(16)AR 050509 Short Term Loan - Laserfiche WebLink

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ITEM #17 CITY OF COLTON AGENDA REPORT FOR CITY COUNCIL AND UTILITY AUTHORITY MEETING OF MAY 5, 2009 TO: HONORABLE MAYOR AND CITY COUNCIL, HONORABLE PRESIDENT AND BOARD MEMBERS FROM: DILU DE ALWIS, FINANCE DIRECTOR SUBJECT: CITY & CUA: APPROVAL OF A SHORT TERM LOAN FROM THE WASTEWATER FUND TO THE WATER FUND IN THE AMOUNT OF $1,400,000. DATE: APRIL 29, 2009 BACKGROUND Since calendar year 2002 the City of Colton has spent significant resources to address the contamination of certain water wells with perchlorate. These resources were spent on shutting down wells and drilling new wells as well as treatment of the water system. These actions have resulted in a significant drain on cash for the water fund, whose balance has seen a drastic reduction from $7.4 million at the end of fiscal year 2002 to a negative $1.1 million at the end of fiscal year 2007. DISCUSSION/ ANALYSIS Since 1997 findings of perchlorate in the City of Colton's water system and focusing on addressing this situation starting in 2002, the Water Fund has expended significant financial resources resulting in a drain on the Water Fund's fiscal condition. The water utility has incurred significant legal costs, expert costs and remediation/investigation costs since 2002, relative to the perchlorate issue. Some of the costs associated with the perchlorate issue include treatment of the water system, shutting down of wells and drilling of new wells. All of these actions have led to a significant reduction of the water utility's cash from a high of $7.4 million at June 30, 2002 to a negative $4.1 million at June 30, 2008. This negative cash position will have a significant impact on the water utility's ability to continue to operate and will require a cash infusion from another source. The Wastewater Fund's cash position has improved since the rate increase which went into effect in 2004 resulting in a cash balance of $7.1 million as of April 29 2009, The wastewater utility is in a position to loan $1.4 million over a short term and not affect its ability to maintain its operation as well as any capital projects as budgeted for the current fiscal year ending June 30, 2009. The loan of 1.4 million to water will only cover the remaining estimated expenses through fiscal year ending June 30, 2009 (See Table Below), and will not cover the short fall of 4.1 million in operating cash at June 30, 2008.