At the Council meeting of September 8, 2020, our Finance Director reported substantial cash reserves above our current fiscal policy, reporting:

• Water Fund Cash & Equivalents - $6.1M ($2.9M over policy)

• Wastewater Fund Cash & Equivalents - $6.3M ($2.6M over policy)

While our current figures reflect a very strong fiscal position, they are clearly not sustainable when you analyze the Stantec analysis regarding water and sewer revenue requirement and total revenues expected at current rates. To that end, please see the attached bar charts; Water Revenue Requirement and Total Revenues at Current Rates and Sewer Revenue Requirement and Total Revenues at Current Rates. If you examine the cumulative shortfall from our current fiscal year FY21 through FY24, the exact period for this Line of Credit, you can see that the cumulative shortfall for the Water Fund in FY24 will total $4.29M and $4.22M for the Sewer Fund. This combined cumulative shortfall totals $8.51M. As our total sewer and water reserves total $12.4M, the Town will be transferring a total $8.51M from our two reserve accounts, leaving an end balance of $3.89M for both Water and Wastewater Fund Accounts.

The estimated remaining reserves at the end of FY24 are significantly below our fiscal policy, which requires a reserve account equal to 100% of the Operating Fund plus debt service for each respective utility account. In fact, if you examine our water and sewer fund balance versus our target fiscal policy at current utility rates, you can see that in 2023 we fall behind our adopted fiscal policy. In the case of the Water Fund, at the end of FY24, the Town will be $1.12M below fiscal policy. With regard to the Sewer Fund, at the end of FY24, the Town will be below our targeted fiscal policy by as much as $3.29M. The combined deficit below our targeted adopted fiscal policy for both utilizes totals $4.41M. This in of its itself is sufficient reason why Town Council should strongly consider the General Fund emergency Line of Credit.

Attached to this addendum is a memorandum from our Town Engineer, Dale Lehnig, who has outlined critical capital improvements for our utility systems. The first category outlines the critical water supply and distribution mains ranked by priority. The total cost for the eight projects totals $13,464,000. The second category represents critical water main replacements servicing in-town residential, commercial and business uses. The total for this category is $2,017,200.

If you take simply the top four critical projects in the first category, Water Supply and Distribution Mains, and the top four Water Main Replacements for in-town service, the combined capital improvement needs, which could be expected prior to June 2024, represents a total of $6,303,700.

In conclusion, at the end of FY24, the utility funds (Water and Wastewater) will have a cumulative shortfall of $8.51M, which is $4.41M below our targeted adopted fiscal policy, and the Town may have the need to borrow and withdraw from our cash reserves another $6.3M. These three factors; cumulative utility shortfall, deficit below targeted fiscal policy, and high risk capital improvements, which may be required, provide clear evidence that the Town Council should consider taking advantage of the emergency General Fund Line of Credit, at an interest rate that has been the lowest in sixty years.

It is therefore my recommendation as Town Manager that Council take the following action:

“I move that the Town Council approve Ordinance #20-09-02 and Resolution #20-09-01 to authorize the issuance of a general obligation Line of Credit with Bank of Charlestown (BCT) in the aggregate amount not to exceed $3,000,000 with a final maturity date of June 30, 2023 and an interest rate of 1.81% in order to finance general and utility capital projects. I further authorize the Town Manager, Director of Finance, Town Attorney, Town Clerk and Mayor to sign all needed financial forms related to this transaction.”