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extentions, without provision for refund in either case, although a free footage allowance is provided for in some rules in the case of general extensions.B EFFECT OF REFUNDING AGREEMENTS ON WATER RATES Since the money necessary to make the payments under new refunding agreements must come from revenue derived from water service, the adoption of a refunding policy will affect water rates either by requiring an increase or preventing a decrease. The effect can be estimated from the amount required for refunds and the gross revenue for any period. For the ten-year period 1955 to 1964, based on the J. M. Montgomery estimates of gross revenue and the amounts required for refunds as shown in Table 1, the effects would be as follows: 3556 basi3 10.656 25$ basis 7*6$ 20$ basis 6.1$ EFFECT OF REFUNDING AGREEMENTS ON FUNDS AVAILABLE FOR CAPITAL IMPROVEMENTS Under the Bond Covenants, the District is required to earn 1.4 times the maximum annual debt service each year. With the rates kept at the lowest level consistent with the Bond Covenants, there will be available for capital improvements each year, except while building up the required reserve for bond service, the difference between $703,700 and the actual debt service require­ments for that year. This will be a minimum of over $200,000 in the year of ma-sHimim debt service requirement and will be highsr in other years. These amounts would be available regardless of any refunding agreements, since the required earnings would be computed before expenditures for this purpose. If the rates are kept at the levels proposed by J. M. Montgomery instead of at the absolute minimum, additional funds will be available for cap­ital expenditures. These additional amounts would be reduced by the amounts of any expenditures for refunds. For the ten-year period 1955 to 1964, the average annual reductions would be as follows: 35$ basis $131,000 per year 25$ basis 94,000 per year 20$ basis 75,000 per year If these amounts were expended for extensions of the main feeder sys­tem instead of for refunds, it is possible that the ultimate effect on subdividers and other customers might not be much different than under the refunding setup, since it would result in water being available much closer to the prospective development. -3-