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Presentation to CITY OF PALM COAST, FLORIDA

Presentation to CITY OF PALM COAST, FLORIDA. WATER AND WASTEWATER RATE STUDY AND BOND FEASBILITY REPORT Prepared in Conjunction with the Issuance of Utility System Revenue Bonds, Series 2013 January 15, 2013. Presented by. Public Resources Management Group, Inc. Agenda.

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Presentation to CITY OF PALM COAST, FLORIDA

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  1. Presentation toCITY OF PALM COAST, FLORIDA WATER AND WASTEWATER RATE STUDY AND BOND FEASBILITY REPORT Prepared in Conjunction with the Issuance of Utility System Revenue Bonds, Series 2013 January 15, 2013 Presented by Public Resources Management Group, Inc.

  2. Agenda • Recap of Initial Rate Study Results Presented at the 10/30/2012 Workshop • Series 2013 Bonds • Financial Forecast • Customer Statistics / Revenue Projections • Capital Improvement Funding • Revenue Requirements • Adequacy of System Rates • Rate Study Results • Rate Design • Bulk Water and Wastewater Charges • Capital Facilities Fees • Conclusions and Recommendations

  3. Recap of Initial Rate Study Results – 10/31/2012 • Prepared in Anticipation of the Issuance of the Series 2013 Bonds • Last Formal Rate Study Prepared in FY 2007 • Support Issuance of Series 2007 Bonds • Rates Adjusted Uniformly 12.5% Effective November 1, 2008 • City has Annually Indexed Rates (Inflation) • Fiscal Years 2010 to 2012 • Average Annual Increase = 1.67% • Evaluate the Sufficiency of Rates • Five-Year Financial Forecast & Funding Analysis – FY 2013-2017 • Fully Fund System Expenditures • Develop Capital Improvement Financing Plan • Establish Rates Sufficient to Support Issuance of Series 2013 Bonds • Includes Meeting Rate Covenants Defined in the Bond Resolution • Maintain Financial Stability of System and Maintain Favorable Bond Rating

  4. Series 2013 Bonds • Refunding of the Existing Series 2003 Bonds • Low-Interest Rate Environment / Achieve Interest Rate Savings • Annual Savings of Approximately $450,000 to $550,000 • Free-Up Debt Service Reserve Fund of Approximately $6.2 Million • Available to Fund Future Capital Projects • New Money to Fund Capital Improvements = $15,000,000 • Total Funds for Capital Projects = $21.2 million • Series 2013 Bonds-Funded Projects Include: • Water Treatment Plant No. 1 $1,550,000 • Water Treatment Plant No. 2 $12,420,000 • Water Treatment Plant No. 3 $2,225,000 • Water Mains $2,150,000 • Wastewater Treatment Plant No. 1 $1,080,000 • Lift Stations and Pump Stations $1,775,000

  5. Series 2013 Bonds (cont'd.) • Issuance of Series 2013 Bonds Requires: • Preparation of Financial Forecast • Adoption of Utility Rates • Preparation of a Bond Feasibility Report • Debt will be payable from Pledged Revenues which includes Rates and Capital Facilities Fees (Impact Fees) • No Tax Revenues will be used to Support the Debt

  6. FINANCIAL FORECAST

  7. Customer StatisticsRevenues Projections • During FY 2012 the City Served on Average: • 42,720 Water Accounts • 35,102 Sewer Accounts • Active Account Growth of System • Compounded Growth Rate FY 2000 to FY 2006 – 11.60% • Compounded Growth Rate FY 2007 to FY 2012 – Less than 1.0% • Utility Customer Growth Projections FY 2013 through FY 2017 • Forecast Assumes Conservative Growth Projection of Less than 1.0% – Less than 100 Connections per Year • Average Use per Customer • Relatively Consistent by Class • Typical Residential Customer = 4,100 Gallons per Month of Water

  8. Customer StatisticsRevenues Projections (cont'd.) • Projected Revenues from Existing Rates Based on the Following: • Customer and Sales (Use) Forecast • Current Rates and Charges as Adopted • No Indexing to Identify Total Rate Needs

  9. Revenue Requirements • Evaluated Revenue Requirements – Based on Following Formula: + Operating Expenses + Debt Service Payments + Capital Funded from Operations + Deposits to Working Capital / Debt Compliance * – Other Operating Revenues and Income – Use of Working Capital (Fund Balance) = Net Revenue Requirements Funded From Rates * Includes: Maintain Council Fund Balance Policy Maintain Rate Covenant Compliance Maintain Favorable Bond Rating

  10. Revenue Requirements • Operating Expense Forecast Based on FY 2013 Adopted Budget • Forecast Recognized: • System Growth in Accounts Served/Sales and Flows • Inflationary Allowances Ranging from 1.5% to 3.5% Based on Nature of Expense • Labor Cost Increases and Personnel Additions (8 Positions Over the Forecast) • Contingency Allowance of 3.0% was Included in Forecast to Account for Unanticipated Expenses

  11. Capital ImprovementProgram Funding • Capital Improvement Plan Assumed to be Funded as Follows:

  12. Capital ImprovementProgram Funding (cont'd.) • Annual Transfer for Renewal and Replacements • Required Per Bond Resolution (5% Minimum) • Forecast Recognizes 10% of Prior Year's Gross Revenues or Approximately $3,000,000 per Year • 10% Required for Sustainable Long-Term Operations • Series 2013 Bonds – Provide $15.0 Million in New Project Funding • Approximately $400,000 to $500,000 per Year Net Increase in Debt Service Payments after Refunding Benefit

  13. Capital ImprovementProgram Funding (cont'd.) • Future Bonds Recognized: • $43.9 Million Principal Amount of Bonds • Approximately $3,100,000 per Year Increase in Net Debt Service Payments • Assumptions for the Series 2014/2015 Bonds are as Follows: • Assumed Level Debt Service Payments beginning in Fiscal Year 2015

  14. Adequacy of System Rates • Existing Monthly Water and Wastewater Rates Not Anticipated to be Adequate to Meet: • Operating Expenditures and Capital Funding Requirements • Debt Service Payments and Coverage Requirements • Overall System Identified Required Revenue Adjustments:

  15. Adequacy of System Rates (cont'd.) • Reason for the Proposed Rate Adjustments: • Lack of Historical System Growth Affecting Revenues • Utility Absorbed Price Increases Above Indexing Allowance • Significant Reduction in Capital Facilities Fees • Continued Inflationary Impacts on Cost of Operations • Need to Fund Capital Improvements to System • Regulatory Requirements • Increased Debt Service Requirements Associated with Additional Utility System Revenue Bonds

  16. Adequacy of System Rates (cont'd.) • Reason for the Proposed Rate Adjustments: • Need to Have Sufficient Revenues to: • Meet Bond Issuance Requirements • Maintain Financial Creditworthiness and Favorable Bond Ratings • Increase in Annual Transfer to Renewal and Replacement Fund from 5% to 10% per Year of Gross Revenues • Reduces Future Debt Requirements • Improves Long-Term Utility Position • Viewed Favorable by Rating Agencies • Provides Rate Flexibility

  17. Adequacy of System Rates (cont'd.) • Reason for the Proposed Rate Adjustments: • Maintain Adequate Debt Service Coverage Ratios and Bond Ratings in Support of Financing • City Currently an "A" Rated Utility By Fitch and Standard & Poor’s • Fitch “ A " Rated "All-In" Coverage Medium = 1.4X

  18. RATE DESIGN RESULTS

  19. Rate Design • Proposed Cost of Service Analysis to Develop Rates • Proposed Rates Based on FY 2013 Revenue Requirements • Costs Assigned to Water and Wastewater System Separately • Individual Water and Wastewater Revenue Requirements Allocated between Base and Usage Charges • Future Proposed FY 2014 and 2015 Rate Adjustments to be Applied uniformly Across the Board to the Redesigned 2013 Rates • Study Identified Different Level of Rate Adjustments (Not Uniform Application): • Water and Wastewater System • Base and Usage Charges • Class of Service (Residential, Commercial, Bulk, etc.)

  20. Rate Design

  21. Rate Design

  22. Rate Design (cont’d.)

  23. Rate Design (cont’d.) • Water and Wastewater System Overall Increase • Overall Combined System – 8.00% • Overall Water System – 3.27% • Overall Wastewater System – 15.61% • Overall Water Base Vs. Usage Increases: • Overall Water System – 3.27% • Overall Water Base Charges – 2.21% • Overall Water Usage Charges – 4.05% • Overall Wastewater Base Vs. Usage Increases: • Overall Wastewater System – 15.61% • Overall Wastewater Base Charges – 19.60% • Overall Wastewater Usage Charges – 11.87%

  24. Rate Design (cont’d.) • Impact to the Various Customer Classes:

  25. Rate Design (cont’d.) • Impact to the Various Customer Classes:

  26. Water and Wastewater Comparison Typical Residential 5/8" Meter Monthly Bill At 4,000 Gallons

  27. Bulk Water and Wastewater Rates • Bulk Water and Wastewater Charges • Based on the System-Wide Revenue Requirements Allocable to Providing Bulk Service • City Currently Provides Bulk Water Service to Flagler County (Beverly Beach Area) Only • City Will Provide Bulk Wastewater Service to Flagler County (Beverly Beach Area) in the Future • City’s Existing Bulk Water Rate was originally developed in 2004 for the Dunes Community Development District (No longer a customer of the City) • Designed for specific circumstances applicable only to the Dunes Development District and not Other Bulk Users

  28. Bulk Water and Wastewater Rates (cont’d.) • Analysis Identified to Need for the following Bulk Rate Adjustments:

  29. Bulk Water and Wastewater Rates (cont’d.) • Estimated Monthly Impact on Typical Flagler County – Beverly Beach Residential Customer:

  30. Capital Facilities Fees (Impact Fees) • Fees Last Established in 2007 Based on Large Capital Improvement Program Required for Anticipated Customer Growth • Proposed Capital Facilities Fees (Impact Fees) • Revised Capital Facilities Fees – Calculated Recognizing Current Fixed Assets and New Capital Improvement Program (FY 2013 through 2017) • Also Recommend a 20% Reduction to the Proposed Fees for Water Star Certified Properties

  31. Capital Facilities Fees (Impact Fees)

  32. Other Issues • Proposed Modification to Annual Rate Indexing Provision Change Section 10(d) The rates, fees and charges involving monthly base and usage charges, private fire protection services, reclaimed water service and bulk rates relating to the Systems of the City as set forth herein shall be adjusted annually on October 1 of each year, commencing on October 1, 2015 and thereafter, by the Consumer Price Index for All Urban Consumers as of June 30 of each year as published by the United States Department of Labor, Bureau of Labor Statistics. The rates, fees and charges involving capital facilities (connection) fees, installation fees, and taps relating to the Systems of the City as set forth herein shall be adjusted annually on October 1 of each year, commencing on October 1, 2013 and thereafter, by the Construction Cost Index as of June 30 of each year as published by the Engineering News-Record.

  33. Conclusions and Recommendations • Existing System Rates are not Projected to be Adequate to Meet System Expenditures throughout the Forecast Period • Rate Increases Necessary to Fund Capital Plan / Issue Bonds and Maintain Creditworthiness of the System • The Financial Forecast Recognizes Need for Proposed Rate Adjustment • Council Should Adopt the Proposed Rates for Fiscal Year 2013 Effective March 1, 2013 Based on Proposed Cost Allocation Analysis

  34. Conclusions and Recommendations • Council Should Adopt the Additional Proposed Rate Adjustments are as Follows: • Council Should Adopt the Proposed Decreased Capital Facilities Fees (Impact Fees) Effective February 6, 2013 • Council Should Adopt the Proposed Bulk Water and Wastewater Rates • Proposed Rates Should be Adequate to: • Comply with the Rate Covenants as Defined in the City's Bond Resolution • Maintain Fund Balance Policy • Maintain Current Bond Rating

  35. Discussion and Questions

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