10-27-2025 - Agenda Packet City Council - Regular Meeting

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Financial AbdoSolutionsxom Ablaoft o Solutions October 22, 2025 Honorable Mayor and City Council City of Orono Introduction We have prepared the attached 2025 - 2030 Utility Rate Study for the City that is intended to give a big picture view of the financial status of the Water, Sewer and Stormwater Enterprise funds as they stand currently and how forecasted assumptions will change things six years from now. We have not examined the projection and do not express an opinion or any other form of assurance on the accompanying schedules or assumptions. Furthermore, there will usually be differences between the forecasted and actual results because events and circumstances frequently do not occur as expected and those differences may be material. We have no responsibility to update this report for events and circumstances occurring after the date of this report. The City's assumptions made are as follows: Assumptions - Forecasting • The projections for all funds (Water, Sewer and Stormwater) is arrived at to ensure the City meets projected targeted cash reserves and a positive cashflow at the end of the plan in year 2030. • Target cash reserve is calculated and presented as 100% of the following years' debt payments, 25% of projected operating expenses, and a five-year average of capital expenses from 2025 - 2030. • The prior three years actual ledger balances were used for projecting 2025 activity and beyond. For cashflow purposes, some modifications were made for debt requirements, capital purchases, transfer of funds, and grant receipts reviewed with management. o 2025 activity is also projected using the prior three years actual ledger balances while also comparing to the unaudited current activity known from the general ledger so far. Balances are compared and reviewed for relative accuracy without knowing actuals for accrual and year-end adjustments. • Operating expenses as well as certain operating revenues (unrelated to customer billings) will increase by a 3.0 percent inflation and salary and benefit expenditures will also increase at 4.0 percent for the life of the plan. Salary expenditures are projected at an increase of 5.0 percent for 2026 based on management estimates. • Interest earned on cash held in the City's name is assumed to earn interest at a rate of 3.0 percent. • Capital improvements/infrastructure, equipment, and other capital maintenance items have been identified in the City's capital plan and are identified to be accounted for in the related enterprise fund. All significant purchases (over $1,000,000) are assumed to be purchased with debt proceeds due to the current and projected cash reserves. • Scheduled transfers from the Water, Sewer and Stormwater funds to other City capital project funds are included yearly. These balances could be changed based on the need of equipment purchases in future years. • Included in the assumptions is a one-time transfer from other funds to the Water fund in the amount of $750,000. Also included is the assumption of coding antenna lease revenue in the Water fund at $114,000/year starting in 2026. • New Residential connections are assumed to be 10 per -year. There are no commercial connections assumed. Lighting the path forward 4 110