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BARTLE WELLS ASSOCIATES 8 | Pag e City of San Leandro Draft 2024 Wastewater Rate Study • Interest earnings are projected based on the annual beginning fund balance multiplied by the projected interest rate (2%). The interest rate projections are based on recent and anticipated interest rates. Expense Assumptions • Operating and maintenance costs are primarily based on the 2024/25 budget. • Operating costs are projected to escalate at 8% for the first year and 3.5% per year for the remaining four years to account for cost inflation. • Debt service projections are based on outstanding debt schedules and projected issuances of new debt. • Capital improvement costs are based on the most recent engineering cost estimates. Capital costs include a 3.5% annual construction cost inflation factor for the next five years. 3.4 Cash Flow Projections Cash-flow projections were developed based on assumptions and key drivers of future rate increases described above. The projections were used to determine the wastewater utility’s annual revenue requirements and project required wastewater rate revenue increases. The cash-flow projections incorporate the latest information available from the City’s budget, annual reports, capital spending projections, metered water demand data, as well as a number of reasonable assumptions developed with input from the City. The overall rate revenue increases shown for each of the following scenarios are designed to fund the City’s cost of providing service, maintain roughly balanced budgets, maintain healthy debt service coverage, and maintain prudent reserves. The proposed rate increase in the first year is lower than the remaining years to mitigate the impacts from rate structure adjustments. The projections indicate the need for increases for wastewater rate revenues for each of the next five fiscal years. Actual impacts to customers’ wastewater bills will vary based on strength category and water use, due to the outcome of the updated cost-of-service analysis and change in rate structure. In future years, the City can re-evaluate its finances and revenue requirements and adjust rates as needed based on updated projections. However, while the City always has the flexibility to implement rate adjustments that are lower than adopted pursuant to Proposition 218, future rates cannot exceed adopted increases without going through the Proposition 218 process again. Rates adopted pursuant to Proposition 218 are essentially future rate caps. The following figure visually depicts the cash-flow projections with the proposed rate increases for the next five years. Projected expenses are summarized into key categories. The figure also shows the projected fund reserves at the end of each fiscal year.