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, . ) -- ~.~( Agenda Item 18 January 23, 1995 Page 4 . a rate increase of $0,10 per thousand gallons to avoid a projected temporary decreas'~ in operating surpluses several years in the future,) Cash Flow Scenario 2 results in a moderate rate increase which would raise average residential water charges from the current level of about $23 per month to about $3~, per month (an increase of 44 percent). In addition, CWCB funding for capital costs would decrease from $4,260,000 to $3,732,000 due to Water & Power Authority participation in project financing, The credit report from the Division of Local Government shows that the District's current indicators (financial ratios) are all in the "Average" to "Strong" categories at ' the present time, New debt of $4,260,000 would move some indicators from the "Strong" to the "Average" category, One important indicator with respect to ability 1:0 pay is current water rates as a percent of median household which goes from 1.08 in the "Strong" category to 1.54 in the "Average" category with $4,260,000 in borrowing. With regard to unit costs, it should be noted that the estimated project costs of $5,678,833 divided by an annual output of 1,380 acre-feet results in a capital cost of about $4,000 per acre-foot of yield, The District has indicated a willingness to pledge both physical assets and revenues to . secure the loan. Water Bond Refinancing The District is proposing to retire an existing water bond issue with a principal balance at the present time of $1,120,000 with interest ranging from 10.3 percent to 11.0 percent on bonds maturing between 1995 and 2003. (The bonds were issued in 1989 for $1,470,000 to purchase $2,795,000 in outstanding debt from the Farmers Home Administration. ) The October 31, 1994 staff memo to the Board recommended consideration of $848,000 in refinancing at 5.5 percent for 30 years contingent upon a finding that refinancing by the Board is necessary for the financial feasibility of the project. The most likely alternative to refinancing by the Board would be funding through the Water & Power Authority at (currently) 6.5 percent for 20 years, For purposes of comparison, a 5.5 percent, 30-year loan equivalent in amount to the payoff of the bonds was compared with 6.5 percent, 20~year financing, The result indicates that the difference in annual payments for 20 years would be about $25,000 per year or approximately $12 per tap per year (using 2,000 taps), As noted above in the reference to Underwood's Cash Flow Scenario 2, the total impact of Water & .