12.5 Increase To Monthly User
  Rates Effective November 1, 2008.
• Adopt Annual Indexing Provision.
• Proposed Rates Should Be Adequate To Comply With
  The Minimum Rate Covenants As Defined In The
  Citys Bond Resolution

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CAPITAL FACILITIES FEES CONCLUSIONS AND
RECOMMENDATIONS

• Fees are Based on Recommended Capital Improvement
  Program and Capacity Requirements
• Adopt Recommended Water and Wastewater Fees
• Make Proposed Capital Facilities Fees Changes
  Effective as Soon as legally allowed
• Priority of Use of Funds Collected
• Fund CIP to Avoid Outside Financing Debt
• Fund Future Expansion-Related Debt