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Financial Policies FY 2022 Updates Budget Committee June 30, 2021 Proposed Financial Policy Changes Debt Service Coverage Days Cash on Hand Cash Financing of CIP Projects Drinking Water Protection Zone Minimum of 1.50x shall be targeted Minimum of 60 days shall be targeted Minimum of 20% is desirable 5 Boards & Commissions and City Council Public Hearing Minimum of 1.75x shall be targeted Minimum of 180 days shall be targeted Minimum of 35% and maximum of 50% is desirable Public Input at 3 Boards & Commissions and Budget Public Input Process 2 Background Timeline of Events Extreme Weather Conditions Council Approved CRFs @ 100% allowable Removal of Negative Watch Debt Management Strategies, Improved Metrics 2012–2014 2014 2016–2017 2021 2010–2015 2014 2016 2016–2020 Joint Committee Financial Recommendations Negative Watch: Fitch & Moody’s Cost of Service Rate Study Financial Policies Updates Proposal 3 Debt Management Strategy Impacts Total Debt Service Requirements Comparison FY 2017 to Current – Budget Basis $19.0 $45.9 $48.7 $60.6 $72.3 $78.3 $70.5 $76.8 $43.8 $58.5 Total Debt Service Savings $591.2M Since 2016 2016-17 Actual 2017-18 Actual 2018-19 Actual 2019-20 Actual 2020-21 Estimate 2021-22 Forecast 2022-23 Forecast 2023-24 Forecast 2024-25 Forecast 2025-26 Forecast Fiscal Year Current Debt Service Requirements Debt Svc Reduction 2016 Debt Service Requirements 4 $260 $210 $160 $110 $60 $10 -$40 ) s n o i l l i m n i ( e c i v r e S t b e D Debt Service Coverage – City Comparison AW Proposed Debt Service Coverage: 1.75 1.85x Moody’s Medians: 2.3X Information pulled from each City’s Annual Reports City Austin Water Austin Energy City of Arlington City of Dallas City of Fort Worth City of Houston Oklahoma City City of Phoenix City of Portland City of San Antonio City of Seattle FY18 1.57 3.56 4.80 1.96 2.31 1.49 3.42 2.15 1.48 1.98 2.40 2.47 FY19 1.83 4.00 3.46 1.74 2.34 1.39 3.64 1.82 1.34 2.14 2.46 2.38 Average Debt Service Coverage Info and documentation available at austintexas.gov/department/austin-water-financial-policies-fy-2022-update 5 Days Cash on Hand – City Comparison AW Proposed Days Cash on Hand: 180 days 245 days Moody’s Medians: 467 days Information pulled from each City’s Annual Reports City Austin Water Austin Energy City of Arlington City of Dallas City of Fort Worth City of Houston Oklahoma City City of Phoenix City of Portland City of San Antonio City of Seattle Average Days Cash on Hand FY18 280 224 109 279 156 1201 698 368 1232 547 215 483 FY19 263 218 165 291 141 1345 848 378 1201 509 264 511 Info and documentation available at austintexas.gov/department/austin-water-financial-policies-fy-2022-update 6 Cash Financing of Capital Projects Cash Financing of Capital Projects 60.0% 40.0% 20.0% 0.0% Actual FY14 Actual FY15 Actual FY16 Actual FY17 Actual FY18 Actual FY19 Actual FY20 Forecast FY21 Forecast FY22 Forecast FY23 Forecast FY24 Forecast FY25 Actual/Projected Financial Policy (Minimum Target) AW Target (Max) AW Target (Min) 7 Stakeholder Process Feedback • Stakeholder Meetings: ➢ February 9, 2021 ➢ April 29, 2021 ➢ June 8, 2021 • Audit & Finance Committee Protection Zone • Residential Rate Advocate Report: ➢ 6/16/2021 – Recommended financial policy updates with one amendment to Drinking Water “Given that AW is able to achieve and maintain its target ‘AA’ credit rating with its existing financial policies, there does not seem to be a compelling need to change AW’s financial policies. However, NewGen does not oppose the proposed changes to Financial Policies 5, 10, and 8, as the proposed changes largely align with the internal policies AW has set for itself and relevant credit ratings criteria as justification. NewGen does find the proposed change to Financial Policy 12 to be unsupported by the ratings criteria (or any other compelling rationale or study). NewGen recommends that if Financial Policy 12 is to be changed it be amended to target a more reasonable, moderate level of operating cash reserves, such as 150 days.” 8 Next Steps City Council Budget Public Input and Budget Adoption • July 22, 2021 • July 29, 2021 • August 11, 12, 13