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Page 5 of 8 Enterprise Funds Water Operations and Maintenance Fund – As shown in Table 5 on the following page, recommended changes to the Water Operations and Maintenance Fund include an increase of $34,000 in revenues and a decrease of $200,000 in operating expenses based on projected salary savings. The result of these adjustments is an increase in net income by $234,000 and an estimated ending fund balance of $6.3 million which equals 18.3 percent of the total FY 2023/24 operating expenses and is below the recommended minimum of 30.0 percent. The City’s reserve policy requires reserves to stay between 30.0 and 40.0 percent with a target of 35.0 percent. It should be noted that Council approved using a total of $2.6 million from the fund balance in the Water Operating Fund, funding $500,000 for initial design costs for the Water Supply Alternative Design Project and $2.1 million for the Bernal Avenue 18-Inch Water Main and Turnout No. 1 Improvements Project. Staff is currently exploring long-term financing options for these and additional capital projects that are necessary for near-term water capacity improvement efforts. Once a debt has been issued, $2.6 million will be restored to the Water Operating Fund. Including this $2.6 million, the estimated ending fund balance becomes $8.9 million, which is equivalent to 25.7 percent of the total FY 2023/24 operating expenses. The City Council approved a two-year rate increase on November 7, 2023. While the rate increase went into effect starting in January 2024, only a minor increase of $34,000 to the recycled water revenue is recommended, as the water revenue number included in the adopted budget already assumed a rate increase. Based on year-to-date actual water sales numbers and a projected year-end total, staff recommends keeping the current water sales revenue budget. No expenditure adjustments are proposed at this time except for a decrease in operating costs by $200,000 based on projected salary savings. With a handful of water capital projects planned in the current calendar year and additional major capital projects that may potentially result from ongoing alternative water efforts, it is critical that the Water and Recycled Water Operating Fund conditions improve. Table 5. Water Operations and Maintenance Fund Overview Sewer Operations and Maintenance Fund – As shown in Table 6 below, recommended changes to the Sewer Operations and Maintenance Fund include increasing expenditures by Page 196 of 228