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2. Revenue Sufficiency Analysis in FY 2024 and increasing by 3.0% annually up to 95.0% by FY 2028 and holding at that level through the • remainder of the projection period. Gradual increases in O&M expense execution reflect IRCDUS and Minor capital outlay including vehicles and minor capital equipment will be executed at 100.0% throughout the projection period. Schedule 4 of Appendix A summarizes the projected annual O&M expenses during the projection period considering these future cost inflation and execution assumptions. 2.3.5 Capital Improvement Plan Cost Escalation The RSA utilized the CIP provided by IRCDUS for FY 2024 through FY 2028 with assumptions for additional annual capital spending beginning in FY 2029. Beginning in FY 2025, the RSA herein assumes an annual cost inflation factor of 5.0% applied to project estimates to account for inflation in the future cost of construction. In total, the CIP used in this analysis (including inflation) from FY 2024 — FY 2034 is approximately $661 million as summarized in Schedule 6 of Appendix A. Spending Execution Consistent with IRCDUS' historical annual spending and Stantec's experiences with other public utilities, it is assumed that even though funds for these projects may be identified and appropriated in subsequent budget years, actual expenditures and projects construction will be spread out over a longer time due to procurement or permitting delays, construction and contractor resource constraints, weather, economic, or other factors. As such, Stantec and IRCDUS evaluated the level of historical and anticipated annual capital • spending relative to the projects included in the CIP and developed a plan of estimated annual capital spending and cash flows during the projection period. The total CIP (after execution) during the projection period is approximately $590 million as summarized in Schedule 6 of Appendix A. 2.3.6 Capital Financing Plan The RSA attempts to optimize the funding of the CIP by utilizing any available funding sources to cover IRCDUS' annual capital projects. As such, projects are funded either by existing reserves or annual revenues (PAYGO), existing reserves dedicated for capital such as impact fees or proceeds from future debt. The financial management plan developed as part of the RSA assumes potential future debt beginning in FY 2032 totaling approximately $198 million through FY 2034, primarily for the water and wastewater capacity expansions using the following parameters: ■ Term: 30 Years ■ Interest Rate: 5.0% ■ Structure: Level annual debt service, assuming interest -only payment in year of issuance ■ Costs of Issuance: 2.0% of Par a 14