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Assistant Public Works Director Olson responded that is correct. Future increases would be done during the normal budgeting process so no one can say they have not been told. John Pcterson of Bolton & Menk explained regarding the water charges, essentially the connection charge was meant to be a total connection charge, not just one of the factors. Raising the charge to $2,325 resulted in the City collecting more revenue than needed. The other big thing that impacts the change was going from trying to maintain the budget from a fund balance at 100 percent of the annual budget to allowing it to drop to about 50 percent until the end of the period. That allows some flexibility in the planning of the increase. What they are now recommending is a five percent annual rate increase that is in essence an inflationary increase and user ratc, a 2-V2 percent annual increase in the WAC charge starting in January of 2005, trunk charge increase from $535 up to $1,862 in January of 2005, and annual inflationary increases after that. In the analysis that $535 now is necessary to maintain balances along the way, and is a little bit ora catch up charge. Chairperson Elvig questioned if the trunk charge is basically for capital expenses. Finance Officer Lund replied trunk and WAC charges are both capital, and the user fee is for operational expenses. Counci hnember Elvig inquired about the capital needs. Mt'. Petcrson replied the capital needs included were a treatment plant, water supply, wells or sm'face water, major distribution mains necessary for development, storage reservoirs, and a budgetary item for future undefined items. Assistant ?ublic Works Director Otson explained the surface water treatment was the one selccted for the water supply plan. That can be delayed, but the bottom line is that even if they were to remove the surface water treatment, the decision to go with surface water treatment ~vas balanced because they would need additional wells if they do not with the surface water treatment. He explained the DNR has made it more difficult to get municipal water supply wells. There is no guarantee they will be able to get more than the three that were promised to the City. Councihnember Strommen indicated her understanding is the DNR is going more towards a preference for cities to have both surface and ground water, but it is not mandated yet. Councilmember Zimmerman clarified the charge being looked at is 15 million dollars for water. Finance Officer Lund responded in the affirmative. She explained this amount will take them out to the year 2024. Chairperson Elvig inquired if the five percent annual operating increase is something new. Assistant Public Works Director Olson replied the user rates have been increased at about the five percent range. Finance Committee/September 28, 2004 Page 3 of 7