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and recommended operating, capital, and debt service reserves, and any financial policies and reserve requirements dictated by policies of the City. We will also consider your goals to address during the study, such as cash reserve targets, operational changes, or hiring needs. We study changes in capital and labor costs and how this will affect your expenses. Using cost escalators, we estimate your future expense increases and the nature of any expenses that may be contractual or one- time/temporary. As we tailor our model to your operations, we identify any other issues or questions affecting financial performance to discuss with you during our first interactive meeting. Capital Program Review One of the largest expenditures driving the need for rate increases is the cost of capital outlay required to meet current and future service needs and regulatory requirements. In addition, there are significant renewal and replacement cost requirements to preserve the reliability and useful life of your equipment and other assets. The City must consistently fund vehicle replacements or incur increases in repair and maintenance costs. And implementing new programs often requires additional carts, routes/vehicles, or other capital expense. We will perform a detailed review of your current capital program, including vehicle/equipment replacements and the anticipated sources of funds available to pay for these projects. This discussion of funding is important to reducing the impact of capital on rates. Recognizing this, we will: • Review the level of your budgeted capital spending vs needed capital investment, • Consider the priority of individual items within your capital plan, • Review all restricted and unrestricted funds available for projects, • Discuss timing of project expenditures, and • Consider external funding sources, such as grants or loans, that may mitigate rate impacts. In meetings with City staff, we will review the level of capital or types of projects the City historically cash funds from rate revenues. We will evaluate the pros and cons of alternative capital funding practices, and financial considerations associated with leveraging debt financing. We will consider whether the City could adapt its use of cash and debt funding to maximize available cash reserves and limit risk. Working with you, we will develop a recommended capital spending and funding plan for the identified capital and future capital needs. Financial Management Plan Based on our analysis and interactions with staff, we now have a forecast of your system growth and anticipated revenues under your current rates. We also have a projection of operations and maintenance expenses, capital investment, debt service payments, and the resulting fund balances in each year of the projection period. The final step is to review the scenarios the City may wish to consider for project timing and funding, policy changes, or sensitivity to changes in any of the assumptions used in the analysis and then develop a long-term plan of rate adjustments for each scenario. Working with you, we identify the scenario that best reflects your anticipated and desired outcomes while minimizing rate impacts to your customers. This plan will provide the revenue requirements used as the basis for updating the structure of your rates. It is important to note that the City/SCS will update this analysis at the time of the midterm review. At that time, we will compare the anticipated outcomes from the rate/rate structure updates to the actual revenues and financial outcomes the City is experiencing. Cost of Services Once the above is complete, we will analyze the City's costs to provide various services to its customers by examining each line item in the budget. Our Cost Allocation Model takes the revenue requirement from and equitably allocates costs to each Fee component (street sweeping, illegal dumping, right of way maintenance, etc.) according to number of instances, how services are provided, and the City's current customer profile. We will prepare a detailed statistical analysis of the City's recent service levels, population growth, and tonnage/service level trends. By looking at several years of data, we can consider factors important to serving your customers and evaluating your costs of service and potential rate structure changes: • What services are provided? i y Council 14 — 71 8/1/2023