Finance Committee Agenda and Packet 2021 01 25

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6.0% 5.5% 5.0% 4.5% 4.3%, $22.8M 4.0% 3.5% 3.3%, $27.1M 3.0% 2.8%, $23.3M 2.5% 2.5%, $27.8M 1* 5.5%, $22.2M ! 4.6%, $26.OM 4.0%, $22.8M 3.8%, $26.9M 2.0% $0 Dawn Payment $2,500,000 Dawn Payment Fixed 20 yr * Fixed 30 yr • 5 yr Interest 20 yr 5 yr Interest 30yr Each scenario is represented by a point and the associated annual rate increase for the Utility over roughly 5 years along with the total principal & interest paid. In review of all scenarios the City is in a win/win situation. Any decision is a good decision with minimal rate increases necessary to finance such a large project. Despite this staff are suggesting 3 guiding principles to guide future bond structuring. 1. Optimize rate model to provide for lowest overall rate increases over time while considering the long term impacts of inflation during annual rate setting exercises. 2. Select financing structure that minimizes total principal and interest payments over the life of the loan. 3. Maintain future flexibility of the Utility to fund future large capital projects such as the Louisville Pipeline or Large Scale Waterline Replacement in addition to unforeseen issues, environmental impacts, and inevitable loss of reliable tap fee revenue. Over the course of the 20-year and 30-year loans it does not appear that a down payment significantly impacts the total amount of principal and interest paid given the low interest rates currently being anticipated. Maintaining cash within Utility reserves ensures the ability to maintain low annual utility rate increases. If it is desired to reduce the amount of cash reserves in the Water Fund the Utility Committee can consider reducing future proposed rate increases to draw down cash reserves faster. This cash reduction schedule can be reviewed annually by the Utility Committee during the annual financial planning and rate setting process. Additionally, 15 10