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6/02/2025 Existing Conditions Report Castlewood County Service Area (CCSA) 18 8. Financial Conditions, Indicators & Trends As illustrated in Table 7, total CCSA fund balances declined to minimal levels by FY2023-24. ACPWA subsequently increased charges and loaned CCSA $1.4 million to cover accumulated deficits in the Water M&O Fund. Rate increases in FY2024-25, and lower costs resulted in an estimated positive net change in FY2024-25. A number of factors contributed to this fund balance decline 61 including: • Leaks and pump failures • Increased contract costs and erroneous allocation of 100 percent of contract costs to water fund 62 • Water “Overage” charges including leakage during tank replacement • Debt service for replacement of water tanks • Other non-recurring costs, e.g., lack of documentation and improper system configuration causing damage and need for repairs As part of its rate setting for FY2025-26, APWA requested a supplemental assessment to repay the County’s loan from its revolving fund of $1.4 million over ten years. The loan eliminated the Water M&O Fund FY 2023-24 ending fund balance shortfall of ($1.4 million) but did not provide for nor project future fund balance reserves for contingencies and emergencies. It is uncertain whether the estimated FY2024-25 fund balance increase will continue because of the lack of audited financial reports, absence of a capital improvement program (CIP) with projected costs and timing, and the need for a rate study that details and documents projected costs and revenues, adequate debt service coverage, and appropriate fund balance reserves for contingencies and emergencies. Table 7 summarizes CCSA revenues and expenditures.63 The table estimates combined fund balances relative to the FY2021-22 fund balances reported in the FY2021-22 Castlewood Financial Report, the most recent audited financial reports available. These estimates differ slightly from estimates in the FY26 Annual Report due to the absence of independently audited financial reports since FY2021-22. Actual fund balances will differ based on audited data and application of other accounting measures, e.g., recognition of accounts payable. Fund balances typically report restricted, designated and assigned portions, for example to indicate funds needed to meet contractual “encumbrances”64. 61 See also 2025 Engineers Report (p.6). 62 Based on review of unaudited invoices. 63 Data from CPOA file: "FY20-24 REVEXP Combined - 5.17.24, tab "Pivot". 64 Encumbrances are “...budgetary tools used to track outstanding commitments for goods and services that have not yet been received or paid for. Encumbrances are typically reflected in the balance sheet as a reduction in the unassigned fund balance. According to GASB 54, significant encumbrances should be disclosed in the notes to the financial statements.