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FC CASE ADOPT 1997 ENTERPRISE FUND BUDGETS By: Jessie Lo Hart~ Finance Officer Background: Enclosed for your review are the Proposed 1997 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 "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 1997 Enterprise Fund Budgets. General Budget Information Some assumptions have been made that effect the manner in which we have prepared the attached budgets. It was budgeted in the General Fund that 120 new residential homes would be built during 1997. The assumption was made that all 120 would be urban additions, therefore, this is the number that was utilized in preparing the attached budgets. Costs that can be attributable to both the Water and Sewer Utility Funds are being split 80% to the Water Utility Fund and 20% to the Sewer Utility Fund, with all other costs charged to the identifiable funds. Water Utility_ Fund Utilizing 120 new additions to the system for 1997, it is estimated that total revenues for 1997 will be approximately $407,233 which includes interest earnings of $60,000. These revenue projections also incorporate 5% rate increases that are being proposed at this meeting and would become effective January 1, 1997. Expenditures are estimated to be at $319,671 which includes depreciation (non-cash) of $147,314. This results in a budgeted operating income for 1997 of $87,562 which is a bit more than break even, and would increase the retained earnings accordingly. It should also be noted that during 1992 the City incorporated the Water Access Charge (WAC) for future demand on the system for expansion and modification. The items outlined in the notes as CIP expenditures will be funded primarily from the WAC charges.