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City of Pleasanton <br />Sewer Rate Study Report <br /> <br />Water Resources Economics <br />30 <br />2.6 FINANCIAL POLICIES <br />RESERVE POLICY <br />The City’s operating reserve policy maintains cash on hand to meet short-term cash imbalances. <br />The reserve target for the study period ranges from approximately $7.4M to $9.8M in the Sewer <br />O&M and Replacement funds (Funds 430 and 434). <br /> <br />The adopted reserve policy consists of the following components: <br />• Operating Reserve Target: 35% of annual O&M expenses <br /> <br />DEBT COVERAGE REQUIREMENT <br />The debt coverage requirement is 125% of annual debt coverage. To meet coverage requirements, <br />net operating revenues (excluding CIP funding sources and expenditure) must be equal to or <br />higher than 125% of annual debt service. <br /> <br />2.7 STATUS QUO FINANCIAL PLAN <br />STATUS QUO FINANCIAL PLAN SCENARIO <br />Table 2-11 shows the status quo financial plan scenario, which assumes no revenue adjustments <br />and no proposed debt issuances. This scenario is used to evaluate the ability of the current sewer <br />rates to meet the City’s financial targets and to determine the need for revenue adjustments. <br /> <br />Table 2-11: Financial Plan Scenario (Status Quo) <br />Line Fiscal Year Effective Date Revenue <br />Adjustments Debt Issuance Debt Proceeds <br />for CIP <br />1 FY 2027 1/1/2027 0.0% $0 $0 <br />2 FY 2028 7/1/2027 0.0% $0 $0 <br />3 FY 2029 7/1/2028 0.0% $0 $0 <br />4 FY 2030 7/1/2029 0.0% $0 $0 <br /> <br />STATUS QUO CASH FLOW PROJECTIONS <br />Table 2-12 shows the cash flow projections for the status quo financial plan, excluding treatment <br />pass-throughs. Revenues 9 (Lines 1-6) are from Table 2-6. Operating expenses (Lines 8-13) are <br />from Table 2-8. Net operating revenue (Line 15) is equal to the difference between total revenues <br />(Line 6) and total expenses (Line 13). The City has no existing sewer debt service (Line 18), and no <br />new debt is proposed in the status quo financial plan (Line 19). Rate funded CIP (Line 23) is equal <br /> <br />9 Interest income (Line 4) is different in the status quo financial plan scenario because it is based on projected fund <br />balances. The status quo scenario results in lower fund balances; therefore, the City has less interest income. Table <br />2-6 shows the interest income for the proposed financial plan scenario. <br />Page 182 of 923