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FC# I REVIEW AND ADOPT 1999 ENTERPRISE FUND BUDGETS By: Diana Lund, Finance Officer Background: Enclosed for your review are the Proposed 1999 Enterprise Fund Budgets which cover the Water Utility Fund, Sewer Utility Fund, Street Light Utility Fund and the Recycling Utility Fund. While formal budgets are required to be prepared and adopted annually for the General Fund, this is not the case for Enterprise funds. In order to establish fair rates for all of the utilities that the City operates, it is necessary to determine the actual cost of providing those utilities to the residents. Due to the relatively "young age" of the City's utility system, it is extremely difficult to immediately realize profits, but it is important that any losses in the first years of operation be representative of what the system actually costs. An important factor in these costs is the recovery of depreciation through the rate structures. We are required to keep the accounting for these funds on the full accrual method which means recognizing total depreciation, whether on City or developer installed systems. This is what we have attempted to do in preparing the attached Proposed 1999 Enterprise Fund Budgets. Water Utility Fund It is estimated that total revenues for 1999 will be qpproximately $577,488 which includes interest earnings of $125,000. These revenue projections include a 5% rate increase for water sales in 1999 from $18.90/quarter to $19.85/quarter. Expenditures are estimated to be at $422,713 which includes depreciation (non-cash) of $201,742. This results in a budgeted operating income for 1998 of $154,775 and would increase the retained earnings accordingly. Sewer Utility Fund It is estimated that total revenues for 1999 will be $537,695 which includes interest earnings of $47,200. These revenue projections also incorporate 5% rate increase [$53.15/qtr. to $55.81/qtr] that would become effective January 1, 1999 and could increase at a later period in 1999 due to Met Council's sewer calculations being based on actual flow and a catch-up period for 1996 and 1997. Expenditures are estimated to be at $529,589 which includes depreciation (non-cash) of $172,000. This results in a budgeted operating profit of $8,106, which is a bit more than break even, and continues to slowly decrease the deficit in retained earnings.