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MEMBERS AMERICAN INSTITUTE OF ACCOUNTANTS NELSON CONWAY, C.P.A. KERMIT MOE, C.P.A. CLARENCE T. HIBBS, C.P.A. R. YORK FUNSTON, C.P.A. C O N W A Y , M O E , H IB B S & F U N S T O N . C E R T IF IE D P U B L IC A C C O U N T A N T S 4 4 0 W E S T H O O VER S TR E E T L A S V E G A S . N E V A D A T E L E P H O N E 7 0 2 0 June 21, 1954 Mr. T. A. Campbell, President Las Vegas Valley Water District P. 0. Box 85 Del Mar, California Dear Mr. Campbell: In connection with our recent telephone conversation and with specific ref­erence to the feasibility of consummating the purphase of the Las Vegas Land and Water Company facilities as of July 1, 1954, we have made inquiries of the Dis­trict's counsel, Mr. Hamilton, and reviewed all financial information presently available to us. It was Mr. Hamilton's general conclusion that there is no specific obligation in your bond undertaking or resolution of issuance requiring an immediate increase in rates concurrent with consummation of purchase. It was his further opinion that your obligation to bond holders is a general one to establish such rates as will be necessary in the long run to meet operating expenses and provide sufficient margin to provide proper debt service. The question was then raised as to whether or not a take-over as of July 1, 1954, without a rate increase would be more in keeping with your general obliga­tion to bond holders; or whether such take-over should be deferred until the rate increase could be initiated, particularly in view of the fact that interest on the bonds is now running and accrues as an obligation to be met whether or not the District is actually engaged in operating the utility. Examination of the operating statistics of the Las Vegas Land and Water Com­pany for the twelve months ended March 31, 1954, discloses that operating revenue will approximate $37,500.00 per month. A similar estimate of expenses, taking into account increased overhead which will be probable under District management, and eliminating any non-cash expenses such as depreciation and expenses which are inherent whether or not operations are assumed (such as Mr. Renshaw's salary) we arrive at a total of approximately $25,000.00 per month. Therefore, a current take-over without a rate increase should result in an estimated $12,500.00 margin of revenue over operating cash expenditures, so that it would appear that an early assumption of operations would more nearly comply with your general obligation to bond holders rather than deferring such action until a rate increase can be initiated.