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Memo To: Thomas Trosien and Paul Burris

City of Elmhurst, Illinois

From: Derek Wold and Alexis Shotton

Date: January 22, 2021 Project No.: 180889.30

Subject: City of Elmhurst – Water and Sewer Rate Study Update

Project Summary

Baxter & Woodman performed an analysis of the City of Elmhurst Water and Sewer Rates and Capital Recovery Charges (CRC) to determine the adequacy of the rates to support the operational, maintenance, capital, and debt service costs of the Municipal Utility Fund over a ten year planning period from 2020 to 2030. All fees related to water and sewer utility operations, including usage revenues, debt service, tap-on fees, and investment income are deposited into the Municipal Utility Fund. This utility enterprise fund pays for operation and routine maintenance costs, as well as the replacement and rehabilitation of existing infrastructure and equipment.

It is recommended that rate studies be routinely performed, and a five year cycle is typical. However, with the City’s long term Capital Expenditures Budget (CEB), it was imperative that a ten year projection be assessed in order to understand the large spikes in capital expenses as well as the associated debt service that would occur in subsequent years. As a result, the assessment balances the effects of long term inflation that reduces the accuracy of certain expense line items with the larger expenses attributed by the CEB.

1. Existing Rate Structure

The City of Elmhurst’s existing rate structure is broken into three categories of rates: Water Rates Sewer Rates Capital Recovery Charges (CRC)

The water and sewer rates are intended to recapture water and sanitary/treatment infrastructure system expenses under the Municipal Utility Fund respectively with the intent of collecting sufficient revenue to allow these utility infrastructure systems to be self-sustaining and self-renewing. The CRC rate is intended to recapture the debt service accumulated by large capital project loans/bonds.

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Currently, the City bills its Residential users and Commercial/Industrial users on a bi-monthly schedule. Attachment A shows the City’s existing rate structure for water, sewer, and CRC. Existing Water Rate Structure The City of Elmhurst purchases treated Lake Michigan water through the DuPage Water Commission (DWC), who in turn purchases water from the Chicago Department of Water Management (CDWM). The past five years of DWC water rates to the City of Elmhurst are listed in Table 1 and are inclusive of the CDWM water rates. For this assessment, a 2% inflation rate is applied to the CDWM Rate for the forecast and the DWC offset is averaged and maintained constant from the CDWM Rate.

Table 1 - DWC Water Rate Schedule

Year CDWM Rate DWC Rate 2016 $3.81 $4.85 2017 $3.88 $4.80 2018 $3.95 $4.88 2019 $3.98 $4.94 2020 $4.08 $4.97

Water bills are calculated using a straight volumetric rate applied to the metered water usage based on the user type. Table 2 summarizes the City’s existing Water Rate Structure.

Table 2 - Existing Water Rate Structure

DWC Rate City of Elmhurst Charge

Total Water Rate

Residential Rate per 1,000 gal $4.97 $5.98 $10.95 Commercial Rate per 1,000 gal $4.97 $11.65 $16.62

Existing Sewer Rate Structure Similarly, sewer bills are calculated using a straight volumetric rate by user type that is applied against the customer’s metered water usage. Table 3 summarizes the City’s existing Sewer Rate structure.

Table 3 - Existing Sewer Billing Rates Structure

Sewer Rate Residential Rate per 1,000 gal $7.17 Commercial Rate per 1,000 gal $7.17

Capital Recovery Charge The Capital Recovery Charge is determined as additional debt service is accumulated by the City of Elmhurst. The total debt service is then applied against the number of users based on meter size and the rates are summarized in Table 4 as a bi-monthly charge. The structure is a fixed scaled meter charge, in which the size of the customer’s meter is relative to their usage and wear and tear on the infrastructure system required to support them.

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Table 4 - Existing Bi-Monthly CRC Structure

2020 CRC Less than or Equal to 1-inch meters $30.62 1.5-inch meters $61.14 2-inch meters $97.78 3-inch meters $195.70 4-inch meters $305.78 6-inch meters $611.52

2. Revenue and Expense Analysis

For this assessment, the revenues were largely kept constant throughout the ten year forecast to maintain a conservative outlook. However, the following revenues were modeled based on the various scenarios that were investigated as part of the rate study:

Water Revenue which is based on the projected water rates; Sewer Revenue which is based on the projected sewer rates; Loan proceeds, which reimburse the City’s upfront costs associated with its larger capital

projects once signed and approved; Capital Recovery Charges which are based on the projected debt service accumulated by the

City.

In discussions with the City’s financial staff, inflation rates for the general expense line items were determined. However, there were a few notable expense line items that were modeled specifically as part of this rate study:

Operating Capital expenses which account for the annual maintenance and repairs associated with operations of the water and sanitary sewer infrastructure;

Capital Expenditures which account for the identified projects from the City’s Capital Expenditure Budget (CEB);

Debt Service expenses which account for any debt accumulated via bonds and loans.

3. Operating Capital, Capital Expenditures, and Debt Service

The City and Baxter & Woodman, Inc. developed a Capital Improvement Plan for improvements to the water distribution system, sanitary collection system, water production facilities, and wastewater treatment plant. The City has secured, or is in the process of securing, various Illinois Environmental Protection Agency (IEPA) State Revolving Fund (SRF) Loans and General Obligation (GO) Bonds that would reimburse the major capital project expenses. The debt service attributable to the loans and bonds are modeled and accounted for as part of this rate study. The City’s latest Capital Improvement Plan dated December 16, 2020 is included as Attachment B. The City budgets Operating Capital expenditures that cover annual maintenance and repair of the City’s infrastructure that include, but is not limited to: water main replacements, annual sewer lining projects, vehicle replacement, communication equipment, etc. The current and future Operating Capital expenditures are paid for by the City’s water and sewer user charges. The City’s Operating Capital expenditures is included as Attachment C.

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4. Operating Reserve Goal

The American Water Works Association (AWWA) formerly recommended an operating reserve goal of 25% of a utility enterprise fund’s annual expenses less capital, debt, and depreciation. However, the AWWA has since revised its position to recommend that each utility establish an operating reserve goal that is determined to be reasonable and be financially sound. Baxter & Woodman, Inc. recommends a 25% operating reserve goal for the Municipal Utility Fund to address minor emergency repairs and other such events that may cause the City to borrow additional debt. The 25% operating reserve goal represents approximately $5 million in Fiscal Year 2021. The City’s current largest expenses include $7 million in DWC Purchasing, $5 million in Full-Time Salaries and Insurance, and $1 million in Engineering for a total of approximately $13 million budgeted in Fiscal Year 2021. In discussions with City staff, the staff agrees with the recommended 25% operating reserve goal as a sufficient reserve for the Municipal Utility Fund. 5. Water Consumption Analysis

The City’s historical water usage was assessed to determine the water purchased and billed for the ten year projection. The water purchased has trended down over the past four years while the billed water has stayed relatively stable. The decline in non-revenue water, which is represented as the difference between the water purchased and billed, is likely attributable to the City’s ongoing maintenance and repairs that address aging water billing meters, leaking pipes, and tracking billed unmetered activities. As of the City’s 2020 water data, the calculated non-revenue water was 13.7%. Currently, the Illinois Department of Natural Resources (IDNR) requires all communities above 10% non-revenue water to submit an action plan to reduce their non-revenue water below their goal. The City’s Water Purchased vs. Water Billed is shown below in Figure 1.

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Figure 1 – Annual Water Purchased vs. Water Billed

6. Scenario 1: Baseline Scenario (No Rate or CRC Increases)

One of the City’s primary rate study goals was to identify and establish rate increases to support its future operating, capital, and debt service needs to operate and maintain the high quality of service expected of its utilities for its customers. A Baseline Scenario was evaluated in which no rate increases were applied to the water, sewer, or CRC rate through the ten year forecast. The revenues are maintained constant with the only adjustment in water sales revenue for the projected rate increases from the DuPage Water Commission. Overall, the Municipal Utility Fund is unable to maintain a positive balance with no other rate increases and would immediately go negative by the end of Fiscal Year 2021. Figure 2 shows the projected Municipal Utility Fund balance over the ten year projection under the Baseline Scenario.

2017 2018 2019 2020

Purchased 1,545,414,000 1,482,652,000 1,385,018,000 1,375,044,000

Billed 1,133,717,866 1,148,029,620 1,110,022,668 1,187,177,000

-

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

1,800,000,000

Gal

lon

sAnnual Water Purchased vs. Water Billed

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Figure 2 – Baseline Scenario Operating Reserve Figure

Based on the Baseline Scenario, rate increases are necessary in order to maintain the projected expenses for the City. A breakdown of the City’s Operating expenses and Debt Service was calculated in order to determine the required rate adjustments needed between the operating water/sewer and the CRC rate respectively. Figure 3 below shows the Municipal Utility Fund’s operating revenues, operating expenditures, debt service, and CRC revenues.

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Figure 3 – Operating Revenues/Expenditures vs. Debt Service/CRC Revenues

7. Capital Recovery Charge Increase

Given the projected accumulation of debt service, the CRC rate will require incremental increases to keep up with the escalating debt services through the ten year projection. A conservative calculation was conducted in order to determine the exact amount that would be needed to fund the annual debt service by assuming the debt service payments occurred within the same Fiscal Year in which the loan was procured. This conservative method allows the City to begin collecting the CRC revenues prior to the debt service payments occurring within the next Fiscal Year. Due to the variances in the City’s existing and new debt service which cause the CRC rate to increase non-uniformly each year, the rate was averaged over the forecast period to provide a more leveled rate increase. The CRC rate increase for meters less than or equal to 1-inch increase by $4.15 annually, and the full schedule of the Distributed CRC Rates are shown in Table 5.

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Table 5 – Distributed Bi-Monthly CRC Rate Increase Schedule

Year ≤1” Meter 1.5” Meter 2” Meter 3” Meter 4” Meter 6” Meter FY 21 $34.77 $69.42 $111.02 $222.19 $347.18 $694.31 FY 22 $38.91 $77.69 $124.26 $248.69 $388.57 $777.10 FY 23 $43.06 $85.97 $137.49 $275.18 $429.97 $859.88 FY 24 $47.20 $94.25 $150.73 $301.68 $471.37 $942.67 FY 25 $51.35 $102.53 $163.97 $328.17 $512.76 $1,025.46 FY 26 $55.49 $110.80 $177.21 $354.66 $554.16 $1,108.25 FY 27 $59.64 $119.08 $190.44 $381.16 $595.56 $1,191.04 FY 28 $63.78 $127.36 $203.68 $407.65 $636.95 $1,273.83 FY 29 $67.93 $135.63 $216.92 $434.15 $678.35 $1,356.61 FY 30 $72.07 $143.91 $230.16 $460.64 $719.75 $1,439.40

8. Scenario 2: Full Operating Capital – (Non-Uniform Rate Increases)

Based on the existing operating revenue and expense deficit, three water and sewer rate increase scenarios were evaluated. Each scenario assumes the CRC rate increases are applied as shown in Table 5. This scenario evaluates the immediate increase required to breakeven with the budgeted Fiscal Year 2021 expenses, as well as incremental increases to maintain a surplus through the ten year forecast. A 16% increase is applied to the existing water and sewer rate structures in Fiscal Year 2021 followed by a 3% increase in Fiscal Year 2022, 2% increases in Fiscal Years 23 through 28, and 1% increases in Fiscal Years 29 and 30. Table 6 shows a schedule of the required rate increases.

Table 6 – Scenario 2: Water and Sewer Rate Increases

Water Rate per 1,000 gallons Sewer Rate per 1,000 gallons Fiscal Year – Increase Residential

Rate Commercial

Rate Residential

Rate Commercial

Rate FY 21 – 16% Increase $11.91 $18.48 $8.32 $8.32 FY 22 – 3% Increase $12.31 $19.09 $8.57 $8.57 FY 23 – 2% Increase $12.54 $19.45 $8.74 $8.74 FY 24 – 2% Increase $12.77 $19.82 $8.91 $8.91 FY 25 – 2% Increase $13.01 $20.20 $9.09 $9.09 FY 26 – 2% Increase $13.25 $20.59 $9.27 $9.27 FY 27 – 2% Increase $13.50 $20.98 $9.46 $9.46 FY 28 – 2% Increase $13.75 $21.38 $9.65 $9.65 FY 29 – 1% Increase $13.93 $21.63 $9.74 $9.74 FY 30 – 1% Increase $14.11 $21.89 $9.84 $9.84

With these rate increases, the Municipal Utility Fund is able to maintain a breakeven amount for Fiscal Year 2021 with a surplus reported in each subsequent year. The large initial increase is attributed to the near zero beginning balance, and larger capital expenditures that are currently slated for 2021. However, the fund balance is able to reach the 25% operating reserve goal by the end of 2030 with lower increases for the remainder of the projection. Figure 4 shows the Municipal Utility Fund Balance with these rate increases over the ten year projection.

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Figure 4 – Scenario 2 Operating Reserve Figure

The City identified an average residential user consumed approximately 9,000 gallons bi-monthly and has a meter of less than or equal to 1-inch. Table 7 shows a sample of the average residential user’s utility bill that receives both water and sewer services by the City of Elmhurst.

Table 7 – Scenario 2: Residential Sample Bill – 9,000 gallons bi-monthly, ≤1” Meter

Year Water Bill Sewer Bill CRC Bi-Monthly Total Percentage

Increase 2020 $ 98.55 $ 64.53 $ 30.62 $193.70 - 2021 $107.16 $ 74.85 $ 34.77 $216.78 12% 2022 $110.83 $ 77.10 $ 38.91 $226.84 5% 2023 $112.88 $ 78.64 $ 43.06 $234.58 3% 2024 $114.97 $ 80.22 $ 47.20 $242.39 3% 2025 $117.11 $ 81.82 $ 51.35 $250.27 3% 2026 $119.28 $ 83.46 $ 55.49 $258.23 3% 2027 $121.50 $ 85.13 $ 59.64 $266.26 3% 2028 $123.77 $ 86.83 $ 63.78 $274.38 3% 2029 $125.35 $ 87.70 $ 67.93 $280.97 2% 2030 $126.96 $ 88.57 $ 72.07 $287.61 2%

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The City identified an average commercial user consumed approximately 20,000 gallons bi-monthly and has a 2-inch meter. Table 8 shows a sample of the average commercial user’s utility bill that receives both water and sewer services by the City of Elmhurst.

Table 8 – Scenario 2: Commercial Sample Bill – 20,000 gallons bi-monthly, 2” Meter

Year Water Bill Sewer Bill CRC Bi-Monthly Total Percentage

Increase 2020 $332.40 $143.40 $ 97.78 $573.58 - 2021 $369.68 $166.34 $111.02 $647.04 13% 2022 $381.79 $171.33 $124.26 $677.37 5% 2023 $389.05 $174.76 $137.49 $701.30 4% 2024 $396.46 $178.26 $150.73 $725.45 3% 2025 $404.02 $181.82 $163.97 $749.81 3% 2026 $411.73 $185.46 $177.21 $774.39 3% 2027 $419.60 $189.17 $190.44 $799.21 3% 2028 $427.62 $192.95 $203.68 $824.25 3% 2029 $432.67 $194.88 $216.92 $844.46 2% 2030 $437.78 $196.83 $230.16 $864.77 2%

Overall, the proposed initial water rate, sewer rate, and CRC rate increase in Fiscal Year 2021 represents a 12% and 13% increase to the bi-monthly bill for Residential and Commercial customers respectively. Over the ten year projection, this comes out to an averaged 5% increase per year for both user groups. The initial increase of 16% to both the water and sewer rates are the minimum increase required to keep the Municipal Utility Fund balance at or near zero in Fiscal Year 2021, with the remaining increases required to meet the 25% operating reserve goal by Fiscal Year 2030. In discussions with the City, additional scenarios were developed that assessed reducing the immediate 16% rate increase required to breakeven by reducing Operating Capital expenses for the first few years. This would allow the fund balance to increase and provide a buffer in later years, and more evenly spread the rate increases required over a longer period of time. 9. Scenario 3: Reduced Operating Capital (Non-Uniform Rate Increases)

This scenario assesses a reduced Operating Capital expense schedule from 2021 through 2026. The modified budgeted Operating Capital expenses are shown in Table 9. These reductions were determined as feasible by the City to reduce its Operating Capital without significantly impacting its ability to maintain its utility infrastructure systems.

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Table 9 – Reduced Operating Capital

Year Full Water Improvements

Reduced Water Improvements

Full Sanitary Improvements

Reduced Sanitary Improvements

2021 $3.0 M $2.0 M $2.0 M $1.5 M 2022 $3.0 M $2.25 M $2.0 M $1.6 M 2023 $3.0 M $2.5 M $2.0 M $1.7 M 2024 $3.4 M $2.75 M $2.0 M $1.8 M 2025 $3.4 M $3.0 M $2.0 M $1.9 M 2026 $3.4 M $3.25 M $2.0 M $2.0 M 2027 $3.5 M $3.5 M $2.0 M $2.0 M 2028 $3.5 M $3.5 M $2.0 M $2.0 M 2029 $3.5 M $3.5 M $2.0 M $2.0 M 2030 $3.5 M $3.5 M $2.0 M $2.0 M

With the reduced Operating Capital, this reduces the immediate increase required from 16% to 7% in Fiscal Year 2021. However, the rate increases in subsequent years is maintained higher overall than in Scenario 2 in order to meet the 25% operating reserve goal by 2030. Table 10 shows the schedules of the required water and rate increases.

Table 10 – Scenario 3: Water and Sewer Rate Increases

Water Rate per 1,000 gallons Sewer Rate per 1,000 gallons Fiscal Year – Increase Residential

Rate Commercial

Rate Residential

Rate Commercial

Rate FY 21 – 7% Increase $11.37 $17.44 $7.67 $7.67 FY 22 – 5% Increase $11.89 $18.26 $8.06 $8.06 FY 23 – 5% Increase $12.31 $19.00 $8.46 $8.46 FY 24 – 3% Increase $12.61 $19.50 $8.71 $8.71 FY 25 – 3% Increase $12.91 $20.01 $8.97 $8.97 FY 26 – 2% Increase $13.15 $20.39 $9.15 $9.15 FY 27 – 2% Increase $13.40 $20.78 $9.34 $9.34 FY 28 – 2% Increase $13.65 $21.18 $9.52 $9.52 FY 29 – 2% Increase $13.90 $21.58 $9.71 $9.71 FY 30 – 2% Increase $14.16 $22.00 $9.91 $9.91

With these rate increases and the reduced Operating Capital, the Municipal Utility Fund shows a similar projection as Scenario 2 throughout the forecast. Figure 5 shows the Municipal Utility Fund Balance with these rate increases over the ten year projection.

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Figure 5 – Scenario 3: Operating Reserve Figure

The City identified an average residential user consumed approximately 9,000 gallons bi-monthly and has a meter of less than or equal to 1-inch. Table 11 shows a sample of the average residential user’s utility bill that receives both water and sewer services by the City of Elmhurst.

Table 11 – Scenario 3: Residential Sample Bill – 9,000 gallons bi-monthly, ≤1” Meter

Year Water Bill Sewer Bill CRC Bi-Monthly Total Percentage

Increase 2020 $ 98.55 $ 64.53 $ 30.62 $193.70 - 2021 $102.32 $ 69.05 $ 34.77 $206.13 6% 2022 $107.00 $ 72.50 $ 38.91 $218.41 6% 2023 $110.78 $ 76.12 $ 43.06 $229.96 5% 2024 $113.47 $ 78.41 $ 47.20 $239.08 4% 2025 $116.22 $ 80.76 $ 51.35 $248.33 4% 2026 $118.38 $ 82.38 $ 55.49 $256.25 3% 2027 $120.58 $ 84.02 $ 59.64 $264.24 3% 2028 $122.83 $ 85.70 $ 63.78 $272.31 3% 2029 $125.12 $ 87.42 $ 67.93 $280.46 3% 2030 $127.45 $ 89.17 $ 72.07 $288.69 3%

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The City identified an average commercial user consumed approximately 20,000 gallons bi-monthly and has a 2-inch meter. Table 12 shows a sample of the average commercial user’s utility bill that receives both water and sewer services by the City of Elmhurst.

Table 12 – Scenario 3: Commercial Sample Bill – 20,000 gallons bi-monthly, 2” Meter

Year Water Bill Sewer Bill CRC Bi-Monthly Total Percentage

Increase 2020 $332.40 $143.40 $ 97.78 $573.58 - 2021 $348.71 $153.44 $111.02 $613.17 7% 2022 $365.17 $161.11 $124.26 $650.54 6% 2023 $379.96 $169.17 $137.49 $686.62 6% 2024 $389.94 $174.24 $150.73 $714.91 4% 2025 $400.20 $179.47 $163.97 $743.63 4% 2026 $407.83 $183.06 $177.21 $768.09 3% 2027 $415.62 $186.72 $190.44 $792.78 3% 2028 $423.56 $190.45 $203.68 $817.69 3% 2029 $431.66 $194.26 $216.92 $842.84 3% 2030 $439.92 $198.15 $230.16 $868.23 3%

Overall, the proposed initial water rate, sewer rate, and CRC rate increase in Fiscal Year 2021 represents a 6% and 7% increase to the bi-monthly bill for Residential and Commercial customers respectively. Overall, the rate increases still represent an averaged 5% increase per year for both user groups. With the assumption that the City is able to maintain the reduced Operating Capital, this presents a more gradual rate increase to its customers. However, by the projected end of 2030, the projected sample bills for Residential and Commercial users exceeds the rate increases shown in Scenario 2. It is imperative that the City continue to monitor its finances no less than once a year to ensure that the reduced Operating Capital expenses are met with the proposed rate increases. Due to the minimal fund balance within the next five years, any unforeseen emergencies or otherwise higher expenses that are reported may cause the City to borrow from additional sources to cover those expenses and potentially lead to higher debt service. 10. Scenario 4: Reduced Operating Capital and Expenditures (Non-Uniform Rate Increases)

In discussions with the City, an additional option to reduce miscellaneous expenses was identified that would total an additional $400,000 reduction per year. Scenario 4 assesses this additional reduction with the reduced Operating Capital schedule presented in Scenario 3. The immediate increase reduces further from 7% to 4% in Fiscal Year 2021 in order to breakeven, and the rate stays fairly constant throughout the entire projection. Overall, this rate schedule comes out to be more than the rate schedule presented in Scenario 2 with the 16% increase upfront with the full Operating Capital schedule, and less than the rate schedule presented in Scenario 3. Table 13 shows a schedule of the required rate increases. Figure 6 shows the Municipal Utility Fund Balance with these rate increases over the ten year projection.

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Table 13 – Scenario 4: Water and Sewer Rate Increases

Water Rate per 1,000 gallons Sewer Rate per 1,000 gallons Fiscal Year – Increase Residential

Rate Commercial

Rate Residential

Rate Commercial Rate

FY 21 – 4% Increase $11.19 $17.09 $7.46 $7.46 FY 22 – 4% Increase $11.64 $17.77 $7.76 $7.76 FY 23 – 4% Increase $11.98 $18.36 $8.07 $8.07 FY 24 – 4% Increase $12.34 $18.97 $8.39 $8.39 FY 25 – 3% Increase $12.64 $19.47 $8.64 $8.64 FY 26 – 3% Increase $12.94 $19.98 $8.90 $8.90 FY 27 – 3% Increase $13.26 $20.50 $9.17 $9.17 FY 28 – 3% Increase $13.58 $20.04 $9.44 $9.44 FY 29 – 3% Increase $13.91 $21.60 $9.72 $9.72 FY 30 – 3% Increase $14.25 $22.17 $10.02 $10.02

Figure 6 – Scenario 4: Operating Reserve Figure

The City identified an average residential user consumed approximately 9,000 gallons bi-monthly and has a meter of less than or equal to 1-inch. Table 14 shows a sample of the average residential user’s utility bill that receives both water and sewer services by the City of Elmhurst.

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Table 14 – Scenario 4: Residential Sample Bill – 9,000 gallons bi-monthly, ≤1” Meter

Year Water Bill Sewer Bill CRC Bi-Monthly Total Percentage

Increase 2020 $ 98.55 $ 64.53 $ 30.62 $193.70 - 2021 $100.70 $ 67.11 $ 34.77 $202.58 5% 2022 $104.74 $ 69.80 $ 38.91 $213.45 5% 2023 $107.83 $ 72.59 $ 43.06 $223.48 5% 2024 $111.03 $ 75.49 $ 47.20 $233.73 5% 2025 $113.72 $ 77.76 $ 51.35 $242.82 4% 2026 $116.47 $ 80.09 $ 55.49 $252.05 4% 2027 $119.30 $ 82.49 $ 59.64 $261.43 4% 2028 $122.21 $ 84.97 $ 63.78 $270.96 4% 2029 $125.20 $ 87.51 $ 67.93 $280.64 4% 2030 $128.27 $ 90.14 $ 72.07 $290.48 4%

The City identified an average commercial user consumed approximately 20,000 gallons bi-monthly and has a 2-inch meter. Table 15 shows a sample of the average commercial user’s utility bill that receives both water and sewer services by the City of Elmhurst.

Table 15 – Scenario 4: Commercial Sample Bill – 20,000 gallons bi-monthly, 2” Meter

Year Water Bill Sewer Bill CRC Bi-Monthly Total Percentage

Increase 2020 $332.40 $143.40 $ 97.78 $573.58 - 2021 $341.72 $149.14 $111.02 $601.87 5% 2022 $355.41 $155.10 $124.26 $634.77 5% 2023 $367.19 $161.31 $137.49 $665.99 5% 2024 $379.40 $167.76 $150.73 $697.89 5% 2025 $389.35 $172.79 $163.97 $726.11 4% 2026 $399.57 $177.97 $177.21 $754.75 4% 2027 $410.09 $183.31 $190.44 $783.84 4% 2028 $420.90 $188.81 $203.68 $813.39 4% 2029 $432.01 $194.48 $216.92 $843.41 4% 2030 $443.44 $200.31 $230.16 $873.91 4%

The proposed initial water rate, sewer rate, and CRC rate increase in Fiscal Year 2021 represents a 5% increase to the bi-monthly bill for Residential and Commercial customers. Overall, the rate increases still represent an averaged 5% increase per year for both user groups. Overall, this rate scenario closely resembles Scenario 3 by providing a more consistent and stable rate increase annually. However, this scenario does require the reduction to Operating Capital as well as an additional $400,000 per year in expenses which alone represents a 2% reduction in the annual operating expenses without debt service or large capital improvement projects. This represents additional risk to the City in that the initial rate increases set may not cover the expenses incurred over the Fiscal Year, and rate increases may need to escalate in subsequent years. As noted previously, it is imperative that the City continue to monitor its finances no less than once a year to ensure that the reduced Operating Capital expenses are met with the proposed rate increases. Due to the minimal fund balance within the next five years, any unforeseen emergencies or otherwise higher expenses that are reported may cause the City to borrow from additional sources to cover those expenses and potentially lead to higher debt service.

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11. Conclusion

Based on the assessment above, Scenarios 2 and 3 present the most viable options for the City to address its current financial position, handle the upcoming large capital expenditures, and build the Municipal Utility Fund’s reserve. Both Scenarios result in a positive fund balance in Fiscal Year 2021 and reach the operating reserve goal by Fiscal Year 2030. However, the two scenarios have varying benefits and drawbacks that should be considered by the City. Although Scenario 2 shows an immediate 16% increase to the water and sewer rate, the overall impact to customers over the ten year projection comes out slightly lower than the other two scenarios while funding the full Operating Capital and hitting the 25% operating reserve goal by the end of Fiscal Year 2030. This also represents a more immediate bulk in cash up front in the event expenses are reported lower than budgeted at the end of 2021. However, the 16% increase may be too high of an immediate increase to pass to the City’s customers, in which Scenario 3 presents an option with the reduction of the City’s Operating Capital schedule. By limiting the overall expenditures, the City is able to more quickly build its reserves without passing a significant rate increase in any given year and spread it out over the ten year projection. As noted under the Scenario however, the City will need to continuously monitor the fund’s expenses and revenues to ensure that the rate schedule is appropriate in each subsequent year to avoid operating at a deficit in the first few years in particular. As previously noted, the accuracy of the City’s general expense line items falls off after approximately five years due to the straight line inflation applied to each item. Along with the City’s long term capital project plans that extend beyond 2030, it is recommended that a full rate study should be conducted no less than once every five years. This allows a reasonable ten year projection to forecast the available reserves to handle any additional expenses and debt service as each year passes. The City of Elmhurst should discuss any information and material contained in this memo with any and all internal or external advisors and experts that the City deems appropriate before acting on this information. Baxter & Woodman, Inc. is not acting as a financial advisor to the City and does not owe a fiduciary duty pursuant to Section 15B of the Exchange Act to the City of Elmhurst with respect to the information and material contained in this report. Sample Bill Comparisons A rate survey was conducted to compare the proposed rates against neighboring and similar communities. This comparison is intended to provide only a broad comparison, and is by no means a direct translation of what a customer would pay in each community directly. Additionally, not all communities had publically available water and sewer rate data, or appear to be several years old and may have other taxes and fees that recapture revenues through other means. The purpose of this comparison is simply to get an idea of the range of what typical customers may pay for water and sewer through municipal charges alone. Each community’s needs are different, and should be evaluated on its specific operational, capital, and administrative needs.

Figure 7 shows a rate survey of neighboring communities’ water and sewer bills for a sample residential user at 9,000 gallons bi-monthly and the proposed rate schedule outlined in Scenario 3. Where applicable, the sewer amounts include the cost associated with a sanitary district or wastewater treatment plant that had billing and rate charges available.

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Figure 7 – Residential Sample Bill Comparison

The City of Elmhurst falls on the higher end of the comparison currently against the represented communities, and moves to the highest throughout the ten year projection. However, as communities continue to identify and address their aging infrastructure and unique needs, it is anticipated that most communities will continue to assess rate increases over the next ten years. While the figure shows the City’s sample bills for Scenario 3, all three of the scenarios assessed result in a similar outcome.

Figure 8 shows a similar rate survey of neighboring communities’ water and sewer bills for a sample commercial user at 20,000 gallons bi-monthly. Similar to the residential comparison, the City falls on the higher end of the comparison against the represented communities. While the figure shows the City’s sample bills for Scenario 3, all three of the scenarios assessed result in a similar outcome.

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Figure 8 – Commercial Sample Bill Comparison

Water NEW Old NEW OldDupage Water Comm Chg 4.97$ 4.94$ 4.97$ 4.94$ Elmhurst Water Chg 5.98$ 5.64$ 11.65$ 10.99$

10.95$ 10.58$ 16.62$ 15.93$

Sewer 7.17$ 6.96$ 7.17$ 6.96$

18.12$ 17.54$ 23.79$ 22.89$

NEW Old NEW OldWaterDupage Water Comm Chg* 1.31$ 1.30$ 1.31$ 1.30$ Elmhurst Water Chg 1.58$ 1.49$ 3.08$ 2.90$

2.89$ 2.79$ 4.39$ 4.20$

Sewer 1.90$ 1.84$ 1.90$ 1.84$

4.79$ 4.63$ 6.29$ 6.04$

Size NEW OldBased on meter size Up to 1" 30.62$ 30.62$

1 1/2" 61.14$ 61.14$ 2" 97.78$ 97.78$ 3" 195.70$ 195.70$ 4" 305.78$ 305.78$ 6" 611.52$ 611.52$

NEW OldSewer Flat Rate 86.04$ 83.52$

30.62$ 30.62$ 116.66$ 114.14$

New Old2020 2019

$47.22 45.94$ $36.42 35.44$ $34.94 34.00$

Rubbish Sticker $3.50Yardwaste Sticker $3.50

35 Gallon Toter

Sewer/Flat Rate (Unmetered Wells)

(plus CIRC)

Rubbish Charges(Effective April 1, 2020)

95 Gallon Toter65 Gallon Toter

Captial Investment Recovery Charge (CIRC)

UTILITY BILLING RATES -April 2020Thousand Gallon Rates Residential Commercial

Total Water

Total Water/Sewer - Thousand Gallon

Residential CommercialCubic Meter Rates

Total Water

Total Water/Sewer - Cubic Meter

FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 27 FY 28 FY 29 FY 30

Actual Estimated Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected

Water Admin CIP

P.W. Garage Phase III & Other Improvements -$ -$ -$ -$ -$ 16,875$ 253,125$ -$ -$ -$ -$ -$

P.W. Garage Roof Replacement -$ -$ 192,938$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Water Admin CIP Totals -$ -$ 192,938$ -$ -$ 16,875$ 253,125$ -$ -$ -$ -$ -$

Wastewater Admin CIP

P.W. Garage Phase III & Other Improvements -$ -$ -$ -$ -$ 16,875$ 253,125$ -$ -$ -$ -$ -$

P.W. Garage Roof Replacement -$ -$ 192,938$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Wastewater Admin CIP Totals -$ -$ 192,938$ -$ -$ 16,875$ 253,125$ -$ -$ -$ -$ -$

Total Water and Wastewater Admin CIP -$ -$ 385,875$ -$ -$ 33,750$ 506,250$ -$ -$ -$ -$ -$

Water Distribution CIP

Phase III N. Side Fiber & N. Reservoir -$ 4,828,000$ -$ -$ -$ -$ -$ 300,000$ 3,134,000$ 3,134,000$ -$ -$

Phase IV- East Loop & S. Reservoir -$ -$ -$ -$ 100,000$ 100,000$ 4,000,000$ -$ -$ -$ -$ -$

Phase V DT Fiber & West Reservoir -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Water Distribution CIP -$ 4,828,000$ -$ -$ 100,000$ 100,000$ 4,000,000$ 300,000$ 3,134,000$ 3,134,000$ -$ -$

Sewer Maintenance CIP

Lift Station Force Mains -$ -$ -$ -$ -$ -$ -$ -$ 378,100$ 1,900,260$ 1,900,260$ -$

Atrium Lift Station -$ -$ -$ -$ -$ -$ 133,400$ 2,223,100$ -$ -$ -$ -$

Park Ave Lift Station -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Sanitary Lift Station Priority 1-4 -$ -$ -$ -$ -$ -$ -$ -$ 600,000$ 2,950,000$ -$ -$

Sewer Maintenance CIP -$ -$ -$ -$ -$ -$ 133,400$ 2,223,100$ 978,100$ 4,850,260$ 1,900,260$ -$

WWTP CIP

North Belt Press Rplc and Influent Screw Rplc 428,481$ 2,554,172$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Roof Replacement 2,683,302$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Utility Improvements 398,457$ 3,866,134$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

North Digester Cover, Building, & Mixing System -$ -$ 200,000$ 4,412,500$ 1,737,500$ -$ -$ -$ -$ -$ -$ -$

Storage Improvements -$ -$ -$ 425,000$ 125,000$ -$ -$ -$ -$ -$ -$ -$

Laboratory Improvements -$ -$ 200,000$ 600,000$ 180,000$ -$ -$ -$ -$ -$ -$ -$

Bundle 5 WRF Clarifier Rehabilitiation -$ -$ 620,000$ 620,000$ 5,000,000$ 5,000,000$ 5,000,000$ -$ -$ -$ -$ -$

Effluent sampling sta rplc 123,783$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Electrical Distribution Building 267,822$ 915,866$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Bundle 6 (Effluent Pump, Excess Flow Pumping) -$ -$ -$ -$ -$ -$ -$ 670,000$ 670,000$ 6,080,000$ 6,080,000$ 6,080,000$

WWTP CIP Totals 3,901,845$ 7,336,171$ 1,020,000$ 6,057,500$ 7,042,500$ 5,000,000$ 5,000,000$ 670,000$ 670,000$ 6,080,000$ 6,080,000$ 6,080,000$

TOTAL WATER & SEWER CIP SPENDING 3,901,845$ 12,164,171$ 1,405,875$ 6,057,500$ 7,142,500$ 5,133,750$ 9,639,650$ 3,193,100$ 4,782,100$ 14,064,260$ 7,980,260$ 6,080,000$

City of Elmhurst

Water and Sewer Rate Study

ATTACHMENT B: TEN-YEAR CAPITAL IMPROVEMENT PLAN - WATER & WASTEWATER UTILITIES

DESCRIPTION

FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 27 FY 28 FY 29 FY 30

Actual Estimated Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected

Water Admin CIP

P.W. Engineering for Water System -$ -$ 250,000$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$

P.W. Garage Exterior Painting -$ -$ -$ 8,438$ -$ -$ -$ -$ -$ -$ -$ -$

P.W. HVAC Condensor -$ -$ -$ 25,875$ -$ -$ -$ -$ -$ -$ -$ -$

P.W. Fuel Island Replacement -$ -$ -$ -$ 67,500$ -$ -$ -$ -$ -$ -$ -$

P.W. HD Auto Lift Replacement -$ -$ -$ -$ 38,813$ -$ -$ -$ -$ -$ -$ -$

Vehicles -$ -$ -$ -$ 31,000$ -$ -$ -$ -$ -$ -$ -$

Water Admin CIP Totals -$ -$ 250,000$ 134,313$ 237,313$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$ 100,000$

Wastewater Admin CIP

P.W. Garage Exterior Painting -$ -$ -$ 8,438$ -$ -$ -$ -$ -$ -$ -$ -$

P.W. Garage HVAC Condensor Replacement -$ -$ -$ 25,875$ -$ -$ -$ -$ -$ -$ -$ -$

P.W. HD Auto Lift Replacement -$ -$ 34,875$ -$ 38,813$ -$ -$ -$ -$ -$ -$ -$

P.W. Fuel Island Replacement -$ -$ -$ -$ 67,500$ -$ -$ -$ -$ -$ -$ -$

Electrical Hazard Assessment Program -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Wastewater Admin CIP Totals -$ -$ 34,875$ 34,313$ 106,313$ -$ -$ -$ -$ -$ -$ -$

Water Distribution CIP

Vehicles 211,338$ -$ -$ 80,000$ 30,000$ -$ -$ 50,000$ -$ 385,000$ -$ 60,000$

Mobile Equip -$ -$ -$ -$ 120,000$ -$ 120,000$ -$ 10,000$ -$ -$ -$

Watermains Improvements -$ -$ 3,000,000$ 3,000,000$ 3,000,000$ 3,400,000$ 3,400,000$ 3,400,000$ 3,500,000$ 3,500,000$ 3,500,000$ 3,500,000$

Utility Lift Station Communications -$ 230,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Communication Equipment 27,803$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Water Distribution CIP 239,141$ 230,000$ 3,000,000$ 3,080,000$ 3,150,000$ 3,400,000$ 3,520,000$ 3,450,000$ 3,510,000$ 3,885,000$ 3,500,000$ 3,560,000$

Sewer Maintenance CIP

Vehicles 179,991$ 100$ 345,000$ -$ 205,000$ 70,000$ -$ 450,000$ -$ -$ 130,000$ 60,000$

Mobile Equipment 206,675$ -$ -$ -$ -$ -$ -$ -$ 60,000$ -$ 250,000$ -$

Communication Equipment/SCADA 27,803$ 230,000$ -$ -$ 175,000$ 175,000$ 175,000$ 175,000$ -$ -$ -$ -$

Software 52,390$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Sanitary Sewers -$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$ 2,000,000$

Lake/Walnut Lift Station 1,392,640$ 348,160$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

N. Industrial Lift Station 22,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

North Ave Lift Station 3,083$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Atrium Lift Station 1,056,917$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Sanitary Lift Station Priority 1-4 -$ -$ 76,000$ 374,000$ 429,000$ 504,000$ 332,000$ -$ -$ -$ -$ -$

Replacement of PLC's in all lift stations 9,467$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Misc. Equipment 17,945$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Sewer Maintenance CIP 2,968,911$ 2,578,260$ 2,421,000$ 2,374,000$ 2,809,000$ 2,749,000$ 2,507,000$ 2,625,000$ 2,060,000$ 2,000,000$ 2,380,000$ 2,060,000$

WWTP CIP

Vehicles -$ 50,000$ 50,000$ -$ -$ -$ 30,000$ 70,000$ -$ 165,000$ 125,000$ -$

Mobile Equip -$ -$ -$ -$ 70,000.00$ -$ -$ -$ -$ -$ -$ -$

Influent Flow Meter -$ -$ 300,000$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Sludge storage pad modification 23,738$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Other Capital 913,019$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

WWTP CIP Totals 936,757$ 50,000$ 350,000$ -$ 70,000$ -$ 30,000$ 70,000$ -$ 165,000$ 125,000$ -$

TOTAL OPERATING CAPITAL PROJECTS 4,144,809$ 2,858,260$ 6,055,875$ 5,622,626$ 6,372,626$ 6,249,000$ 6,157,000$ 6,245,000$ 5,670,000$ 6,150,000$ 6,105,000$ 5,720,000$

DESCRIPTION

ATTACHMENT C: TEN-YEAR OPERATING CAPITAL - WATER & WASTEWATER UTILITIES

City of Elmhurst

Water and Sewer Rate Study