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main line valves that were over 100 years old. <br />Using line stopping technology, we were able to <br />minimize disruption and get the lines back in <br />service quickly. The Council has just passed a <br />rate increase to provide funds to implement the <br />next phase of the Master Plan. This will allow us <br />to meet the community's need for water supply, <br />treatment, storage, pumping, and distribution. The new rate struchue will be reviewed by the <br />IURC to guarantee that the dollars are needed. South Bend still maintains one of the most <br />affordable water systems in the state. <br />Financial Statas/Challenges <br />Our City remains in solid financial shape. We have been. able to xnaimtain reserves that <br />help us to cover cash flow needs and provide a cushion for the unexpected. However, there are <br />serious challenges as we look ahead. Delays in distribution of property tax revenues because of <br />complications from reassessment caused us to issue tax anticipation warrants. This resulted in <br />interest payments of $89,000 in 2003 and $110,000 in 2004 that we normally would not have <br />faced. Our expenses have grown raster than our revenues as we have worked with police and <br />firefighter unions to improve the pension base, while also providing decent salary hikes for <br />active duty officers. This trend has been exacerbated by record increases in medical insurance <br />costs. The good news is that we finished 2004 $2 million below budget. The sobering news is <br />that it was still our second most expensive year since we have been self-insured. Savings in that <br />fund will be used to replenish the reserve account which had been depleted. Because operating <br />expenses are rising, fewer dollars are available for capital needs and projects. With Council's <br />guidance, we will prioritize projects so that we continue to invest in critical infrastructure and <br />development projects. The best measure of our fiscal status irs review by outside agencies. We <br />have again won awards for both our budget process and our financial reports, and our AA bond <br />rating is among the best in the state. <br />There are other issues outside our control which may put additional pressure on our <br />budget. Speculation about cutting or eliminating the Community Development Block Cxrant <br />program is worrisome. We would be hard pressed to replace the $3 million that we receive each <br />A-31 <br />