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annually to maintain a tap fee projection as updated as possible. Councilmember <br />Lipton asked as properties redevelop is there potential for tap fee revenue. Mr. <br />Kowar replied, there is always a potential but it's random. Staff review every <br />tenant finish/building remodel on how much water they use historically versus <br />how much the new tenant plans to use and applies a cost recovery if there is a <br />difference. Councilmember Lipton asked if Council approval was required for this <br />change in methodology. Mr. Kowar said this is a staff determined methodology <br />and included in the utility rate increase presentations to Council. Councilmember <br />Lipton sought confirmation that a change in tap fees was not being requested. <br />Mr. Kowar, confirmed that the tap fees were not being modified, it was only a <br />change in anticipated revenues from tap fees. Mrs. Balser reiterated that the <br />methodology is a staff administrative process and Council action is not required. <br />Mayor Pro Tern Maloney asked for a comparison of tap fees to be added to the <br />rate discussion. Mr. Kowar said the comparison would be added. <br />• Spend Down Options — Mr. Peterson opened this discussion item with the <br />objective of aligning the financial and rate models closer and providing an <br />explanation on what and why there are differences between the two. Following <br />this process, four varieties of spend down were created to align the water fund <br />balance with target goals. The differences in the models were outlined as follows: <br />User Fees — Mr. Peterson explained the 2020 Finance Model was based off of 4- <br />5% annual rate increases for our user fees and shown on Page 17. These <br />increases produce an estimated $48.6 million in user fee over a 5 year period. <br />The rate increases were assumed to be needed to compensate for reduced <br />revenues from COVID. The weather ended up being a greater factor and <br />revenues collected exceeded projections. As a result the rate increases were <br />lowered from the 4-5% to about 2% annual which has an overall reduction of $2.5 <br />million over the model period. <br />Tap Fees — From the earlier conversation, a new minimum estimate has been <br />developed and applied to create a revised projection with an increase of <br />$374,000 to $6.4 million. <br />Operation and Maintenance (O&M) expenses had a large difference that was <br />based off of reduced budgets developed in 2020. The financial model also utilizes <br />a turnback component of 7-10% per year. Mr. Peterson stated new O&M <br />projections were developed combining the two models. In addition, the rate <br />model does not account for turnback. Mr. Kowar said the rate model assumes <br />full expenditures resulting in smaller fund balance in future years compare to the <br />finance model. However, the rate model is reset every year with the starting fund <br />balance keeping the immediate recommended annual rate increase for the <br />current year accurate and future projected rate increases conservative. <br />CIP Expenses — Mr. Peterson explained the prior discussions from 2020 to delay <br />5 <br />