Item 1: Austin Water Financial Forecast Presentation — original pdf

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Austin Water FY26-FY30 Forecast Update Water and Wastewater Commission Budget Committee Joseph Gonzales, CPA Austin Water Assistant Director, Financial Services Monday, June 2, 2025  Financial Condition/Budget Considerations Agenda  Rates/Affordability  Inflationary Cost Increases  Growing Capital Spending Plan  Financial Metrics  Summary  Discussion Austin Water Financial Condition Austin Water Financial Condition Revenue Considerations  Rate increases needed to cover increasing operating and capital costs  Drought conditions impacting demand  Customer Assistance Program enrollment growth  Slower development/customer growth Expenditure Considerations  Ongoing resiliency and service reliability investments for essential infrastructure  Inflationary cost increases impacting operating and capital delivery costs  Workforce investments to support retention and staff increases  Growing Capital Improvements Plan  Continue debt management strategies Financial Performance  Significant drop in operating cash reserves  Cash financing of CIP below financial policy target Austin Water Budget Development Process Revenues  Cost of service rates calculated annually  Revenue trend analysis and forecast updates performed monthly Operating Budget  Comprehensive review of historic budget utilization performed annually  Comprehensive review of open encumbrance amounts  Executive team review of significant budget increases  2-year staffing plan development Capital Budget  5-year Capital Improvement Plan Development  Proposed projects reviewed by a committee of Executive Team members Bond Ratings Rating/Outlook Credit Highlights Fitch AA-/Stable Low leverage Moody’s Aa2/Stable DSC over 2x Factors that could result in rating downgrade Days Cash on Hand of 345 (neutral) Improving liquidity of 350 days cash Failure to implement rate increases that support operations and growing capital program Sustained leverage exceeding 10.0x Significant increases in debt burden that exceeds 5x revenues Sustained weakness in liquidity or debt service coverage S&P AA/Stable Adequate all-in DSC (1.36x) Strong liquidity (350 days) Material deterioration of all-in DSC and liquidity levels despite planned rate increases FY26 – FY30 Rate Alignment Plan Rate Increases Necessary to Maintain Operational and Infrastructure Investments $1,100.0 $1,000.0 $900.0 $800.0 $700.0 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 9.8% 7.3% 7.5% 6.7% 3.4% 4.4% 4.6% FY24 Actual FY25 Budget FY26 Forecast FY27 Forecast FY28 Forecast FY29 Forecast FY30 Forecast 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Revenue Sources Total Requirements Rate Increase $700.9 $735.2 3.4% $767.0 $768.6 7.3% $826.9 $831.7 9.8% $886.3 $882.4 7.5% $952.2 $948.0 6.7% $996.7 $991.4 4.4% $1,043.1 $1,039.5 4.6% Revenue Sources Total Requirements Rate Increase Forecast Fund Summary FY24 Actual FY25 Approved FY26 Forecast FY27 Forecast FY28 Forecast FY29 Forecast FY30 Forecast Beginning Fund Balance $298.0 $268.5 $266.9 $256.9 $255.8 $256.7 $258.7 Revenue & Transfers In $700.9 $767.0 $826.9 $886.3 $952.2 $996.7 $1,043.1 Expenditures & Transfers Out $735.2 $768.6 $837.0* $887.4 $951.4 $994.7 $1,042.8 Change in Fund Balance ($34.3) ($1.6) ($10.0) ($1.1) $0.9 $2.0 $0.3 Ending Fund Balance $268.5 $266.9 $256.9 $255.8 $256.7 $258.7 $259.0 Residential Rate Increase % 3.4% 7.3% 9.8% 7.5% 6.6% 4.4% 4.6% Residential Average Bill $84.99 $91.20 $100.15 $107.67 $114.84 $119.89 $125.40 Debt Service Coverage Days Cash on Hand 1.85 271 1.97 263 1.98 251 2.05 241 1.97 230 1.99 224 2.12 217 % Cash for CIP Spending 27.72% 30.0% 34.93% 21.39% 22.19% 28.76% 28.49% *Includes budget impact of retention stipend conversion 8 Capital Improvement Plan CIP Plan Funding Growth 10 Debt Management Savings Achieve $625M Total Debt Service Requirements Comparison FY2019 through FY2030 $60.8 29.4% $47.4 28.7% $20.9 31.3% $36.6 25.0% $46.1 23.3% $86.3 $74.9 $44.8 $42.6 20.9% 22.3% 21.9% 22.6% Total Debt Service Savings* $625M $45.2 $8.3 $9.2 33.6% 25.1% 26.2% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% $300 $250 $200 $150 $100 $50 $0 2018-19 Actual 2019-20 Actual 2020-21 Actual 2021-22 Actual 2022-23 Actual 2023-24 Actual 2024-25 Estimate 2025-26 Forecast 2026-27 Forecast 2027-28 Forecast 2028-29 Forecast 2029-30 Forecast Current Debt Service Requirements Fiscal Year Debt Svc Savings Debt Svc % of Total Requirements (*) Total present value savings of $625M since 2016 as of May 2025 includes out years savings beyond 2030. ) s n o i l l i m n i ( e c i v r e S t b e D 11 Key Financial Benchmarks Debt Service Coverage 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 o i t a R e g a r e v o C e c i v r e S t b e D 2.30 2.10 1.90 1.70 1.50 Actual FY22 Actual FY23 Actual FY24 Forecast FY25 Forecast FY26 Forecast FY27 Forecast FY28 Forecast FY29 Forecast FY30 Actual/Projected (FY25-29) Financial Policy AW Target Updated Forecast (FY26-30) Moody's Median AW Financial Policy and Goal  Financial Policy: 1.75x (previously was 1.5x, changed effective FY22)  AW Planning Target: 1.85x  Moody’s AA Median: 2.3x 13 Cash Financing of Capital Program 60.0% 40.0% 20.0% 0.0% m a r g o r P l a t i p a C i f o % g n d n u F h s a C Actual FY22 Actual/Projected (FY25-29) Actual FY23 Actual FY24 Financial Policy Forecast FY25 Forecast FY26 AW Target (Max) Forecast FY27 AW Target (Min) Forecast FY28 Forecast FY29 Forecast FY30 Updated Forecast (FY26-30) AW Financial Policy and Goal 14  Financial Policy: 35% (previously was 20%, changed effective FY22)  Current Financial Policy & AW Planning Target: 35% min – 50% max Days Cash on Hand d n a H n O h s a C s y a D 500 450 400 350 300 250 200 150 100 50 0 Actual FY20 Actual FY23 Actual FY24 Forecast FY25 Forecast FY26 Forecast FY27 Forecast FY28 Forecast FY29 Forecast FY30 Actual/Projected (FY25-29) Financial Policy AW Target Updated Forecast (FY26-30) Moody's Median AW Financial Policy and Goal  Financial Policy: 180 days (previously was 60 days, changed effective FY22)  AW Planning Target: 245 days  Moody’s AA Median: 534 days 15 Austin Water Monthly Days Cash on Hand Trend Summary Revenue Considerations  Rate increases needed to cover increasing operating and capital costs  Drought and economy related revenue volatility  Customer Assistance Program enrollment growth Expenditure Considerations  Inflation impacts on operating and capital delivery costs  Growing Capital Improvements Plan  Debt management strategies to smooth peak debt service in FY28 Rating Impact of Weakening Financial Metrics  Significant drop in cash reserves  Cash financing of CIP below financial policy target  Increasing debt burden Questions