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11-03-10 Board Packet (Part 1)
OTAY WATER DISTRICT BOARD OF DIRECTORS MEETING DISTRICT BOARDROOM 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY,CALIFORNIA WEDNESDAY November 3,2010 3:30 P.M. AGENDA 1.ROLL CALL 2.PLEDGE OF ALLEGIANCE 3.APPROVAL OF AGENDA 4.APPROVE THE MINUTES OF THE REGULAR MEETING OF JUNE 2,2010 5.PUBLIC PARTICIPATION -OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD 01\1 ANY SUBJECT MATTER WITHII\I THE BOARD'S JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA CONSENT CALENDAR 7.ITEMS TO BE ACTED UPON WITHOUT DISCUSSION,UNLESS A REQUEST IS MADE BY A MEMBER OF THE BOARD OR THE PUBLIC TO DISCUSS A PAR- TICULAR ITEM: a)ADOPT RESOLUTION NO.4162 OF THE DISTRICTS CODE OF ORDI- NANCES AMENDING POLICY NO.25,RESERVE POLICY,WHICH IN- CLUDES THE UPDATED CAPACITY,ANNEXATION AND I\lEW WATER SUPPLY FEES b)APPROVE AGREEMENTS WITH ADVANCED CALL PROCESSING COR- PORATION IN AN AMOUNT NOT-TO-EXCEED $400,000 FOR TELECOM- MUNICATIONS EQUIPMENT AND SERVICES AND FAf\IDEL ENTER- PRISES FOR AN AMOUNT NOT-TO-EXCEED $40,000 FOR TELECOM- MUNICATION CONSULTING Af\ID IMPLEMENTATION SERVICES c)AUTHORIZE THE DISTRICT TO BECOME A MEMBER OF THE CALIFOR- NIA WATER/WASTEWATER AGENCY RESPONSE f\IETWORK d)APPROVE THE EXERCISE OF THE FIRST YEAR OPTION OF THE AGREEMENT WITH PACIFIC METER SERVICES,INC.FOR THE RETRO- 1 FIT OF MANUAL READ WATER METERS TO AUTOMATED READ ME- TERS (AMR)AND AUTHORIZE THE GENERAL MANAGER TO APPROVE SUBSEQUENT OPTION YEARS TWO THROUGH FOUR AT HIS DE- SCRETION e)AWARD A PROFESSIONAL ENGINEERING SERVICES CONTRACT FOR RECYCLED WATER PLAN CHECKING,RETROFIT,AND INSPECTION SERVICES FOR DEVELOPER PRO..IECTS ACTION ITEIVIS 8.FINANCE,ADMINISTRATION AND INFORMATION TECHNOLOGY a)APPROVE THE DISTRICTS AUDITED FINANCIAL STATEMENTS,IN- CLUDING THE INDEPENDENT AUDITORS'UNQUALIFIED OPINION,FOR FISCAL YEAR ENDED JUNE 30,2010 (CUDLlP) b)APPROVE THE ADJUSTMENT OF THE WHEELING RATE FOR THE DE- LIVERY OF TREATY WATER TO THE CITY OF TIJUANA TO $68.45 PER ACRE-FOOT FOR CALENDAR YEAR 2011 (CUDLlP) 9.ENGINEERING AND WATER OPERATIONS a)AWARD A PROFESSIONAL SERVICES CONTRACT TO LEE &RO,INC. FOR THE NORTH DISTRICT AND SOUTH DISTRICT INTERCONNECTION SYSTEM PRO..IECT IN AN AMOUNT NOT-TO-EXCEED $2,769,119 (SILVERMAN) b)APPROVE AN AGREEMENT FOR PROFESSIONAL ENGINEERING SER- VICES WITH AECOM TECHNICAL SERVICES,INC.IN AN AMOUNT NOT- TO-EXCEED $3,910,297.00 FOR THE OTAY MESA COI\lVEYANCE AND DISINFECTION SYSTEM PROJECT (KENNEDY) 10.BOARD a)DISCUSSION OF 2010 AND 2011 BOARD MEETING CALENDAR REPORTS 11.GENERAL MANAGER'S REPORT a)SAN DIEGO COUNTY WATER AUTHORITY UPDATE 12.DIRECTORS'REPORTS/REQUESTS 13.PRESIDENTS REPORT 14.ADJOURNMENT 2 All items appearing on this agenda,whether or not expressly listed for action,may be deliberated and may be subject to action by the Board. The Agenda,and any attachments containing written information,are available at the District's website at www.otaywater.gov.Written changes to any items to be considered at the open meeting,or to any attachments,will be posted on the District's website.Copies of the Agenda and all attachments are also available through the District Secretary by contacting her at (619)670-2280. If you have any disability which would require accommodation in order to enable you to participate in this meeting,please call the District Secretary at (619)670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on October 29,2010,I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District,said time being at least 72 hours in advance of the regular meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley,California on October 29,2010, 3 AGENDA ITEM 4 MINUTES OF THE BOARD OF DIRECTORS MEETING OF THE OTAY WATER DISTRICT June 2,2010 1.The meeting was called to order by President Bonilla at 3:30 p.m. 2.ROLL CALL Directors Present:Bonilla,Breitfelder,Croucher and Robak Director Absent:Director Lopez Staff Present:General Manager Mark Watton,Asst.General Manager of Administration and Finance German Alvarez,Asst.General Manager of Engineering and Water Operations Manny Magana,General Counsel Yuri Calderon,Chief of Information Technology Geoff Stevens,Chief Financial Officer Joe Beachem,Chief of Engineering Rod Posada,Chief of Operations Pedro Porras,Chief of Administration Rom Sarno, District Secretary Susan Cruz and others per attached list. 3.PLEDGE OF ALLEGIANCE 4.APPROVAL OF AGENDA A motion was made by Director Breitfelder,seconded by Director Croucher and carried with the following vote: Ayes: Noes: Abstain: Absent: Directors Bonilla,Breitfelder,Croucher and Robak Director Lopez None None to approve the agenda. 5.APPROVAL OF THE MINUTES OF THE REGULAR MEETING OF JANUARY 6, 2010 A motion was made by Director Croucher,seconded by Director Breitfelder and carried with the following vote: Ayes: Noes: Abstain: Absent: Directors Bonilla,Breitfelder,Croucher and Robak Director Lopez None None to approve the agenda. 1 6.PUBLIC PARTICIPATION -OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA Mr.Parks Pemberton of Chula Vista indicated he felt that the District had some pressure problems in its water system.He stated that he has owned his home for 22 years and has replaced approximately five pressure regulators.He stated that he believes he has had as much as 150 pounds in his home line and requested the board's assistance with this issue. President Bonilla asked General Manager Watton to research Mr.Pemberton's issue.General Manager Watton indicated to Mr.Pemberton that the District would be in contact with him the following day. CONSENT CALENDAR 7.ITEMS TO BE ACTED UPON WITHOUT DISCUSSION,UNLESS A REQUEST IS MADE BY A MEMBER OF THE BOARD OR THE PUBLIC TO DISCUSS A PARTICULAR ITEM: A motion was made by Director Croucher,seconded by Director Breitfelder and carried with the following vote: Ayes: Noes: Abstain: Absent: Directors Bonilla,Breitfelder,Croucher and Robak Director Lopez None None to approve the agenda. a)ADOPT RESOLUTION NO.4157 AND NO.4158 IDENTIFYING THE GENERAL MANAGER AS THE AUTHORIZED OFFICIAL TO COMMIT THE OTAY WATER DISTRICT TO FINANCIAL AND LEGAL OBLIGATIONS ASSOCIATED WITH THE POTENTIAL RECEIPT OF GRANTS UNDER THE U.S.BUREAU OF RECLAMATION WATERSMART GRANT PROGRAM b)REPORT ON DIRECTOR'S EXPENSES FOR THE 3rd QUARTER OF FISCAL YEAR 2010 c)APPROVE AN AGREEMENT FOR PROFESSIONAL SERVICES FOR AS- NEEDED ENGINEERING DESIGN SERVICES WITH LEE &RO,INC.FOR AN AMOUNT NOT-TO-EXCEED $175,000 DURING FISCAL YEARS 2011 AND 2012 (ENDING JUNE 30,2012) d)APPROVE AN AGREEMENT FOR PROFESSIONAL SERVICES FOR AS- NEEDED GEOTECHNICAL CONSULTING SERVICES WITH MTGL,INC. 2 FOR AN AMOUNT NOT-TO-EXCEED $175,000 DURING FISCAL YEARS 2011 AND 2012 (ENDING JUNE 30,2012) e)APPROVE AN AGREEMENT FOR PROFESSIONAL SERVICES FOR AS- NEEDED ENVIRONMENTAL CONSULTING SERVICES WITH ICF INTERNATIONAL FOR AN AMOUNT NOT-TO-EXCEED $375,000 DURING FISCAL YEARS 2011,2012,AND 2013 (ENDING JUNE 30,2013) ACTION ITEMS 8.FINANCE AND ADMINISTRATION a)AWARD A CONTRACT TO SAGE DESIGN,INC.IN THE AMOUNT OF $161,119 PLUS APPLICABLE TAXES AND SHIPPING CHARGES FOR FIRETIDE RADIOS AND RELATED HARDWARE TO COMPLETE THE FY2010 OTAY WATER WIRELESS NETWORK PROJECT AND AWARD A CONTRACT TO PRIME ELECTRIC IN AN AMOUNT NOT-TO-EXCEED $55,620 FOR INSTALLATION OF ELECTRICAL AND WIRELESS HARDWARE AT MULTIPLE SITES THROUGHOUT THE NORTH DISTRICT Chief of Information Technology Geoff Stevens indicated that this project is for the District's wireless communications backbone infrastructure.The wireless system will provide services for the SCADA System which is the telemetry system that runs and monitors the District's water/sewer systems and will also provide enhanced security communications which includes video surveillance at the District's facilities. The wireless communications network will have up to 80 MB capacity and will be designed with power back-up (gen sets,solar or battery).The system is expected to have at least a six (6)to seven (7)year Iifecycle and upgrades will be handled through firmware (and will not require site visits to upgrade systems at the facilities). Staff also investigated alternative services such as satellite and cable and determined that the proposed service is the most cost effective. He noted that the District could operate on the public safety 4.9 GHz frequency,but will most likely operate on the 5.6 to 5.8 GHz frequency which will provide more capacity.The wireless traffic will be encrypted and the infrastructure will be fenced in within the District facilities with alarms in place.The proposed wireless technology was pilot tested and reviewed,and was determined to provide high bandwidth and reliability. The funds requested today ($216,739)are to complete Phase II which is to complete wireless communications for the North District.Chief of Information Technology Stevens presented a map (see attached copy of presentation) indicating where facilities will be installed within the North District (red dots on map) and where facilities already exist (yellow dots on map).He noted Phase III of the wireless communications network project is to install wireless communications in the South District which is scheduled to commence in FY2012.He stated at the completion of the project,there will be approximately 60 facilities with visual video 3 surveillance security.He demonstrated how the video surveillance system will be integrated into the GIS System.He stated that zones can be identified at the facility sites and if something should come into the zone,it would provide an alert.Staff will then be able to view the facility from their computer.In the future,staff will be able to view the facility from their blackberries as well.The technology is proven and is advanced while being cost effective. He introduced the District's staff who worked on the project,Mr.Bruce Trites from the Information Technology Department and Mr.Gene Palop from the Operations Department.He stated that the District is lucky to have very talented technical staff and that Mssrs.Trites and Palop worked together to develop the wireless communications project.He congratulated them on their good work.He indicated that this is a critical project and also provides a foundation for growth and efficiency. Director Robak inquired how the SCADA System has changed from the past and today.Senior SCADA/lnstrumentation Technician Palop indicated that in the current communications system,if one facility site goes down,then all sites that feed off of that site's radio signal would go down as well.The new system will provide a multi-path format and will not have this issue.It was noted that if the radio signal does go down,the system today does have programmable logic that will continue to operate the system on an automatic mode while staff researches what caused the signal to go down and/or can get to the facility. In response to a question from Director Croucher,Information Technology Chief Stevens indicated that the proposed wireless communications system will enable staff to run the SCADA and surveillance systems from a mobile platform. A motion was made by Director Croucher,seconded by Director Breitfelder and carried with the following vote: Ayes: Noes: Abstain: Absent: Directors Bonilla,Breitfelder,Croucher and Robak Director Lopez None None to approve staffs'recommendation. 9.ENGINEERING AND WATER OPERATIONS a)CERTIFY THAT THE FINAL ENVIRONMENTAL IMPACT REPORT (FEIR) FOR THE DISTRICTS OTAY MESA RECYCLED WATER SYSTEM CAPITAL IMPROVEMENT PROGRAM R2087,R2077,R2058 PROJECT HAS BEEN COMPLETED IN COMPLIANCE WITH THE CALIFORNIA ENVIRONMENTAL QUALITY ACT,THE CURRENT STATE GUIDELINES AND THE DISTRICTS LOCAL GUIDELINES,AND THAT IT REFLECTS THE INDEPENDENT JUDGEMENT OF THE DISTRICT;FINDS THAT THE POTENTIALLY SIGNIFICANT EFFECTS OF THE PROJECT WILL BE AVOIDED THROUGH THE ADOPTION OF FEASIBLE MITIGATION 4 MEASURES.AS SHOWN IN THE FEIR.AND THE MITIGATION, MONITORING AND REPORTING PROGRAM FOR THE FEIR;AND APPROVE THE CALIFORNIA ENVIRONMENTAL QUALITY ACT FINDINGS OF FACT IN SUPPORT OF THE FEIR FOR THE PROJECT (COBURN- BOYD) Environmental Compliance Specialist Lisa Coburn-Boyd indicated that in May 2009 the board awarded a professional environmental services agreement to ICF International for the preparation of the Environmental Impact Report (EIR)for the District's Otay Mesa Recycled Water System Project.She introduced Mr.Jim Harry and Ms.Erin Schorr from ICF International who are in attendance to answer any questions that the board might have. She indicated that the project consists of three pipelines and a pressure reducing station.She presented a slide showing (see attached copy of presentation)the location of the three pipelines.The Wueste Road Pipeline would start in Chula Vista at the east end of Olympic Parkway and go south along the Otay Reservoir. The Alta Road Pipeline is in the Otay Mesa area and connects to the AirwayRoad/La Media Pipeline. She stated that the Environmental Analysis included technical studies and identified the following environmental impacts that will need to be mitigated: •Air Quality •Biological Resources •Cultural Resources •Geology &Soils •Hydrology and Water Quality •Noise •Traffic She indicated that the full EIR process consisted of: •Notice of Preparation (distributed on October 8,2009) •Public Scoping Meeting held of Oct 19,2009 •Draft EIR was prepared and distributed for a 45-day public review period o Six comment letters were received from the public •Responses were prepared to the comments and the responses were incorporated into the Final EIR. o The California Department of Fish and Game responded to the District's response to their comments on the Draft EIR reiterating their initial concerns and asked that the District include specific measures to protect Burrowing Owls in Otay Mesa.There are plans within the EIR and the Construction Specifications to protect their habitat. o Staff will be including the mitigation measures in the District's Construction Specifications which will include: •Biological Monitoring 5 •Covering and Capping of All Stored Pipes •Flagging and Fencing of Sensitive Vegetation This presentation is the Public Hearing to certify the EIR. Director Robak inquired what the context of the concerns were of the comment letters.Environmental Compliance Specialists indicated that all other comments received were very minor and that letters were not received from the City of Chula Vista,County of San Diego or the City of San Diego. A motion was made by Director Breitfelder,seconded by Director Croucher and carried with the following vote: Ayes: Noes: Abstain: Absent: Directors Bonilla,Breitfelder,Croucher and Robak Director Lopez None None to approve staffs'recommendation. 10.PRESENTATION OF THE 2010 OTAY PHOTO CONTEST AWARDS Water Conservation Manager William Granger presented the awards to the District's high school photo contest winners.A couple years ago the District joined forces with Helix WD and Sweetwater Authority to recognize high school students for photos taken that depict a water theme.This is the third year of the contest and the District's winner last year also won the regional contest award of $500 and their photo was used on a bookmark.This year the District received 62 entries (a record high)in two categories:black &white and color.Water Conservation Manager Granger presented the awards to: • 1st Place and winner of $200 to Ms.Maureen Argo from Eastlake HS with her photo entitled,"Bring the Rain";and • 2 nd Place and winner of $100 to Brandon Perez from Eastlake HS with his photo entitled,"One Last Drop" He introduced Mr.Hinkle,the students'teacher,who was also in attendance of the meeting.He noted that previous winners'photographs have been published in the District's Consumer Confidence Report (CCR)and it is planned that the winners of this year's photo contest will again be published in this year's CCR. 11.BOARD a)DISCUSSION OF 2010 BOARD MEETING CALENDAR There were no changes to the meeting calendar. 6 INFORMATIONAL ITEMS 12.THESE ITEMS ARE PROVIDED TO THE BOARD FOR INFORMATIONAL PURPOSES ONLY.NO ACTION IS REQUIRED ON THE FOLLOWING AGENDA ITEM: a)PRESENTATION ON STATUS OF 3RD QUARTER OF FISCAL YEAR 2010 CAPITAL IMPROVEMENT PROGRAM [RIPPERGER] As there were no questions with regard to this report a presentation was not provided. REPORTS 13.GENERAL MANAGER'S REPORT General Manager Watton indicated that the 36-inch pipeline project within Jamacha Road is moving along well and the City of EI Cajon has been happy with the progress. He indicated with regard to the Cash-for-Appliances Rebate Program that the State of California has extended its rebate.He also noted that the City of Chula Vista has a rebate. He noted that staff has been reviewing the telephone system and Voice Over Internet Protocol (VoIP)system.The assessment has been completed and staff will be proposing that the District upgrade the phone system with current technology. He announced that Chief Information Officer Stevens was recognized by the San Diego Business Journal as a finalist for the Information Technology Executive ofthe Year Award for 2010.He indicated that it was nice to have him recognized for the work he does for the District. General Manager Watton stated that water sales are below budget by approximately 15%.It is felt that much of the reduced sales are attributable to the tiered pricing based on usage (customers will pay more if they utilize more water than average).He stated that he wished to keep the board apprised that sales are continuing to stay below bUdget and that the lower sales will also impact the District's wholesale suppliers;CWA and MWD.There is a concern that MWD has not fUlly bUdgeted the reduced sales and that it will impact their budget in the next year or two.The increase from MWD this fiscal year and next year is stated at 7.5%,but it is uncertain if they can hold the rate increase in the next fiscal year at 7.5%based on the water low sales. He noted that the audit of the District's Financial Statements for FY 2010 is underway.This is the second year that the District's audit will be performed by Diehl,Evans &Company,LLP. 7 He stated with regard to the Otay Mesa Recycled Water Supply Link,that the board had approved the EIR for the project today.He indicated that this supply link will bring recycled water to the Otay Mesa area which has been planned for years.He noted that there are concerns with the City of San Diego's pricing and willingness to provide recycled water which may delay the construction of this project.Staff has been working with the City and other groups (Metro Commission, Environmental Groups,etc.)to work out a resolution.This will be an evolving situation. He indicated that the Rancho del Rey Groundwater Development project is halfway through its pilot.Under the pilot program they are currently drilling and it is expected that the drilling will go for another day.The District's inspectors have been monitoring the project and he noted that the construction site is being kept clean and the noise level is being controlled by sound shields.Staff also has been in contact with the neighbors and the day care center close by the project site and no issues have been received.The project is moving along well.It is planned that the main well will be drilled in about two weeks and it is anticipated that the study of the pilot will be completed in August or September. President Bonilla indicated that he has received concerns from his neighbors regarding the project.They are interested in how the project will look once it is completed and have asked if it will it be noisy;if there will be a risk to the kids of the neighboring childcare center;etc.He indicated that it would be helpful if the District could provide informational flyers to the residents with a contact telephone number for those who live within close proximity to the project.Staff indicated that they will develop a flyer for distribution to the community. SAN DIEGO COUNTY WATER AUTHORITY UPDATE Director Croucher indicated that CWA is opposing AB 216 which revises the pre- litigation dispute resolution process for local government public works contracts entered into after January 1,2010.He stated that CWA is also continuing to review desalination projects and it was determined by CWA's attorney with regard to the Poseidon Project that the agencies,other than the City of Oceanside,will not be able to vote on what parameters will or will not be included in the Poseidon contract as they all have individual contracts with Poseidon. 14.DIRECTORS'REPORTS/REQUESTS Director Beitfelder indicated that there has been ongoing interest in the City of San Diego's recycled water rate study.He stated with regard to the Conservation Action Committee that they have been focused on research results concerning conservation from a psychological perspective.The research indicates that there seems to be a desire for individuals to conform to a community norm.He also shared that he attended the Binational Desalination Conference and it was discussed that the feasibility study of possibly developing a desalination plant in Mexico is essentially complete and it seems that the Rosarito Beach option is feasible though the concept is not yet at an advanced stage.He lastly shared that discussions at the Water Conservation Garden Board meetings have been centered 8 on the new governing board and ideas on how to make the garden self-sustaining. It is expected that the Water Conservation Garden staff will be presenting recommendations to the Water Conservation Garden board soon. Director Robak indicated that he attend the Spring Garden Festival during which the new awning in the Amphitheatre of the Garden was being dedicated.He stated that the new awning will be a great benefit to the theatre,especially during summer events.He also thanked Ms.Karyn Keese of PBS&J for her successful work on a acquiring a grant of $2500 for the Garden.He lastly shared that he toured the District's 1485 Pump Station and 1296-2 Reservoir to see the progress of the projects.He stated that the projects seem to be going along well and it was nice to see the reservoir almost completed. 15.PRESIDENTS REPORT President Bonilla indicated that on May 5 he met with the General Manager Watton, General Counsel Calderon and the District's attorneys who are working on the negotiations for the desalination project.He stated that on May 6 he attended the San Diego Business Journal Technology Executive of the Year Award where Chief of Information Technology Stevens received recognition as a finalist.He thanked Director Breitfelder and staff for their attendance of the event and congratulated Chief of Information Technology Stevens on being named a finalist.He also shared that he met with General Manager Watton on May 14 to discuss items for presentation at the May committee meetings.He stated on May 17 the District held a BUdget Workshop where the board approved the FY 2011 Operating and Capital Improvement Budgets.He lastly shared that on May 19 he attended the District's Finance,Administration and Communications Committee where the committee reviewed and made recommendations on items for presentation at the June board meeting.President Bonilla also wished Director Breitfelder well in the upcoming primaries for his candidacy for a seat on the City of Chula Vista's Council. RECESS TO CLOSED SESSION 16.CLOSED SESSION The board recessed to closed session at 4:34 p.m.to discuss the following item: f)CONFERENCE WITH LEGAL COUNSEL -PENDING LITIGATION [GOVERNMENT CODE §54956.9(a)] (I)MULTIPLE CASES RELATED TO THE FENTON BUSINESS CENTER AND FILED WITH THE SUPERIOR COURT OF THE COUNTY OF SAN DIEGO CONSOLIDATED UNDER CASE NO.37- 2007-00077024-CU-BC-SC RETURN TO OPEN SESSION 9 17.REPORT ON ANY ACTIONS TAKEN IN CLOSED SESSION.THE BOARD MAY ALSO TAKE ACTION ON ANY ITEMS POSTED IN CLOSED SESSION The board reconvened at 5:02 p.m.and General Counsel Yuri Calderon indicated that the board took no reportable action in closed session. 18.ADJOURNMENT With no further business to come before the Board,President Bonilla adjourned the meeting at 5:02 p.m. President ATTEST: District Secretary 10 AGENDA ITEM 7a STAFF REPORT November 3,2010 DIV.NO.AllW.O.lG.F.NO: MEETING DATE: Rita ~~_F~ance Manager ~Jos~.J3h R.B achem,Chief Financial OfficerAPPROVEDBY: (Chief) TYPE MEETING:Regular Board SUBMITTED BY: APPROVED BY:German n~T~~ssistant General Manager,Administration and (Ass!.8M):L~LL Finance SUBJECT:Adopt Resolution No.4162 of the District's Code of Ordinances Amending Policy No.25,the Reserve Policy,Which Includes the Updated Capacity Fees and Annexation Fees,and the New Water Supply Fee GENERAL MANAGER'S RECOMMENDATION: That the Board adopt Resolution No.4162 of the District's Code of Ordinances amending Policy No.25,the Reserve Policy,which includes the updated capacity fees and annexation fees,and the new water supply fee. COMMITTEE ACTION: Please see Attachment A. PURPOSE: That the Board adopt Resolution No.4162 of the District's Code of Ordinances amending Policy No.25,the Reserve Policy,which includes the updated capacity fees and annexation fees,and the new water supply fee. ANALYSIS: In March 2006,the Reserve Policy was updated to reflect industry best practices,clearly defining the sources and uses of the District's funds and establishing the minimums,maximums, and targets for each of the funds.In May 2010,the Board adopted a new capacity fee and annexation fee methodology,as well as a new water supply fee.As a result of these Board approved changes,the new sources and uses of fees need to be incorporated into the Reserve Policy. The proposed policy is in alignment with the District's financial plan and is an integral part of the annual rate model update which impacts the District's rates and fees, ~~FISCAL IMPACT:~/~ .> None. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning and debt planning. LEGAL IMPACT: None. ~Mi-Gefieral Manager Attachments: A)Committee Action Form B)Resolution No.4162 Exhibit 1 Strike-through Copy of Policy No.25 C)Proposed Copy of Policy No.25 ATTACHMENT A Adopt Resolution No.4162 of the District's Code of Ordinances Amending Policy No.25,the Reserve Policy, Which Includes the Updated Capacity and Annexation Fees, SUBJECT/PROJECT:and the New Water Supply Fee COMMITTEE ACTION: The Finance,Administration,and Communications Committee reviewed this item in detail at a meeting held on October 19, 2010.The following comments were made: • • • Staff is proposing that the board adopt Resolution No.4162 amending the District's Reserve Policy.Staff indicated that much of the modifications to the policy are a result of the change in methodology in calculating the District's capacity and annexation fees and the incorporation of the new water supply fee. The Reserve Policy also identifies which reserves the fees should be deposited into and the restrictions on the use of the fees.The District's rate model will also be modified to accommodate the changes in the Reserve Policy. Additionally,as a best management practice,the District is required to review its policies periodically.The Reserve Policy was last updated in 2006 and staff took this opportunity to review the overall policy and updated some terms and reorganized portions of the policy. The committee supported staffs'recommendation and presentation to the full board on the consent calendar. Y:\Board\CurBdPkg\FINANCE\CommMtgReservePoll10310.doc Attachment B RESOLUTION NO.4162 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT AMENDING RESERVE POLICY NO.25 OF THE DISTRICT'S CODE OF ORDINANCES WHEREAS,the Otay Water District Board of Directors have been presented with an amended Reserve Policy No.25 of the District's Code of Ordinances for the financial management of the Otay Water Districti and WHEREAS,the amended Reserve Policy has been reviewed and considered by the Board,and it is in the interest of the District to adopt the amended Reserve PolicYi and WHEREAS,the strike-through copy of the proposed policy is attached as Exhibit 1 to this resolutioni and NOW,THEREFORE,BE IT RESOLVED,DETERMINED AND ORDERED by the Board of Directors of the Otay Water District that the amended Reserve Policy,incorporated herein as an attachment,lS hereby adopted. PASSED,APPROVED AND ADOPTED by the Board of Directors of Otay Water District at a board meeting held this 3rd day of November 2010,by the following vote: Ayes: Noes: Abstain: Absent: President ATTEST: District Secretary Page 1 of 1 Exhibit 1 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 INTRODUCTION 1.0 The District The Otay Water District is a publicly miRed ~mter and scr,Jer service agency,more specifically,a California special municipal water district,authorized in 1956 by the State Legislature under the provisions of the Municipal Water District Act of 1911.The District is a "revenue neutral"public agencYTi.meaning each end user pays ±4:-& their fair share of the District's costs of water acquisition, construction of infrastructureL and the operation and maintenance of the public water facilities. The District provides water service within its boundaries,and provides sewer and recycled water service within certain portions of the District.As such, ~!he District operates three distinct business segments: •Potable water •Recycled water •Sewer Each of these business segments has a d:stinct an identifiable customer base.In addition,the developer community,large and small,makes up a significant class of customer for each business segment~As a result,the District has four distinct customer service types: •Developers •Potable water users •Recycled water users •Sewer users The District has established practices and developed computer systems that have enabled the District to maintain a clear separation between these service costs relating to each of its four customer service types.Regardless of customer class,financial principles regarding cost allocation and fund accounting are fundamental to the District's Reserve Policy.These principles are derived from the statements of the Governmental Accounting Standards Board (GASB),and from oversight and advisory bodies such as the California State Auditor,the Little Hoover Commission,and the Government Finance Officers Association (GFOA). These have significant impacts on how the finances of the District are organized and how financial processes work within the organization. Page 1 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 1.1 The District's Use of FuadsFinancial Resources All of the District's expenditures fall into two broad categories: operating costs and capital expenditures,The G~perating costs include costs relating to and Haintenance (O&H)cHpenditures generally support the purchase and delivery of potable and recycled water,and the transportation and trcatment of sewage.The capital expenditures support the construction of infrastructure necessary to deliver service.The District uses various rescrves funds to support the operating and capital efforts.Operations and maintenance is financed only by rates and charges,also called Capital infrastructurc is funded using t~qO mcthods:pay-as-you-go,while capital infrastructure is financed using two financing methods:pay-as-you-go an er-debt issuance (requiring annual debt service).The Capital Improvement Program (CIP)and the two funding methods support the constructionL betterment,and replacement of infrastructure in all three business areas:potable,recycled,and sewer. Both the capital and operating efforts within thc District are different for each of the four distinct customcr types. The District uses a set of establishes different funds to accumulate and account for revenues allocated to different activities.Those funds receive funding up to the levels defined in this policy.Each Evcry year,as a part of the annual budget process,the District's rate model is updated for each fund with the current fund balances and the estimated revenues and expenditures for the next six years.The expenditure or funding requirements and financial resources are then evaluated to ensure that the existing fund levels balances and additional revenues are sufficient within the current budget cycle and for the next five years to maintain arget fund levels.If a deficit is identified,then options for transfers,shifting elP projects,debt, cost saving measures,and/or rate increases are evaluated. 1.2 The District's Capital Improvement Program (CIP) The planning,design,and construction costs of all capital facilities within the three business segments are allocated to three four cost areastypes +-aod corresponding fund categorics:New Water Supply, Expansion,ReplacementBetterment,and/or Replacement Betterment.The funding allocation ~to these three four cost areas ypes is defined in the District's Capital Improvement Program (eIP)and is determined by an engineering analysis which tha identifies which type of customer5 will benefit from ~each facility,planned or existing. The costs of the capital improvements are borne by either existing Page 2 of 61 GTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 users or by the developing areas,or by a combination of the two,as applicable.EH:pansion is for Bel,customers,betterme!1t is for ci{:'sting customers ~Jhere the facility is improved,and replacement is for e:dsting customers ',.here the facility is replaced.If an eHpansion capital project also results in betterment or replacement,the costs are allocated to fle\l users (Expansion)and existing users (Betterment and Replacement)so that the developers ',iill only pay the C1€pansion portiens. This Reserve pfolicy protects both the existing users and the developing aod established areas from incurring inappropriate unwarranted costs.-Developing areas are not required to finance facilities that are duc for replacement or betterment;con7erscly,and established areas are not required to replace facilities before they are worn out simply because of new development.However~to ensure a fair allocation of costs,£each facility has the potential to be classified into any or all of the [our cost types.three categories to various degrees.In addition to these standard categories cost types, there are occasional CIPs that may be billable to a third partYL ueeR as relocations.if for example,a third par y requires a District facility be relocated.~aragraphs a through d below,describe how the costs of capital facilities are financed through various fees. a. a.New Water Supply The portion of a new supply project that benefits new users is financed from the reserves in the New Water Supply Fund ca egory. These reserves are primarily derived from proceeds of the new water supply fee.The New Water Supply Fund is restricted, meaning the amounts credi ed to this fund are accounted for separately and are used solely for the planning,design,and construction of the new water supply expansion facilities.Debt financing may also be a temporary financial resource to finance new wa er supply projects.The District has a Debt Policy (Policy No.45)that guides the debt issuance process.Any debt proceeds used for this purpose would be restricted in nalu e and tracked separately.General use reserves may also be placed in the Designated New Water Supply Fund and used for water supply projects, b.Expansion Fund The portion of a elF project that benefits new users is funded financedby the developing a=eas through capacity fees rom the reserves in the Expansion Fund category.These reserves are primarily derived from the proceeds of the "incremental"portion of the capacity fees collected within developing areas.This Page 3 of 61 GTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date l\lumber Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 portion o£the Future el<pansioR costs are divided by all future connections to calculate the capacity fee.This capacity fcc is the primary funding source for eHpansion projeots and is capacity fees is accounted for separately and used solely for the planning, design,and construction of expansion facilities.Additionally, expansion may be financed by annexation fees or the "buy-in" portion of the capacity fee.Both of these fees are restricted for eIP purposes,but not specifically for expansion.The majority of the funding sources ctre restricted in nature \l'ith the e}weption of the general use funds placed into the Designated Expansion Fund. Debt financing may also be a temporary financial resource for expansion projects.Gene~al use reserves may also be placed in the Designated Expansion Fund and used for expansion projects. c.Replacement The portion of a eIP project that benefits existing users by replacing an existing facility is financed from the reserves in the Replacement Fund category.Replacement of facilities may be financed with proceeds of annexation fees,the "buy-in"portion of the capacity fees,general use reserves held in the Desginated Replacement Fund and debt proceeds The various fun ing sources available for replacement projects is anticipated to provide the necessary flexibility to begin projects while any necessary debt financing is being obtained. de.Betterment Fund The District may construct a project Lhat results in a significant benefit to eldsting users .Facilities that improve reliability,er meet new regulations,or create increased levels standards of service are considered betterment facilities that benefit existing users.The reserves in ~he Better Fund category are used to finance these projects or portions of projects.Certain user rates,charges,and betterment fees are restricted geographically for betterment of facilities,b t may also be used for general maintenance of facilities in hat area.Proceeds of the annexation fee and the "buy-in"portion of the capacity fees may also be used to finance betterment projects.General use reserves may be placed in the Designated Betterment Fund and used for botLerment projects.In suc~a ease,user rate charges and betterment fees could be used as a funding source for that portion of the projeet that results in a lowering of overall operation and maintcnance costs or an improvement to the e}clsting users. Betterment may also be a result of inereased standards or regulations on water or se\/er systems.If the eKisting system must be improved in order to meet the ne\,'standards this cost .;s a Page 4 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 betterment cost.The majority of the funding sources are restricted in nature of their use and the geographic area of use, ~Jith the eKception of the general usc funds p±aeed ifl the Designated Betterment Fund. c.Replacement Fund Replacement of facilities is funded primarily by general user rates.The portion of a proj ect that benefits e!dsting users is funded by the Replacement Fund.It is eltpected that the District ;,>'ill debt finance a significant portion of the future replacement 4'"aeilities.The Di strict has a Debt Policy (Policy No.45)that guides the debt issuance process.The replaccffieRt reserve ',;ill serve as an immediate funding source for replacernen~projects and vwill provide the necessary fleuibility to begin proj eets ',Jhile the appropriate debt financing is being obtained. Page 5 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 1.,21 Relocations Occasionally,relocation of facilities a District facility is required by a third party."..hen l.f-the District has a superior easement'fr the relocation cost will be paid by the third party,buL only to the extent that the District does not benefit from the reloca~ion.for the pipe loeation.When a project is relocated,the cost of the ne~;facility shall be funded by the party ~..itheut an easement or if no parties have easements then it is funded by the party causing the relocation.When this occurs,When relocation is required,a CIP project may be created which is wholly or partially funded financed by a third party...:...',;ho must reimburse the District for the cost of the relocation.On occasion, the District will require that its own facilities be relocated. Depending on the nature of the facilities,the funding financial source resources for these projects could be from new water supply, replacement,expansion, replacement,betterment or third party_funding of projects at the Districtfinancing.Each project is individually negotiated with the third party based on the facts and circumstances of the relocation.Occasionally,the District will improve the facilities that are being relocated.When determining how to allocate costs to various funds much this fund will pay for construction,the following guideline is suggested:if a project has more than five years of useful life remainingL an incremental cost view should be considered; if the project has then funding is incremental,if there is less than five years of useful life remaining.!....funds are contributed from Ehe Replacement Fund on a pro-rata_basiscost approach should be considered.Also,the likelihood the District will benefit from an asset's life extension should be evaluated prior to allocating costs. 1.22 Oversizing In some cases,\Jhere reasonable,the developer may be required by the District to oversize ne~J facilities for future development in order to obtain economies of scale.The developer r,dll be reimbursed for incremental over s~z£ng costs as per Policy No.27.These reimbursements are only for backbone facilities funded by capacity fees not for the distribution system \,~thin a development ~ihich is an obligation of the developer separate from the capacity fees.These smaller distribution pipes serving the individual homes ~iithin a development are often referred to as 'in tractU pipelines. If deemed reasonable by the District,in connection with the construction of backbone facilities,a developer may be required to oversize new facilities for future development.The developer is reimbursed for incremental oversizing costs as per Policy No.26 Page 6 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 These reimbursements are not available for the distribu~ion system within a development which is an obligation of the developer 1.23 Exclusion of Developed Areas from Expansion Costs Developed areas are cORsidered assumed to have sufficient supply and capacity to meet their current requirements as provided by the developers.In addition,they are considered to have borne capital financial costs that are at least proportionate to the benefits they have received from capital facilities.Accordingly,no regional capital financia±~costs are allocated to these areas so that they will not incur any costs for newly developing areasL .In the ea3e of a except for capital project~that produce.B~istrict-wide benefit or cost savings,however;the District may provide financial support to ne'.,'facilities. 1.24 Improvement Districts (IDs) Improvement Districts (IDs)are established in order to facilitate the funding financing of a-particular improvement~by the specific beneficiaries.The District has a number of +improvement Bdistricts that were established for General Obligation (GO)debt repayment.MaRy of these Most GO issuances debt have has been paid off and,as outlined in Lhe Debt 801icy,it is unlikely that the District will issue additional GO debt.~Improvernent districts continue to be used for other funding purposes~~First,~to distinguish sewer customers from water customers on the county tax roll;second,~to place parcels on the county tax roll for the collection of availability fees;or third, 1.L-.for .:E-he-charging ~special water rates}and fourth,to track ',.·hich properties have paid annexation fees. Over the years,the District has taken a moved to a district-wide perspective te-of funding financing improvements.This philosophy is evident by the district-wide capacity ke-and annexation fee~.The District also uses district-wide water rates.As time continues goes on,it is expected that IDs will continue to outgrow their purpose. So,"'hile many IDs remain and their use will diminish over time. 1.3 The Purpose of the Policy Public entities accumulate and maintain reserves to ensure both financial stability and the continuation of the ability to provide continuous availability of services.Financial stability and the increase in resulting improved credit quality that result from stability allow the public entity to weather times of uncertainty and the impact~of negative events,both major and minor.Funded rReserves allow for the continued ongoing maintenance of property and timely Page 7 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 payment of expenses beyond the magnitude of the funds even when such expenses exceed money available 4ft-from a single fiscal period. final analysis,the type and level of reserves are driven by the and magnitude of uncertainty faced by the Districtpublic entity. A "reserve"has a number of meanings,as follows: In the type •Working capital is required to insure timely payment of obligations..:... • A buffer against volatility in revenues. •Liquidity is .required to obtain other goods and services (e.g., bank services)...:... •Designated funds money to protect creditors. •funds Money set aside to replace assets at the end of their useful lives. •Funds Money set aside to repair or replace assets damaged or destroyed at unanticipated times..:... It is important to note that reserve~,fund balance,and net assets are not the same.Fund balance and net assets are accounting terms and may not always be in the form of cash or liquid investments.Fund balances and net assets may not always be reserves unless a designation of all or a portion of fund balance is made,It is important to note that In addition,the termT fund balance was recently replaced by net assets as codified by the Governmental Accounting Standards Board (GASB). In short,reserves are the liquid assets of the District,accumulated and maintained for application to fund finance contingent future activities,whether known or unanticipated,operating or capital in nature.The District's Reserve Policy governs the management and use of these fundsfinancial resources.Few policies have a more significant impact on the financial health and stability of the District.This policy explains several key financial concepts used by the District and provides some background information to the overall strategies and practices utilized.The District has a fiduciary obligation to its customersL to manage and direct the use of public funds for the purpose of providing water and sewer services in an efficient and financially sound manner. 1.4 Policy Guidelines In 2000,the Little Hoover Commission reviewed the levels of reserve funds for special districts in California and prepared a report reflecting that special districts were accumulating unreasonable levels Page 8 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 of funds.As a proactive response,the California Special Districts Association (CSDA)prepared Reserve Guidelines for its members.The Reserve Guidelines were significant in noting that reserve levels need to be in context of the organization's overall business model and capital improvement plan. There are a number of potential events which the District should consider in the development of reserves: •Economic Uncertainty -performance of the regional economy and the impact of that performance on demand for water. •Weather -the amount of rainfall and the impact of weather on the availability and the cost of water as well as the demand for water •Government Mandates -the impact of federal and state regulation, particularly environmental regulation. •Tax Changes -limitations on the District's taxing and spending powers through the passage of a voter referendum,the impound of District property taxes or the removal of the District's power to levy property taxes,further increases to Educational Revenue Augmentation Fund (ERAFl contributions or changes in calculation methodology. •Operating Costs -increases in operating and maintenance costs because of inflation,labor agreement or other modification. •Force Majeure -unanticipated expenditures resulting from natural disasters or intentional acts. •Emergency Maintenance -unanticipated expenditures resulting from unexpected failure of assets (e.g.,rupture in the primary transmission system). •Unexpected Variation in Cash Flow -the incidence of additional costs or decreased revenues that requires short-term borrowing in the absence of sufficient fundsfinancial resources. The California State Auditor has,in its oversight role,offered a number of quality recommendations for the development of reserve policies as outlined in its report entitled,"California's Independent Water Districts:Reserve Amounts Are Not Always Sufficiently Justified, and Some Expenses and Contract Decisions Are Questionable,"dated June 2004,Report No.2003-137.Bach All of these recommendations hasve been incorporated into this policy in an effort to address key issues surrounding the management and use of District reserves.The detailed objectives as identified by the State Auditor are as follows: Page 9 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 •Distinguish between restricted and unrestricted reserves. •Establish distinct purposes for all reserves. •Set target levels,such as including minimums and maximums,for the accumulation of reserves. •Identify the events or conditions that prompt the use of reserves. •Conform vdth to plans to acquire or build capital assets. •Receive Board approval and that it is in writing. •Require periodic review of reserve balances and rationale for maintaining them, Yet,the State Auditor's report acknowledges that the California Constitution (Article XIII B,Section 5)is vague in its provisions governing the accumulation and use of reserves1 •Specifically,the Constitution states that "each entity of the government can establish contingency,emergency,unemployment,reserve,sinking fund...or similar funds as it shall deem~reasonable and proper.2 "Similarly,the State's Water Code does not impose any requirements as to specific or recommended reserve fund levels.As a result,the public finance community as a whole has yet to settle on any real objective standards for the level of reserve funds appropriate for governmental enterprises.This lack of consensus as to specific standards is indicative of the wide variance of the financial and operations context5 for different districts and different contingencies justifying reserves of funds. The Government Finance Officers Association (GFOA)in its ~Recommended Practice on Appropriate Level of Unreserved Fund Balance in the General Fund~(2002)states+that ±in establishing a policy governing the level of unreserved fund balance in the general fund,a government should consider a variety of factorsT~ These include~: •The predictability of its revenues and the volatility of its expenditures (i.e.,higher levels of the unreserved fund balance~may be needed if significant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highly volatile). I California Slate Auditor.Bureau of State Audit '."California's Independent Water Oi 'tricls:Reserve Am unt Are Not Alway' Sufficiently Justi fled,and Some Expenses and Contract Decisions Are Questionable."dated June 2004.200 -137;p.8. 2 California onstitution,Article xm B,Section 5,Sla£e Auditor,Blireau ofState AUcHts,"Califomia s IndependentWater Distriets:Reserw I\mount5 Are "Not Ahvays S~tl)'Justifiee,and Some lliipensos and COfllraet DeeioioRS Are QuestioRable,"dated June 2QO'l,20Q3 137;p.8, Page 10 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 •The availability of resources in other funds as well as the potential drain upon general fund resources from other funds (i.e.,the availability of resources in other funds may reduce the amount of the unreserved fund balance needed in the general fund,just as deficits in other funds may require that a higher level of unreserved fund balance be maintained in the general fund). •Liquidity (i.e.,a disparity between when financial resources actually become available to make payments and the average maturity of related liabilities may require that a higher level of resources be maintained). •Designations (i.e.,governments may wish to maintain higher levels of unreserved fund balance to compensate for any portion of unreserved fund balance already designated for a specific purpose). In the preparation of this policy,each of the CSDA guidelines and the GFOA recommendations has been considered.In addition,all seven objectives provided by the State Auditor are specifically addressed for each reserve.The District wholly supports the State Auditor's efforts to bring a high-level of quality to reserve governance and establishing a standard of performance. The District recognizes that the customer pays for services provided Quality management requires that periodic valuations be performed so that fees and charges can be set at appropriate levels to recover the cost of service.The District's Reserve Policy has been drafted with consideration of the GFOA,CSDA,and State Auditor general guidelines as provided above.In addition,the District has adopted the following principles in the management of its funds financial resources: •~unds Reserves are held and used only for the purpose for which they are collected.This is done to maintain equity bet....een among customers, •Each of the service types is tracked separately so that expenditures and revenues can be monitored and evaluated for each customer type.This provides the District with the necessary information to appropriately charge for each of the services. •Separation of G&M-operations and ma'ntenance from capital expenditures occurs within each of the service types.This is done because the funding financing of these expenditures is often on different timelines or use different funding sourcesreserves. •The District will hold its reserve at responsible and prudent levels.This policy sets minimum,maximum,and target levels for Page 11 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 each of the various funds.This has been done so that the District can maintain funds reserves to meet the purpose for which the funds were established.The levels are set by reference to line items in the District's financial statements and approved budgets.This allows reserve levels to adjust to the District's changing financial circumstances. •Debt financing of facilities provides intergenerational equity and maintains rates at reasonable levels.This equity is accomplished with ~long-term financing Sy-which spread~~the cost of facilities over the life of the facilities.The burden to pay for facilities is then paid by those who use them.Optionally,tThe District could amass significant reserves by pre-collecting funds financial resources in a Replacement Reserve Fund allowing the District to cash fund finance all replacements.In order to obtain those funds,However,this would require significant rate increasesL would be required,burdening the current customers and creating reserve levels difficult to defend to the ratepayers or other oversight entities. These concepts are fundamental to the way the District manages its funds and have a direct impact on the way rates and charges are set. The District performs annual budget evaluations and updates its rate study.odel on at least an annual basis to monitor and adjust the various funds and revenue sources.The separation,tracking,and projecting of the various funds and expenditures create the essential information necessary for the equitable rate structure maintained by the District.The annual review preserves the balance between services provided and the prices fees charged.This review also insures that funds reserves will be available to continue to serve the District's customers. SOUR-CES OF F9NDS Financial Sources 2.0 Developers a. a.Meter Installation Charges (General Use) Meter fees are charges collected for new water service connections.Fees vary depending upon meter size and type of service.The costs associated with meter installations are included in the Operating Expenses section of the budget.These charges are funded financed by developers. Page 12 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 b.e.Developer Deposits (General Use) These deposits are for the engineering and provided to developers.They are tracked developer and any excess amount is returned to operations services separately for each the developer. c.b.Annexation Fees (General UseRestricted) Annexation Fleesl are collected as a condition of annexing into are outlined in Section 9 of the Code of Ordinances.This is the buy in to the District's potable and recycled water facilities.Since the existing facilities have been built and maintained by developers or customers within the District,the annexation fee is calculated based on the present value of all property taxes (1% property tax and availability fees)-paid by the developer and based on the eucess capacity built by existing and prior customers.usors.This The annexation fee insures that future users fund finance a portion of ~facilities that were sized~ afld-built,and maintained for their both existing and future users.by prior customers.The afu"wKat ion fecs are general use funds and help to ofFset current customer Gosts.The calculation of the fee uses a system wide evaluation that combines the potable and reclamation systems.This methodology is used because the t~w ~mter systems ,;ark hand in hand,the recycled system:brings a ner,J supply of rdCt~er to the Districc X"educi:1g the need for potable systems and the higher cost of obtaining ne\J potable supplics. ~roceeds of annexation fees are restricted and can be used for expansion,replacement,or betterment projects.These reserves may be shifted back and forth as financing nee s change. d.Annexation Fees (Unrestricted) A sewer annexation fee is collected when a property is annexed into an improvement district.This fee is calcula cd using the "buy-in"basis and therefore is unrestricted e.New Water Supply Fee (Restricted) New water supply £ees4 are based on the cost of the expansion portion of new water supply projects divided by he number of future equivalent dwelling units (EDU).The new water supply fee covers the cost of planning,desiqn,construction,and financing associated with facilities for the District's new supply needs. These fees are paid by developers.The proceeds of this tee may be used only for new potable or recycled water supply prolects. Code ofOrdinallces.Section 9. 4 Code ofOrdinances.Section 2R Page 13 of61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 Although the fees collected are not restricted separately,one portion for potable and the other for recycled,they are tracked separately. d.Capacity Fees (Restricted) The capacity fee is outlined in Section 28 of the Code of Ordinances.Capacity fees~-are based on the value of existing and future facilities estimated construction cost of eHpansion divided by the number of existing and future B~quivalent Bdwelling Y~nits. This method of calculating capacity fees is called the combined method,where the "buy-in"portion of .!f.!.he capacity fee covers costs to repay existing customers for the facilities that they have built,and where the "incremental"portion of the capacity fee covers the cost of future expansion facilities The "buy-in" portion of the capacity fee is restricted to pay for ~ncluding, but not limited to,planning,design,construction,and financing associated with expansion,replacement or betterment facilities~ The "buy-in"portion may be shifted back and forth between expansion,bet erment or replacement as the financing needs change.for the District's e1tpansion needs.The "incremental" portion of the capacity fee is limited to planning,design, construction,and financing exclusively for expansion facilities (excluding new water supply expansion). Ultimate fFacility needs are based on projected land use planning. Changes in anticipated future land use occur and can alter projected facility requirements.Thus,both the anticipated facilities These needs and tfle-their projected costs change over time as regulatory agencies make changes to determ.in~ng land use malee changes. 8ignifioant variations in future land use occur and can alter projected facility requirements.As these changes GOOUE,t!he District periodically ~Ji 11 -review~the capacity fee calculation to accommodate such variations.These fees are paid by developers. The District's construction of infrastructure occurs prior to the addition of EDUs.This sequence serves two purposes:one it ensures that the District can serve the pending construction as it is completed;and two,it is more efficient to oversize many facilities at the outset rather than build for the current need and then reconstruct when the future need is realized.As a result of this strategy,the District has financed construction with bond financing as the existing expansion funds reserves are depleted. The capacity fee is calculated based on the eHpansion costs of the combined recycled and potable water systems needs"This methodology, Page 14 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 just like the annclwtion fee ffiethodology,is used because the two water systems work hand-in-hand.All capacity fees can be used for either potable or recycled but must be tracked to distinguish between the "buy-in"and 'incremental"portions as described above only for enpansion needs.So,while capacity fees are not restricted separately,one portion for ~potable and the other portion for recycled,they are tracked separately. Page 15 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 De7cloper Sources BEYEt:ePER9 r ----r---- DIAC¢L~2.0:Flow of Funds Page 16 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Diagram 2.0:Flow of Funds -Developer Sources DEVELOPERS Capacity Fees Unrestricted and Undesignated (General Use)Funds 2.1 Customers/Users Restricted Funds a.Uniform Rates and Charges (General Use) Charges to users for water,sewer,and recycled water are uniform throughout the District for similar customer types.This policy reduccs possible misunderstanding that might occur among ~ustomers if rates varied bet\lccn geographical arcas.It also provides for an administratively straightforward billing process. b.Monthly System Fees (General Use) This is a fixed revenue source that is charged monthly.The amount of the charge is based on the meter size. c.Energy Charges (General Use) The energy pumping fee is ~O.03?a charge per unit of water for each 100 feet of lift,or fraction thereof,above the base elevation of 450 feet.This charge is placed on the monthly water bills of all water customers. d.Penalties (General Use) Page 17 of61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Penalties are added to the monthly water and sewer bills for late charges,locks,etc. e.Pass-through Fixed Charges (General Use) A fixed monthly charge to the District's customers intended to collect sufficient funds to pass-through the increased fixed costs from the County Water Authority (CWA)-and the Metropolitan water D'strict (MWD1. f.Special Rates and Charges (Restricted) In addition to the uniform water charges,the District currently has five special water rates and one sewer rate.The five water rates are a±±-for construction,installation,and maintenance of water storage reservoirs,pump stations,and water lines in the respective areas.Each of these rates and charges must be used within the respective areas is listed as follo\{s:from which they are collected.These special charges are listed below: •North District water charge (e~ode section 25.03HG) •10 9 water charge (€~ode section 25.03±H) •10 3 water charge (-e~ode section 25.03;J;.J) •10 10 water charge (-e~ode section 25.03JI) •La Presa water charge (eCode section 25.03JI) •Russell Square sewer charge (~ode section 53.04C) When these rates were established they were for the specific purpose of constructing,installing,and maintaining the water and sewer systems in the areas in which the fees that they wer~ collected,Therefore,these are R£estricted Funds reserves by geographic area as well as by purpose.These fees however,rates and charges can also be used for maintenanceT~unlike the availability fees (discussed in 2.2 B ).These six special ~ rates and cha ges along with availability fees are tracked separately,by geographic area,so they can be separately evaluated ~to main ain the targeted funding reserve levels separately.To meet this need,each special rate and charge is accounted for in a "sub-fund"of the ~Betterment ~Fund. g.Temporary Meter Fees (General Use/Restricted) Water charges,in lieu of capacity fees,are charged on temporary meters.This is done because while temporary meters use system capacity they are not charged a capacity fee.Temporary water use is charged at two times the water rate with the added charge placed in the Restricted Expansion Fund.The primary users of Page 18 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 these temporary meters are developers;however,general customers also use these for various purposes. 1----te~U~Soi"'1Tt+O'tflhlft1~E"'R~S~/H'U~S""E'"'+R~Sii----- DIAGRAU 2.1:Floow of Funds 1 ! Cust.omer Sources Page 19 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Diagram 2.1:Flow of Funds -Customer Sources CUSTOMERS /~SERS Unrestricted and Undesignated (General Use)Funds 2.2 County-Collected Taxes and Fees Restricted Funds a.General Levy Property Tax Receipts (1%Property Tax)(General a.Use) In 1978,Proposition 13 limited general the levy of ad valorem property taxes on real property rates £or all taiting authorities to a total rate of one percent of the assessed value of such property.Subsequent legislation,AB 8,established that the receipts from the one percent levy were to be distributed to taxing agencies proportionate to each agency's general levy receipts prior to Proposition 13.Funda Taxes received are for general use. b.Availability Charges (General Use/Restricted) The District levies availability charges each year in developed and undeveloped areas.Current legislation provides that any amount up to $10 per parcel is general use and any amount over $10 per parcel is restricted to be expended in and for that the ~improvement Bdistrict (10)w'thin which it is collected.±9tr 'lere formed to provide the lowest cost funding possible for the development of Hater and smo'er systems.Accordingly,the District may use availability charges in excess of any amount over $10 toward costs of to develop water and sewer syscems facilities which are either,expansion,betterment,or replacement of Page 20 of 61 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 facilities consistent with the purpose of the 1D in which they are collected.-.--This portion of the proceeds of availability charges is geographically restricted and restricted by purpose.As costs are incurred on these projects the respective IDs are charged,reducing the reserves.To the extent that availability charges are not used for the purpose for which they aLe collected, they must be re urned to the property owners that pa d them.The District has historically used these reserves for betterment capital facilities thus,~!he R£estricted funds reserves are accounted for in "sub-funds"of the Betterment Fund (see 2.1 f.). c.Availability fees can be used for the development of facilities consistent with the purpose of the 10 which they are collected in,~Jhile special rates and fees can also cover the maintenance of those facilities.~s charges are incurred on these projects the respective TOs are charged reducing the betterment fund.In the event that funds ~rc not used,the Restricted ~und5 must be returned to the property O1Jners that paid them.Therefore, the monies ~n this fund may only be used to finance the construction,installation,and maintenance of the systems vvithin the geographic area of the specific IDs.The District has historically used these funds for betterment capital facilities however,they are available for any facility construction purpose benefiting the ID ~Jhether replacement,be ttcrment,or e:apansion. Each year the District sends notices to all new customers informing them of the availability fees and their purpose.This notice also informs the customers of the date and time of the public hearing to =eceive public comment on this fee.The availability fees are split betr,Jean the Betterment Fund and the General Fund. Page 21 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 ~State Loan Assessment (Restricted) The District assesses a -charge per unit of sewer service each year on the sewer customers.This is collected via the G£ounty ~!ax R~oll and is specifically collected for the repayment of the State Loan.When this loan is paid off the charge will be removed. d.Improvement District General Obligation (GO)Bond Assessments (Restricted) The District has historically occasionally issue5~GG-general obligation debt and establishes an ~lmprovement BQistrict for the repayment of that debt.When this financing method is used,the €~ounty ~!ax Rroll can be used to collect funds special taxes or assessments within the 10 afiG-to pay the debt obligation.The proceeds of the debt are restricted for the purpose as defined in the bond documents DIAGRAM 2.2:Flow of Funds County Collection Sources Page 22 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Diagram 2.2:Flow of Funds -County Collection Sources COUNTY COLLECTED TAXES AND FEES Unrestricted and Undesignated (General Use) Funds 2.3 Miscellaneous Income Restricted Funds a.Miscellaneous Rents and Leases (General Use) Revenues received from the rental and lease of District property are general use revenues.Not only are they periodic revenues, but ~!here is also a one-time fee charged with the setup of each new lease.The District incurs expenses related to these rents and leases.The one-time fees are calculated and this fee's purpose is to recover the cost~to set-up the leases. b.Sewer Billing Fees (General Use) Sewer billing fees are general use revenues.The District provides Fees received from the City of Chula Vista for processing and billing services to the City of Chula Vista to bill and collect from &f.--their seHer customers for sewer service·,,'ithin our District.These fees are to recover the cost the Distric incurs to provide this service. Page 23 of 61 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 c.Interest Income or Expense Allocation (General Use, Designated,and Restricted) Interest income (expense)will be allocated each every month based upon each fund's month-ending balance.In this way,each fund receives credi-for interest earned by that fund and each fund with a negative balance is charged for the use of the other fund's reserves. DIAGRAM 2.3:Flow o€FuBds !KseollaBoous Income Sourees Page 24 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 Diagram 2.3:Flow of Funds -Miscellaneous Income Sources MISCELLANEOUS INCOME Unrestricted and Undesignated (General Use)Funds 2_4 Debt Issuance Deslgnated Funds Restricted Funds a.Loans (General/Restricted Use) As the District determines that additional funding financing is required for a particular purposeL the option of borrowing is considered.The determination to borrow is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action.As an option to bond indebtedness,loans are available especially to satisfy short-term financing needs.These loans mayor may not be contractually restricted for a particular purpose. b.General Obligation (GO)Bonds (Restricted) As the District becomes more developed it becomes less likely that GG-general obligation debt will be used as it requires a vote of the public to be approved.Bond proceeds are restricted for the construction of those facilities identified in the GO bond issuance.Occasionally,specific portions of bond proceeds may be allocated for the repayment of the principal and interest,also called debt service,on these bonds.As the District determines that additional funding financing is required for a particular purpose,the option of debt issuance is considered.The Page 25 of 61 DTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 determination to issue debt is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action. c.Certificates of Participation (COPs)(Restricted) General revenues of the District are pledged as security for GGPs Certificates of Participation (COPs)indebtedness.Before issuing COPs,If-the District \vill determine~that additional funding financing is required for a particular purpose,the option of debt issuance is considered.The determination to issue debt is made as a part of the annual rate study model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action.This form of financing has become the industry's preferred form of financing as it does not require a vote of the general public. Page 26 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 DIAC~!2.4:Flow of Funds Debt Issuance Sources Diagram 2.4:Flow of Funds -Debt Issuance Sources DEBT PROCEEDS Unrestricted and Undesignated (General Use)Funds Restricted Funds Page 27 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 2,5 Inter-fund Transfers Each year in the budgeting process~future reserve fund levels are projected over for the next six years.Based on these proj ectionsT fund transfers are recommended.~qonies Reserves may be transferred between Unrestricted or Designated Funds and the General Fund (see 4.0 "Funding Levels"and 4,1 "Fund Transfers"). Funds Reserves may not be transferred to or from any of the restricted funds unless it is between two restricted funds with a shared purpose. FUND TYPES Fund Types and Categories 3.0 General Funds a.Purpose The General Fund is neither restricted nor designated.The District maintains only one General Fund for each business segment (water,sewer,and recycled).This fund holds the working capital and emergency operating reserves.While the General Fund has a short-term focus to finance the District's annual operations,it is supported by the six-year rate model.This fund is primarily used to finance the operations or the District;however,it can be used for any DIstrict purpose. This fund can be used to supplement the District's rates and charges and be a temporary source of revenue to balance the Operating Budget.Thj s flmd can also be used to aTrEi-avoid spikes in the rates or significant and abrupt increases.It is an industry practice to have a fund that can be used to stabilize rates.This would only occur if there was a temporary need for funds reserves that would smooth out a rate spike or to ramp up what would otherwise be a dramatic rate increase. This The General £Fund also plays a role in the debt planning of the District.It is an industry practice to have a fund that can be used to stabilize rates.This fund is viewed by the debt markets as a commitment by the District to ensure financial stability of the rates and charges of the District.The District is anticipated to issue need a number of debt issuances over the years and this fund will help the District not only to stabilize Page 28 of 61 OTAY WATER DiSTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 rate fluctuations but also to access low cost financing for future projects. While the General Fund has a short term focus to fund the District's annual operations,it is supported by the Gil(year rate model.This fund is primarily used to fund the operations of the Dlstrlc_however;it can be used for any District purpose. b.Sources The potable and recycled general funds receive M~eter installation charges,anneHation fees,temporary meter fees,uniform rates and charges,monthly system fees,energy charges,penalties,pass- through fixed charges,general levy property tax receipts, availability charges,miscellaneous rents and leases,sewer billing fees,interest income or expense allocation,loans,and a portion of the temporary meter fees water sales. The sewer general fund receives sewer charges,penalties, availability charges,sewer annexation fees (calculated on the "buy-in"basi~),and interest income or expense allocation. fr7C.funding Levels ±I.Minimum Level -The minimum funding reserve level for each business segment of the General Fund is three months of operating budget expenses (evaluated separately for each segment)• ±±II.Maximum Level -The maximum funding reserve level for the General Fund is nine months of operating budget expenses.In the event that this fund exceeds the seven month level,the excess will be evaluated or transferred to one or more of the designated funds. ±4±III.Target Level -The target level of funding reserves is three months of operating budget expenses.In the event that the fund drops below the target levelL rate increases or fund transfers would be considered. Page 29 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 I 3.1 DcsigRated Funds a.Purpose Designated cash funds are "general use"funds that have been set apart by Board action for a specific purpose.These funds can only be used .cor those purposes.HO\lever,these fu~ds are a<:the discretion of the Board and can be used for any District purpose by an action of the Board.The District maintains designated cash funds as follows: •Other Post Emploj'ffient Benefits Fund (OPEB) •Designated EKpansion Fund •Designated Betterment Fund •Replacement Fund Detailed descr;ptions 0"'"tbe funds aLe as follO\Js: 3.1 Designated Other Post Employment Benefits Fund (OPEB) Designated Other Post Employee Benefits ~iOPEBl ¥aftd reserves are "general use"reserves that have been set apart by Board action is used to fund finance the medical benefits of qualified retirees as outlined in the District's benefits plan.This District fund holds only a portion of he total OPEB reserves.Tbe other portion is held in a trust at CalPERS and is restricted for the purpose of financing the OPES liability.The two portions a e considered jointly when looking at target reserve levels.It is fully funded by user races.Every two years the fund is evaluated by an actuary to update for additional funding the annual financing requirements.Changes in the actuarial valuation may result from changes in benefit levels,employee population,costs of health insurance costs,or general market conditions. These funds reserves held by the District are currently designated l:7I:rt-and may be placed into a trust the CalPERS trust to legally restrict the funds,effectively removing the District's day to day legal access to the fundsthese reserves.This ,",ould allm.'the funds to offse~the actuarial liability of the District to fund OPEB.Hmmver,these funds are currently designated and therefore,may be used at Board direction for any purpose. Page 30 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 a.Sources The OPES liability may be financed by general use reserves coming from user rates and charges,either from an operating budget expenditure or from interfund transfers.Transfers of unIestricted reserves may come from the various designated funds or from the General Fund.As a part of the normal budget process,annual operating revenues have been sufficient to inance the ongoing needs of this designated fund.While debt financing is also an option,the District has only used user rates and charges to finance this fund. b Funding Levels Other Post Employment Benefits Fund l'J.Uinimum Level Fully funded as identified under the actuarial study of the District's OPEE liability. B.!faJtimlBl\Le....o:el Fully funded as identified by an aCt:uarial study.In the event that the fund is o'vTer funded,the District ,,,.ill target for the full funding ;dthin ti'le (5)years reducing the annual funding levels. G.Target Le'rel Fully funded to meet the actuaria111' defined valuation.In the event that the fund is not fully funded,the District ·,Jill targe".:for full funding ~..ith;n five (5)years by i ncreasi ng funding levels. This increased funding !'wuld be in the form of either annual budget funding or fund transfers. I.~nimum Level -The minimum reserve level for this fund is equal to the District's OPEB liability as determined by the actuarial study.When considering the reserve level of this fund,both the District held OPEB reserves and CalPERS held OPEB reserves must be considered jointly. II.Maximum Level -The maximum reserve level for this fund is equal to the District's OPEB liability as determined by the actuarial study.In the event that the two funds,as described above,exceed the OPEB liability,the District will reduce the annual funding levels as defined by the actuarial study. Page 31 of 61 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 III.Target Level -The target reserve level for this fund is equal to the District's OPEB liability as determined by the actuarial study.In the event that the two funds,as described above,fall below the OPES liability,the District will increase the annual funding levels as defined by the actuarial study. 3.2 New Water Supply Fund Category a.Purpose The New Water Supply Fund category is to finance the expansion portion of new water supply projects and is therefore to be paid for by developers.When considering the reserve level of the New Water Supply ~und,the New Water Supply Debt Fund,and the Designated New Water Supply Fund work in concert and mus_be considered jointly. b Sources The New Water Supply Fund receives reserves only from he new water supply fee.Other funds within the new water supply category of funds receive debt proceeds and general use reserves through a designation to this category. c.Funding ~evels I.Minimum Level -As the District matures ~he CI~will move to purely replacement projects.As the District moves through its lifecycle the need for new water supply reserves will decrease and may be reduced to zero. II.Maximum Level -The maximum reserve level for the new water supply category of funds is limited to five years of the unfinanced new water supply facilities as described in the District's C1P Budget.To determine the unfinanced amounl, the total new water supply financing needs must be reduced by the projected new water supply revenues,general fund designations,and bond financing.If the combined new water supply reserves exceed the target level,the District should consider transferring designated reserves to meet other purposes,reduce the new water supply fee,or change the timing of the new water supply projects. Page 32 of 61 GTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 III.Target Level -In order to facilitate debt financing of the new water supply,it is important that the various new water supply funds retain an overall reserve level of six months,prior to any attempt to obtain debt financing. This reserve level allows the District the time necessary to issue additional debt without depleting new water supply reserves.If the combined new water supply reserve levels drop below six months of expenditures,this would trigger a transfer of general use reserves,a bond sale,or a change in the timing of new water supply projects.Bond proceeds would be placed in the Restricted New Water Supply Debt Fund while transfers would be placed in the Designated New Water Supply Fund. Page 33 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Diagram 3.2:New Water Supply Fund Category Funding Source Restricted Funds Restricted Funds Restricted Funds Designated Funds -Unrestricted and Undesignated Funding Sources New Water Supply Fund Category 3.2 Restxieted Funds a.Purpose Restricted cash funds are those that are legally set aside for a particular purpose and cannot be used for any other purpose.The District maintains three Restricted Funds: •Restricted Bztpansion Fund •Restricted Betterment Fund Page 34 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 •Debt Reserve fund The definition and purpose of eaeh of these funds is described belm,': 3.3 Expansion Fund Category a.Purpose ii.DesiqRated E]~ansion Fund The purpose of this fund Expansion fund category is to suppleffient ~financ~e¥-the expansion por ion at capital projects and therefore is to be paid for by developers.When considering the reserve levels of the expansion category,the following funds work in concert and must be considered jointly:the Expansion Fund, Expansion Debt Fund,Annexa-tion fund (potable and recycled only), Capital Imporvement Fund,and the Designated Expansion Fund. Potable and recycled reserves are considered jointly while sewer is evaluated separately. Restricted E:2fpansion Fund The Restricted Ejepansion Fund I,,'orks hand in hand '.•'ith the Designated EHpansion Fund.When evaluating the Reed for additional funding,both the restricted and designated funds must be considered as one fund.The sole purpose of this fund is to construct potable, recycled,and sewer facilities to the eHtent they serve the expansion needs o£the District.Recycled and potable are jointly accounted for as these water systeffis .,vor.lc in concert.The am,'cr ciCpans';on is accounted for separately but is currently inactive as there is no SCHer enpansion. This fund is restricted by law and therefore is a Rcstricted Fund that can be used for no other purpose. Government Code section 66001 requires that these funds be accounted for separately and upon request that an accounting be provided.In add"tion,five years after the first deposit into the account or fund,the Code requires the District ffiake specific findings regarding any unej{pended funds I \i'hether those funds are commi tted to eiCpenditure or not (Government Code section 66001). The same findings must continue to be made once every five years thereafter.If the findings are not made,the statute requires the District refund Lhe fees to the Page 35 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 current owner of the affected property.The manner of the refund is at the District's discretion. As charges are incurred on a project,and the project has been identified as an eHpansion project,the costs are deducted ~rom the ~{pansion Fund.This al10ca_lon of funds is done on a monthly basis.In the event that funds are not used for the expansion of District facilities the funds must be returned to the developers who paid them.In the case where a policy change requires a betterment project that ;:ould have been an eHpansioR proj ect at the time the capacity fee ',:as collected,reserves may be used for that betterment project.The expansion reserves may a±so be used for bond repayment,to the extent the debt ',>'as incurred to fund eiEpansion. b.Sources The Expansion Fund is financed by water charges in lieu of capacity fees (or temporary meters)and the "incremental"portion of the capacity fee.The other funds in this category may also be financed by debt proceeds,annexation fees,the "buy-in"portion of the capacity fee,and the general fund through a designation of reserves.In the event the restricted expansion funds are not suffici ent to fund the eH:panslon proj ects these funds fRay be used. This fund must be evaluated in conjunction ~;ith the Restrlcted Enpanslon Fund as they Hark in concert. I. c. Designated Eupansion E'und Funding Levels ----~~~<~.I.Minimum Level -As the District matures the CIP will move to purely replacement and betterment projects.As the District moves through ±t5-his lifecycle the need for expansion funds reserves will decrease and eventually ~be reduced to zero.~'Jhcn considering thc funding of e2EpansioF,the Restricted EHpansion Fund and the Designated 8}{pansien Fund .,..erk in concert and must be considered jolntly. ~II.Maximum Level -The maximum reserve level e£-for this the expansion cal~egory of fun~is limited to five years of unfunded unfinanced expansion ~ facilities as described in the District's CIP Page 36 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Budget.To determine the unfunded unfinanced amountL the total expansion financing costs needs must be reduced by the projected restricted expansion revenuesL~B£ond financing,and any restricted or general fund revenues allocated to this fund category is expected to fund a large portion of enpansion.If the combined expansion reserves exceed target levels,the District should consider reducing capacity fees,reallocating restricted or designated funds to meet other purposes,or shifting the timing of expansion projects. ~~Target Level -The target level is six months of expansion expenditures.In order to facilitate debt financing of CJipansion,ilt is important that the expansion funds reserves retain a reserve remain at a minimum of six months prior to ar.y a"ttempt to obtain bO!1d =financing.0 expansion expenditures.This reserve level allows the District the time necessary to issue additional debt without running out of depleting expansion fundsreserves.If the combined expansion funds reserves drop below six months of expenditures this would trigger either a transfer of general use funds reserves or a borrmving of funds ·...ith a bond sale,an adjustment to the timing of expansion projects,or a reallocation of restricted reserves. Bond funds proceeds would be placed in the Restricted EJlpansion Bond FundL while transfers of general use reserves would be placed in the Designated Expansion Fund,and transfers of restricted reserves would be placed in either the Expansion Annexation Fund or the Expansion Capital Improvement Fund.If the combined eHpansion funds elcceeded target the District should cons;dered the need to rerlaGe capacity fees or transferring designated funds to meet another purpose. b.Levels i.Restricted BiEpansion Fund A.Minimum Level While there is no ffiiniFf1.um balance,an action is required ,;hen the balance of the cembined Restricted Eapansion Fund and the Designated EJlpansion Fund drops belm..sin :enonths of Page 37 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 e;{penditures.This ',,'Quid trigger either a transfer of funds from a non Restricted Fund or a borrowing of funds ',dth a bond sale.Bond funds ',,'auld be placed in the Restricted ElEpansion Fund ',Jhile transfers !,:ould be placed in.the Desi.gnated Enpansion Fund. B.!4axiJB\U1l Level The ffialfiffiUffi of this fund is limited not by a particular dollar amount but by the limited ability to collect funds for this purpose. This lbmitation is mandated by Government Code section 66001.Under the Code,the District must identify the purpose of the fee and the use ~o v,thich it '.Jill be put,e::fectively establishing a neRUS betr.~een the development proj ect or class of project and the improvement being financed.The District must further establ~sh that Lhe amount of the funds being collected '.Jill not C1weed that needed to pay for the improvement (Government Code section 66005), Onder this maRdate,also referred to as AS 1600,the ~Htigat.i.on Fee Act and GoV'ernmont Code sections 66000 et seq.,the District can only collece capacity fees for cHpansion projects.To insure compliance T,Jith this,the District performs periodic rate studies,a part of ~Jhich is the calculation of the legally defensible capacity fee. Therefore,the District is limited in this fund by the Re:ms bet',1oen the need for mcpansion expenditures and the fee that is approved for its collection. With the lack of a dollar limitation for the mal{imufEl,it is incumbent on the District to maintain the planned construction of capital infrastrUcture. While building ahead of the need makes it unlikely that the eapaci:ty fees '.dll accumulate to any great degree,significant delays in construction may result in high levels of the Restricted E}{pansion Fund.This is one reason why the District reports to the Board OR a periodic basis the progress of the CIP spending.Further,the annual "pdate of the rate model brings the Restricted and Designated EHpansion Fund balances to the Board's attention. Page 38 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Also,the District provides annual Developer meetings '.:here the eHisting and projected reserve levels are reviewed. c.Target Level In order to facilitate debt fi.nancing of eupansiofl,it is important that the eHpansion funds Fe tain a reser'vTe of 5i},months prior to any attempt to obtain bond financing. This reserve allm/S the Di strict the time necessary to issue additional debt '.vithout running out of C2{pansion funds. Page 39 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 Diagram 3.3:Expansion Fund Category Expansion Fund Expansion Fund Category Destlnated Expansion Fund Expansion Annexation Fund Expansion capital Improvement Fund Bond Debt General Fund -Rates and Charges Capital Improvement Fund Expansion Fund Funding Source I _I Unrestricted and Undesignated Funding Sources Designated Funds Restricted Funds Restricted Funds RestrictedFunds Restricted Funds Restricted Funds Page 40 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 There is significant interdependency between the District's potable and recycled water systoms.For th's roaso~r the tHO systems are supported by one combined capacity fee.The same capacity fee is charge on all water connection regardless of whether they arc pocab1e or recycled. For this reason the Restricted and Designated Elfpansion Funds for these two business segments must be considered jointly \Jhcn using the rate model and setting fees. The Distriet currently has not se,,;er eupan.sion and therefore has no seT,/e!'capacity fees and no active SCT,Jer eJ(paosion funds. Th~s fund contains general usc funds and at the direction of the Board may be used for any District ~urposc. 3.4 Replacement Fund Category ±¥..... a.The pPurpose The Replacement Fund category is to finance replacemenL projects.When considering the reselve levels of the replacement category of funds,th followilg funds work in concert and must be considered jointly:he Annexation Fund, Debt Fund,Capital Improvement fund,and the Designated Replacement Fund The purpose of these reseveres of this fund's to pay for the replacement of capital infrastructure and capital purchases.This is a Designated Fund and was created to meet a portion of the Distriet/s replacement needs.This fund is These reserves are not to be used for the replacement of non-capital items. Debt financing of replacement \fill be the primary source of funds for replacement hOviever;this reserve is established to fund a port~on of replacement and ensure that necessary replacements will ocC'Ur regardless of the il'BfRcdiate availability of the debt markets.With the District's development of its financial systems and the greater need and ability to separate and track reservesfunds,the ~eplacement Fund reserves fia-s-l1ave been separated into three funds: water,recycled,and sewer. Projects undertaken solely for the purpose of replacing major capital equipment or facilities,i.e.,where the cost exceeds $10,000 for capital purchases or $20,000 for infrastructure items,generally these are not considered normal maintenance ~Ihere When the cost is below $10,000L.the costs are financed annually as operational maintenance.As charges are incurred Page 41 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 on a-replacement project~the funds reserves are deducted from the respective Replacement Fund~on a monthly basis. This is a Designated Fund and may be redirected for any purpose at Board direction. b.Sources ~The various funds in this category are financed by debt proceeds,annexation fees,the "buy-inn portion of the capacity fee,and general fund designations The sources of iunding for designated funds are limited to interfund trans:ers from available unrestricted funds (see 3.0 b.) and ;nterest earnings on fund balances ~.ithin designated funds. Unres tricted funds may come from other designated funds or from the General Fund.The operating budget is another source of designated general revenues.As a part of the normal budget process the general revenues are sufficient to fund a significant portion of the ongoing needs of ~he designated funds. II.Replacement Fund c Funding Levels ~I.Minimum Level -The minimum reserve level of this category of funding funds is 3%of the historical value of existing assets as identified in the District's current financial statement.Potable,recycled,and sewer replacement are evaluated separately. ~II.Maximum Level -The maximum reserve level of this category of funding funds is 6%of existing assets. If the combined replacement reserves exceed target levels,the District should consider transferring annexation fees or the "buy-in"portion of the capacity fee to meet other purposes Another consideration would be to shift the timing of replacement projecLs.In the event the maiCimUR',level is e:;wecded in any year,then the 81wess ~dll be transferred as per the general transfer guidelines found in Section IV. ~III Target Level -The target reserve level of this category of funding funds is 4%of existing assets. In the event that the fund reserves fal15 below the recommended target level,the District should consider transfer-s-ring annexation fees or Lhe "buy-in"por-ion of he capacity fee.or operat:ing rOTJcnucs 'dould be shifted to support the Replaeement Funds.The 0 strict Page 42 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 should also consider shifting the timing of replacement projects or issuing debt to support the planned level of facility replacement.The District will act based on the annual five (5)six-year rate study model,to insure that at the end of that planning horizon the ~ reserves exceed the minimum level and is approaching the target level. Page 43 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 Diagram 3.4:Replacement Fund Category F~nding Source Restricte~FundsI Restricted Funds Reslricted Funds Restricted Funds Designated Funds +-unrestricted and Undesignated Funding Sources 1- Replacement Fund Category Replacement -Annexation Fund Replacement Capital Improvement Fund Page 44 of 61 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 3.5 Bette~ent Fund Category a.purposeii.Restricted Betterment Fund The Betterment Reserve Fund Category is to finance the betterment portion of capital projects with a portion going to the maintenance of covers the cost to construct,instal', and in some cases to maintain the potable,recycled,and sewer systems.The District maintains three separate designated bBetterment £fundB categories,one for each business segmcntimprovcmcnt district.An improvement district is a legally defined geographic area usually established for the purpose of bond financing of facilities. The betterment reserves within ~~hese funds are restricted by law for use within the area improvement district in which the fees are-were collected (Water Code 71631.6).However,the legal restriction of this fund reserve depends upon the particular revenue source.(see Section 2.1 f,for a review of the special rates and availability fees) When considering the reserve levels of the betterment category of funds,the following funds work in concert and must be considered jointly the Betterment Fund,Annexation Fund (po~table and recycled only),Debt Fund,Capital Improvement Fund,and Designated Betterment Fund. iii.Designated Betterment Fund The purpose of this fund is to supplement the Restricted Betterment Fund for se',,'er,oW ter,or recycled.The District ~aintains three separate designated be_terment funds,one £or each business segment.In the event a Restricted Betterment Fund is not sufficient to fund betterment projects this fund '.vill be used.This fund must be evaluated in conj unction '",ith the Restricted Betterment Fund as they '.;ork in concert. When considering the ::unding levels for betterment funds there are multiple sub funds .".ithin betterment that must be individually considered (see 2.1 £.).This is a general use fund and at the direction of the Board may be used for any ~rict purpose. b.Sources The Betterment Fund category receives restricted revenues by improvement district via special watcr rates and from availability fees collected through the county tax roll. Betterment may also be financed by debt proceeds,annexation Page 45 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 fees,the "buy-inN portion of the capacity fee,as well as the general fund through a designation of reserves. Funding Levels I.I.Minimum Level -As the District matures the CIP will move to purely replacement projects.As the District moves through ~this lifecycle the need for betterment funds reserves will decrease and eventually ~be reduced to zero.When considering the funding of eHpansion che Restricted Betterment Fund and the Designated Betterment fund work in concert and must be considered jointly. ~II.Maximum Level -The maximum reserve level ~ this for the betterment category of fund~is limited to five years of unfunded unfinanced betterment needs facilities as described in the District's CIP Budget. To determine the unfunded unfinanced amountL the total betterment financing costs need must be reduced by the projected restricted betterment revenues_,_.--B~ond financing_,_is eHpected to fund a large portion of betterment.annexation,and general fund designations. If this maximum is exceeded,then the District should evaluate reductions in the special water rates and availability fees,transferring designated reserves to meet other purposes,or shifting the timing of betterment projects. Go--III.Target Level -The target is six months of betterment expenditures.In order to facilitate debt financing of betterment,i~t is important that the betterment funds reserves retain remain at a reserve minimum of six months of betterment expenditures. prior to any attempt to obtain bond financing.This reserve level allows the District the time necessary to issue additional debt without running out of depletin betterment fundsreserves.When considering the funding levels for betterment funds there are multiple sub funds ~Jithin betterment that must be individually considered \see 2.1 f.).If the combined betterment funds reserves drop below six months of expenditures this would trigger either a transfer of general use funds reserveser-a borrmJing of funds Hith a bond sale,or an adjustment to the timing of betterm~1t projects.Bond funds proceeds would be placed in the Restricted Betterment Bond Fund Page 46 of 61 GTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13l06 11/3/10 while transfers would be placed in the Designated Betterment Fund.If this target is exceeded,then the District should evaluate reductions in the special ',mter rates and availability fees and also consider transfers to other funds. 11.Restricted Betterment fund A.Mift~um Level While there io no minimum, less than SLE months o£arlailable funds :Ln the combined Restricted Bettcrffient and Designated Bet::erment Funds \Jould trigger either a transfer of funds from a non Restricted Fund or a borrowing of funds ~dth a bond sale.Bond funds '.Jould be placed in the Restricted BetterH:ent Fund .,'hile transfers would be placed in the Designated Betterment Fund. B.MaKimum Level The ffialCL.."f\Uffi to be retained in this £llild is five years of ~qfunded GIP betterment eHpenditures as defincd in thc GIP budget forecast. To determine the unfunded amount the tOeal betterment costs must be reduced by the projected restricted betterment rC'Jenues.If this maiEimum is exceeded,then the District should evaluate reductions in the special water rates and availability fees and also consider traaofers to other funds. G.Targe~Leve1 In order to facilitate debt financing of betterm.ent,it is important that the betterment funds retain a reserve of s;i(ffionths prior to any attem.pt to obtain bond financing. This reserve allmJs the District the t-i me necessary to issue additional debt without running out of betterment funds.When considering the funding levels for betterment ~lh'1:ds there are mul'tiple sub Funds ~dthin betterment that ffiust be individually considered (sec 2.1 f.). Page 47 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 Diagram 3.5:Betterment Fund Category 1, Betterment Debt Fund Betterment Fund Category Bond Debt 59.4% Capital Improvement -Fund .----. Special Rates and Availability Charges Restricted Funds Restricted Funds Restricted Funds Restricted Funds Rest~icted Funds Betterment Annexation Fund Betterment Capital Improvement Fund Betterment Fund Desi~nated Funds I +Unrestricted and Undesignated Funding Sources ~pa Betterment Fund Page 48 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 DIAGR.',\U 3.0:Fund Targets cO fee Two seral 5 capitalfinuncing ,.;.ty Fee S i.(Ronths of e.::tplldl tinaf1elAg e"pendit~rcs fund traRsfers Betterment Si~(months of '1 )r urfurundtransfer..:;needs e:;;pcfichtures OPEB Fund trans fcE-S-.e:ull funaing Full fuBa:H'ig eplaeement hnd fuod transfers ~..... 6°5 0 Fund transfers Three ERanthe ~e [RonLfw *E~(pansion needs must consider the Restricted and Designated Expansion Funds as well as any available bond financing. Page 49 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 **Betterment needs must consider the Restricted and Designated Bette rFRent E'unds as '.:el1 as any available bond financing Diagram 3.6:Fund Targets Fund or Fund Actions to Consider if Target MaximumCategorybelowTarget New supply fee New Supply Fund increase,bond Total of all funds in fund financing,or tra nsfer to category =-six months Nexus of cost to feecategorydesignationorto(IF or of capital expenditures Annexation Fund Capacity fee increase, Expansion Fund bond financing,or Total of all funds in fund transferto designation category =six months Nexus of cost to feecategoryorto(IF or Annexation of capital expenditures Fund Bond financing,or Total of all funds in fundReplacementFundtransfertodesignationcategory=4%of Nexus ofcost to feeCategoryorto(IF or Annexation infrastructureFund Bond financing,or Total of all funds in fundBettermentFundtransfertodesignationcategory=six months 5 years unfunded needsCategory,or to (IF or Annexation of capital expendituresFund I ""Increase tax collection One semi-annual Two semi-annual ""L".,or rates payment payments I OPEB FUlld Fund transfers Full funding Full funding Rate increase or fund Three months of Nine months of General Fund operating budget operating budgettransfersexpensesexpenses Note:The annexation fee for sewer is a general fund revenue. Page 50 of 61 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 Additional Restricted Funds 4.0 Capital Improvement Fund a Purpose The ~Capital Improvement Fund's sale purpose is to track the "buy- inu portion of the capacity fee and to ensure these fees are expended solely for the purpose for which they were collected, \-Ihich in this case is to pay for facilities that were in existence at the eime his fee was established.These fees may be used for expansion,replacement,OJ:betterment.projects or any debt related to these categories.These fees may also be used for either the potable or the recycled systems.As capacity fees are collected, the "buy-inU portion of the -ee is allocated as needed to one of three capital improvement funds,one in each of the Expansion, Replacement,and Betterment Fund categories.These reserves are used to pay debt or offset any negative balance within hese three categories of funds.These fees may not be used to finance he New Water Supply category,as there were no new water supply facilities in existence at the time the new methodology for capacity fees was established. b Sources The ~buy-inU portion of the capacity fee collected after June 30, 2010. c.Funding Levels There are no minimums,maximums,or target levels for these reserves on an individual basis.The allocation of this fee to the various capital improvement funds is dependent on the overall reserve levels within each fund category. 4.1 Annexation Fund a.Purpose The Annexation Fund's sale purpose is to Lrack the potable and recycled annexation fees collected and to ensure these fees are expended solely for the purpose for which they were collected, The annexation fees may be used for expansion,replacement,or betterment projects or any debt related to these categor'es. These fees may be used for either ~he potable or recycled systems. These reserves may not be used to finance the New Water Supply category,as it was not in existence at the time the fee was established.As these fees are collected they are allocated as Page 51 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 needed to one of three capital improvement funds,one in each of the Expansion,Replacement,and Better Fund categories. b.Sources Potable and recycled annexation fees collecte after June 30, 2010. c.Uses There are no minimums,maximums,or target levels for these reserves on an individual basis.The allocation of thlS ee to the various Annexation Funds is dependent on the overall reserve levels within each fund category. Hh4.2 Debt Reserve Fund The purpose of ehe Debt Reserve fund is to pay periodic principa1 and interest debt payments on the outstanding debt.~s these payments are made the funds are reduced. ltS additional debt is ;nourred,am.property talC assessments may be authorized funded from assessments on the Property TalC Roll.Plnnually,the District sets the taH rate at a level necessary to fund that year'5 debt paJ~ents.These rates are applied to the assessed valuation of the property.Changes in property values in asseSSJRent areas result in inverse fluctuations in the tax rate necessary to generate the required debt payments. In other cases,such as assessment di stri cts,the debt service is funded through an assessment being levied on each parcel within the district.In assessment districts,the amount of the levy ;Jill vary by parcel and is based on the amount of benefit that parcel received from the improvement. In addition!debt service may be funded through ',wter rates.In the case of funding from Hater rates,there ·...auld not be a reGtric~ion on those debt reserve funds. They may rCfRain in the General Fund or be placed in a Designated fund if the Board ""ere to take specific action to designate rate funds for the purpose of debt payments. Page 52 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 These funds are legally restricted for the specific debt issuance for \Jhieh they are collected.These funds are not available for any other purpose and may not be designated for any other purpose.If these funds are not used for the payffien:t of the specific debt for ·,,.hieh they are collected they must be returned to the customers who made the talc roll payments.The District FAust evaluate the euact need of funds to avoid the costly reimbursement process. a.Purpose The Debt Reserve Fund is establ shed to hold the proceeds from the various debt issuances.There are two types of debt,General Obligation bonds and Certjficates of Participation bonds.The proceeds are transferred to the New Water Supply,Expansion,Replacement,or Betterment Debt Funds as they are expended for various facilities within those fund categories.As repayment of the debt occurs,the balances within these ind'vidual funds are reduced so that the financial impact of issuing debt is tracked within the category for which the debt was issued. a.Sources TempoEary FAeter fees and capacity foes fund elcpansion while special rates and charges and availability charges fund the betterment fund.The debt reserves are funded by the Sta-::e Loan Assessment,and GO bond assessFAents. Bach debt fund oan also be funded \ofith the proceeds of the debt.Lastly,each fund is allotted its share of the interest incoFAc or eJcpense. b.Sources Debt proceeds. iii.Debt Reserve E'und A.f!tinim.-wn Level made the funds may other payments are As debt service payments arc be completely depleted if no required. B.~timum Level Sufficient to pay the periodic annual debe service payments.As levels approach this max.imuffi,the District must e':aluate the rate at ~:hich :unds are being collected so as to not over collect.Reductions in the tau rates have Page 53 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/1 3/06 11/3/10 of the rate of collection ".hich ',Jill required if funds e:lCceed the ffiaKimuffi been common as property values have the rnazimum is e}cceeded,no refunds future debt payments are necessary. balance down over time. risen.8ven if ....ould occur if The action is a reduction bring the G.Target Le?el The target level o~funds for the 'Jariouo debt issuances is siu ffionths of debt service.This target level ....ill be reduced as the term.of the debt comes to a close. c.Uses There are no minimums,maximums,or target levels for this fund on an individual basis.This fund is available on an as needed basis to fund erp projects for new water supply, expansion,replacement,or betterment.From a funding level perspect've,these reserves are evaluated in the context of all the various funds within each fund _ategory Fund Transfers FUND TlU\NSFERS 45.0 Funding Levels As described in the preceding sections,the District maintains funds for its operating and capital activities.These funds reserves £a±± into can be of three accounting categories;types 1)unrestricted and undesignatedT or general use fundsreserves,2)designated,and 3) restricted for a specific purpose.The restricted reserves can be restricted geographically and/or by purpose.The DisLrlct maintains various funds to track the various designations and restrictions.The source of the money for each fund was discussed along with the purpose, source of funds,and levels,Key determinants characteristics of these funds are the target levels,minimums,and maximums.The funding levels must be viewed in the context of the economic environment, political environment,and must ahwys be vie',Jed in light of -a-t e District's rate model.The District's six-year rate model not only shows the current balance but also shows the trend of the fund balances.Often the trend of the fund is a greater indicator of financial stability than is the current balance. The rate model is updated each year with the budget process and evaluates each fund over the next six years.The rate model will take into account the general economic environment,looking at the Page 54 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 development rate,supply rate increases,the possibility of raising rates,capital infrastructure spending,and strategic plan initiatives. The fund balances may at times be over the target amount or under the target amount.This is not only acceptable but expected.The rate model provides an empirical estimate of the conformance between the projected District's financial activities and the guidelines of this policy. Page 55 of 61 DTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 45.1 Fund Transfers A significant portion of the funding for Reserves within the District's various designated funds comeu from interfund transfers from of ~ g~nrestricted er-Ggeneral use Fu~dsreserves.It is important to note that the District has the ability to use Ggeneral use Funds reserves for any business purpose.General Funds use reserves may be transferred to and from any other unrestricted fund for any business need.Designated funds reserves are Ggeneral use Funds reserves which have been set aside for a specific purpose by Board action.These funds reserves can only be used for the purpose they were designated, or with Board action,they may be used for any other business purpose. While G9.eneral Funds use reserves may also ·be used for any restricted purpose but are they may not be transferred to Restricted Funds due to the sensitivity of the tracking of Rrestricted Funds reserves.If funds reserves are needed for a restricted purpose they are transferred to a Designated Fund within the fund category with that particular ident~fied with the restricted purpose.Reserves restricted to a fund category may only be used within that category and may not be transferred to another category.For example,the new water supply fee and the "incrementalN portion of the capacity fee are restricted reserves for a specific purpose,and may not be transferred to another category as no other ca'egory has the same purpose.However,the "buy- in"portion of the capacity fees and annexation fees are restricted for purposes that are shared by more than one category of funds and may therefore be transferred to a restricted fund wiLhin another fund category as long as it shares the same purpose. Restricted Funds n~ay only be used for the purpose that they ",.ere collected therefore no transfers are made to or from these funds. In many situationsT reserve fund transfers are expected as some funds categories will exceed their maximum or drop below their minimum-. Only funds that are below the stated target are eligible to receive transferred funds.Only fund categories that are below the stated target are eligible to receive transferred reserves.Fund categories that exceed their maximum are first to be considered for transfers out~followed by funds that exceed their targets.Funds that exceed their minimums are also available for fund reserve transfers out~but only when other options are not available. The rationale for prioritizing fund reserve transfers is based on the immediacy of the need and the availability of funds reserves from other funding sources.For example,the General Fund is first to receive funds reserves when it drops below its target or minimum levels,This Page 56 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 is because of the immediate and ongoing nature of the expenditures that are served by this fund e The operation of the District is first and foremost of the objectives of the District.On the other end of the spectrum,the Replacement Fund has a long-term perspective and will be used to partially fund finance replacement assets for many years to come.Debt financing is available to respond to this long term'L foreseeable,and planned cash flow.This fund is less likely to have immediate needs and has other funding financing options. When making the determination of when transfers are necessary,all funds ~wrlc within a fund category work as a grQupas independent -:unds. The combined balance of the restricted and designated funds is looked at when determining whet:her the fund category requires additional funding from the Restricted Capital Improvement Fund,Restricted Annexation Fund,Restricted Debt Fund,or the General Fund.exceptions to this rule are the two expansion funds (one restricted and one designated)and the bJG bette:cmcnt funds (one restricted and one designated).Because the Capital Improv ment Fund an Annexation Fund may finance expansion,replacement or betterment reserves may be transferred among these fund categories,but only back and forth within iLs own type of restricted fund.Each of these two sets of funds work as one but are kept separate due to the significant difference in Lhe fund types,one being restricted and one originating from General Funds.Ie is unlikely to have high iFflffiediacy of need in these funds as they,like the Replacement Fund,are long term in nature and ha'o"e debt financing as an alternative funding source. As an example,if during the rate model update process it was determined that the e~xpansion £Funds (designated and restricted)would drop and stay below the minimum during the six-year planning horizon, this would trigger a bond sale er-a transfer of unrestricted funds general use reserves,and/or a transfer of restricted reserves.If in the cash planning process,it was anticipated that the General Fund would remain above target during the planning horizon of S~,((6)years and that the trend did not present a problematic underfunded status, then those funds General Fund reserves would be considered available for transfer prior to making funds proceeds available from the sale of a bond sales.Also,if during this period Ihe Betterment Fund category another Designated Fund was anticipated to exceed its maximumL then reserves from either the Designated Betterment fund,the Annexation Fund,or the Capital l.mpL"ovement Fund :.he eHCCSS would be transferred to the cor esponding Designated Expansion Fund prior to any other transfers a bond sale.~~l Ffunds are evaluated to determine which has Page 57 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date I RESERVE Number Adopted Revised POLICY 25 2/10/93 3/13/06 11/3/10 the greatest need or availability of funds reserves before any ~ reserve transfer recommendation is presented to the Board. Page 58 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted RevisedIRESERVEPOLICY252/10/93 3/13/06 11/3/10 GLOSSARY The Reserve Policy contains terminology that is unique to public finance and budgeting,The following glossary provides assistance in understanding these terms, Annexation Fees:Whenever utility When water service is requested for land outside the boundaries of an improvement the eDistrict,the land to be serviced must first be annexed.For sewer service the land must be annexed into an improvement district with-in the Distric .!Ffte anneEation fec for r,,'ater Has set on ~4arch 3,1997 at $1,000 per BDU. The fcc for 5e~Jer anne,cation -,:05 set at $3,819 on Deceffiber 16,1998. These base rates are adjusted quarterly according to a cost of living i ndelL Assets:Resources owned or held by Otay Water District that has monetary value. Availability Fees:The District levies charges each year in developed areas to be used for upgrades,betterment,or replacement and in undeveloped areas to provide a source of funding for planning,mapping, and preliminary design of facilities to meet future development. Current legislation provides that any availability charge in excess of $10.00 per acre shall be used only for the purpose of the improvement district for which it was assessed. Betterment Fees:In addition to other applicable water rates and charges,water customers pay a fee based on water service zone or Improvement District.These fees are restricted for use in the area where they are collected and may be used for the construction and maintenance of facilities. Bond:A written promise to pay a sum of money on a specific date at a specified interest rate.The interest payments and the repayment of the principal are authorized in a District bond resolution,The most common types of bonds are General Obligation (GO)bonds and Certificates of Participation (COPs).These are frequently used for construction of large capital projects such as buildings,reservoirs, pipelines and pump stations. Capital Equipment:Fixed assets such as vehicles,marine equipment, computers,furniture,technical instruments,etc.which have a life expectancy of more than two years and a value over $10,000. Page 59 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date l\Iumber Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 Capital Improvement Program: construction,rehabilitation and operated infrastructure" A long-range plan of the District for the and modernization of the District-owned CWA:The County Water Authority was organized in 1944 under the State County Water Authority Act for the primary purpose of importing Colorado River water to augment the local water supplies of the Authority's member agencies.The Authority purchases water from the Metropolitan Water District of Southern California (MWD)which imports water from the Colorado River and the State Water Project. Debt Service:The District's obligation to pay the principal and interest of bonds and other debt instruments according to a predetermined payment schedule. Expenditures/Expenses:These terms refer to the outflow of funds paid or to be paid for an asset,goods,or services obtained regardless of when actually paid for.(Note:An encumbrance is not an expenditure). An encumbrance reserves funds to be expended in a future period. Fund:An account used to track the collection and use of monies for a specifically defined purpose. Fund Balance:The current funds on hand resulting from the historical collection and use of monies.The difference between assets and liabilities reported in the District's Operating Fund plus residual equities or balances and changes therein,from the results of operations e Interest Income:Earnings from the investment portfolio.Per District Policy Number 25,interest income will be allocated to the various funds each month based upon each fund's prior month-ending balance. Late Charges/Penalties:Charges and penalties are imposed on customer accounts for late payments,returned checks,and related telephone contacts. 1%Proper y Tax:In 1978,Proposition 13 limited general levy property tax rates for all taxing authorities to a total rate of 1%of full cash value.Subsequent legislation,AB 8,established that the receipLs from the 1%levy were to be distributed to taxing agencies accor ing to approximately the same proportions received prior to Proposition 13. Funds received are to be used for facilities construction or debt service on bonds sold to build facilities. Page 60 of 61 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised I RESERVE POLICY 25 2/10/93 3/13/06 11/3/10 Operating Budget:The portion of the budget that pertains to daily operations that provide basic governmental services.The operating budget contains appropriations for such expenditures as personnel, supplies,utilities,materials,travel and fuel,and does not include purchases of major capital plant or equipment which is budgeted for separately in the Capital Budget.The Operating Budget also identifies planned non-operating revenues and expenses. Revenue:Monies that the District receives as income.It includes such items as water sales and sewer fees.Estimated revenues are those expected to be collected during the fiscal year. System Fees:Each water service customer pays a monthly system charge for water system replacement,maintenance,and operation expenses.The charge is based on the size of the meter and class of service. Taxes:California Water Code Section 72091 authorizes the District,as a municipal water district,to levy ad valorem property taxes which are equal to the amount required to make annual payments for principal and interest on General Obligation bonds approved by the voters prior to July 1,1978. Water Rates Rates vary among classes of service and are measured in units.The water rates for residential customers are based on an accelerated block structure.As more units are consumed,a higher unit rate is charged.All non-residential customers are charged a flat rate per unit.A unit of water is 100 cubic feet or 748 gallons of water. Page 61 of 61 Attachment C OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 1.0 The District The Otay Water District is a California municipal water district, authorized in 1956 by the State Legislature under the provisions of the Municipal Water District Act of 1911.The District is a "revenue neutral"public agency;meaning each end user pays their fair share of the District's costs of water acquisition, construction of infrastructure,and the operation and maintenance of the public water facilities. The District provides water service within its boundaries,and provides sewer and recycled water service within certain portions of the District.As such,the District operates three distinct business segments: •Potable water •Recycled water •Sewer Each of these business segments has an identifiable customer base. In addition,the developer community,large and small,makes up a significant class of customer for each business segment.As a result,the District has four distinct customer service types: •Developers •Potable water users •Recycled water users •Sewer users The District has established practices and developed computer systems that have enabled the District to maintain a clear separation between the service costs relating to each of its four customer service types.Regardless of customer class,financial principles regarding cost allocation and fund accounting are fundamental to the District's Reserve Policy.These principles are derived from the statements of the Governmental Accounting Standards Board (GASB),and from oversight and advisory bodies such as the California State Auditor,the Little Hoover Commission,and the Government Finance Officers Association (GFOA).These have significant impacts on how the finances of the District are organized and how financial processes work within the organization. Page 1 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 1.1 The District's Use of Financial Resources All of the District's expenditures fall into two broad categories: operating costs and capital expenditures.The operating costs include costs relating to the purchase and delivery of potable and recycled water,and the transportation and treatment of sewage. The capital expenditures support the construction of infrastructure necessary to deliver services.The District uses various funds to support the operating and capital efforts. Operations and maintenance is financed only by rates and charges, also called pay-as-you-go,while capital infrastructure is financed using two financing methods:pay-as-you-go and debt issuance (requiring annual debt service).The Capital Improvement Program (CIP)and the two funding methods support the construction,betterment,and replacement of infrastructure in all three business areas:potable,recycled,and sewer. The District establishes different funds to track revenues allocated to different activities.Once established,each fund receives financial resources up to the levels defined in this policy.Every year,as a part of the annual budget process,the District's rate model is updated for each fund with the current fund balances and the estimated revenues and expenditures for the next six years.The expenditure requirements and financial resources are then evaluated to ensure that the existing fund balances and additional revenues are sufficient within the current budget cycle and for the next five years to maintain target fund levels.If a deficit is identified,then options for transfers, shifting CIP projects,debt,cost saving measures,and/or rate increases are evaluated. 1.2 The District's Capital Improvement Program (eIP) The planning,design,and construction costs of all capital facilities within the three business segments are allocated to four cost types and corresponding fund categories:New Water Supply,Expansion,Replacement,and/or Betterment.The allocation to these four cost types is defined in the District's Capital Improvement Program (CIP)and is determined by an engineering analysis that identifies which type of customer will benefit from each facility,planned or existing.The costs of the capital improvements are borne by either existing users or by the developing areas,or by a combination of the two,as applicable. Page 2 of 43 I OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 This Reserve Policy protects both the existing users and the developing areas from incurring unwarranted costs.Developing areas are not required to finance facilities that are replacement or betterment and established areas are not required to replace facilities before they are worn out because of new development. However,to ensure a fair allocation of costs,each facility has the potential to be classified into any or all of the four cost types.In addition to these cost types there are occasional CIPs that may be billable to a third party,if for example a third party requires a District facility be relocated.Paragraphs a through d below,describe how the costs of capital facilities are financed through various fees. a.New Water Supply The portion of a new supply project that benefits new users is financed from the reserves in the New Water Supply Fund category.These reserves are primarily derived from proceeds of the new water supply fee.The New Water Supply Fund is restricted,meaning the amounts credited to this fund are accounted for separately and are used solely for the planning,design,and construction of the new water supply expansion facilities.Debt financing may also be a temporary financial resource to finance new water supply projects.The District has a Debt Policy (Policy No.45)that guides the debt issuance process.Any debt proceeds used for this purpose would be restricted in nature and tracked separately. General use reserves may also be placed in the Designated New Water Supply Fund and used for water supply projects. b.Expansion The portion of a CIP project that benefits new users is financed from the reserves in the Expansion Fund category. These reserves are primarily derived from proceeds of the "incremental"portion of the capacity fees collected within developing areas.Capacity fees are accounted for separately and used for the planning,design,and construction of expansion facilities.Additionally,expansion may be financed by annexation fees or the "buy-in"portion of the capacity fee.Both of these fees are restricted for CIP purposes,but not specifically for expansion.Debt financing may also be a temporary financial resource for expansion projects.General use reserves may also be placed in the Designated Expansion Fund and used for expansion projects. Page 3 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 c.Replacement The portion of a CIP project that benefits existing users by replacing an existing facility is financed from the reserves in the Replacement Fund category.Replacement of facilities may be financed with proceeds of annexation fees,the "buy- in"portion of the capacity fees,general use reserves held in the Designated Replacement Fund and debt proceeds.The various funding sources available for replacement projects is anticipated to provide the necessary flexibility to begin projects while any necessary debt financing is being obtained. d.Betterment Facilities that improve reliability,meet new regulations,or create increased levels of service are considered betterment facilities that benefit existing users.The reserves in the Better Fund category are used to finance these projects or portions of projects.Certain user rates,charges,and betterment fees are restricted geographically for betterment of facilities,but may also be used for general maintenance of facilities in that area.Proceeds of the annexation fee and the "buy-in"portion of the capacity fees may also be used to finance betterment projects.General use reserves may be placed in the Designated Betterment Fund and used for betterment projects. 1.21 Relocations Occasionally,relocation of a District facility is required by a third party.If the District has a superior easement the relocation cost will be paid by the third party,but only to the extent that the District does not benefit from the relocation. When relocation is required,a CIP project may be created which is wholly or partially financed by a third party.On occasion,the District will require that its own facilities be relocated. Depending on the nature of the facilities,the financial resources for these projects could be from new water supply,expansion, replacement,betterment or third party financing.Each project is individually negotiated with the third party based on the facts and circumstances of the relocation.Occasionally,the District will improve the facilities that are being relocated.When determining how to allocate costs to various funds the following guideline is suggested:if a project has more than five years of useful life remaining,an incremental cost view should be Page 4 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 considered;if the project has less than five years of useful life remaining,a pro-rata cost approach should be considered.Also, the likelihood the District will benefit from an asset's life extension should be evaluated prior to allocating costs. 1.22 Oversizing If deemed reasonable by the District,in connection with the construction of backbone facilities,a developer may be required to oversize new facilities for future development.The developer is reimbursed for incremental oversizing costs as per Policy No.26.These reimbursements are not available for the distribution system within a development which is an obligation of the developer. 1.23 Exclusion of Developed Areas from Expansion Costs Developed areas are assumed to have sufficient supply and capacity to meet their current requirements as provided by the developers. In addition,they are considered to have borne capital financial costs that are at least proportionate to the benefits they have received from capital facilities.Accordingly,no regional capital financing costs are allocated to these areas so that they will not incur any costs for newly developing areas,except for capital projects that produce district-wide benefit or cost savings. 1.24 Improvement Districts (IDs) Improvement Districts (IDs)are established to facilitate the financing of particular improvements by the specific beneficiaries.The District has a number of improvement districts that were established for General Obligation (GO)debt repayment. Most GO debt has been paid off and it is unlikely that the District will issue additional GO debt.Improvement districts continue to be used for other purposes:1)to distinguish sewer customers from water customers on the county tax roll;2)to place parcels on the county tax roll for the collection of availability fees;or 3)for charging special water rates. Over the years,the District moved to a district-wide perspective of financing improvements.This philosophy is evident by the district-wide capacity and annexation fees.The District also uses district-wide water rates.As time goes on,it is expected that IDs will continue to outgrow their purpose and their use will diminish. Page 5 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 1.3 The Purpose of the Policy Public entities accumulate and maintain reserves to ensure both financial stability and continuous availability of services. Financial stability and the resulting improved credit quality allow the public entity to weather times of uncertainty and the impact of negative events,both major and minor.Reserves allow for the ongoing maintenance of property and timely payment of expenses even when such expenses exceed money available from a single fiscal period.In the final analysis,the type and level of reserves are driven by the type and magnitude of uncertainty faced by the public entity. A "reserve"has a number of meanings,as follows: •Working capital is required to insure timely payment of obligations. • A buffer against volatility in revenues. •Liquidity is required to obtain other goods and services (e.g.,bank services). •Designated money to protect creditors. •Money set aside to replace assets at the end of their useful lives. •Money set aside to repair or replace assets damaged or destroyed at unanticipated times. It is important to note that reserves,fund balance,and net assets are not the same.Fund balance and net assets are accounting terms and may not always be in the form of cash or liquid investments.Fund balances and net assets may not always be reserves unless a designation of all or a portion of fund balance is made.In addition,the term fund balance was replaced by net assets as codified by the Governmental Accounting Standards Board (GASB). In short,reserves are the liquid assets of the District, accumulated and maintained for application to finance contingent future activities,whether known or unanticipated,operating or capital in nature.The District's Reserve Policy governs the management and use of these financial resources.Few policies Page 6 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 have a more significant impact on the financial health and stability of the District.This policy explains several key financial concepts used by the District and provides some background information to the overall strategies and practices utilized.The District has a fiduciary obligation to its customers,to manage and direct the use of public funds for the purpose of providing water and sewer services in an efficient and financially sound manner. 1.4 Policy Guidelines In 2000,the Little Hoover Commission reviewed the levels of reserve funds for special districts in California and prepared a report reflecting that special districts were accumulating unreasonable levels of funds.As a proactive response,the California Special Districts Association (CSDA)prepared Reserve Guidelines for its members.The Reserve Guidelines were significant in noting that reserve levels need to be in context of the organization's overall business model and capital improvement plan. There are a number of potential events which the District should consider in the development of reserves: •Economic Uncertainty -performance of the regional economy and the impact of that performance on demand for water. •Weather -the amount of rainfall and the impact of weather on the availability and the cost of water as well as the demand for water. •Government Mandates -the impact of federal and state regulation,particularly environmental regulation. •Tax Changes -limitations on the District's taxing and spending powers through the passage of a voter referendum, the impound of District property taxes or the removal of the District's power to levy property taxes,further increases to Educational Revenue Augmentation Fund (ERAF)contributions or changes in calculation methodology. •Operating Costs -increases in operating and maintenance costs because of inflation,labor agreement or other modification. Page 7 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 •Force Majeure -unanticipated expenditures resulting from natural disasters or intentional acts. •Emergency Maintenance -unanticipated expenditures resulting from unexpected failure of assets (e.g.,rupture in the primary transmission system). •Unexpected Variation in Cash Flow -the incidence of additional costs or decreased revenues that require short- term borrowing in the absence of sufficient financial resources. The California State Auditor has,in its oversight role,offered a number of quality recommendations for the development of reserve policies as outlined in its report entitled,"California's Independent Water Districts:Reserve Amounts Are Not Always Sufficiently Justified,and Some Expenses and Contract Decisions Are Questionable,"dated June 2004,Report No.2003-137.All of these recommendations have been incorporated into this policy in an effort to address key issues surrounding the management and use of District reserves.The detailed objectives as identified by the State Auditor are as follows: •Distinguish between restricted and unrestricted reserves. •Establish distinct purposes for all reserves. •Set target levels,including minimums and maximums,for the accumulation of reserves. •Identify the events or conditions that prompt the use of reserves. •Conform to plans to acquire or build capital assets. •Receive Board approval and that it is in writing. •Require periodic review of reserve balances and rationale for maintaining them. Yet,the State Auditor's report acknowledges that the California Constitution (Article XIII B,Section 5)is vague in its provisions governing the accumulation and use of reserves.1 I California State Auditor,Bureau of State Audits,"California's Independent Water Districts:Reserve Amounts Are Not Always Sufficiently Justified,and Some Expenses and Contract Decisions Are Questionable,"dated June 2004, 2003-137;p.8. Page 8 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Specifically,the Constitution states that "each entity of the government can establish contingency,emergency,unemployment, reserve,sinking fund...or similar funds as it shall deem reasonable and proper.,,2 Similarly,the State's Water Code does not impose any requirements as to specific or recommended reserve fund levels.As a result,the public finance community as a whole has yet to settle on any real objective standards for the level of reserve funds appropriate for governmental enterprises.This lack of consensus as to specific standards is indicative of the wide variance of the financial and operations context for different districts and different contingencies justifying reserves. The Government Finance Officers Association (GFOA)in its "Recommended Practice on Appropriate Level of Unreserved Fund Balance in the General Fund"(2002)states that in establishing a policy governing the level of unreserved fund balance in the general fund,a government should consider a variety of factors.These include: •The predictability of its revenues and the volatility of its expenditures (i.e.,higher levels of the unreserved fund balances may be needed if significant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highly volatile). •The availability of resources in other funds as well as the potential drain upon general fund resources from other funds (i.e.,the availability of resources in other funds may reduce the amount of the unreserved fund balance needed in the general fund,just as deficits in other funds may require that a higher level of unreserved fund balance be maintained in the general fund). •Liquidity (i.e.,a disparity between when financial resources actually become available to make payments and the average maturity of related liabilities may require that a higher level of resources be maintained). •Designations (i.e.,governments may wish to maintain higher levels of the unreserved fund balance to compensate for any portion of unreserved fund balance already designated for a specific purpose). 2 California Constitution,Article XIII B,Section 5. Page 9 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 In the preparation of this policy,each of the CSDA guidelines and the GFOA recommendations has been considered.In addition,all seven objectives provided by the State Auditor are specifically addressed for each reserve.The District wholly supports the State Auditor's efforts to bring a high-level of quality to reserve governance and establishing a standard of performance. The District recognizes that the customer pays for services provided.Quality management requires that periodic valuations be performed so that fees and charges can be set at appropriate levels to recover the cost of service.The District's Reserve Policy has been drafted with consideration of the GFOA,CSDA,and State Auditor's general guidelines as provided above.In addition,the District has adopted the following principles in the management of its financial resources: •Reserves are held and used only for the purpose for which they are collected.This is done to maintain equity among customers. •Each of the service types is tracked separately so that expenditures and revenues can be monitored and evaluated for each customer type.This provides the District with the necessary information to appropriately charge for each of the services. •Separation of operations and maintenance from capital expenditures occurs within each of the service types. is done because the financing of these expenditures is on different timelines or use different reserves. This often •The District will hold its reserve at responsible and prudent levels.This policy sets minimum,maximum,and target levels for each of the various funds.This has been done so that the District can maintain reserves to meet the purpose for which the funds were established.The levels are set by reference to line items in the District's financial statements and approved budgets.This allows reserve levels to adjust to the District's changing financial circumstances. •Debt financing of facilities provides intergenerational equity and maintains rates at reasonable levels.This equity is accomplished with long-term financing which spreads the cost of facilities over the life of the facilities.The burden to pay for facilities is then paid by those who use Page 10 of 43 DTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 them.The District could amass significant reserves by pre- collecting financial resources in a Replacement Reserve Fund allowing the District to cash finance all replacements. However,this would require significant rate increases burdening the current customers and creating reserve levels difficult to defend to the ratepayers or other oversight entities. These concepts are fundamental to the way the District manages its funds and have a direct impact on the way rates and charges are set.The District performs annual budget evaluations and updates its rate model on an annual basis to monitor and adjust the various funds and revenue sources.The separation,tracking,and projecting of the various funds and expenditures create the essential information necessary for the equitable rate structure maintained by the District.The annual review preserves the balance between services provided and the fees charged.This review also insures that reserves will be available to continue to serve the District's customers. Financial Sources 2.0 Developers a.Meter Installation Charges (General Use) Meter fees are charges collected for new water service connections.Fees vary depending upon meter size and type of service.The costs associated with meter installations are included in the Operating Expenses section of the budget. These charges are financed by developers. b.Developer Deposits (General Use) These deposits are for the engineering and operations services provided to developers.They are tracked separately for each developer and any excess amount is returned to the developer. c.Annexation Fees (Restricted) Annexation fees3 are collected as a condition of annexing into the District's potable and recycled water facilities. Since the existing facilities have been built and maintained by developers or customers within the District,the 3 Code ofOrdinances,Section 9. Page 11 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 annexation fee is calculated based on the present value of all property taxes (1%property tax and availability fees) paid by existing and prior customers.The annexation fee insures that future users finance a portion of facilities that were sized,built,and maintained for both existing and future users.Proceeds of annexation fees are restricted and can be used for expansion,replacement,or betterment projects.These reserves may be shifted back and forth as financing needs change. d.Annexation Fees (Unrestricted) A sewer annexation fee is collected when property is annexed into an improvement district.This fee is calculated using the "buy-in"basis and therefore is unrestricted. e.New Water Supply Fee (Restricted) New water supply fees 4 are based on the cost of the expansion portion of new water supply projects divided by the number of future equivalent dwelling units (EDU).The new water supply fee covers the cost of planning,design,construction,and financing associated with facilities for the District's new supply needs.These fees are paid by developers.The proceeds of this fee may be used only for new potable or recycled water supply projects.Although the fees collected are not restricted separately,one portion for potable and the other for recycled,they are tracked separately. f.Capacity Fees (Restricted) Capacity fees 4 are based on the value of existing and future facilities divided by the number of existing and future equivalent dwelling units.This method of calculating capacity fees is called the combined method,where the "buy- in"portion of the capacity fee covers costs to repay existing customers for the facilities that they have built, and where the "incremental"portion of the capacity fee covers the cost of future expansion facilities.The "buy-in" portion of the capacity fee is restricted to pay for planning,design,construction,and financing associated with expansion,replacement or betterment facilities.The "buy- in"portion may be shifted back and forth between expansion, betterment or replacement as the financing needs change.The 4 Code ofOrdinances,Section 28 Page 12 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 "incremental"portion of the capacity fee is limited to planning,design,construction,and financing exclusively for expansion facilities (excluding new water supply expansion). Facility needs are based on projected land use planning.Changes in anticipated future land use occur and can alter projected facility requirements.Thus,both the anticipated facilities needs and their projected costs change over time as regulatory agencies make changes to land use.The District periodically reviews the capacity fee calculation to accommodate such variations.These fees are paid by developers. The District's construction of infrastructure occurs prior to the addition of EDUs.This sequence serves two purposes:one it ensures that the District can serve the pending construction as it is completed;and two,it is more efficient to oversize many facilities at the outset rather than build for the current need and then reconstruct when the future need is realized.As a result of this strategy,the District has financed construction with bond financing as the existing expansion reserves are depleted. The capacity fee is calculated based on the combined recycled and potable water systems needs.This methodology is used because the two water systems work hand-in-hand.All capacity fees can be used for either potable or recycled but must be tracked to distinguish between the "buy-in"and "incremental"portions as described above.So,while capacity fees are not restricted separately by potable and recycled,they are tracked separately. Page 13 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Diagram 2.0:Flow of Funds -Developer Sources DEVELOPERS Restricted Funds Unrestricted and Undesignated (General Use)Funds 2.1 Customers/Users a.Uniform Rates and Charges (General Use) Charges to users for water,sewer,and recycled water are uniform throughout the District for similar customer types, b.Monthly System Fees (General Use) This is a fixed revenue source that is charged monthly.The amount of the charge is based on the meter size. c.Energy Charges (General Use) The energy pumping fee is a charge per unit of water for each 100 feet of lift,or fraction thereof,above the base elevation of 450 feet.This charge is placed on the monthly water bills of all water customers. d.Penalties (General Use) Penalties are added to the monthly water and sewer bills for late charges,locks,etc. e,Pass-through Fixed Charges (General Use) A fixed monthly charge to the District's customers intended to collect sufficient funds to pass-through the increased Page 14 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 fixed costs from the County Water Authority (CWA)and the Metropolitan Water District (MWD). f.Special Rates and Charges (Restricted) In addition to the uniform water charges,the District currently has five special water rates and one sewer rate. The five water rates are for construction,installation,and maintenance of water storage reservoirs,pump stations,and water lines.Each of these rates and charges must be used within the respective geographic areas from which they are collected.These special charges are listed below: •North District water charge (Code section 25.03G) •10 9 water charge (Code section 25.03H) •10 3 water charge (Code section 25.031) •10 10 water charge (Code section 25.031) •La Presa water charge (Code section 25.031) •Russell Square sewer charge (Code section 53.04C) When these rates were established they were for the specific purpose of constructing,installing,and maintaining the water and sewer systems in the areas in which the fees were collected.Therefore,these are restricted reserves by geographic area as well as by purpose.These rates and charges can also be used for maintenance;unlike the availability fees (discussed in 2.2 B.).These six special rates and charges along with availability fees are tracked separately,by geographic area,so they can be individually evaluated to maintain the targeted reserve levels.To meet this need,each special rate and charge is accounted for in a "sub-fund"of the Betterment Fund. g.Temporary Meter Fees (General Use/Restricted) Water charges,in lieu of capacity fees,are charged on temporary meters.This is done because temporary meters use system capacity but they are not charged a capacity fee. Temporary water use is charged at two times the water rate with the added charge placed in the Restricted Expansion Fund.The primary users of these temporary meters are developers;however,general customers also use these for various purposes. Page 15 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Diagram 2.1:Flow of Funds -Customer Sources CUSTOMERS /USERS Unrestricted and Undesignated (General Use)Funds 2.2 County-Collected Taxes and Fees Restricted Funds a.General Levy Property Tax Receipts (1%Property Tax) (General Use) In 1978,Proposition 13 limited the levy of ad valorem property taxes on real property to one percent of the assessed value of such property.Subsequent legislation, AB 8,established that the receipts from the one percent levy were to be distributed to taxing agencies proportionate to each agency's general levy receipts prior to Proposition 13. Taxes received are for general use. b.Availability Charges (General Use/Restricted) The District levies availability charges each year in developed and undeveloped areas.Current legislation provides that any amount up to $10 per parcel is general use and any amount over $10 per parcel is restricted to be expended in and for the improvement district (ID)within which it is collected.Accordingly,the District may use availability charges in excess of $10 toward costs of water Page 16 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 and sewer facilities which are either,expansion,betterment, or replacement of facilities consistent with the purpose of the 10 in which they are collected.This portion of the proceeds of availability charges is geographically restricted and restricted by purpose.As costs are incurred on these projects the respective IDs are charged,reducing the reserves.To the extent that availability charges are not used for the purpose for which they are collected,they must be returned to the property owners that paid them.The District has historically used these reserves for betterment capital facilities thus,the restricted reserves are accounted for in "sub-funds"of the Betterment Fund (see 2.1 f.). c.State Loan Assessment (Restricted) The District assesses a charge per unit of sewer service each year on the sewer customers.This is collected via the county tax roll and is specifically collected for the repayment of the state loan.When this loan is paid off the charge will be removed. d.Improvement District General Obligation (GO)Bond Assessments (Restricted) The District has historically issued general obligation (GO) debt and establishes an improvement district for the repayment of that debt.When this financing method is used, the county tax roll can be used to collect special taxes or assessments within the 10 to pay the debt obligation.The proceeds of the debt are restricted for the purpose as defined in the bond documents. Page 17 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Diagram 2.2:Flow of Funds -County Collection Sources COUNTY COLLECTED TAXES AND FEES Unrestricted and Undesignated (General Use) Funds 2.3 Miscellaneous Income Restricted Funds a.Miscellaneous Rents and Leases (General Use) Revenues received from the rental and lease of District property are general use revenues.Not only are they periodic revenues,but there is also a one-time fee charged with the setup of each new lease.The District incurs expenses related to these rents and leases.The one-time fees are calculated to recover the costs to setup the leases. b.Sewer Billing Fees (General Use) Sewer billing fees are general use revenues.The District provides processing and billing services to the City of Chula Vista to bill and collect from their customers for sewer service.These fees are to recover the cost the District incurs to provide this service. c.Interest Income or Expense Allocation (General Use, Designated,and Restricted) Interest income (expense)will be allocated every month based upon each fund's month-ending balance.In this way,each fund receives credit for interest earned by that fund and Page 18 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 each fund with a negative balance is charged for the use of the other fund's reserves. Diagram 2.3:Flow of Funds -Miscellaneous Income Sources MISCELLANEOUS INCOME Unrestricted and Undesignated (General Use)Funds 2.4 Debt Issuance Designated Funds Restricted Funds a.Loans (General/Restricted Use) As the District determines that additional financing is required for a particular purpose,the option of borrowing is considered.The determination to borrow is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action.As an option to bond indebtedness,loans are available to satisfy short-term financing needs.These loans mayor may not be contractually restricted for a particular purpose. b.General Obligation (GO)Bonds (Restricted) As the District becomes more developed it becomes less likely that general obligation debt will be used as it requires a vote of the public to be approved.Bond proceeds are restricted for the construction of those facilities identified in the GO bond issuance.Occasionally,specific portions of bond proceeds may be allocated for the repayment Page 19 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 of the principal and interest,also called debt service,on these bonds.As the District determines that additional financing is required for a particular purpose,the option of debt issuance is considered.The determination to issue debt is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action. c.Certificates of Participation (COPs)(Restricted) General revenues of the District are pledged as security for Certificates of Participation (COPs)indebtedness"If the District determines that additional financing is required for a particular purpose,the option of debt issuance is considered.The determination to issue debt is made as a part of the annual rate model update and is evaluated in accordance with the Debt Policy before it is recommended to the Board for action.This form of financing has become the industry's preferred form of financing as it does not require a vote of the general public. Diagram 2.4:Flow of Funds -Debt Issuance Sources DEBT PROCEEDS Loans Unrestricted and 1 Undesignated (General Use)Funds Restricted Funds Page 20 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 2.5 Inter-fund Transfers Each year in the budgeting process,future fund levels are projected for the next six years.Based on these projections transfers are recommended.Reserves may be transferred between Unrestricted or Designated Funds and the General Fund (see 4.0 "Funding Levels"and 4.1 "Fund Transfers"). Reserves may not be transferred to or from any of the restricted funds unless it is between two restricted funds with a shared purpose. Fund Types and Categories 3.0 General Funds a.Purpose The General Fund is neither restricted nor designated.The District maintains one General Fund for each business segment (water,sewer,and recycled).This fund holds the working capital and emergency operating reserves.While the General Fund has a short-term focus to finance the District's annual operations,it is supported by the six-year rate model.This fund is primarily used to finance the operations of the District;however,it can be used for any District purpose. This fund can be used to supplement the District's rates and charges and be a temporary source of revenue to balance the Operating Budget.This fund can also be used to avoid spikes in the rates or significant and abrupt increases.It is an industry practice to have a fund that can be used to stabilize rates.This would only occur if there was a temporary need for reserves that would smooth out a rate spike or to ramp up what would otherwise be a dramatic rate increase. The General Fund also plays a role in the debt planning of the District.This fund is viewed by the debt markets as a commitment by the District to ensure financial stability of the rates and charges of the District.The District is anticipated to need a number of debt issuances over the years and this fund will help the District not only to stabilize rate fluctuations but also to access low cost financing for future projects. Page 21 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 b.Sources Meter installation charges,temporary meter fees,uniform rates and charges,monthly system fees,energy charges, penalties,pass-through fixed charges,general levy property tax receipts,availability charges,miscellaneous rents and leases,sewer billing fees,interest income or expense allocation,loans,and a portion of the temporary water sales. The sewer general fund receives sewer charges,penalties, availability charges,sewer annexation fees (calculated on the "buy-in"basis),and interest income or expense allocation. c.Funding Levels I.Minimum Level -The minimum reserve level for each business segment of the General Fund is three months of operating budget expenses (evaluated separately for each segment). II. III. Maximum Level -The maximum reserve level for the General Fund is nine months of operating budget expenses.In the event that this fund exceeds the seven month level,the excess will be evaluated or transferred to one or more of the designated funds. Target Level -The target level of reserves is three months of operating budget expenses.In the event that the fund drops below the target level, rate increases or fund transfers would be considered. 3.1 Designated Other Post Employment Benefits (OPEB)Fund a.Purpose Designated Other Post Employment Benefits (OPEB)reserves are "general use"reserves that have been set apart by Board action to finance the medical benefits of qualified retirees as outlined in the District's benefits plan.This District fund holds only a portion of the total OPEB reserves.The other portion is held in a trust at CalPERS and is restricted for the purpose of financing the OPEB liability.The two portions are considered jointly when looking at target Page 22 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 reserve levels.Every two years,the fund is evpluated by an actuary to update the annual financing requirements.Changes in the actuarial valuation may result from changes in benefit levels,employee population,health insurance costs,or general market conditions.The reserves held by the District are currently designated and may be placed into the CalPERS trust to legally restrict the funds,removing the District's legal access to these reserves. b.Sources The OPEB liability may be financed by general use reserves coming from user rates and charges,either from an operating budget expenditure or from interfund transfers.Transfers of unrestricted reserves may come from the various designated funds or from the General Fund.As a part of the normal budget process,annual operating revenues have been sufficient to finance the ongoing needs of this designated fund.While debt financing is also an option,the District has only used user rates and charges to finance this fund. c.Funding Levels I.Minimum Level -The minimum reserve level for this fund is equal to the District's OPEB liability as determined by the actuarial study.When considering the reserve level of this fund,both the District held OPEB reserves and CalPERS held OPEB reserves must be considered jointly. II. III. Maximum Level -The maximum reserve level for this fund is equal to the District's OPEB liability as determined by the actuarial study.In the event that the two funds,as described above,exceed the OPEB liability,the District will reduce the annual funding levels as defined by the actuarial study. Target Level -The target reserve level for this fund is equal to the District's OPEB liability as determined by the actuarial study.In the event that the two funds,as described above,fall below the OPEB liability,the District will increase the annual funding levels as defined by the actuarial study. Page 23 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 3.2 New Water Supply Fund Category a.Purpose The New Water Supply Fund category is to finance the expansion portion of new water supply projects and is therefore to be paid by developers.When considering the reserve level of the New Water Supply category;the New Water Supply Fund,the New Water Supply Debt Fund,and the Designated New Water Supply Fund all work in concert and must be considered jointly. b.Sources The New Water Supply Fund receives reserves only from the new water supply fee.Other funds within the new water supply category of funds receive debt proceeds and general use reserves through a designation to this category. c.Funding Levels I.Minimum Level -As the District matures the CIP will move to purely replacement projects.As the District moves through its lifecycle the need for new water supply reserves will decrease and may be reduced to zero. II. III. Maximum Level -The maximum reserve level for the new water supply category of funds is limited to five years of the unfinanced new water supply facilities as described in the District's CIP Budget.To determine the unfinanced amount,the total new water supply financing needs must be reduced by the projected new water supply revenues, general fund designations,and bond financing.If the combined new water supply reserves exceed the target level,the District should consider transferring designated reserves to meet other purposes,reduce the new water supply fee,or change the timing of the new water supply projects. Target Level -In order to facilitate debt financing of the new water supply,it is important that the various new water supply funds retain an overall reserve level of six months,prior to any attempt to obtain debt financing.This reserve Page 24 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 level allows the District the time necessary to issue additional debt without depleting new water supply reserves.If the combined new water supply reserve levels drop below six months of expenditures,this would trigger a transfer of general use reserves,a bond sale,or a change in the timing of new water supply projects.Bond proceeds would be placed in the Restricted New Water Supply Debt Fund while transfers would be placed in the Designated New Water Supply Fund. Diagram 3.2:New Water Supply Fund Category New Water Supply Fund Category NewWater Supply Debt Fund Funding Source Restricted Funds Restricted Funds Restricted Funds Designated Funds Unrestricted and Undesignated Funding Sources General Fund -Rates and Charles Designated wWater SUpply Fund Page 25 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 3.3 Expansion Fund Category a.Purpose The Expansion Fund category is to finance the expansion portion of capital projects and therefore is to be paid for by developers.When considering the reserve levels of the expansion category,the following funds work in concert and must be considered jointly:the Expansion Fund,Expansion Debt Fund,Annexation Fund (potable and recycled only), Capital Improvement Fund,and the Designated Expansion Fund. Potable and recycled reserves are considered jointly while sewer is evaluated separately. b.Sources The Expansion Fund is financed by water charges in lieu of capacity fees (for temporary meters)and the "incremental" portion of the capacity fee.The other funds in this category may also be financed by debt proceeds,annexation fees,the "buy-in"portion of the capacity fee,and the general fund through a designation of reserves. c.Funding Levels I.Minimum Level -As the District matures the CIP will move to purely replacement and betterment projects.As the District moves through this lifecycle the need for expansion reserves will decrease and may be reduced to zero. II.Maximum Level -The maximum reserve level for the expansion category of funds is limited to five years of unfinanced expansion facilities as described in the District's CIP Budget.To determine the unfinanced amount,the total financing needs must be reduced by the projected expansion revenues,bond financing,and any restricted or general fund revenues allocated to this fund category.If the combined expansion reserves exceed target levels,the District should consider reducing capacity fees,reallocating restricted or designated funds to meet other purposes,or shifting the timing of expansion projects. Page 26 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 III.Target Level -The target level is six months of expansion expenditures.It is important that the expansion reserves remain at a minimum of six months of expansion expenditures.This reserve level allows the District the time necessary to issue additional debt without depleting expansion reserves.If the combined expansion reserves drop below six months of expenditures this would trigger a transfer of general use reserves,a bond sale,an adjustment to the timing of expansion projects,or a reallocation of restricted reserves.Bond proceeds would be placed in the Restricted Bond Fund,transfers of general use reserves would be placed in the Designated Expansion Fund,and transfers of restricted reserves would be placed in either the Expansion Annexation Fund or the Expansion Capital Improvement Fund. Page 27 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Diagram 3.3~Expansion Fund Category Expansion Fund ExpansJon Debt Fund Expansion Fund Category Expansion Annexation Fund Expansion Capital Improvement Fund Capital Improvement Fund Expansion Fund Funding Source Restricted Funds Restricted Funds Restricted Funds Restricted Funds I Restricted Funds Designated Funds l Unrestricted and Undesignated Funding Sources General Fund -Rates and Charges Designated expansion Fund Page 28 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 3.4 Replacement Fund Category a.Purpose The Replacement Fund category is to finance replacement projects.When considering the reserve levels of the replacement category of funds,the following funds work in concert and must be considered jointly:the Annexation Fund,Debt Fund,Capital Improvement Fund, and the Designated Replacement Fund.The purpose of these reserves is to pay for the replacement of capital infrastructure and capital purchases.These reserves are not to be used for the replacement of non-capital items. With the District's development of its financial systems and the greater need and ability to separate and track reserves,the replacement reserves have been separated into three funds:water,recycled,and sewer. Projects undertaken solely for the purpose of replacing major capital equipment or facilities,i.e.,where the cost exceeds $10,000 for capital purchases or $20,000 for infrastructure items,generally these are not considered normal maintenance.When the cost is below $10,000,the costs are financed annually as operational maintenance.As charges are incurred on replacement projects the reserves are deducted from the respective Replacement Funds on a monthly basis. b.Sources The various funds in this category are financed by debt proceeds,annexation fees,the "buy-in"portion of the capacity fee,and general fund designations. c.Funding Levels I.Minimum Level -The minimum reserve level of this category of funds is 3%of the historical value of existing assets as identified in the District's current financial statements.Potable,recycled, and sewer replacement are evaluated separately. II.Maximum Level -The maximum reserve level of this category of funds is 6%of existing assets.If the Page 29 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 combined replacement reserves exceed target levels, the District should consider transferring annexation fees or the "buy-in"portion of the capacity fee to meet other purposes.Another consideration would be to shift the timing of replacement projects. III.Target Level -The target reserve level of this category of funds is 4%of existing assets.In the event that the reserves fall below the recommended target level,the District should consider transferring annexation fees or the "buy-in" portion of the capacity fee.The District should also consider shifting the timing of replacement projects or issuing debt to support the planned level of facility replacement.The District will act based on the annual six-year rate model,to insure that at the end of that planning horizon the reserves exceed the minimum level and is approaching the target level. Page 30 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Diagram 3.4:Replacement Fund Category Funding Source (ca:~:c~ty ~ 59.4% RePlacementJ Fund Category Replacement Annexation Fund Replacement 1 Capital Improvement Fund DebtFund cc I Annexation FundCapital Improvement Fund Restricted Funds Restricted Funds Restricted Funds ~'~ I-.R_e_st_r_ict_ed_F_u_nd_s ~~-------~----i_.=1 ==========~ Designated Funds Unrestricted and Undesignated Funding Sources General Fund -Rates and Charges Oesipated Rep1acem Fund Page 31 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 3.5 Betterment Fund Category a.Purpose The Betterment Fund category is to finance the betterment portion of capital projects with a portion going to maintenance of the potable,recycled,and sewer systems.The District maintains separate Better Fund categories,one for each improvement district.An improvement district is a legally defined geographic area usually established for the purpose of bond financing of facilities.The betterment reserves within these funds are restricted by law for use within the improvement district in which the fees were collected (Water Code 71631.6).However,the legal restriction of this reserve depends upon the particular revenue source. (See Section 2.1 f.for a review of the special rates and availability fees). When considering the reserve levels of the betterment category of funds,the following funds work in concert and must be considered jointly:the Betterment Fund, Annexation Fund,Debt Fund,Capital Improvement Fund, and Designated Betterment Fund. b.Sources The Betterment Fund category receives restricted revenues by improvement district via special water rates and from availability fees collected through the county tax roll.Betterment may also be financed by debt proceeds,annexation fees,the "buy-in"portion of the capacity fee,as well as the general fund through a designation of reserves. c.Funding Levels I.Minimum Level -As the District matures the CIP will move to purely replacement projects.As the District moves through this lifecycle the need for betterment reserves will decrease and may be reduced to zero. II.Maximum Level -The maximum reserve level for the betterment category of funds is limited to five years of unfinanced betterment facilities as Page 32 of 43 DTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 described in the District's CIP Budget.To determine the unfinanced amount,the total financing need must be reduced by the projected betterment revenues,bond financing,annexation, and general fund designations.If this maximum is exceeded,then the District should evaluate reductions in the special water rates and availability fees,transferring designated reserves to meet other purposes,or shifting the timing of betterment projects. III.Target Level -The target is six months of betterment expenditures.It is important that the betterment reserves remain at a minimum of six months of betterment expenditures.This reserve level allows the District the time necessary to issue additional debt without depleting betterment reserves.If the combined betterment reserves drop below six months of expenditures this would trigger a transfer of general use reserves,a bond sale,or an adjustment to the timing of betterment projects. Bond proceeds would be placed in the Betterment Bond Fund while transfers would be placed in the Designated Betterment Fund. Page 33 of 43 GTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Diagram 3.5:Betterment Fund Category - Betterment Fund Category Annexation Fund Capital Improvement Fund Special Rates and Availability Charges Restricted Funds Restricted Funds Funding Source Betterment ~~=:::::;:=======-~~--====-~~====-~--=---l~I==Deb==tF=un=d ~D Restricted Funds Betterment Annexation ~==~=================:~~--=-=====-~=--=~II__Fun_d----J Restricted Funds Betterment Capital Improvement Fund Restricted Funds Betterment Fund Les;gnated Funds Unrestricted and Undesignated Funding Sources General Fund -Rates and Charles Desl.nated Be~ent Fund l..i Page 34 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Diagram 3.6:Fund Targets Fund or Fund Actions to Consider if Target MaximumCategorybel9WT~r;g~t New supply fee New Supply Fund increase,bond Total of all funds in fund financing,or transfer to category =six months Nexus of cost to feeCategoryIdesignationortoCIForofcapitalexpenditures Annexation Fund Capacity fee increase, Expansion Fund bond financing,or Total of all funds in fund transfer to designation category =six months Nexus ofcost to feeCategoryorto(IF or Annexation of capital expenditures Fund Bond financing,or Total of all funds in fundReplacermentFundtransfertodesignationcategory=4%of Nexus of cost to feeCategoryorto(IF or Annexation infrastructureFund Bond financing,or Total of all funds in fundBetter~ent FLltIld transfer to designation category =six months 5 years unfunded needsCategoryorto(IF or Annexation of capital expendituresFund OEtbt Re$tile Fund Increase tax collection One semi-annual Two semi-annual or rates payment payments OPEB Fund Fund transfers Full funding Full funding Rate increase or fund Three months of Nine months of General Fund transfers operating budget operating budget expenses expenses Note:The annexation fee for sewer is a general fund revenue. Additional Restricted Funds 4.0 Capital Improvement Fund a,Purpose The "Capital Improvement Fund's sole purpose is to track the "buy-in U portion of the capacity fee and to ensure these fees are expended solely for the purpose for which they were Page 35 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 collected.In this case it is to pay for facilities that were in existence at the time this fee was established. These fees may be used for expansion,replacement,or betterment projects or any debt related to these categories. These fees may also be used for either the potable or the recycled systems.As capacity fees are collected,the "buy- in"portion of the fee is allocated as needed to one of three capital improvement funds,one in each of the Expansion, Replacement,and Betterment Fund categories.These reserves are used to pay debt or offset any negative balance within these three categories of funds.These fees may not be used to finance the New Water Supply category,as there were no new water supply facilities in existence at the time the new methodology for capacity fees was established. b.Sources The "buy-in"portion of the capacity fee collected after June 30,2010. c.Funding Levels There are no minimums,maximums,or target levels for these reserves on an individual basis.The allocation of this fee to the various capital improvement funds is dependent on the overall reserve levels within each fund category. 4.1 Annexation Fund a.Purpose The Annexation Fund's sole purpose is to track the potable and recycled annexation fees collected and to ensure these fees are expended solely for the purpose for which they were collected.The annexation fees may be used for expansion, replacement,or betterment projects or any debt related to these categories.These fees may be used for either the potable or recycled systems.These reserves may not be used to finance the New Water Supply category,as it was not in existence at the time the fee was established.As these fees are collected they are allocated as needed to one of three capital improvement funds,one in each of the Expansion, Replacement,and Better Fund categories. b.Sources Potable and recycled annexation fees collected after June 30,2010. Page 36 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 c.Uses There are no minimums,maximums,or target levels for these reserves on an individual basis.The allocation of this fee to the various Annexation Funds is dependent on the overall reserve levels within each fund category. 4.2 Debt Reserve Fund a.Purpose The Debt Reserve Fund is established to hold the proceeds from the various debt issuances.There are two types of debt,General Obligation bonds and Certificates of Participation bonds.The proceeds are transferred to the New Water Supply,Expansion,Replacement,or Betterment Debt Funds as they are expended for various facilities within those fund categories.As repayment of the debt occurs,the balances within these individual funds are reduced so that the financial impact of issuing debt is tracked within the category for which the debt was issued. b.Sources Debt proceeds. c.Uses There are no minimums,maximums,or target levels for this fund on an individual basis.This fund is available on an as needed basis to fund CIP projects for new water supply, expansion,replacement,or betterment.From a funding level perspective,these reserves are evaluated in the context of all the various funds within each fund category. Fund Transfers 5.0 Funding Levels As described in the preceding sections,the District maintains reserves for its operating and capital activities.These reserves can be of three types:1)undesignated or general use reserves,2) designated,and 3)restricted for a specific purpose.The restricted reserves can be restricted geographically and/or by purpose.The District maintains various funds to track the various designations and restrictions.The source of the money for each fund was discussed along with the purpose,source of Page 37 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 funds,and levels.Key characteristics of these funds are the target levels,minimums,and maximums.The funding levels must be viewed in the context of the economic environment,political environment,and in light of the District's rate model.The District's six-year rate model not only shows the current balance but also shows the trend of the fund balances.Often the trend of the fund is a greater indicator of financial stability than is the current balance. The rate model is updated each year with the budget process and evaluates each fund over the next six years.The rate model will take into account the general economic environment,looking at the development rate,supply rate increases,the possibility of raising rates,capital infrastructure spending,and strategic plan initiatives.The fund balances may at times be over or under the target amount.This is not only acceptable but expected.The rate model provides an empirical estimate of the conformance between the projected District's financial activities and the guidelines of this policy. 5.1 Fund Transfers Reserves within the District's various designated funds corne from interfund transfers of unrestricted general use reserves.It is important to note that the District has the ability to use general use reserves for any business purpose.General use reserves may be transferred to and from any unrestricted fund for any business need.Designated reserves are general use reserves which have been set aside for a specific purpose by Board action.These reserves can only be used for the purpose they were designated,or with Board action they may be used for any other business purpose. While general use reserves may be used for any restricted purpose they may not be transferred to Restricted Funds due to the sensitivity of the tracking of restricted reserves.If reserves are needed for a restricted purpose they are transferred to a Designated Fund within the fund category with that particular purpose.Reserves restricted to a fund category may only be used within that category and may not be transferred to another category.For example,the new water supply fee and the "incremental"portion of the capacity fee are restricted reserves for a specific purpose,and may not be transferred to another category as no other category has the same purpose.However,the "buy-in"portion of the capacity fees and annexation fees are Page 38 of 43 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 restricted for purposes that are shared by more than one category of funds and may therefore be transferred to a restricted fund within another fund category as long as it shares the same purpose. In many situations reserve transfers are expected as some fund categories will exceed their maximums or drop below their minimums.Only fund categories that are below the stated target are eligible to receive transferred reserves.Fund categories that exceed their maximums are first to be considered for transfers out,followed by funds that exceed their targets.Funds that exceed their minimums are also available for reserve transfers out,but only when other options are not available. The rationale for prioritizing reserve transfers is based on the immediacy of the need and the availability of reserves from other funding sources.For example,the General Fund is first to receive reserves when it drops below its target or minimum levels. This is because of the immediate and ongoing nature of the expenditures that are served by this fund.The operation of the District is first and foremost of the objectives of the District. On the other end of the spectrum,the Replacement Fund has a long- term perspective and will be used to partially finance replacement assets for many years to corne.Debt financing is available to respond to this long term,foreseeable,and planned cash flow. This fund is less likely to have immediate needs and has other financing options. When making the determination of when transfers are necessary,all funds within a fund category work as a group.The combined balance of the restricted and designated funds is looked at when determining whether the fund category requires additional funding from the Restricted Capital Improvement Fund,Restricted Annexation Fund,Restricted Debt Fund,or the General Fund. Because the Capital Improvement Fund and Annexation Fund may finance expansion,replacement or betterment reserves may be transferred between these fund categories,but only back and forth within its own type of restricted fund. As an example,if during the rate model update process it was determined that the Expansion Funds (designated and restricted) would drop and stay below the minimum during the six-year planning horizon,this would trigger a bond sale,a transfer of general use Page 39 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 reserves,and/or a transfer of restricted reserves.If in the cash planning process,it was anticipated that the General Fund would remain above target during the planning horizon and that the trend did not present a problematic underfunded status,then General Fund reserves would be considered available for transfer prior to making proceeds available from a bond sale.Also,if during this period the Betterment Fund category was anticipated to exceed its maximum,then reserves from either the Designated Betterment Fund,the Annexation Fund,or the Capital Improvement Fund would be transferred to the corresponding Expansion Fund prior to a bond sale.All funds are evaluated to determine which has the greatest need or availability of reserves before any reserve transfer recommendation is presented to the Board. Page 40 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 GLOSSARY The Reserve Policy contains terminology that is unique to public finance and budgeting.The following glossary provides assistance in understanding these terms. Annexation Fees:When water service is requested for land outside the boundaries of the District,the land to be serviced must first be annexed.For sewer service the land must be annexed into an improvement district within the District. Assets:Resources owned or held by Otay Water District that has monetary value. Availability Fees:The District levies charges each year in developed areas to be used for upgrades,betterment,or replacement and in undeveloped areas to provide a source of funding for planning,mapping,and preliminary design of facilities to meet future development.Current legislation provides that any availability charge in excess of $10.00 per acre shall be used only for the purpose of the improvement district for which it was assessed. Betterment Fees:In addition to other applicable water rates and charges,water customers pay a fee based on water service zone or Improvement District.These fees are restricted for use in the area where they are collected and may be used for the construction and maintenance of facilities. Bond:A written promise to pay a sum of money on a specific date at a specified interest rate.The interest payments and the repayment of the principal are authorized in a District bond resolution.The most common types of bonds are General Obligation (GO)bonds and Certificates of Participation (COPs).These are frequently used for construction of large capital projects such as buildings,reservoirs,pipelines and pump stations. Capital Equipment:Fixed assets such as vehicles,marine equipment,computers,furniture,technical instruments,etc.which have a life expectancy of more than two years and a value over $10,000. Page 41 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 Capital Improvement Program:A long-range plan of the District for the construction,rehabilitation and modernization of the District-owned and operated infrastructure. CWA:The County Water Authority was organized in 1944 under the State County Water Authority Act for the primary purpose of importing Colorado River water to augment the local water supplies of the Authority's member agencies.The Authority purchases water from the Metropolitan Water District of Southern California (MWD) which imports water from the Colorado River and the State Water Project. Debt Service:The District's obligation to pay the principal and interest of bonds and other debt instruments according to a predetermined payment schedule. Expenditures/Expenses:These terms refer to the outflow of funds paid or to be paid for an asset,goods,or services obtained regardless of when actually paid for.(Note:An encumbrance is not an expenditure).An encumbrance reserves funds to be expended in a future period. Fund:An account used to track the collection and use of monies for a specifically defined purpose. Fund Balance:The current funds on hand resulting from the historical collection and use of monies.The difference between assets and liabilities reported in the District's Operating Fund plus residual equities or balances and changes therein,from the results of operations. Interest Income:Earnings from the investment portfolio.Per District Policy Number 25,interest income will be allocated to the various funds each month based upon each fund's prior month- ending balance. Late Charges/Penalties:Charges and penalties are imposed on customer accounts for late payments,returned checks,and related telephone contacts. Page 42 of 43 OTAYWATER DISTRICT BOARD OF DIRECTORS POLICY Subject Policy Date Date Number Adopted Revised RESERVE POLICY 25 2/10/93 11/3/10 1%Property Tax:In 1978,Proposition 13 limited general levy property tax rates for all taxing authorities to a total rate of 1%of full cash value.Subsequent legislation,AB 8,established that the receipts from the 1%levy were to be distributed to taxing agencies according to approximately the same proportions received prior to Proposition 13.Funds received are to be used for facilities construction or debt service on bonds sold to build facilities. Operating Budget:The portion of the budget that pertains to daily operations that provide basic governmental services.The operating budget contains appropriations for such expenditures as personnel,supplies,utilities,materials,travel and fuel,and does not include purchases of major capital plant or equipment which is budgeted for separately in the Capital Budget.The Operating Budget also identifies planned non-operating revenues and expenses. Revenue: includes revenues year. Monies that the District receives as income.It such items as water sales and sewer fees.Estimated are those expected to be collected during the fiscal System Fees:Each water service customer pays a monthly system charge for water system replacement,maintenance,and operation expenses.The charge is based on the size of the meter and class of service. Taxes:California Water Code Section 72091 authorizes the District,as a municipal water district,to levy ad valorem property taxes which are equal to the amount required to make annual payments for principal and interest on General Obligation bonds approved by the voters prior to July 1,1978. Water Rates:Rates vary among classes of service and are measured in units.The water rates for residential customers are based on an accelerated block structure.As more units are consumed,a higher unit rate is charged.All non-residential customers are charged a flat rate per unit.A unit of water is 100 cubic feet or 748 gallons of water. Page 43 of 43 AGENDA ITEM 7b TYPE MEETING:Regular Board SUBMITTED BY:Geoff Stevens, Chief Informat' 5TAFF REPORT MEETING DATE: W.O.lG.F.NO: November 3,2010 DIV.NO. APPROVED BY: (Ass!.GM): SUBJECT: German AlvareZ'~~~J~ Assistant General Ma~~~er,~;nance and Administration REPLACEMENT OF PBX GENERAL MANAGER'S RECOMMENDATION: That the Board authorize the General Manager to negotiate and enter into an agreement with: 1.Advanced Call Processing Corporation in an amount not to exceed $400,000 for telecommunications equipment and services. 2.Fandel Enterprises for an amount not to exceed $40,000 for telecommunication consulting and implementation services. COMMITTEE ACTION: See Attachment "AU. PURPOSE: To authorize implementation systems. ANALYSIS: the purchase of telecommunications equipment and of services to replace the District's PBX and related IT Staff has been analyzing the future requirements for District telecommunications needs.To assist in that effort,the District contracted a telecommunications consultant,Fandel Enterprises,to assess the condition of the District's telecommunications systems and to make recommendations to improve these services. This effort consisted of: •Condition and risk assessment of our current environment. •Review of industry technology trends and best practices to assess current and future requirements. •Development of a "requirements"document. •Issuing a Request for Proposal (RFP)for communication system upgrades and receiving quotes for services. •Alternative analysis,including the potential to outsource certain services and an assessment of the viability of moving to the latest voice over internet protocol (VoIP)technology. As a result of these efforts,the following major conclusions have been reached: •The District's PBX systems are near maximum capacity and at the end of their product life. •The Voice Over IP technology is mature and is now an industry standard that is appropriate for Otay. •Innovative phone software offers significant opportunities to enhance customer service and reduce costs for customer interaction. The District last purchased an enterprise PBX system in January 2006 and chose to upgrade the NEC PBX originally purchased in 1993.While we were exploring with moving to VOIP technology at that time,the technology was not considered mature.Today VOIP is the standard, and the choice is clear.With the conversion to VOIP technology,the systems that meet the District's requirements are all complete replacements and consequently,upgrading is not an option. Outsourcing The outsourcing option was investigated.The District requested a bid from AT&T,(Cox does not provide an enterprise outsource solution)but the initial cost was more than purchasing a new system and the annual costs in the following year were much higher than annual license fees.In addition,outsourcing would mean an unacceptable loss of control over a critical District service with no financial benefit. Value Added Services What is significant (in our ex.tensive two year analysis)is that current telecommunications technology is now digitally based; therefore the District can now move to voice over our data network and eliminate the need to replace the separate telecommunications wiring infrastructure.In addition,the processing of voice -be it in-bound,out-bound,interactive voice response (IVR),or automated call direction (ACD)-is now a software-based process as opposed to a hardware-based switching technology.This change means that the tools for managing these interactions can now be used to enhance the value or efficiency of this type of communications.The District can now use this infrastructure to reach and respond to customers in new and more efficient ways.It is expected that ratepayers will receive excellent communication and customer service. Consequently,this upgrade while completely lifecycle perspective of the existing equipment supported)-is also a good opportunity to upgrade ability to assist in providing better and more service. necessary from a (no longer vendor our technologies' dynamic customer For example,staff interviewed several companies to understand how they are using these new products.One manager described how he now reacts to web traffic,establishes chat sessions,redirects calls, and sends an outbound reminder on a routine basis to his customers. Another stated that the advanced features have the capability to alert all customer service representatives when a particular call or wait time is exceeding specified limits.We anticipate the need to simplify and enhance our customer service business processes using this type of technology. Purchasing Process Staff issued a "Request For Information"(RFI),and information received,an RFP was developed and issued wi th the District's purchasing process.The District following responses meeting the RFP requirements: based on the in accordance received the Respondent NEC Corp.of America (NEC) Logicalis Advanced Call Processing Inc./13 (ACP) American TeleSource Inc.(ATI) Price $309,345 $336,035 $385,000 $329,439 All four respondents were invited to an interview process which resulted in NEC,Logicalis,and ACP being invited to a final round of interviews.The interview panel members were Andrea Carey,Customer Service Supervisor;Alice Mendez-Schomer,Customer Service Supervisor;Bruce Trites,Network Engineer;Cynthia Alcantara, Business Analyst;and Bill Jenkins,Manager IT Operations.Geoff Stevens,CIO;and Steve Dobrawa,Purchasing and Facilities Manager observed and provided advice during the evaluation process. The team determined that the ACP /Interactive Intelligence product was the best fit.While the cost ($385,000)was 20%higher than the second place candidate (NEC),the team was in agreement that the ACP product was superior in its ability to provide enhanced and flexible customer service and was a large step above the second place product in meeting the District's needs,particularly with regard to maintenance and software controlled flexibility. These findings were validated by panel members Geoff Stevens and Andrea Carey who conducted detailed interviews with ACP clients.ACP is the leading provider of software-based telecommunications solutions and provides an unparalleled and flexible approach to call processing.It is simply a much better product than the other four we evaluated.The trend to software based control of telecommunications processes is expected to increase and moving to this approach supports the District's Strategic Plan to "Optimize use of Voice Over Internet Protocol and unified messaging.ll Project Timeline The PBX and related services will be replaced prior to June 2011. Consulting Assistance Required The cost of implementation services are $40,000.These services were competitively bid and Fandel Enterprises was the lowest bidder,by over 25%as presented in the following table. I r Consultant Fandel Enterprises Wallis Victory &Associates Telytics,Inc. Price $40,000.00 $70,000.00 $80,000.00 The District has established an ongoing consulting Fandel Enterprises and based on the positive past is confident that Fandel Enterprises is more providing the needed services. FISCAL IMPACT:t!!A(/~ relationship with experience,staff than capable of This project will utilize funds from two CIPs.The hardware will use CIP P2501 and will be purchased in FY2011.The services will utilize CPI P2469 and will be purchased in FY2011.The total expenditures requested are for a not-to-exceed amount of $440,000 with funds budgeted from Capital Improvement Programs (CIP P2501 and CIP P2469). These items are also specifically included in the existing FY2011 Capital Budget and recommended FY2011 Capital Budgets. The approved FY2011 budget is $400,000 for CIP (Telecommunications Equipment Upgrade).Expenditures to date The total FY2011 budget for CIP P2469 is $300,000 with expenditures of $55,724 leaving a balance of $344,726.The Manager anticipates,based on financial analysis,that the will be sufficient to support both projects. P2501 are $0. current Project budgets of the funding for the hardware is available from the "Replacement of this project (P2469),which is from the "Replacement Fund"and 40% Finance has determined that 100% component of this project (P2501) Fund"and the services component 60%of the funding,is available from the "Expansion Fund." STRATEGIC GOAL: This proj ect will achieve in total or part the following goals and objectives in the 2011 Strategic Plan. 3.2.3.2 1.1.2.1 LEGAL IMPACT: None. Optimize use of Voice Over Internet Protocol and unified messaging. Enhance communication with our customers by evaluating and upgrading all aspects of the District's phone system. ~W:br; General Manager Attachment A -Replacement of PBX Attachment B -PBX Replacement PowerPoint SUBJECT/PROJECT: COMMITTEE ACTION: ATTACHMENT A REPLACEMENT OF PBX The Finance,Administration,and Communications Committee reviewed this item in detail at a meeting held on October 19, 2010.The following comments were made: • • • • • It was indicated that the District had installed its current NEC PBX in 1993 and the switch has been upgraded twice since that time;once in 2000 and again in 2006.The PBX will no longer be supported by NEC which is necessitating a change. Staff engaged Renee Fandal,Fandel Enterprises,to assist in assessing the District's telecommunications needs and handle the complex implementation process of the new system.Ms.Fandal has assisted over 20 school districts, agencies and many more in the private sector in replacing their phone systems.She also handled the District's last two PBX upgrades. Staff issued an RFI (Request for Information)to gather industry information and review the technology currently available.Once specific requirements were developed, staff issued a RFP and followed the District's standard process for purchasing items through the competitive bid process. Today,the technology for PBX's has changed significantly. The new industry standard is VoIP (Voice Over Internet Protocol)wherein calls are handled digitally internally and sent out over traditional phone lines [the switching of calls are handled through software rather than through hardware (electro magnetic switch technology)]. The District selected Advanced Call Processing,Inc.(APC) whose product,Interactive Intelligence,best fits the District's needs.APC developed the software based switching protocol.They are a solid company whose product has been proven and will provide significantly better functionality with ease of use. •APC's Interactive Intelligence product also received the Innovative Product of the Year Award and the Small Business Company of the Year Award in 2010 from Frost and Sullivan. •The overall cost of the product is $400,000 and $40,000 for implementation services. •Ms.Fandel reviewed the implementation phase.She stated that the technology is very different from the previous phone systems and that implementation will be different than in the past.Following the contract award: o A timeline will be developed identifying each step of the deployment of the new phone system.The timeline will include a backout plan should,during implementation,it be felt that total success will not be achieved in the implementation of the new system. o Data will be collected for each user within the organization identifying features and capabilities that is needed/wanted for each phone station. o Training will be provided to two key individuals who will train staff to maximize the utilization of the new phone system technology. o Each work station will have two phones as the new system is deployed.The two systems will run parallel to one another until the new system is running successfully. • • It is expected that full implementation will take approximately 90 days.Once the system is fully implemented and the District has signed off acknowledging completion of the implementation process,final payment will due to Fandel Enterprises. Major benefits for the new system includes the following which will enhance efficiency: o Flexibility of the system and staffs'ability to manage the system on its own. o Customer Service/Operations will be able to customize their own recordings for outbound calling to customers.This,currently,requires the assistance of the Information Technology staff. • o Customer calls can also be routed to different queues wherein high profile or more complex customers would be routed to more experienced customer service representatives.Currently,customer calls are routed through one queue for all service representatives. o The supervisor of the service center can monitor calls if needed to identify training needs,etc. o Customer Service representatives can record calls and signal if they have a caller that is potentially threatening or represents a safety issue.A supervisor can queue in on the call and listen if needed. o If an explanation is required for a service that the District will be providing,customers can be sent to a queue where an identified representative will explain the new service.This will assure consistency in the information provided and would eliminate scripts for such situations. o Customer information screens can be transferred with the caller to a supervisor or other employee.If needed,both the customer service representative and supervisor can speak with the caller while both are viewing the customer's information screen. o Customer's can also have the option of leaving their call-back number if they do not want to wait in the queue. o Payment reminders can be set up to be auto-emailed or auto-called to customers. o The new system is very flexible and can be customized to meet future needs. It was noted that when staff was first researching systems, the above functionality was 100%to 200%more expensive. Today,the premium is approximately 22%more expensive than a product that can meet the District's basic needs.It was discussed that staff is proposing a system with higher functionality as it would meet the District's future strategic needs.It was indicated that other systems are still utilizing the same technology as the District's existing PBX and adding functionality through purchases from different vendors.This leads to complexity and the inability to provide simplified systems support.The proposed system includes the enhanced functionality (interactive intelligence)all built within the same product from one vendor.This product is superior and different from other vendors. •It was indicated that this technology is not bleeding edge technology and has been around for 15 years and the core technology is proven. • • • Maintenance cost for the proposed new system will be about the same as the old system. Advanced Call Processing,Inc.,the manufacturer of the proposed system,is not a local company,but they do have an office in Irvine and the installation company is located in Carlsbad. It was discussed that the old PBX system can be kept as back-up,can be pieced out to the used market for parts or sold back to NEC. The committee supported staffs'recommendation and presentation to the full board on the consent calendar. PB·'-..............-e---p-la~<....:.;....- •_~_.-_._'~./'_-0__-"_,_._ Finance and Administration Committee l>........ Q)o:::r 3 CD~.... B k..--.a.u PB . ';-,-".-~. ~PBX (Private Branch Exchange)-the "Switch" ~NEC PBX first installed in 1993. ~Upgraded twice in 2000 and 2006 ~Current PBX at end of life because of lack of vendor support e···-c..-'·ho~n"o~··g-"y.....' ',_....".......'\'.0..'__~,.'_ ,.._~...: -_.~.._..J L _~.,,__:/.' ..._-,""." ~PBX replacement identified in FY2011 Strateg ic Plan ~The new industry standard is VolP ~Transition from hardware "switch"to software solution for management of calls. e·",Ie"c'-''I~o~,·n>'-~ -~"""'''''''''.-"",...;....,~-',,.;:.-.:-.~.-- ~Industry and Technology Review ~RFI issued to gather perspective ~RFP for specific requirements ~Panel interviewed all bidders ~Shortlisted to 3 Finalists ~Top respondent selected and references checked ~Develop recommendations for Board Jmplem n ~ I ~Complex project requires Implementation.services o Highly detailed requirements o Shift in technology o Critical District system ~Solicited bids /received 3 responses ~Selected low bidder o Excellent history with the District o Performed similar projects /Broad knowledge base ~Selected "I nteractive Intell igence" ~Proven software based solution ~Leverages VolP Technology ~Significantly better functionality and ease of use /Faster ROI ~Positions Otay for any future changes ~Customer Service runs the system and process and IT provides support ~$400,000 hardware software /$40,000 Implementation ~Installed byJune 2011 ~Extensive training ~But -its new,different and may take some ti me getti ng comfortable with it. ~"It was everything we hoped for and more" (reference check interview) s···.':'..... "-,w.-- Integrated communication services (Inbound calls,Outbound dialing,email and chat) ~Robust ACD with customizable queues that can be easily programmed and changed. ~Software based so agents have call details and queue information right on their computer screen. ~Agents can communicate easily with Supervisors/Colleagues through instant messaging to speed service to the customer. ~Rules based recording to ensure quality service. ullivan pany o.he Year I~IInteractiIc" Wi n r 201 0 Fr orth A eric chn I gy ~"There are fundamental differences between communications-enabled business process solutions and IPA,"Outlaw said."Instead of merely embedding communications functions into applications,Interactive Intelligence has opted to use its core communications platform as the basis for automation.In this way,IPA gives customers the ability to automate and track entire multi-step processes -including those that fall outside of communications --thus providing significant and measurable ROl.li AGENDA ITEM 7c STAFF REPORT TYPE MEETING:Regular Board SUBMITIED BY:Frank Anderson,Utility Services Manager fA. APPROVED BY:Pedro Porras, (Chief) MEETING DATE: W.O.lG.F.NO: November 3,2010 DIV.NO.All APPROVED BY: (Ass!.GM): SUBJECT: Chief,Water Operations ~~ Manny Magana,~~4'\-. Assistant General ~ager,Engineering &Operations Board Approval for the District to Join the California Water/Wastewater Agency Reponse Network (CalWARN). GENERAL MANAGER'S RECOMMENDATION: That the (Board) agreement Network. Otay Water District (District)Board of authorizes the General Manager to enter with California Water/Wastewater Agency Directors into an Response COMMITTEE ACTION: Please see·Attachment "A", PURPOSE: To obtain Board authorization for the General Manager to enter into an agreement with the California Water/Wastewater Agency Response Network. ANALYSIS: The California Water/Wastewater Agency Response Network is the establishment of water agency mutual assistance agreement between water agencies that is supported by the California Office of Emergency Services (OES),the Department of Public Health (DPH)and the California Utilities Emergency Association (CUEA). The CalWARN agreement is also consistent with the State OES Standardized Emergency Management System (SEMS)program in that it provides mutual assistance as required by Federal Emergency Management Agency (FEMA)for using assistance in times of emergency.This agreement also is in accord with the California Emergency Services Act set forth in Title 2,Division 1,Chapter 7 (Section 8550 et seq)of the Government Code and specifically with Articles 14 and 17 (Section 8630 et seq)of the Act and the California Disaster and Civil Defense Master Mutual Aid Agreement. Assistance under this agreement is organized and functions under the Standard Emergency Management System (SEMS)and National Incident Management System (J"HMS)protocols and procedures.It also provides a means of reimbursement for equipment,supplies and personnel made available on an emergency basis. The benefits of membership following potential mutual CalWARN group; in aid CalWARN-Region support from 6 include the the 37 agency 1.Labor,equipment and supplies assistance and support for operational repair and recovery of utility infrastructure. 2.Due to the larger group of participants,these resources could increase response capabilities and reduce completion time of any emergency repair of infrastructure. 3.Adherence to FEMA protocol for using assistance in times of emergency.This would enhance any opportunity for cost recovery from FEMA. This agreement is similar to Otay's membership in the Interagency Shared Services Program that includes Helix Water District,Lakeside Water District,Padre Dam Municipal Water District and Sweetwater Authority Water District,but allows the added benefit of more interagency resources due to the increased amount of participating Water Districts.A list of the 37 participants from Region 6 is attached (Attachment B). An example of the benefit of the CalWARN mutual aid was Sunday, April 4th,2010 when a 7.2 magnitude earthquake hit Baja, California which in turn caused substantial damage to adj acent towns that included Calexico.Damage in Calexico included water treatment and storage facilities which limited their ability to supply drinking water to their citizens.Numerous member agencies of CalWARN responded and offered assistance to support the repair of their utility infrastructures.Although not a member of CaIWARN,Otay Water District was notified to participate and in return responded to offer labor,equipment and supplies if needed. 2 Joining CalWARN (Attachment C), (Attachment D), (Attachment E). consists of reviewing the Articles of Agreement filling out and signing the pignature page and filling out the Emergency Contact Form CalWARN member regional meetings are held annually and typically convene at a local Water Agency or at a regional conference. FISCAL IMPACT ~ Membership to CalWARN does not require annual fees. STRATEGIC GOAL: Strategy:Improve Efficiency of Business Process. Goal:Optimize Disaster Preparedness. LEGAL IMPACT: None. Attachment "A",Committee Action Attachment "B"CalWARN Region 6 Participants Attachment "C"CalWARN Articles of Agreement Attachment "D"CalWARN Signature Page Attachment "E"CalWARN Emergency Contact Form 3 ATTACHMENT A Board Approval for the District to Join CalWARN SUBJECTIPROJECT:Water/Wastewater Agency Mutual Aid Response Network COMMITTEE ACTION: The Engineering,Operations,and Water Resources Committee reviewed this item at a meeting held on October 18,2010 and the following comments were made: •Staff is requesting that the Board authorize the General Manager to enter into a water agency mutual assistance agreement with the California Water/Wastewater Agency Response Network (CalWARN)for Region 6. •CalWARN is managed under the State Office of Emergency Services (OES)Standardized Emergency Management System (SEMS)and the National Incident Management System (NIMS)and provides mutual assistance as required by FEMA.In addition,CalWARN is supported by the Department of Public Health (DPH)and the California Utilities Emergency Association (CUEA). •Staff indicated that becoming a member of CalWARN-Region 6 will provide a larger mutual aid support umbrella in times of emergencies for the District by increasing its interagency resources with 37 other CalWARN participants in Region 6.It was indicated that the San Diego County Water Authority is also a member of CalWARN.A complete list of participants was provided to the Committee (Attachment B). •Benefits of becoming a member of CalWARN include: • • • • Support with labor,equipment,supplies and assistance with operational repair and recovery of utility infrastructure; Increase response capabilities and reduce completion time of any emergency repair of infrastructure; Adherence to FEMA protocol for using assistance in times of emergency which would also enhance any opportunity for cost recovery from FEMA;and Provides a means of reimbursement for equipment,supplies and personnel made available on an emergency basis. •Staff stated that there are no negative impacts to the District for becoming a member of CalWARN-Region 6 and it will not affect the District's current mutual aid agreements with other local agencies.In addition,becoming a member does not obligate the District to provide assistance unless it has the resources and chooses to offer mutual aid. Following the discussion,the Committee supported staffs' recommendation and presentation to the full board as a consent item. 5 CalWARN -California Water/Wastewater Agency Response Network californi,a,WatenWastewateJ Agency Respoose; Networ1< Water Seeror Mutua!Atq Attachment B Page 1 of5 Home About CalWARN About Water Safety News &Events Resource Center CalWARN Newsletter CalWARN Members How To Join WARN Mombers'Gateway Southern OE§Region VI. Bighorn Desert View Water Agency 622 South Jemez Trail Yucca Valley,CA 92284 Marina West Telephone No.760-364-2315 Email-bdvwa2@mindspring.com Borrego Water District 806 Palm Canyon Drive,P.O.Box 1870 Borrego Springs,CA 92004-1870 Jerry Rolwing Telephone No.760-767-5806 Email-jerry@borregowd.org Cabazon County Water District 50-256 Main Street,P.O.Box 297 Cabazon,CA 92230 Rick Hall Telephone No.909-849-4442 Email-Cabco@pe.nel Calexico,City of California American Water Co.Coronado District 1019 Cherry Ave. Imperial Beach,CA 91933 Todd Brown Telephone No.619-575-1106 Coachella Valley Water District 85-995 Ave.52,mail to P.O Box 1058 Coachella,CA 92236 Steve Robbins Telephone No.760)398-2651 Email-srobbins@cvwd.org Corona,City of Dept of Water and Power 755 Corperate Yard Way Corona,CA 92880 Tom Moody Telephone No.951-279-3660 Email-Tom.Moody@cLcorona.CEl.us Cucamonga County Water District 10440 Ashford Street Rancho Cucamonga,CA 91730 CalWARN -California Water/Wastewater Agency Response Network Paul Rugge Telephone No.909-987-2591 Email-paur@ccwdwater.com East Valley Water District 3654 E.Highland Avenue,Suite 18 Highland,CA 92346 Gary Sturdivan Telephone No.909-806-4087 Email-gsturdivan@eastvalley.org Eastern Municipal Water District 2270 Trumble Road *P.O.Box 8300 Perris,CA 92572-8300 Doug Hefley Telephone No.951-928-3777 Email-hefleyd@emwd.org Elsinore Valley MWD 31315 Chaney Street Lake Elsinore,CA 92530 Angel Marquez Telephone No.951-674-3146 Email-amarguez@evmwd.net Havasu Water Company Near Havasu Landing Havasu Lake,CA 92363 Mary Hodges Telephone No.949-498-2280 Email -rrnbiz@home.com Helix Water District 7811 University Avenue La Mesa,CI\91942 Mark Weston Telephone No.619-667-6200 Email-rnark.weston@helixwater.org Inland Empire Utilities Agency 6075 Kimball Avenue Chino,CA 91708 Jack Frazier Telephone No.909/993-1776 Email -jfrazier@ieua.org Joshua Basin Water District 61750 Chollita Road,P.O.Box 675 Joshua Tree,CA 92252 Joe Guzzetta Telephone No.760-366-2042 Email -joeg@ibwdcom Lake Hemet Municipal Water District 26385 FairviewAve. Hemet,Ca 92544 Thomas Wagoner Telephone No.951.658.3241 Page 2 of5 CalWARN -California Water/Wastewater Agency Response Network Email ~TWagoner@ltHnwd.org Otay Water District Padre Dam Municipal Water District 10887 Woodside Ave. Santee,CA 92071 Diana Levin TelephoneNo.619-258-4678 Email-dlevin@padre.org Phelan Pinon Hills Community Services District 4037 Phelan Rd.,Suite C-1 Phelan,CA92371 George Cardenas Telephone No.760.868.1212 Email-GCardenas@pphGsd.org Rainbow Water District 3707 Old Highway 395 Fallbrook,CA 92028 Jeff Stacy Telephone No.760-728-1178 Email-jstaGy@rainbowrnwd.com Ramona Water District 105 Earlham 8t Ramona,CA 92065 Rancho California Water District 42135 Winchester Road Temecula,CA 92590 Tommy Wolter Telephone No.951-296-6953 Email-woltert@ranchowater.com Redlands MUD,City of P.O.Box 1420 Redlands,CA 95373 Mike Taylor Telephone No.909-798-7527 Email-mtaylor@Gityofredlands.org Rincon Del Diablo MWD 1920 North Iris Lane Escondido,CA 92026 Mitch Dion Telephone No.760-745-5522 Email-rndion@rinconwater.org Riverside Highland Water Company 1450Washington St Colton,CA92324 Page 3 of5 CalWARN -California Water/Wastewater Agency Response Network Eugene P,Mc Means Telephone No,909-825-4128 Riverside,City of 2911 Adams StreEt Riverside,CA 92504 Peter I Carlos Diaz I Castro Telephone No,909-351-6339 Email-Pdiaz@cLriverside.ca.us or Ccaslro@ci,riverside,ca,us San Bernardino Municipal Water Department,City of 300 North San Bernardino,CA 92418 Frank Salazar Telephone No,909-384-5576 Email-salazar fr@sbcitywaleLorg San Bernardino Valley MWD 1350South E Street San Bernardino,CA 92408 On Call Technician Telephone No,909-387-9200 San Diego County Water Authority 4677 Overland Avenue San Diego,CA 92123 Lisa Prus Telephone No,760-233-3252 Email-Iprus@sdcwa,org San Dieguito Santa Ana Watershed Project Authority Sweetwater Water District Vallecitos Water District 201 Vallecitos Del Oro San Marcos,CA 92069 Dennis Lamb Telephone No,760-744-0460 Email-dlamb@vwd,org Victor Valley Wastewater Reclamation Authority 20111 Shay Road Victorville,CA 92394 Page 4 of 5 CalWARN -California Water/Wastewater Agency Response Network Daniel Gallagher Telephone No.760246-8638 Email-dan@vvwra.com Victor Valley Water District Victorville Water District 17185 Yuma St Victorville,Ca 92392 Reggie Lamson Telephone No.760-955-2557 Email-rlamson@cLvictorville.ca.us Vista Irrigation District 1391 Engineer St Vista,CA 92081 Dan Dambach Telephone No.760-597-3112 Email-ddambach@vid-h20.org West Valley Water District 855 West Baseline Rialto,CA 92377 Tom Crowley Email -tcrowley@wvwd.org Western MWD of Riverside County Yucaipa Valley Water District 12770 Second Street Yucaipa,CA 92399 John Hull Telephone No.909-322-3932 Email-jhulI@yvwd.dst.ca.L1s Yuima Municipal Water District PO.Box 177 Pauma Valley,CA 92061 Todd Engstrand Telephone No.760-742-3704 California Water/WastewaterAgency Response Network Site Map I Terms and Conditions IContact Us Page 5 of 5 Attachment C 1 Articles of Agreement 2 California WaterlWastewater Agency Response Network 3 WARN 2007 Omnibus Mutual Assistance Agreement 4 5 This AGREEMENT is made and entered into by those water and wastewater utilities which have 6 adopted and signed this agreement to provide mutual assistance in times of emergency in 7 accordance with the California Emergency Services Act and the California Disaster and Civil 8 Defense Master Mutual Aid Agreement;and to provide reimbursement for equipment,supplies 9 and personn el made ava ilable on an em ergency basis. 10 11 All of said water and wastewater utilities being herein referred to collectively as "the parties." 12 13 In consideration of the mutual covenants and agree ments hereinafter set forth,the parties agree 14 to provide mutual assistance to one another in times of emergency as follows: 15 16 17 ARTICLE I. 18 PURPOSE 19 20 Recognizing that emergencies may require assistance in the form of personnel,equ ipment,and 21 supplies from outside the area of impact,the signatory utilities hereby establish an Intrastate 22 Program for Mutual Aid and Assistance.Through the Mutual Aid and Assistance Program, 23 Members coordinate response acti vities and share resources during em ergencies.This 24 Agreement sets forth the procedures and standards for the administration of the Intrastate 25 Mutual Aid and Assistance Program and is available to all water and wastewater utilities,public 26 and private,in the State of California. 27 28 29 ARTICLE II. 30 DEFINITIONS 31 32 A.Authorized Official-An employee or officer of a Member who is authorized to:(1)request 33 assistance;(2)offer assistance;(3)refuse to offer assistance or (4)withdraw assistance 34 under this. 35 36 B.Emergency-A natural or human caused event or circumstance causing,or imminently 37 threatening to cause im pact to the operations of a member utility's system,loss of life,injury 38 to person or property,human suffering or financial loss,and includes,but is not limited to, 39 fire,flood,severe weather,earthquake,civil disturbance,riot,explosion,drought,volcanic 40 activity,spills or releases of oil or hazardous material,contam ination,uti lity or transportation 41 emergencies,disease,blight,infestation,intentional acts,sabotage,declaration of war,or 42 other conditions which is,or is likely to be beyond the control of the services,personnel, 43 equipment,and facilities of a Member and requires mutual assistance. 44 45 C.Member -Any public or private water or wastewater utility that manifests intent to 46 participate in the Mutual Aid and Assistance Program by executing this,the California 47 WaterlWastewater Agency Response Network (CaIWARN)Agreement. 48 49 D.Associate Mem ber -Any non utility participant,approved by the State Steering Com mittee, 50 that provides a support role for the WARN program,for example State Department of Public CalWARN Mutual Aid/Asst Agreement Approved and Adopted September 30,2007 by Vote of Members 1 Health,or associations,who are members of the Regional or State Steering Com mittees 2 and do not officially sign the WARN agreement. 3 4 E.Confidential Information -Any document shared with any signatory to this Agreement that 5 is marked confidential,including but not limited to any map,report,notes,pa pers,opinion, 6 or e-mail which relates to the system vulnerabilities of a Member or Associate Member. 7 8 F.Non-Responding Member -A Member that does not provide assistance during a Period of 9 Assistance under the Mutual Aid and Assistance Program. 10 11 G.Requesting Member -A Member who requests assistance under the Mutual Aid and 12 Assistance Program. 13 14 H.Responding Member-A Member that responds to a request for assistance under the 15 Mutual Aid and Assistance Program. 16 17 I.Period ofAssistance -A specified period of time when a Responding Mem ber ass ists a 18 Requesti ng Member.The period commences when personnel,equipm ent,or supplies 19 depart from Responding Member's facility and ends when the resources return to their 20 facility (portal to portal).All protections identified in the Agreement apply during this period. 21 The specified Period of Assistance may occur during response to or recovery from an 22 Emergency. 23 24 J.National Incident Management System (NIMS)- A national,standardized approach to 25 incident management and response that sets uniform processes and procedures for 26 emergency response operations. 27 28 K.Standardized Emergency Management System (SEMS)- A standardized approach to 29 field command and jurisdictional management and response set forth by State of California 30 Code of Regulations for multi-agency or multi-jurisdictional response to an emergency. 31 32 33 ARTICLE III. 34 ADMINISTRATION 35 36 The administration of the Water/Wastewater Agency Response Network (WARN)will be 37 through WARN Regional Steering Committees (RSC)and the WARN State Steering Committee 38 (SSC). 39 40 The WARI\J RSCs will be established by representatives from the Members in that region.A 41 chair and co-chair will be elected and act as administrators for that region.The chair will 42 represent the region on the WARN SSC.Each WARN RSC will sponsor an annual meeting for 43 Members,maintain a data base of all water and wastewater utilities who have signed this 44 Agreement,and meet as a committee to address concerns and pro cedures for requesting 45 mutual assistance in that region.The regions will be comprised of one or more of the six Office 46 of Emergency Services (OES)mutual aid regions. 47 48 The WARN SSC will include the chairs of the regional steering committees,and a 49 representative from the California Department of Public Health (COP H),California Utilities 50 Emergency Association (CUEA),Department of Water Resources (DWR),the American Water 51 Works Association (AWWA)Emergency Planning Committee,California Rural Water CalWARN Mutual Aid/Asst Agreement 2 Approved and Adopted September 30,2007 by Vote of Members 1 Association (CRWA)and California Sanitation Risk Management Authority (CSRMA).The SSC 2 will identify a Chair for the purpose of leading the SS C and act as a point of contact for the 3 WARN SSC.At a minimum,the WARN SSC will meet annually and issue a list of participating 4 utilities.The database will be maintained on the WARN website,managed by a volunteer 5 Member,as appointed by the SSC. 6 7 8 ARTICLE IV. 9 PROCEDURES 10 11 A.In coordination with the Regional Steering Com mittees,emergency management and pUblic 12 health system of the state,the State Steering Com mittee shall develop operational and 13 planning procedures for the Mutual Aid and Assistance Program.These procedures shall 14 be consistent with the Standardized Emergency Management System (SEMS)and the 15 National Incident Management System (NIMS),reviewed at least annually and updated as 16 needed by the State Steering Committee. 17 18 B.Requests for emergency assistance under this Agreem ent shall be directed to the 19 appropriate Authorized Official(s)from the list of Members. 20 21 C.Consistent with SEMS,when more than one County is impacted by a disaster,requests for 22 mutual assistance under this Agreement may be channeled through the CUEA Utility 23 Operation Center to ensur e maximum effectiveness in allocating resources to the highest 24 priority needs. 25 26 27 ARTICLE V. 28 REQUESTS FOR ASSISTANCE 29 30 In general,assistance w ill be in the form of resources,such as equipm ent,supplies,and 31 personnel.Assistance shall be given only when Responding lVlem ber determ ines that its own 32 needs can be met while rendering assistance.The execution of this Agreement shall not create 33 any duty to respond on the part of any party hereto.A potential Responding M ember shall not 34 be held liable for failing to provide assis tance.A potential Responding M ember has the 35 absolute discretion to decline to provide any requested assistance. 36 37 A.Member Responsibility -Members shall identify an Authorized Official and alternates; 38 provide contact information including 24-hour access;and maintain resource information 39 made availa ble by the utility for mutual aid and assistance re sponse,as allowed by utility 40 policy.Such information shall be updated annually or as changes occur (whichever is 41 sooner),provided to the State Steering Com mittee,and uploaded into the statewide 42 database. 43 44 B.Member Request -In the event of an Emergency,a Member's Authorized Official may 45 request mutual aid and assistance from a participating Member.Requests for assistance 46 can be made orally or in writing.When made orally,the request for personnel,equipm ent, 47 and supplies shall also be prepared in writing and subm itted to the participating Member as 48 soon as practicable. Requests for assistance shall be directed to the Authorized Official of 49 the participating Member.Specific protocols for requesting aid s hall be provided in the 50 procedures developed under Article IV. 51 CalWARN Mutual Aid/Asst Agreement 3 Approved and Adopted September 30,2007 by Vote of Members 1 C.Response to a Request for Assistance -Members are not obligated to respond to a 2 request.After a Member receives a request for assistance,the Authorized Official evaluates 3 whether or not to respon d,whether resources are available to respond,or if other 4 circumstances would hinder response.Following the evaluation,the Authorized 5 Representative shall inform,as soon as possible,the Requesting Member whether it will 6 respond.If the Member is willing and able to provide assistance,the Member shall inform 7 the Requesting Member about the type of available resources and the ap proximate arrival 8 time of such assistance. 9 10 D.Discretion ofResponding Member's Authorized Official-Execution of this Agreement 11 does not create any duty to respond to a request for assistance.When a Member receives 12 a request for assistance,the Authorized Official shall have sole and absolute di scretion as to 13 whether or not to respon d,or the availability of resources to be used in such response.An 14 Authorized Member's decisions on the availability of resources shall be final. 15 16 17 ARTICLE VI. 18 RESPONSE COORDINATION 19 20 When providing assistance under this Agreement,the Requesting Member and Responding 21 Member shall be organized and shall function under the Standard Emergency Management 22 System and National Incident Management System protocols and procedures. 23 24 A.Personnel -Responding Member retains right to identify the em ployees who are willing 25 to participate and the re sources that are available. 26 27 B.Control-While employees so provided may be under the supervision of the 28 Responding Mem ber,the Responding M ember's employees come under the direction 29 and control of the Requesting Member,consistent with the NIMS Incident Command 30 System to address the need s identified by the Requesti ng Member.The Requesting 31 Member's Authorized Official shall coordinate response activiti es with the designated 32 supervisor(s)of the Responding M ember(s).Whenever practical,Responding 33 Member personnel must be self sufficient for up to 72 hours.The Responding Member's 34 designated supervisor(s)must keep accurate records of work performed by personnel 35 during the specified Period of Assistance. 36 37 C.Food and Shelter-When possible,the Requesting Member shall supply reasonable food 38 and shelter for Res ponding Member personnel.If the Requesting Member is unable to 39 provide food and shelter for Responding Member personnel,the Responding IVI ember's 40 designated supervisor is aut horized to secure the resources necessary to meet the needs of 41 its personnel.Except as provided below,the cost for such resources must not exceed the 42 State per diem rates for that area.To the extent Food and Shelter costs exceed the State 43 per diem rates for the area,the Responding IVI ember must demonstrate that the additional 44 costs were reasonable and necessary under the circumstances.Unless otherwise agreed 45 to in writing,the Requesting Member remains responsible fo r reimbursing the Responding 46 Member for all reasonab Ie and necessary costs associated with providing food and shelter, 47 if such resources are not provided. 48 49 D.Communication -The Requesting Member shall provide Responding Member personnel 50 with radio equipment as available,or radio frequency information to program existing radio, 51 in order to facilitate communications with local responders and utility personnel. CaIWARi'J Mutual Aid/Asst Agreement 4 Approved and Adopted September 30,2007 by Vote of Members 1 2 E.Status -Unless otherwise provided by law,the Responding Member's officers and 3 employees retain the same privileges,immunities,rights,duties and benef its as provided in 4 their respective jurisdictions. 5 6 F.Licenses and Permits -To the extent permitted by law,Responding Member personnel 7 who hold licenses,certificates,or permits evidencing professional,mechanical,or other 8 skills shall be allowed to carry out activities and tasks relevant and related to their respective 9 credentials during the specified Period of Assistance. 10 11 G.Right to Withdraw Resources -The Responding Mem ber's Authorized Official retains the 12 right to withdraw some or all of its resources at any time for any reason in the Responding 13 Member's sole and absolute discretion.Notice of intention to withdraw must be 14 communicated to the Requesti ng Member's Authorized Official as soon as soon as is 15 practicable under the ci rcumstances. 16 17 18 ARTICLE VII. 19 COST REIMBURSEMENT 20 21 Unless otherwise mutually agreed in whole or in part by both parties,the Requesting Member 22 shall reimburse the Responding M ember for each of the following categories of costs incurred 23 while providing aid and assistance dur ing the specified Period of Assistance. 24 25 A.Personnel -Responding M ember will make such employees as are willing to 26 participate available to Requesti ng Member at Requesting Member's expense equal to 27 Responding Member's full cost,Le.,equal to the employee's applicable salary or hourly 28 wage plus fringe benefits and overhead,and co nsistent with Responding Member's 29 collective bargaining agreements or other conditions of employment.All costs incurred 30 for work performed during the specified Period of Assistance will be included.The 31 Requesting Member shall be responsible for all direct and indirect labor costs. 32 33 B.Equipment -Use of equipment,such as construction equipment,vehicles,tools,pumps 34 and generators,shall be at Responding Member's current eq uipment rate and subject to the 35 following conditions:The Requesting Member shall reimburse the Respond ing Member for 36 the use of equipment during the specified Period of Assistance,including,but not lim ited to, 37 reasonable rental rates,all fuel,lubrication,maintenance,transportation,and 38 loading/unloading of loaned equipment.All equipment shall be returned to the Responding 39 Member as soon as is practicable and reasonable under the circumstances. 40 (a)At the option of Responding Member,equipment may be provided with an 41 operator. 42 (b)Equipment shall be returned to Responding Member within 24 hours after receipt 43 of an oral or written request for return. 44 (c)Requesting Member shall,at its own expense,supply all fuel,lubrication and 45 maintenance for furnished equipment. 46 (d)Responding Member's cost related to the transp ortation,handling and 47 loading/unloading of equipment shall be chargeable to Requesting Member. 48 (e)In the event equipment is damaged while being dispatched to Requesting Member, 49 or while in the custody and use of Requesti ng Member,Requesting Member shall 50 reim burse Responding Mem ber for the reasona ble cost of repairing said dam aged 51 equipment.If the equipment cannot be repaired,then Requesting M ember shall CalWARN Mutual Aid/Asst Agreement 5 Approved and Adopted September 30,2007 by Vote of Members 1 reimburse Responding Member for the cost of replacing such equipment with 2 equipment that is of at least equal capability as determined by the Responding 3 Member.If Responding M ember must lease a piece of equipment while Requesting 4 Member equipment is being repaired or replaced,Requesting Member shall 5 reimburse Responding Member for such lease costs. 6 7 C.Materials and Supplies -Requesting Member shall reimburse Responding Member in 8 kind or at actual replacement cost,plus handling charges,for use of expendable or no n- 9 returnable supplies.Other supplies and reusable items that are returned to Responding 10 Member in a clean,damage-free condition shall not be charged to the Requesting 11 Member and no rental fee will be charged;otherwise,they shall be treated as 12 expendable supplies.Supplies that are returned to the Responding IVlember with 13 damage must be treated as expendable supplies for purposes of cost reimbursement. 14 15 D.Payment Period-The Responding Member shall provide an item ized bill to the Requesting 16 Member for all expenses incurred by the Responding Member while providing assistance 17 under this Agreem ent.The Requesting Member shall send the itemized bill not later than 18 (90)ninety dates following the end of the Period of Assistance.The Responding Member 19 may request additional periods of time within which to submit the itemized bill,and 20 Requesting Member shall not unreasonably withhold consent to such requ est.The 21 Requesting Member agrees to reim burse the Responding Member within 60 days from 22 receipt of an invoice for assistance provided under this Agreement.The Requesti ng 23 Member may request additional periods of time within which to pay the itemized bill,and 24 Responding Member shall not unreasonably withhold consent to such req uest,provided, 25 however,that all payment shall occur not later than one-year after the date a final itemized 26 bill is submitted to the Requesting Member. 27 28 E.Records -Each Responding Member and its duly authorized representatives shall have 29 access to a Requesting Member's books,documents,notes,reports,papers and records 30 which are directly pertinent to this Agreement for the purposes of reviewing the accuracy of 31 a cost bill or making a financial,maintenance or regulatory audit.Each Requesting Member 32 and its duly authorized representatives shall have access to a Responding M ember's books, 33 documents,notes,reports,papers and records which are directly pertinent to this 34 Agreement for the purposes of reviewing the accuracy of a cost bill or making a financial, 35 maintenance or regulatory audit.Such records shall be maintained for at least three (3) 36 years or longer where required by law and as needed for federal reim bursement practices. 37 38 39 ARTICLE VIII. 40 ARBITRATION 41 42 If any controversy or claim arises out of,or relates to,the Agreement,including,but not limited 43 to an alleged breach of the Agreement,the disputing Members shall first attempt to resolve the 44 dispute by negotiation,followed by mediation and finally shall be settled by arbitration in 45 accordance with the Rules of the American Arbitration Association.Judgment on the award 46 rendered by the arbitrator(s)may be entered in any court having jurisdiction. 47 48 CalWARN Mutual Aid/Asst Agreement 6 Approved and Adopted September 30,2007 by Vote of Members 1 ARTICLE IX. 2 REQUESTING MEMBER'S DUTY TO INDEMNIFY 3 4 Pursuant to Govern ment Code Section 895.4,and subject to Article X,Requesting Member 5 shall assume the defense of,fully indemnify and hold harmless Responding M ember,its 6 Directors,Counci I Members,Supervisors,officers and employees,from all claims,loss, 7 damage,injury and liability of every kind,nature and description,directly or indirectly arising 8 from the Requesti ng Member's work hereunder,including,but not limited to,negligent or 9 wrongful use of equipment,supplies or personnel provided to Requesting Mem ber or faulty 10 workmanship or other negligent acts,err ors or omissions by Responding Member,or by 11 personnel provided to Requesti ng Member from the time assistance is requested and 12 rendered until the assistance is returned to Responding Member's control,portal to portal. 13 14 15 ARTICLE X. 16 SIGNATORY INDEMNIFICATION 17 18 In the event of a liability,claim,demand,action or proceeding,of whatever kind or nature 19 arising out of the rendering of assistance throug h this Agreement,the parties involved in 20 rendering or receiving assistance ag ree to indemnify and hold harm less all Members whose 21 only involvement is the execution and approval of this Agreement,in the transaction or 22 occurrence which is the subject of such claim,action,demand or other proceeding.Such 23 indemnification shall include indem nity for all claims,demands,liability,damages and costs, 24 including reasonable attorne ys'fees and other costs of defense,for injury,property damage 25 and workers compensation. 26 27 28 ARTICLE XI. 29 WORKER'S COMPENSATION CLAIMS 30 31 The Responding Member is responsible for providing worker's compensation benefits and 32 administering worker's compensation for its employees.The Requesting Member is 33 responsible for providing worker's compensation benefits and administering worker's 34 compensation for its employees. 35 36 37 ARTICLE XII. 38 NOTICE 39 40 Each party hereto shall give to the others prompt and timely written notice of any claim 41 made or any suit instituted coming to its knowledge,which in any way,directly or indirectly, 42 contingently or otherwise,affects or might affect them,and each Member shall have the 43 right to participate in the defense of the same,as it considers necessary to protect its own 44 interests. 45 46 CalWARN Mutual Aid/Asst Agreement 7 Approved and Adopted September 30,2007 by Vote of Members 1 ARTICLE XIII. 2 INSURANCE 3 4 Members shall maintain an insurance policy or maintain a self insurance program that covers 5 activities that it may undertake by virtue of membership in the Mutual Aid and Assistance 6 Program. 7 8 9 ARTICLE XIV. 10 CONFIDENTIAL INFORMATION 11 12 To the extent allowed by law,any Member or Associate Member shall maintain in the strictest 13 confidence and shall take all reasonable steps necessary to prevent the dis closure of any 14 Confidential Information provided to it by another Member pursuant to this Agreem ent.If any 15 Member,Associate Member,or third party requests or demands,by subpoena or otherwise, 16 that a Member or Associate Member disclose any Confidential Information provided to it under 17 this Agreement,the Member or Associate Member shall immediately notify the owner of the 18 Confidential Information and shall take all reasonable steps necessary to prevent the disci osure 19 of any Confidential Information by asserting all applicable rights and privileges with respect to 20 such information and shall cooperate fully in any judicial or administrative proceeding relating 21 thereto. 22 23 24 ARTICLE XV. 25 EFFECTIVE DATE 26 27 This Agreement shall take effect for a new party immediately upon its execution by said 28 party. 29 30 31 ARTICLE XVI. 32 WITHDRAWAL 33 34 Any party may terminate its participation in this Agreement by written notice to the Chair of the 35 appropriate RSC and to the SSC Chair.Withdrawal takes effect 60 days after the appropriate 36 officials receive notice.Withdrawal from this Agreement shall in no way affect a Requesting 37 Member's duty to reimburse a Responding M ember for cost incurred during a Period of 38 Assistance,which duty shall survive such withdrawal. 39 40 41 ARTICLE XVII. 42 MODIFICATION 43 44 No provision of this Agreement may be modified,altered or rescinded by individual parties to the 45 Agreement.Modifications to this Agreement require a simple majority vote of Members within 46 each region and unanimous agreement among the regions.The State Steering Committee will 47 notify all parties of modifications to this Agreement in writing and those modifications shall be 48 effective upon 60 days written notice to the parties. 49 CaIWARI\J Mutual Aid/Asst Agreement 8 Approved and Adopted September 30,2007 by Vote of Members 1 2 ARTICLE XVIII. 3 SEVERABILITY 4 5 If any term or provision of this Agreement is declared by a court of competent jurisdiction to be 6 illegal or in conflict with any law,the validity of the remaining terms and provisions shall not be 7 affected,and the rights and obligations of the parties shall be construed and enforced as if the 8 Agreement did not contain the particular term or provision held to be invalid. 9 10 11 ARTICLE XIX. 12 PRIOR AGREEMENTS 13 14 To the extent that prior agreements among signatories to this Agreement for mutual assistance 15 are inconsistent with this Agreement,such agreements are hereby superseded.This 16 Agreement supersedes the 1996 Omnibus Mutual Aid Agreement,the WARN 1997 Om nibus 17 Mutual Aid Agreement,and the WARN 2001 Omnibus Mutual Aid and Assistance Agreement. 18 19 20 ARTICLE XX. 21 PROHIBITION ON THIRD PARTIES AND ASSIGNMENT OF RIGHTSIDUTIES 22 23 This Agreement is for the sole benefit of the Members and no other person or entity has rights 24 under this Agreem ent as a third party beneficiary.Assignment of benefits or delegation of 25 duties created by this Agreement to third parties that are not Members is prohibited and without 26 effect. 27 28 29 ARTICLE XXI. 30 TORT CLAIMS 31 32 This Agreement in no way abrogates or waives any immunity or defense available under 33 California law. 34 35 36 ARTICLE XXII. 37 INTRASTATE AND INTERSTATE MUTUAL AID AND ASSISTANCE PROGRAMS 38 39 To the extent practicable,Members retain the righ t to participate in mutual aid and assistance 40 activities conducted under the State of California Intrastate WARN Mutual Aid and Assistance 41 Program and the Interstate Emergency Management Assistance Compact (EMAC)and similar 42 programs. 43 44 45 CalWARN Mutual Aid/Asst Agreement 9 Approved and Adopted September 30,2007 by Vote of Members Attachment D California WaterlWastewater Agency Response Network (CaIWARN) 2007 Omnibus Mutual Assistance Agreement .. WHEREAS,the California Office of Emergency Services (OES),the Department of Water Resources (DWR),the Department of Public Health (DP H)and the California Utilities Emergency Association (CU EA)have expressed a mutual interest in the establishment of a plan to facilitate and encourage water agency mutual assistance agreements between water agencies;and WHEREAS,the California Water Agency Response Network (CaIWARN)was originally created to provide a forum for the development of mutual assistance agreements between water agencies in the OES Coastal Region of California;and later expanded to all water and wastewater agencies in the State of California,and WHEREAS,the CALIFORNIA WATERIWASTEWATER AGENCY RESPONSE NETWORK (CaIWARN)2007 OMN IBUS MUTUAL ASSISTANCE AGREEMENT is a continuation of the WARN 1996 OMNIBUS MUTUAL AID and 2001 OMNIBUS MUTUAL AID AGREEMENT and sets forth the mutual covenants and agreements for water and wastewater agencies to provide mutual assistance to one another in times of emergency;and WHEREAS,State OES regulates the SEMS program,and this agreement is consistent with SEMS,and that it is necessary to have a mutual assistance agreement in place to support requests to FEMA for costs of using assistance during an emergency,and WHEREAS,the water or wastewater agency hereto has determined that it would be in its best interests to enter into an agreement that implements that plan and sets forth proced ures and the responsibilities of the agency whenever emergency personnel,equipm ent and facility assistance are provided from one agency to the other;and WHEREAS,no water or wastewater agency should be in a position of unreasonably using its own resources,facilities,or services providing such mutual assistance;and WHEREAS,it is the intent of WARN to revise this agreement as necessary and to annually publish a list of all water and wastewater agencies participating in this agreement,as posted on www.calwarn.org;and WHEREAS,such an agreement is in accord with the California Emergency Services Act set forth in Title 2,Division 1,Chapter 7 (Section 8550 et seq.)of the Government Code and specifically with Articles 14 and 17 (Section 8630 et seq.)of the Act. NOW,THEREFORE,in consideration of the conditions and covenants contained therein,the (Utility) agrees to become a party to the CalWARN 2007 Omnibus Mutual Assistance Agreement. Date: By: Title: Please return a signed copy of this page,pius the information requested on Emergency Contacts List to: Raymond Riordan CaIWARN,State Steering Com mittee 2662 Marsh Drive San Ramon,California 94583. CalWaterlWastewater Agency Response Network (WARN) 2007 Omnibus Mutual Assistance Agreement Emergency Contact List Attachment E WARN Region: o Region 1,Southern o Region 2,Coastal o Region 3,Northern o Region 4,Inland o Region 5,Valley D Region 6,Southern Type of Utility Member o Water o Wastewater Other Membership o Associate Date of Joining:_ Agency Name: Address: City: County: 24-Hr. Telephone No.: Date of Update:_ Zip Code: Website: Authorized Representative Emergency Contact Info: Name:Telephone:--------- Cell Phone: E-Mail: Alternate Representative Emergency Contact: Name:Telephone:(----'-------'------- Cell Phone: E-Mail: Emergency Operations Center: Location: Radio Frequency: No.of Services: Telephone:---:...._------- Cell Phone: E-Mail: Call Signs: The information provided on this page will be included in the WARN web site (www.calwarn.org).(Back to signature page) ©CalWARN,2008 Quality Assurance Approval Sheet Document Description:_S)fl~f RE¥DRT RtD..\)BT1~b J'W~DVAl _<TD--"----=------''Sb"'''--'-'''--\'---'---)'4''---C=-,,---'--'L-::........:'W:....>L.oL.:-frR.!..-.-'-'B IN f1TfR../lll J:{)IE LU.k'S-eR..f]beN L'-}- RESf{)s~SC NFrWD~K.. Author:Date:J0 --111-)D Signature fi?tt",\2-BN D~~0 ~ Date:)fJ-ILf -}t7 I()-J~-~D'(:) Signature f~)'\~~\,\\)~D)4 Manager: Printed Name QA ReViewe~-J ~.t.g .i ~--Signature .~\~~<-AJj P~L Printed Name The above signatures attest that the attached document has been reviewed and to the best oftheir ability,the signers verify that it meets the District quality standard by clearly and concisely conveying the intended information;being grammatically COHect and free offormatting and typographical enOfS;accurately presenting calculated values and numerical references;and being internally consistent,legible and unifonn in its presentation style.