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HomeMy WebLinkAbout01-18-17 FA&C Committee Packet 1 OTAY WATER DISTRICT FINANCE, ADMINISTRATION AND COMMUNICATIONS COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA BOARDROOM WEDNESDAY January 18, 2017 12:00 P.M. This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1. ROLL CALL 2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU- RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA DISCUSSION ITEMS 3. APPROVE AN ENGAGEMENT LETTER WITH THE AUDITING FIRM OF TEAMAN, RAMIREZ AND SMITH, INC., TO PROVIDE AUDIT SERVICES TO THE DISTRICT FOR THE FISCAL YEAR ENDING JUNE 30, 2017 (BELL) [5 minutes] 4. ADOPT RESOLUTION NO. 4323 AMENDING POLICY NO. 45, THE DEBT POLICY, OF THE DISTRICT’S CODE OF ORDINANCES (DYCHITAN) [5 minutes] 5. ADOPT ORDINANCE NO. 560 AMENDING SECTION 27, REQUIREMENTS AND LIMITATIONS FOR OBTAINING WATER SERVICE, OF THE DISTRICT’S CODE OF ORDINANCES (MARTIN) [5 minutes] 6. ADOPT THE 2017 OTAY WATER DISTRICT LEGISLATIVE PROGRAM GUIDELINES (OTERO) [5 minutes] 7. ADJOURNMENT BOARD MEMBERS ATTENDING: Mark Robak, Chair Mitch Thompson 2 All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis- trict’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 par- ticipate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on January 13, 2017 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 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on January 13, 2017. ______/s/_ Susan Cruz, District Secretary _____ 1 OTAY WATER DISTRICT FINANCE, ADMINISTRATION AND COMMUNICATIONS COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA BOARDROOM WEDNESDAY January 18, 2017 12:00 P.M. This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1. ROLL CALL 2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU- RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA DISCUSSION ITEMS 3. APPROVE AN ENGAGEMENT LETTER WITH THE AUDITING FIRM OF TEAMAN, RAMIREZ AND SMITH, INC., TO PROVIDE AUDIT SERVICES TO THE DISTRICT FOR THE FISCAL YEAR ENDING JUNE 30, 2017 (BELL) [5 minutes] 4. ADOPT RESOLUTION NO. 4323 AMENDING POLICY NO. 45, THE DEBT POLICY, OF THE DISTRICT’S CODE OF ORDINANCE (DYCHITAN) [5 minutes] 5. ADOPT ORDINANCE NO. 560 AMENDING SECTION 27, REQUIREMENTS AND LIMITATIONS FOR OBTAINING WATER SERVICE, OF THE DISTRICT’S CODE OF ORDINANCES (MARTIN) [5 minutes] 6. ADOPT THE 2017 OTAY WATER DISTRICT LEGISLATIVE PROGRAM GUIDELINES (OTERO) [5 minutes] 7. ADJOURNMENT BOARD MEMBERS ATTENDING: Mark Robak, Chair Mitch Thompson 2 All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis- trict’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 par- ticipate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on January 13, 2017 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 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on January 13, 2017. ______/s/_ Susan Cruz, District Secretary _____ STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 1, 2017 SUBMITTED BY: Rita Bell, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Appointment of Auditor for Fiscal Year Ending June 30, 2017 GENERAL MANAGER’S RECOMMENDATION: That the Board authorize the General Manager to sign the engagement letters from the auditing firm of Teaman, Ramirez & Smith, Inc., to contract for audit services for fiscal year ending June 30, 2017. COMMITTEE ACTION: Please see Attachment A. PURPOSE: The District is required to retain the services of an independent accounting firm to perform an audit of the District’s financial records each year. ANALYSIS: At the Board meeting on January 7, 2014, the Board approved Teaman, Ramirez & Smith, Inc., as the District’s auditors for a 1-year contract, with four (4) 1-year options, with each option year subject to Board review and approval. On February 3, 2016, the Board authorized the General Manager to engage Teaman, Ramirez & Smith, Inc., for the second option year for the FY 2016 audit. Staff is recommending the appointment of Teaman, Ramirez & Smith, Inc. as the District’s auditors for FY 2017, in conjunction with the third 1-year contract option. This is based on their staff’s knowledge of the District’s operations and finances, their technical qualifications, and their performance as the District’s auditors during the fiscal years 2014, 2015, and 2016 audits. The audit will consist of four major components: 1) Standard audit services, to provide an audit opinion on the District’s financial statements; 2) Agreed upon procedures related to the District’s Investment Policy procedures, to issue a report on staff’s compliance with District policy; 3) A State Controllers Report, required by the State of California; and 4) Assistance in preparation of the District’s Comprehensive Annual Financial Report (CAFR). The following is a tentative planning schedule for the major activities involved in completing the FY 2017 financial audit:  May-2017: Pre-audit fieldwork (3–4 days).  Aug-2017: Year-end audit fieldwork (4–5 days).  Nov-2017: Board presentation of the audited financial statements.  Dec-2017: CAFR submission to Government Finance Officers Association (GFOA). FISCAL IMPACT: The fee for auditing services for the fiscal year ending June 30, 2017, will be $27,750. This is an increase of $750 over the prior year’s fee. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning, formalized financial policies, enhanced budget controls, fair pricing, debt planning, and improved financial reporting. LEGAL IMPACT: Required by law. Attachments: A) Committee Action Form B) Audit Engagement Letter C) State Controllers Report Engagement Letter D) Agreed Upon Procedures Engagement Letter ATTACHMENT A SUBJECT/PROJECT: Appointment of Auditor for Fiscal Year Ending June 30, 2017 COMMITTEE ACTION: The Finance, Administration and Communications Committee supported staff’s recommendation to the Board to appoint Teaman, Ramirez & Smith, Inc. as the District’s auditors for the fiscal year ending June 30, 2017. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board. ıTRS TEAMAN, RAMIREZ & SMITH, INC.cERïtf ItI) PlJ8tIC ÁCC0UilTAilTS December 16,2016 Joseph Beachem, Chief Financial Officer Otay Water District 2554 Sweetwater Springs Blvd Spring Valley, CA 91778-2004 We are pleased to confirm our understanding of the services we are to provide the Otay Water District (the "District") for the year ended June 30, 2017. We will audit the financial statements of the business- fype activities, and each major fund, including the related notes to the financial statements, which collectively comprise the basic financial statements, of the Otay Water District as of and for the year ended June 30, 2017. Accounting standards generally accepted in the United States provide for certain required supplementary information (RSI), such as management's discussion and analysis (MD&A), to supplement the District's basic financial statements. Such information, although not a part of the basic financial statements, is required by the Government Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical contest. As part of our engagement, we will apply certain limited procedures to the District's RSI in accordance with auditing standards generally accepted in the United States of America. These limited procedures willconsist principally of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The following RSI is required by generally accepted accounting principles and will be subjected to certain limited procedures, but will not be audited: 1. Management's Discussion and Analysis 2. Schedule of Funding Progress for DPHP 3. Schedule of Changes in the Net Pension Liability and Related Ratios4. Schedule of Contributions The following other information accompanying the financial statements will not be subjected to the auditing procedures applied in our audit of the financial statements, and for which our auditors' report will not provide an opinion or any assurance on that other information. 1. Introductory Section2. Statistical Section Audit Objectives The objective of our audit is the expression of opinions as to whether your financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles and to report on the fairness of the supplementary information refered to in the second paragraph when considered in relation to the financial statements as a whole. Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America and the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and will include tests of the accounting records of the District and other procedures we consider Richard A. Teaman, CPA o David M. Ram¡rez, CPA o Javier H. Carrillo, CPA o Bryan P. Daugherty, CPA o Joshua J. Calhoun, CpA 4201 Brockton Avenue Suite 100 Riverside CA 92501 951.274.9500 TEL 95L274.7828 FAX www.trscpas.com necessary to enable us to express such opinions. We will issue a written report upon completion of our audit of the District's financial statements. Our report will be addressed to the Board of Directors of the District. We cannot provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is necessary for us to modifi our opinions or add emphasis-of-matter or other-matter paragraphs. If our opinions on the financial statements are other than unmodified, we will discuss the reasons with you in advance. If, for any reason, we are unable to complete the audit or are unable to form or have not formed opinions, we may decline to express opinions or issue reports, or may withdraw from this engagement. We will also provide a report (that does not include an opinion) on internal control related to the financial statements and compliance with the provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the financial statements as required by Government Auditing Standards. The report on internal control and on compliance and other matters will include a paragraph that states (l) that the purpose ofthe report is solely to describe the scope oftesting of internal control and compliance, and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control on compliance, and (2)thatthe report is an integral part of an audit performed in accordance with Government Auditíng Standards in considering the District's internal control and compliance. The paragraph will also state that the report is not suitable for any other purpose. If during our audit we become aware that the District is subject to an audit requirement that is not encompassed in the terms of this engagement, we will communicate to management and those charged with governance that an audit in accordance with U,S. generally accepted auditing standards and the standards for financial audits contained in Government Auditing Standards may not satis$r the relevant legal, regulatory, or contractual requirements. Audit Procedures - General An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether from (l) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the District or to acts by management or employees acting on behalf of the District. Because the determination of abuse is subjective, Government Auditing Standards do not expect auditors to provide reasonable assurance of detecting abuse. Because of the inherent limitations of an audit, combined with the inherent limitations of internal control, and because we will not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us, even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards and Government Auditing Standards.In addition, an audit is not designed to detect immaterial misstatements or violations of laws or governmental regulations that do not have a direct and material effect on the financial statements. However, we will inform the appropriate level of management of any material enors or any fraudulent financial reporting or misappropriation of assets that come to our attention. We will also inform the appropriate level of management of any violations of laws or governmental regulations that come to our attention, unless clearly inconsequential, and of any material abuse that comes to our attention. Our responsibility as auditor is limited to the period covered by our audit and does not extent to later periods for which we are not engaged as auditors. B-l Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, funding sources, creditors, and financial institutions. We will request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit, we will require certain written representations from you about your responsibilities for the financial statements; compliance with laws, regulations, contracts, and grant agreements; and other responsibilities required by generally accepted auditing standards. Audit Procedures - Internal Controls Our audit will include obtaining an understanding of the District and its environment, including internal control sufficient to assess the risks of material misstatement of the hnancial statements and to design the nature, timing, and extent of further audit procedures. Tests of controls may be performed to test the effectiveness of certain controls that we consider relevant to preventing and detecting errors and fraud that are material to the financial statements and to preventing and detecting misstatements resulting from illegal acts and other noncompliance matters that have a direct and material effect on the financial statements. Our tests, if performed, will be less in scope than would be necessary to render an opinion on internal control and, accordingly, no opinion will be expressed in our report on internal control issued pursuant to Government Auditing Standards. An audit is not designed to provide assurance on internal control or to identiff significant deficiencies or material weaknesses. However, during the audit, we will communicate to management and those charged with governance internal control related matters that are required to be communicated under AICPA profes s ional standards and G ov e r nm e nt Audit ing S t and ar ds . Audit Procedures - Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the District's compliance with the provisions of applicable laws, regulations, contracts, agreements, and grants. However, the objective of our audit will not be to provide an opinion on overall compliance and we will not express such an opinion in our report on compliance issued pursuant fo Government Auditing Standards. Other Services We will also assist in preparing the financial statements and related notes of the District in conformity with U.S. generally accepted accounting principles and prepare the State Controllers Report (see separate engagement letter) in conformity of the requirements of the California State Controller's Office based on information provided by you. These nonaudit services do not constitute an audit under Government Auditing Standards and such services will not be conducted in accordance with Government Auditing Standards. We will perform the services in accordance with applicable professional standards. The other services are limited to the financial statement services previously defined. We, in our sole professional judgment, reserve the right to refuse to perform any procedure or take any action that could be construed as assuming management responsibilities. B-l Management ResponsÍbilities Management is responsible for establishing and maintaining effective internal controls, including evaluating and monitoring ongoing activities, to help ensure that appropriate goals and objectives are met; following laws and regulations; and ensuring that management is reliable and financial information is reliable and properly reported. Management is also responsible for implementing systems designed to achieve compliance with applicable laws, regulations, contracts, and grant agreements. You are also responsible for the selection and application of accounting principles, for the preparation and fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles, and for compliance with applicable laws and regulations and the provisions of contracts and grant agreements. Management is also responsible for making all financial records and related information available to us and for the accuracy and completeness of that information. You are also responsible for providing us with (1) access to all information of which you are aware that is relevant to the preparation and fair presentation of the financial statements, (2) additional information that we may request for the purpose of the audit, and (3) unrestricted access to persons within the government from whom we determine it necessary to obtain audit evidence. Your responsibilities include adjusting the financial statements to correct material misstatement and for confirming to us in the written representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. You are responsible for the design and implementation of programs and controls to prevent and detect fraud, and for informing us about all known or suspected fraud affecting the District involving (1) management, (2) employees who have significant roles in internal control, and (3) others where the fraud or illegal acts could have a material effect on the financial statements. Your responsibilities include informing us of your knowledge of any allegations of fraud or suspected fraud affecting the District received in communications from employees, former employees, grantors, regulators, or others. In addition, you are responsible for identi$ing and ensuring that the District complies with applicable laws, regulations, contracts, agreements, and grants for taking timely and appropriate steps to remedy any fraud and noncompliance with provisions of laws, regulations, contracts or grant agreements, or abuse that we report. You are responsible for the preparation of the supplementary information, which we have been engaged to report on, in conformity with U.S. generally accepted accounting principles. You agree to include our report on the supplementary information in any document that contains and indicates that we have reported on the supplementary information. You also agree to include the audited financial statements with any presentation of the supplementary information that includes our report thereon or make the audited financial statements readily available to users of the supplementary information no later than the date the supplementary information is issued with our report thereon. Your responsibilities include acknowledging to us in the written representation letter that (l) you are responsible for presentation of the supplementary information in accordance with GAAP; (2) you believe the supplementary information, including its form and content, is fairly presented in accordance with GAAP; (3) the methods of measurement or presentation have not changed from those used in the prior period or if they have changed the reasons for such changes; and (4) you have disclosed to us any significant assumptions or interpretations underlying the measurement or presentation of the supplementary information. B-l Management is responsible for establishing and maintaining a process for tracking the status of audit findings and recommendations. Management is also responsible for identifying and providing report copies of previous financial audits, attestation engagements, performance audits or other studies related to the objectives discussed in the Audit Objectives section of this letter. This responsibility includes relaying to us corrective actions taken to address significant findings and recommendations resulting from those audits, attestation engagements, performance audits, or other studies. You are also responsible for providing management's views on our current findings, conclusions, and recommendations, as well as your planned corrective actions, for the report, and for the timing and format for providing that information. You agree to assume all management responsibilities relating to the financial statements and related notes and any other nonaudit services we provide. You will be required to acknowledge in the management representation letter our assistance with preparation of the financial statements and related notes and that you have reviewed and approved the financial statements and related notes prior to their issuance and have accepted responsibility for them. Further, you agree to oversee the nonaudit services by designating an individual, preferably from senior management, with suitable skill, knowledge, or experience; evaluate the adequacy and results of those services; and accept responsibility for them. With regard to the electronic dissemination of audited financial statements, including financial statements published electronically on your website, you understand that electronic sites are a means to distribute information and, therefore, we are not required to read the information contained in these sites or to consider the consistency of other information in the electronic site with the original document. With regard to the electronic dissemination of audited financial statements, including financial statements published electronically on your website, you understand that electronic sites are a means to distribute information and, therefore, we are not required to read the information contained in these sites or to consider the consistency of other information in the electronic site with the original document. Engagement Administration, X'ees, and Other We understand that your employees will prepare all cash or other confirmations we request and will locate any documents selected by us for testing. We will provide copies of our reports to the District; however, management is responsible for distribution of the reports and the financial statements. Unless restricted by law or regulation, or containing privileged and confidential information, copies of our reports are to be made available for public inspection. The audit documentation for this engagement is the property of Teaman, Ramirez & Smith, Inc. and constitutes confidential information. However, pursuant to authority given by law or regulation, we may be requested to make certain audit documentation available to grantor agencies or their designee, a federal agency providing direct or indirect funding, or the U.S. Government Accountability Office for purpose of a quality review of the audit, to resolve audit findings, or to carry out oversight responsibilities. We will notify you of any such request. If requested, access to such audit documentation will be provided under the supervision of our firm. Furthermore, upon request, we may provide copies of selected audit documentation to the aforementioned parties. These parties may intend, or decide, to distribute the copies or information contained therein to others, including other governmental agencies. In such cases, Teaman, Ramirez & Smith, Inc. is not responsible for the distribution of the copies or information contained therein. B-l The audit documentation for this engagement will be retained for a minimum of five years after the report release date or for any additional period requested by a grantor or federal agency. If we are aware that a federal awarding agency or auditee is contesting an audit finding, we will contact the party(ies) contesting the audit finding for guidance prior to destroying the audit documentation. We expect to begin our final audit fieldwork approximately in August 2017 and to issue our reports approximately in October 2017. Richard Teaman is the engagement partner and is responsible for supervising the engagement and signing the reports or authorizing another individual to sign them. Our fee for these services will be $27 ,750. Our invoices for these fees will be rendered as work progresses and are payable on presentation. If we elect to terminate our services for nonpayment, our engagement will be deemed to have been completed upon written notification of termination, even if have not completed our report. You will be obligated to compensate us for all time expended through the date of termination. The above fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. We appreciate the opportunity to be of service to the Otay Water District and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us. Very truly yours, TEAMAN, RAMIREZ & SMITH,INC. Richard A. Teaman Certified Public Accountant RESPONSE This letter correctly sets forth the understanding of the Otay Water District. By: Title: Date: (î. B-l ıf RS FflYî,t',*iM' ffr r,TY,lII' ^' il,"d December 16,2016 Joseph Beachem, Chief Financial Officer Otay Water District 2554 Sweetwater Springs Blvd Spring Valley, CA 91778-2004 Dear Joseph: We are pleased to confirm our understanding of the services we are to provide for the year ended June 30, 2017. We will prepare the Annual Financial Transactions Report (State Controller's Report) of the Otay Water District (the "District"), which comprise the balance sheet as of June 30,2017, and the related statements of revenue and expenses and changes in fund equity for the year then ended, and perform a compilation engagement with respect to the State Controller's Report. V/e will also assist in preparing the supplementary information that accompanies the State Controller's Report which is additional information requested by the California State Controller. The supplementary information will be compiled from information that is the representation of management. It is our understanding that the Government Compensation in Califomia (GCC) Report will be prepared and submitted by management. Our Responsibilities The objective of our engagement is to- l) prepare the State Controller's Report and supplementary information (excluding the GCC Report) in accordance with the requirements prescribed by the Califomia State Controller based on information provided by you and 2) apply accounting and financial reporting expertise to assist you in the presentation of financial information in the forms prescribed by the Califomia State Controller without undertaking to obtain or provide any assurance that there are no material modifications that should be made to those form in order for them to be in accordance with the requirements prescribed by the Califomia State Controller. We will conduct our compilation engagement in accordance with Statements on Standards for Accounting and Review Services (SSARS) promulgated by the Accounting and Review Services Committee of the AICPA and comply with applicable professional standards, including the AICPA's Code of Professionql Conducl and its ethical principles of integrity, objectivity, professional competence, and due care, when performing the services, preparing the State Controller's Report, supplementary information (excluding the GCC Report), and performing the compilation engagement. We are not required to, and will not, veri$r the accuracy or completeness of the information you will provide to us for the engagement or otherwise gather evidence for the purpose of expressing an opinion or a conclusion. Accordingly, we will not express an opinion or a conclusion nor provide any assurance on the State Controller's Report and supplementary information. Our engagement cannot be relied upon to identify or disclose any misstatements in the State Controller's Report, and supplementary information including those caused by fraud or elror, or to identi$, or disclose any wrongdoing within the District or noncompliance with laws and regulations. However, we will inform the appropriate level of management of any material errors and any evidence or information that comes to our attention during the performance of our procedures that fraud may have occurred. In addition, we will inform you of any evidence or Richard A. Teaman, CPA o David M. Ramirez, CPA o Javier H. Carr¡llo, CPA o Bryan P. Daugherty, CPA o Joshua J. Calhoun, CpA 4201 Brockton Avenue Su¡te 100 Rivers¡de CA 92501 951.274.9500 TEL 95I.274.7828 FAX www.trscpas.com information that comes to our attention during the performance of our compilation procedures regarding any wrongdoing within the District or noncompliance with laws and regulations that may have occurred, unless they are clearly inconsequential. We have no responsibility to identifii and communicate deficiencies or material weaknesses in your intemal control as part of this engagement. We, in our sole professional judgment, reserve the right to refuse to perform any procedure or take any action that could be construed as assuming management responsibilities. Your Responsibilities The engagement to be performed is conducted on the basis that you acknowledge and understand that our role is to assist you in the presentation of the State Controller's Report and supplementary information (excluding the GCC Report) in accordance with the requirements prescribed by the California State Controller. You have the following overall responsibilities that are fundamental to our undertaking the engagement in accordance with SSARS: 1) The preparation and fair presentation of the State Controller's Report and supplementary information in accordance with the requirements prescribed by the Califomia State Controller and the inclusion of all related informative disclosures that are appropriate, if applicable. 2) The design, implementation, and maintenance of intemal control relevant to the preparation and fair presentation of the State Controller's Report and supplementary information. 3) The prevention and detection of fraud. 4) To ensure that the District complies with the laws and regulations applicable to its activities. 5) The accuracy and completeness of the records, documents, explanations, and other information, including significant judgments, you provide to us for the engagement. 6) To provide us with- access to all information of which you are aware that is relevant to the fair presentation of the State Controller's Report and supplementary information, such as records, documentation, and other matters. a o additional information that we may request from you for the purpose of the compilation engagement. o unrestricted access to persons within the entity of whom we determine it necessary to make inquiries. 7) To include our compilation report in any document containing the State Controller's Report and supplementary information (excluding the GCC Report) that indicates we have performed a compilation engagement on such prescribed forms and, prior to inclusion of the report, to ask our permission to do so. You are also responsible for all management decisions and responsibilities and for designating an individual with suitable skills, knowledge, and experience to oversee our services and the preparation of your State Controller's Report and supplementary information (excluding the GCC Report). You are responsible for evaluating the adequacy and results ofthe services performed and accepting responsibility for such services. Our Report As part of our engagement, we will issue a report that will state that we did not audit or review the State Controller's Report and that, accordingly, we do not express an opinion, a conclusion, or provide any assurance on them. If, for any reason, we are unable to complete the compilation of your State Controller's Report and supplementary information (excluding the GCC Report), we will not issue a report on such prescribed forms as a result of this engagement. Other Relevant Information Richard Teaman is the engagement partner and is responsible for supervising the engagement and signing the report or authorizing another individual to sign it. Our fee to prepare the report is included in the fee quoted in the engagement letter to conduct the June 30, 2017 financial audit of the Disfict dated December 16,2016. The fee is based on anticipated cooperation from your personnel and the assumption that unexpected circumstances will not be encountered during the work performed. If sigrrificant additional time is necessary, we will discuss it with you and anive at a new fee estimate before we incur the additional costs. We appreciate the opportunity to be of service to you and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as prescribed in this letter, please sign the enclosed copy and return it to us. Very truly yours, TEAMAN, RAMIREZ & SMITH, INC. â. Richard A. Teaman Certified Public Accountant RESPONSE: This letter conectly sets forth the understanding of the Otay Water District. By Title: Date ıf RS FflYlT',"iM' ffr r,lvtTl'^' ilR December 16,2016 Joseph Beachem, Chief Financial Officer Otay Water District 2554 Sweetwater Springs Blvd Spring Valley, CA 91778-2004 Dear Joseph: We are pleased to confirm our understanding of the nature and limitations of the services we are to provide for the Otay Water District (the "District"). We will apply the agreed-upon procedures which the District's management has specified, listed in the attached schedule, for the investments of the District for the fiscal year ending June 30, 2017 (prepared in accordance with generally accepted accounting principles). This engagement is solely to assist the District's management in evaluating the compliance with the District's investment policy. Our engagement to apply agreed-upon procedures will be conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of those parties specified in the report. Consequently, we make no representation regarding the sufficiency of the procedures described in the attached schedule either for the purpose for which this report has been requested or for any other purpose. Iffor any reason, we are unable to complete the procedures, we will describe any restrictions on the performance of the procedures in our report, or will not issue a report as a result of this engagement. Because the agreed-upon procedures listed in the attached schedule do not constitute an examination, we will not express an opinion on the Dishict's investments or any elements, accounts, or items thereof. In addition, we have no obligation to perform any procedures beyond those listed in the attached schedule. We will submit a report listing the procedures performed and our findings. This report is intended solely for the information and use of the District, and is not intended to be and should not be used by anyone other than this specified party. Our report will contain a paragraph indicating that had we performed additional procedures, other matters might have come to our attention that would have been reported to you. You are responsible for the presentation of the investments of the District in accordance with generally accepted accounting principles; and for selecting the criteria and determining that such criteria are appropriate for your purposes. You are responsible for assuming all management responsibilities and for overseeing any nonattest services we provide by designating an individual, preferably within senior management, who possesses suitable skill, knowledge, and/or experience. In addition, you are responsible for evaluating the adequacy and results of the services performed and accepting responsibility for the results of such services. Richard A. Teaman is the engagement partner and is responsible for supervising the engagement and signing the report or authorizing another individual to sign it. R¡chard A. Teaman, CPA o David M. Ramirez, CPA o Javier H. Carrillo, CPA t Bryan P. Daugherty, CPA o Joshua J. Calhoun, CpA 4201 Brockton Avenue Suite 100 Riverside CA 92501 951.274.9500T8L 951.274.7828FAX www.trscpas.com We plan to begin our procedures in approximately August 2017 and, unless unforeseeable problems encountered, the engagement should be completed in October 2017. At the conclusion of our engagement, we will require a representation letter from management that, among other things, will confirm management's responsibility for the presentation of the investments of the District in accordance with generally accepted accounting principles. Our fees for these services will be $1,500 and is included in the fee quoted in the engagement letter to conduct the June 30, 2017 financial audit of the District dated December 16,2016. The fee is based on anticipated cooperation your personnel and the assumption that unexpected circumstances will not be encountered during the engagement. If significant additional time is necessary, we will discuss it with you and arive at a new fee before we incur the additional costs. We appreciate the opportunity to assist you and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and retum it to us. Ifthe need for additional services arises, our agreement with you will need to be revised. It is customary for us to enumerate these revisions in an addendum to this letter. If additional specified parties of the report are added, we will require that they acknowledge in writing their responsibility for the sufficiency of procedures. Very truly yours, TEAMAN, RAMIREZ & SMITH,INC pJ ú,'J.*'-u^ Richard A. Teaman Certified Public Accountant RESPONSE: This letter correctly sets forth the understanding of the Otay Water District. Title Date Otay Water District Agreed-Upon Procedures Investments 1. Obtain a copy of the District's investment policy and determine that it is in effect for the fiscal year ended June 30, 2017. 2. Select 4 investments held at year end and determine if they are allowable investments under the District's Investment Policy. 3. For the four investments selected n#2 above, determine if they are held by a third parly custodian designated by the District. 4. Confirm the part or original investment amount and market value of the four investments selected above with the custodian or issuer of the investments. 5. Select two investment earnings transactions that took place during the year and recomputed the earnings to determine if they proper amount was received. 6. Trace amounts received for transactions selected at #5 above into the District's bank accounts. 7. Select five investment transactions (buy, sell, trade, or maturity) occurring during the year under review and determine that the transactions are permissible under the District's investment policy. 8. Review supporting documentation for the five investments selected at #7 above to determine if the transactions were appropriately recorded in the District's general ledger. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 1, 2017 SUBMITTED BY: Marissa Dychitan, Senior Accountant PROJECT: DIV. NO. All APPROVED BY: Rita Bell, Finance Manager Joseph R. Beachem, Chief Financial Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Adopt Resolution No. 4323 Amending Policy No. 45, the Debt Policy, of the District’s Code of Ordinances GENERAL MANAGER’S RECOMMENDATION: That the Board adopt Resolution No. 4323 amending Policy No. 45, the Debt Policy, of the District’s Code of Ordinances. COMMITTEE ACTION: See Attachment A. PURPOSE: The Debt Policy is being updated in an effort to reflect the current debt standards and environment. The proposed Debt Policy (Attachment C) revises and expands upon the existing Policy (Exhibit 1) that was previously approved by the Board on September 4, 2013. ANALYSIS: Senate Bill 1029 Section 2(i)(1)states “The issuer of any proposed debt issue of state or local government shall, no later than 30 days prior to the sale of any debt issue, submit a report of the proposed issuance to the commission by any method approved by the commission.” The report of proposed debt issuance shall include a certification by the issuer that it has adopted local debt policies concerning the use of debt and that the contemplated debt issuance is consistent with those local debt policies. A local debt policy shall include all of the following: 1. The purposes for which the debt proceeds may be used. 2. The types of debt that may be issued. 3. The relationship of the debt to, and integration with, the issuer’s capital improvement program or budget, if applicable. 4. Policy goals related to the issuer’s planning goals and objectives. 5. The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use. The following proposed changes have been added to comply with the above law: Section 14.0 - Internal Control By adopting this policy the following procedures will be added to the Debt Policy. These processes have already been in place to ensure that the proceeds of the proposed debt issuance will be directed to the intended use: 1. A separate Reserve/Cash Account shall be maintained for the proceeds of each bond to ensure that there is no comingling of funds. 2. All related expenditure charges against the bond proceeds shall be properly approved by the authorized authority. 3. All related transactions shall be fully documented so that an undisputable audit trail exists. 4. All related transactions shall be tracked in the District’s accounting system. A financial report reflecting all charges related to the bond shall be prepared and maintained. 5. The District shall establish a retention policy which states that all supporting documents related to bond proceeds spending shall be kept indefinitely. 6. The reserve account shall be reconciled on a monthly basis. Sections 15.0 through 18.0 have been renumbered to reflect the addition of Section 14.0 above. The policy is consistent with the current law and the overall objectives of the policy are being met. FISCAL IMPACT: Joe Beachem, Chief Financial Officer A debt policy improves the quality of decisions, provides guidelines for the structure of debt issuance, and demonstrates a commitment to long-term capital and financial planning. Adherence to a debt policy signals to rating agencies and capital markets that the District is well managed and therefore is likely to meet its debt obligations. The District’s fiscal budgeting process includes a five-year projection of debt financing needs. According to the FY 2017 budget, the District does not foresee issuing debt for potable and recycled water projects, but identifies the need for financing in fiscal 2018 for sewer projects. The District uses the Debt Coverage ratio as a Key Performance Indicator for evaluating the financial ability to repay debt. The District has a debt covenant requiring a ratio of at least 125%. The actual ratio for fiscal 2016 was 171%. The District currently maintains an AA-/AA rating. STRATEGIC GOAL: Demonstrate financial health through formalized policies, prudent investing, and efficient operations. The strategic plan measurement goal for fiscal 2017 is to obtain a debt coverage ratio of 196%. LEGAL IMPACT: None. Attachments: A) Committee Action B) Resolution No. 4323 Exhibit 1: Strike-through Debt Policy C) Proposed Debt Policy D) Presentation ATTACHMENT A SUBJECT/PROJECT: Adopt Resolution No. 4323 Amending Policy No. 45, the Debt Policy, of the District’s Code of Ordinances COMMITTEE ACTION: The Finance, Administration and Communications Committee recommend that the Board adopt Resolution No. 4323 amending Policy No. 45, the Debt Policy, of the District’s Code of Ordinances. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board. Page 1 of 2 RESOLUTION NO. 4323 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT AMENDING DEBT POLICY NO. 45 OF THE DISTRICT’S CODE OF ORDINANCES WHEREAS, the Otay Water District Board of Directors has been presented with an amended Debt Policy No. 45 of the District’s Code of Ordinances for the financial management of the Otay Water District; and WHEREAS, the amended Debt Policy has been reviewed and considered by the Board, and it is in the interest of the District to adopt the amended Debt Policy; and WHEREAS, the strike-through copy of the proposed policy is attached as Exhibit 1 to this resolution; and NOW, THEREFORE, BE IT RESOLVED, DETERMINED AND ORDERED by the Board of Directors of the Otay Water District that the amended Debt Policy, incorporated herein as Attachment C, is hereby adopted. PASSED, APPROVED AND ADOPTED by the Board of Directors of Otay Water District at a board meeting held this 1st day of February 2017, by the following vote: Ayes: Noes: Abstain: Absent: ________________________ President Attachment B Page 2 of 2 ATTEST: ____________________________ District Secretary OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 1 of 23 1.0: POLICY It is the policy of the Otay Water District to finance the acquisition of high value assets that have an extended useful life through a combination of current revenues and debt financing. Regularly updated debt policies and procedures are an important tool to insure the use of the District’s resources to meet its commitments, to provide the highest quality of service to the District’s customers, and to maintain sound financial management practices. These guidelines are for general use and allow for exceptions as circumstances dictate. 2.0: SCOPE This policy is enacted in an effort to standardize the issuance and management of debt by the Otay Water District. The primary objective is to establish conditions for the use of debt, to minimize the District’s debt service requirements and cost of issuance, to retain the highest practical credit rating, maintain full and complete financial disclosure and reporting, and to maintain financial flexibility for the District. This policy applies to all debt issued by the District including general obligation bonds, revenue bonds, capital leases and special assessment debt. 3.0: LEGAL & REGULATORY REQUIREMENTS The Chief Financial Officer (CFO) and the District’s Legal Counsel will coordinate their activities to ensure that all securities are issued in full compliance with Federal and State law. 4.0: CAPITAL FACILITIES FUNDING Financial Planning The District maintains a six-year financial projection that identifies operating requirements and public facility and equipment requirements, and has developed a Rate Model for funding the District’s 6-Year Capital Improvement Program (CIP). The District’s CIP Budget places the capital requirements in order of priority and schedules them for funding and implementation. It identifies a full range of capital needs, provides for the ranking of the importance of such needs, and identifies all the funding sources that are available to cover the costs of the projects. In cases where the program identifies project funding through the use of debt financing, the budget should provide OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 2 of 23 information needed to determine debt capacity. The Rate Model and the CIP Budget give the Board part of the data needed to make informed judgments concerning the possibility of issuing debt. Funding Criteria The Chief Financial Officer (CFO) will evaluate all capital project requests and develop a proposed funding plan. Priority may be given to those projects that can be funded with current resources (annual cash flow, fund balances or reserves). Those projects that cannot be funded with current resources may be deferred or the CFO may recommend that they be funded with debt financing. However, debt financing will not be considered appropriate for any recurring purpose such as current operating and maintenance expenditures. The issuance of short-term cash-flow instruments is excluded from this limitation. The General Manager will recommend the funding plan to the Board. The General Manager may deem it necessary or desirable in certain circumstances to convene a Finance Committee meeting to evaluate funding options presented by the Chief Financial Officer. Funding Sources The District’s capital improvements can be classified in three categories: those related to an expansion of the system (“expansion”), those related to upgrading the existing system (“betterment”) and those related to repairing or replacing existing infrastructure (“replacement”). In general, capital improvements for betterment or replacement are financed primarily through user charges, availability charges, and betterment charges. Capital improvements for expansion are financed through capacity fees. Accordingly, these fees are reviewed at least annually or more frequently as required and set at levels sufficient to ensure that new development pays its fair share of the costs of constructing necessary infrastructure. Additionally, the District will seek State and Federal grants and other forms of intergovernmental aid wherever possible. Pay-As-You-Go Projects The District’s capacity fees are the major funding source in financing additions to the water system and the recycled water system. Over time, the fees collected and the cost to construct the capital projects should balance. However, collection of these fees is subject to significant fluctuation based on the rate of new development. Accordingly, the Chief Financial Officer, in developing the funding OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 3 of 23 plan for the CIP, will determine that current revenues and adequate fund balances are available so project phasing can be accomplished. If this is not the case, the Chief Financial Officer may recommend that: 1. The project be deferred until funds are available, or 2. Based on the priority of the project, long-term debt is issued to finance the project. Debt Financed Projects If a project or projects are to be financed with long-term debt, the District should use the following criteria to evaluate the suitability of the financing for the particular project or projects: 1. The life of the project or asset to be financed is 10 years or longer and its useful life is expected to exceed the term of the financing. 2. Revenues available for debt service are deemed to be sufficient and reliable so that long-term financing can be marketed without jeopardizing the credit rating of the District. 3. Market conditions present favorable interest rates and demand for District financing. 4. The project is mandated by State and/or Federal requirements and current resources are insufficient or unavailable. 5. The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable. 5.0: DEBT STRUCTURE General The District will normally issue debt with a maturity of not more than 30 years. The structure should approximate level debt service for the term where it is practical or desirable. There will be no debt structures that include increasing debt service levels in subsequent years, with the first and second year of a debt payoff schedule the exception and related to projected additional income to be generated by the project to be funded. There will be no "balloon" debt repayment schedules that consist of low annual payments and one large payment of the balance due at the end of the term. There will always OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 4 of 23 be at least interest paid in the first fiscal year after debt issuance and principal starting no later than the first fiscal year after the date the facility or equipment is expected to be placed in service. Capitalized interest will not be for a period of more than necessary to provide adequate security for the financing. Limitations on the Issuance of Variable Rate Debt The District will normally issue debt with a fixed rate of interest. The District may issue variable rate for the purpose of managing its interest costs. At the same time, the District should protect itself from too much exposure to interest rate fluctuations. In determining that it is in the District’s best interest to issue certain debt at variable rates instead of fixed rates, at the time of issuing any variable rate debt, there should be at least a 10% estimated reduction in annual debt costs by issuing variable rate debt when compared to a similar issuance of fixed rate debt. If the estimated overall cost savings from issuing variable rate debt is not at least 10% at the time of issuance, relatively small fluctuations in rates could actually increase the District’s financing costs over the life of the bonds compared to a similar fixed rate financing. By using this 10% factor at the time of issuance, the District can be relatively assured that its variable rate financing will be cost-effective over the term of the bonds. The comparison will be based on the following criteria: 1. The interest rate used to estimate variable interest costs will be the higher of the 10 year average rate or the current weekly variable rate. 2. The variable rate debt costs will include an estimate for annual costs such as letter of credit fees, liquidity fees, remarketing fees, monthly draw fees and annual rating fees applicable to the letter of credit. 3. Any potential reserve fund earnings will reduce the fixed rate debt service or variable rate debt service as applicable. Periodically, using the criteria described above, the Chief Financial Officer will compare the estimated annual debt service costs to maturity of any variable rate debt with estimated debt service if the debt was converted to fixed rates. If this analysis produces a break even in total payments over the life of the issue, the Chief Financial OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 5 of 23 Officer will recommend converting such variable rate debt to fixed rate. Variable rate debt should not represent more than 25% of the District’s total debt portfolio. This level of exposure to interest rate fluctuations is considered to be manageable in an environment of increasing interest rates. At a higher ratio than this, the District might be faced with an unplanned water rate increase to meet its Rate Covenants. Rating agencies use this ratio in their analysis of the District’s overall credit rating. Further, Rate Covenants applicable to variable rate debt shall not compromise the issuance of additional debt planned by the District and variable rate debt should always contain a provision to allow conversion to a fixed rate at the District’s option. 6.0: CREDIT OBJECTIVES The Otay Water District seeks to maintain the highest possible credit ratings for all categories of long-term debt that can be achieved without compromising delivery of basic services and achievement of District policy objectives. Factors taken into account in determining the credit rating for a financing include: 1. Diversity of the District’s customer base. 2. Proven track record of completing capital projects on time and within budget. 3. Strong, professional management. 4. Adequate levels of staffing for services provided. 5. Reserves. 6. Ability to consistently meet or exceed Rate Covenants. The District recognizes that external economic, natural, or other events may from time to time affect the creditworthiness of its debt. Nevertheless, the District is committed to ensuring that actions within its control are prudent and well planned. 7.0: COMPETITIVE AND NEGOTIATED SALE CRITERIA Competitive Sale OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 6 of 23 The District will use a competitive bidding process in the sale of debt unless the nature of the issue or specific circumstances warrants a negotiated sale. The CFO will determine the best bid in a competitive sale by calculating the true interest cost (TIC) of each bid. Negotiated Sale Types of debt that would typically lend themselves to the negotiated sale format are variable rate debt and unrated debt. Circumstances that might warrant a negotiated sale may occur when the issue is of a limited size that would not attract wide-spread investor interest, during periods of high levels of issuance by other entities in the State, or during periods of market volatility or with relatively new financing techniques. In the event the District decides to use a negotiated sale, it will pay management fees only to those firms that place orders for bonds. If the size of the District’s proposed issue is not cost effective, the District may also consider issuing its debt by private placement or through any qualified Joint Power Authority (JPA) in the State of California whose principal business is issuing bonds. 8.0: REFUNDING DEBT Purpose Periodic reviews of all outstanding debt will be undertaken by the Chief Financial Officer to determine refunding (refinancing) opportunities. The purpose of the refinancing may be to: 1. Lower annual debt service by taking advantage of lower current interest rates. 2. Update or revise covenants on outstanding debt issue if a Rate Covenant appears to be too high, has precluded the District from implementing its financing plan, or has caused the District to increase rates to customers. 3. Restructure debt service associated with an issue to facilitate the issuance of additional debt, usually in order to smooth out peaks in total debt service which can occur frequently as one debt issue is layered on top of existing debt issues. 4. Alter bond characteristics such as call provisions or payment dates. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 7 of 23 5. Pay for conversion costs such as funding a reserve fund or paying for credit enhancement when converting variable rate debt to fixed rate debt. Restrictions on Refunding Tax-exempt bonds typically have provisions that preclude early redemption of the bonds for a period of years after issuance. The number of times a tax-exempt bond can be refinanced prior to its Optional Redemption date (known as Advance Refunding) is limited by the IRS. For debt issued after 1986, issuers may only provide for Advance Refunding of obligations in advance of the Optional Redemption date one time. There is no limit by the IRS on the ability of issuers to redeem bonds early once the Optional Redemption date has been reached (known as Current Refunding). Savings Criteria In cases where an Advance Refunding or Current Refunding is intended to provide debt service savings, the District may commence the refinancing process if a minimum five percent (5%) present value savings net of issuance costs and any cash contributions can be demonstrated. Since interest rates may fluctuate between the time when a refinancing is authorized and when the debt is issued, beginning the process with at least a 5% savings should provide the District with some level of protection that it can achieve a minimum of three percent (3%) net present value savings of the refunding bonds when and if the debt is issued. These minimum standards are intended to protect the District staff from spending time on refinancings that become marginally cost-effective after the entire issuance process is complete. The savings target may be waived, however, if sufficient justification for lowering the savings target can be provided by meeting one or more of the other refunding objectives described above. 9.0: SUBORDINATE LIEN DEBT The District will issue subordinate lien debt only if it is financially beneficial to the District or consistent with creditworthiness objectives. Subordinate lien debt is structured to be payable second in priority to the District’s other outstanding debt. Typically, subordinate lien debt might be issued if the District desired a more flexible Rate Covenant with respect to its new OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 8 of 23 obligations and did not want to refinance all of its existing debt to obtain that less restrictive Rate Covenant. 10.0: FINANCING PARTICIPANTS The District’s purchasing guidelines provide the process for securing professional services related to individual debt issues. The solicitation and selection process include encouraging participation from qualified service providers, both local and national, and securing services at competitive prices. Financial Advisor: The use of a Financial Advisor is necessary for the sale of debt by a competitive bid process and is desirable when issuing debt through a negotiated sale. The Financial Advisor has a fiduciary duty to the District and will seek to structure the District’s debt in the manner that is saleable, yet meets the District’s objectives for the financing. The Financial Advisor will advise the District on alternative structures for its debt, the cost of different debt structures and potential pricing mechanisms that can be expected from underwriters (such as call features, term bonds and premium and discount bond pricing) and, at the District’s direction, will write the offering document (preliminary official statement). With respect to competitive sales, the Financial Advisor will arrange for distributing the preliminary official statement, accepting bids via an internet bidding platform, verifying the lowest bid and provide detailed instructions for the flow of funds at closing to the winning Underwriter, the Trustee and the District. In a negotiated sale, the Financial Advisor will provide independent confirmation on the Underwriter’s proposed pricing to ensure that interest rates and Underwriter’s compensation are appropriate for the credit quality of the issue and competitive in the overall public finance market in California. Underwriter: The Underwriter markets the bonds for sale to investors. While the District’s preference is to select the Underwriter for the debt via sale of the debt at competitive bid, there are circumstances when a negotiated issue is in the best interests of the District. Negotiated sales are preferable if the security features are particularly complex or market conditions are volatile. The Chief Financial Officer will recommend whether the method of sale is competitive or negotiated based on the type of issue and other market conditions. In the case of negotiated sales, the Underwriter will be required to demonstrate sufficient capitalization and sufficient experience related to the specific type of debt issuance. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 9 of 23 The Underwriter will work in connection with the District’s Financial Advisor on structuring the issue and offering different pricing ideas. Bond Counsel: The District’s Bond Counsel provides the primary legal documents that detail the security for the bonds and the authority under which bonds are issued. The Bond Counsel also provides an opinion to bond holders that the bonds are tax-exempt under both State and Federal law. All closing documents in connection with an issue are also prepared by Bond Counsel. Disclosure Counsel: The District’s Disclosure Counsel provides legal advice to the District regarding the adequacy of the District’s disclosure of financial information or risks of investing in the District’s debt issue to the investing public. The Disclosure Counsel can prepare the official statement or review the official statement and gives the District an opinion that there is no information missing from the official statement of a material nature that would be necessary for an investor to make an informed decision about investing in the District’s bonds. Trustee: The Trustee is a financial institution selected by the District to administer the collection of revenues pledged to repay the bonds and to distribute those funds to bondholders. Letter of Credit Bank: The Letter of Credit Bank is a U.S. or foreign bank that has issued a letter of credit providing both credit enhancement (the Letter of Credit Bank will pay the debt in the event that the District defaults on the payment) and liquidity for a variable rate bond issue. These banks have their own short-term credit rating, which can be higher than the District’s short-term credit rating. Liquidity is needed because variable rate bondholders are allowed to “put” their bonds back to the District if they do not like the interest rate currently being offered. The District’s Remarketing Agent then finds a new buyer for those bonds, but in the event that no buyer is found, a draw is made under the letter of credit to purchase the bonds that have been “put.” As soon as the bonds are remarketed to another buyer, the letter of credit is repaid. The letter of credit fees are paid annually or quarterly. Letter of credits are typically issued for not more than 3 years and must be renewed during the life of the bonds. Credit enhancement is discussed further under the heading “CREDIT ENHANCEMENT.” Municipal Bond Insurer: The Municipal Bond Insurer can be one of several insurance companies that provide municipal bond insurance OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 10 of 23 policies securing payment of the District’s debt. These policies provide that the Municipal Bond Insurer will pay the District’s debt in the event that the District defaults on its payments. Debt which is insured carries the Municipal Bond Insurer’s credit rating. The insurance premium for the bond insurance policy is paid one time at the issuance of the debt and is non-cancelable for the term of the debt. Unlike a letter of credit, bond insurance policies do not provide liquidity and are most typically purchased for fixed rate debt. Remarketing Agent: The Remarketing Agent is an investment bank that, each week, determines the interest rate for the District’s variable rate obligations. The rate is set at the rate at which the obligations could be sold on the open market at 100% of their face value. The Remarketing Agent also finds new buyers for any of the obligations that are “put” back to the District. Rating Agencies: Currently, there are three widely recognized rating agencies that rate municipal debt in the United States: Standard & Poor’s, Moody’s Investors Service, and Fitch Investors Service. Rating agencies establish objective criteria under which each type of financing undertaken by the District is to be analyzed. Upon request, a rating agency will rate the underlying strength of the District’s financings, without regard to the purchase of any credit enhancement. The rating is released to the general public and thereafter, the rating agency will periodically update its analysis of a particular issue, and may raise or lower the rating if circumstances warrant. Investment-grade ratings range from “AAA” to “BBB-.” A rating below “BBB-” is not investment grade. Many mutual funds cannot buy bonds that do not carry an investment grade. Verification Agent: In a refunding, the District will deposit funds with an escrow agent (usually the trustee) in an amount sufficient, together with earnings thereon, to pay the debt service and redemption price of the debt being refunded through and including the call date. The Verification Agent verifies the mathematical accuracy of calculation of the amount to be deposited in escrow and the bond counsel relies on this verification in giving their opinion that the debt is defeased within the meaning of the indenture and that the lien of the debt on the revenues pledged to the debt being refunded is released. 11.0: CONFLICT OF INTEREST AND STANDARDS OF CONDUCT OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 11 of 23 Members of the District, the Board of Directors and its consultants, service providers and underwriters shall adhere to standards of conduct and conflict of interest rules as stipulated by the California Political Reform Act or the Municipal Securities Rulemaking Board (MSRB), as applicable. All debt financing participants shall maintain the highest standards of professional conduct at all times, in accordance with MSRB Rules, including Rule G-37. There shall be no conflict of interest with the District with any debt financing participant. 12.0: CONTINUING DISCLOSURE The District acknowledges the responsibilities of the underwriting community and pledges to make all reasonable efforts to assist underwriters in their efforts to comply with SEC Rule 15c2-12 and MSRB Rule G-36. The District will file its official statements with the MSRB and the nationally recognized municipal securities information repositories. The District will also post copies of its comprehensive financial reports on the MSRB’s Electronic Municipal Market Access (EMMA) website, and will disseminate other information that it deems pertinent to the market in a timely manner (For bonds issued after 2012, 10 days). While initial bond disclosure requirements pertain to underwriters, the District will provide financial information and notices of material events on an ongoing basis throughout the life of the issue. Material events are defined as those events which are considered to likely reflect on the credit supporting the securities. (a) The events considered material according to the SEC are: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; 5. Adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701-TEB); OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 12 of 23 6. Tender offers; 7. Defeasances; 8. Ratings changes; and 9. Bankruptcy, insolvency, receivership or similar proceedings. Note: Ffor the purposes of the event identified in subparagraph (9) above, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this section (b), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. Unless described in paragraph (a) above, notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. The consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 13 of 23 3. Appointment of a successor or additional trustee or the change of the name of a trustee; 4. Nonpayment related defaults; 5. Modifications to the rights of Owners of the Bonds; 6. Notices of redemption; and 7. Release, substitution or sale of property securing repayment of the Bonds. Whenever the District obtains knowledge of the occurrence of a Listed Event under (b) above, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. 13:0 INVESTMENT & ARBITRAGE COMPLIANCE Tax-exempt bonds are required to meet certain provisions of the federal tax code in order to maintain their tax-exempt status. In order to prevent municipal issuers from borrowing money at tax-exempt rates solely for the purpose of investing the proceeds in higher yielding investments and making a profit (“arbitrage”), the federal tax code contains a provision that requires issuers to compare the interest earned on any bond funds held (such as a reserve fund) with interest that would theoretically be earned if the funds were invested at the yield of the bonds, and to “rebate” to the federal government any interest earned in excess of the theoretical earnings limit. The Chief Financial Officer shall invest the bond proceeds subject to the District’s Investment Policy in a timely manner, to ensure the availability of funds to meet operational requirements. In doing so, the CFO will maintain a system of record keeping and reporting to meet the arbitrage rebate compliance requirements of the federal tax code. 14.0: INTERNAL CONTROL The District has implemented the following procedure to ensure that the proceeds of the proposed debt issuance will be directed to the intended use: Formatted: Font: Bold, Underline OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 14 of 23 1. A separate Reserve/Cash Account shall be maintained for the proceeds of each bond to ensure that there is no comingling of funds. 2. All related expenditures charged against the bond proceeds shall be properly approved by the authorized authority. 3. All related transactions shall be fully documented so that an undisputable audit trail exists. 4. All related transactions shall be tracked in the District’s Accounting System. A financial report reflecting all charges related to the bond shall be prepared and maintained. 5. The District shall establish a retention policy which states that all supporting documents related to bond proceeds spending shall be kept indefinitely. 6. The Reserve Account shall be reconciled on a monthly basis. 145.0: TYPES OF DEBT FINANCING General Obligation Bonds General obligation bonds are secured by a pledge of the ad-valorem taxing power of the issuer and are also known as a full faith and credit obligations. Bonds of this nature must serve a public purpose to be considered lawful taxation of the property owners within the District and require a two third’s majority vote in a general election. The benefit of the improvements or assets constructed and acquired as a result of this type of bond must be generally available to all property owners. The District can issue general obligation bonds up to but not in excess of 15% of the assessed valuation under Article XVI, Section 18 of the State constitution. An annual amount of the levy necessary to meet debt service requirements is calculated and placed on the tax roll through the County of San Diego. The District also has a policy that the ad-valorem tax to be used to pay debt service on general obligation bonds will not exceed $.10 per $100 of assessed value. Formatted: Indent: Left: 0.63", Hanging: 0.38", Numbered+ Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Indent: Left: 0.13", Hanging: 0.38" OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 15 of 23 Voters within Improvement District No. 27 of the District authorized $100 million general obligation bonds in 1989. The District issued $11,500,000 general obligation bonds in 1992 and refinanced the bonds in 1998 and again in 2009. The District also has approximately $29 million in general obligation bonds authorized between 1960 and 1978 for various improvement districts throughout the District, but unissued. General obligation bonds can only be issued under these existing authorizations to the extent necessary to fund the improvements specified by each ballot measure. General obligation bonds generally are regarded as the broadest and soundest security among tax-secured debt instruments. An unlimited- tax pledge would enable a trustee to invoke mandamus to force the District to raise the tax rate as much as necessary to pay off the bonds. General obligation bonds have other credit strengths as well: the property tax tends to be a steady and predictable revenue source, and when a vote is required to issue them, bondholders have some indication of taxpayers’ willingness to pay. General obligation bonds carry the highest credit rating that a public agency can achieve and therefore, the lowest interest cost. General obligation bonds typically are issued to finance capital facilities and not for ongoing operational or maintenance costs. The District will use an objective analytical approach to determine whether it can afford to assume new general obligation debt for the improvement districts, or in the case of projects not approved by the original ID 27 vote, prior to any submission of a general obligation bond ballot measure to voters. This process will compare generally accepted standards of affordability to the current values for the District. These standards will include debt per capita, debt as a percent of taxable value, debt service payments as a percent of current revenues and current expenditures, and the level of overlapping net debt of all local taxing jurisdictions. The process will also examine the direct costs and benefits of the proposed expenditures. The decision on whether or not to assume new debt will be based on these costs and benefits, the current conditions of the municipal bond market, and the District’s ability to "afford" new debt as determined by the aforementioned standards. Revenue Bonds Revenue bonds are limited-liability obligations that pledge net revenues of the District to debt service. The net revenue pledge is after payment of all operating costs. Since revenue bonds are not OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 16 of 23 generally secured by the full faith and credit of the District, the financial markets require coverage ratios of the pledged revenue stream and a covenant to levy rates and charges sufficient to produce net income at some level in excess of debt service (a Rate Covenant). Also there may be a test required to demonstrate that future revenues will be sufficient to maintain debt service coverage levels after any proposed additional bonds are issued. The District will strive to meet industry and financial market standards with such ratios without impacting the current rating. Annual adjustments to the District’s rate structure may be necessary to maintain these coverage ratios. The underlying credit of revenue bonds is judged on the ability of the District’s existing rates to provide sufficient net income to pay debt service and the perceived willingness of the District to raise rates and charges in accordance with its Rate Covenant. Actual past performance also plays a role in evaluating the credit quality of revenue bonds, as well as the diversity of the customer base. Revenue bonds generally carry a credit rating one or two investment grades below a general obligation bond rating. The District may use a debt structure called “Certificates of Participation” to finance capital facilities. However, if the certificates contain a pledge of net revenues and a Rate Covenant, they are treated as essentially the same as a revenue bond. Lease/Purchase Agreements Over the lifetime of a lease, the total cost to the District will generally be higher than purchasing the asset outright. As a result, the use of lease/purchase agreements in the acquisition of vehicles, equipment and other capital assets will generally be avoided, particularly if smaller quantities of the capital asset(s) can be purchased on a "pay-as-you-go" basis. The District may utilize lease-purchase agreements to acquire needed equipment and facilities. Criteria for such agreements should be that the asset life is three years or more, the minimum value of the agreement is $50,000 and interest costs must not exceed the interest rate earned by the District’s portfolio for the average of the past 6 months. Lease payments of this type are considered operating expenses and would reduce net operating income available to pay any District revenue bonds. There are no coverage requirements or rate covenants associated with lease/purchase agreements. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 17 of 23 State Water Loans The State Water Resources Control Board makes certain funds available to water districts throughout the State. These loans typically carry a below-market rate of interest and are short term in nature. While State loans should be incorporated into the District’s debt portfolio for the financing of capital improvements, the payment of the loan should not compromise the District’s ability to issue other planned debt or cause the District to violate its rate covenants or make it necessary for the District to increase rates to maintain existing rate covenants. Land Based Financing The District may consider developer or property owner initiated applications requesting the formation of community facilities or assessment districts and the issuance of bonds to finance eligible District facilities necessary to serve newly developing commercial, industrial and/or residential projects. Facilities will be financed in accordance with the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915, or the Mello-Roos Community Facilities Act of 1982. Typically, the bonds issued would be used to prepay, in a lump-sum, the District’s capacity fees with respect to a large tract of land under development, or to finance in-tract infrastructure that will eventually be dedicated to the District. The bonds are secured by a special tax or assessment to be levied on property within the boundaries established for the community facilities district (sometimes known as a “Mello-Roos” district) or the assessment district. If the District becomes the sponsoring public agency for such financing district and the issuance of debt, the District will be required to enter into a Funding, Construction and Acquisition agreement for any of the facilities to be dedicated to the District upon completion. This agreement governs the type of facilities to be constructed with bond proceeds and how the facilities will be accepted by the District. In some cases, the District may not be asked to be the sponsoring agency for the formation of a financing district, rather, the developer or property owner may approach a school district or a city to be the sponsoring agency. Nonetheless, the property owner may want to include lump-sum payment of District fees in the financing or construction of certain facilities to be dedicated to the District OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 18 of 23 upon completion. In this case, if the District desired to participate, the District would enter into a Joint Financing Agreement with the sponsoring agency, again governing the type of facilities to be constructed with bond proceeds and how the facilities will be accepted by the District. On a case-by-case basis, the Board shall make the determination as to whether a proposed district will proceed under the provisions of the Assessment Acts or the Mello-Roos Community Facilities Act. The Board may confer with other consultants and the applicant to learn of any unique district requirements, such as long-term development phasing, prior to making any final determination. All District and District consultant costs incurred in the evaluation of new development, district applications and the establishment of districts will be paid by the applicant(s) by advance deposits in those instances where a party or parties other than the District have initiated a proposed district. Expenses not legally reimbursable by the financing district will be borne by the applicant. The District may incur expenses for analyzing proposed assessment or community facilities districts where the District is the principal proponent of the formation or financing of the district. Prior to the issuance of any land secured financing and in accordance with State law, the Board will adopt policies and procedures with criteria to be met before any special tax bonds or assessment district bonds may be issued. These criteria include the qualifications of the appraiser, the minimum value to lien ratio to be achieved prior to issuing the land secured debt and the maximum tax to be levied on different categories of property. 156.0: RATING AGENCY APPLICATIONS The District may seek one or more ratings on all new issues that are being sold in the public market. These rating agencies include, but are not limited to, Fitch Investors Service, Moody’s Investors Service, and Standard & Poor’s. When applying for a rating on an issue over $1 million or more, the District shall make a formal presentation of the finances and positive developments within the District to the rating agencies. The District will report all financial information to the rating agencies upon request. This information shall include, but shall not be limited to, the District’s Comprehensive Annual Financial Report (CAFR), and the Adopted Operating and Capital Budget. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 19 of 23 167.0: USE OF CREDIT ENHANCEMENT Credit enhancement is a generic term that means any third-party guarantee of debt service. Credit enhancement providers include municipal bond insurance companies or financial institutions. The purchase of credit enhancement allows the District’s bond issue to carry the same credit rating as the credit provider. The District will seek to use credit enhancement when such credit enhancement proves cost-effective. Selection of credit enhancement providers will be subject to a competitive bid process using the District’s purchasing guidelines, if applicable. Fixed Rate Bonds Credit enhancement for fixed rate bonds is obtained by the purchase of bond insurance. If a commitment for bond insurance is obtained for a particular issue, the District will estimate the annual debt service for the issue based on current interest rates applicable to the credit rating of the bond insurer. If the estimated debt service on this basis is less than or equal to estimated debt service for the issue based on interest rates for bonds with the District’s underlying or stand-alone credit rating, the District will purchase the bond insurance. Any intention of the District to prepay the debt ahead of its scheduled maturity will be taken into account in the analysis. Credit enhancement may be used to improve or establish a credit rating on a District debt obligation even if such credit enhancement is not cost effective if, in the opinion of the Chief Financial Officer, the use of such credit enhancement meets the District’s debt financing goals and objectives, such as, funding of a reserve fund for the bonds. Variable Rate Bonds Credit enhancement for variable rate bonds is comprised of two components: credit support and liquidity. The interest on variable rate bonds is based on a short-term investment rate (usually 7 days). Any investor can tender their bonds back to the District to be repurchased on short notice (usually 7 days). Because of the short- term nature of the investment, the securities that the District is “competing” with for investors are AA-rated mutual funds. Therefore, variable debt needs to have credit enhancement to achieve a comparable AA rating, as well as liquidity support to provide the District with a mechanism to purchase any bonds that are tendered before they can be remarketed to new investors. A limited number of financial OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 20 of 23 institutions offer letters of credit that combine both credit support and liquidity for one fee. An alternative is to purchase bond insurance to provide credit support and enter into a separate purchase agreement with a financial institution to provide liquidity. The difference in cost between the two structures will be analyzed before either alternative is selected for variable rate debt. 178.0: GLOSSARY Ad Valorem Tax: A tax calculated “according to the value” of property. Such a tax is based on the assessed valuation of tangible personal property. In most jurisdictions, the tax is a lien on the property enforceable by seizure and sale of the property. General restrictions, such as overall restrictions on rates, or the percent of charge allowed, sometimes apply. As a result, ad valorem taxes often function as the balancing element in local budgets. Advance Refunding: A procedure whereby outstanding bonds are refinanced by the proceeds of a new bond issue prior to the date on which outstanding bonds become due or are callable. Typically an advance refunding is performed to take advantage of interest rates that are significantly lower than those associated with the original bond issue. At times, however, an advance refunding is performed to remove restrictive language or debt service reserve requirements required by the original issue. Amortization: The planned reduction of a debt obligation according to a stated maturity or redemption schedule. Arbitrage: The gain that may be obtained by borrowing funds at a lower (often tax-exempt) rate and investing the proceeds at higher (often taxable) rates. The ability to earn arbitrage by issuing tax- exempt securities has been severely curtailed by the Tax Reform Act of 1986, as amended. Assessed Valuation: The appraised worth of property as set by a taxing authority through assessments for purposes of ad valorem taxation. Basis Point: One one-hundredth of one percent. Bond: A security that represents an obligation to pay a specified amount of money on a specific date in the future, typically with periodic interest payments. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 21 of 23 Bond Counsel: An attorney (or firm of attorneys) retained by the issuer to give a legal opinion concerning the validity of the securities. The bond counsel’s opinion usually addresses the subject of tax exemption. Bond counsel may prepare, or review and advise the issuer regarding authorizing resolutions or ordinances, trust indentures, official statements, validation proceedings and litigation. Bond Insurance: A type of credit enhancement whereby a monocline insurance company indemnifies an investor against a default by the issuer. In the event of a failure by the issuer to pay principal and interest in-full and on-time, investors may call upon the insurance company to do so. Once assigned, the municipal bond insurance policy generally is irrevocable. The insurance company receives an up-front fee, or premium, when the policy is issued. Call Option: A contract through which the owner is given the right but is not obligated to purchase the underlying security or commodity at a fixed price within a limited time frame. Cap: A ceiling on the interest rate that would be paid. Capital Lease: The acquisition of a capital asset over time rather than merely paying rent for temporary use. A lease-purchase agreement, in which provision is made for transfer of ownership of the property for a nominal price at the scheduled termination of the lease, is referred to as a capital lease. Certificate of Participation: A financial instrument representing a proportionate interest in payments such as lease payments by one party (such as the District acting as a lessee) to another party (often a trustee). CIP: Capital Improvement Program. Competitive Sale: The sale of securities in which the securities are awarded to the bidder who offers to purchase the issue at the best price or lowest cost. Continuing Disclosure: The requirement by the Securities and Exchange Commission for most issuers of municipal debt to provide current financial information to the informational repositories for access by the general marketplace. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 22 of 23 Debt Service: The amount necessary to pay principal and interest requirements on outstanding bonds for a given year or series of years. Defeasance: Providing for payment of principal of premium, if any, and interest on debt through the first call date or scheduled principal maturity in accordance with the terms and requirements of the instrument pursuant to which the debt was issued. A legal defeasance usually involves establishing an irrevocable escrow funded with only cash and U.S. Government obligations. Derivative: A financial product that is based upon another product. Generally, derivatives are risk mitigation tools. Discount: The difference between a bond’s par value and the price for which it is sold when the latter is less than par. Financial Advisor: A consultant who advises an issuer on matters pertinent to a debt issue, such as structure, sizing, timing, marketing, pricing, terms and bond ratings. General Obligation Bonds: Debt that is secured by a pledge of the ad valorem taxing power of the issuer. Also known as a full faith and credit obligation. Municipal Securities Rulemaking Board (MSRB): The MSRB, comprised of representatives from investment banking firms, dealer bank representatives, and public representatives, is entrusted with the responsibility of writing rules of conduct for the municipal securities market. Negotiated Sale: A sale of securities in which the terms of sale are determined through negotiation between the issuer and the purchaser, typically an underwriter, without competitive bidding. Official Statement: A document published by the issuer that discloses material information on a new issue of municipal securities including the purposes of the issue, how the securities will be repaid, and the financial, economic and social characteristics of the issuing government. Investors may use this information to evaluate the credit quality of the securities. Option: A derivative contract. There are two primary types of options (see Put Option and Call Option). An option is considered a wasting asset because it has a stipulated life to expiration and may expire worthless. Hence, the premium could be wasted. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 23 of 23 Optional Redemption: The redemption of an obligation prior to its stated maturity, which can only occur on dates specified in the bond indenture. Overlapping Debt: The legal boundaries of local governments often overlap. In some cases, one unit of government is located entirely within the boundaries of another. Overlapping debt represents the proportionate share of debt that must be borne by one unit of government because another government with overlapping or underlying taxing authority issued its own bonds. Par Value: The face value or principal amount of a security. Pay-as-you-go: To pay for capital improvements from current resources and fund balances rather than from debt proceeds. Put Option: A contract that grants to the purchaser the right but not the obligation to exercise. Rate Covenant: A covenant between the District and bondholders, under which the District agrees to maintain a certain level of net income compared to its debt payments, and covenants to increase rates if net income is not sufficient to meet such level. Refunding: A procedure whereby an issuer refinances an outstanding bond issue by issuing new bonds. Revenue Bonds: A bond which is payable from a specific source of revenue and to which the full faith and credit of an issuer with taxing power is not pledged. Revenue bonds are payable from identified sources of revenue, and do not permit the bondholders to compel a jurisdiction to pay debt service from any other source. Pledged revenues often are derived from the operation of an enterprise. Generally, no voter approval is required prior to issuance. Special Assessments: A charge imposed against property or parcel of land that receives a special benefit by virtue of some public improvement that is not, or cannot be enjoyed by the public at large. Special assessment debt issues are those that finance such improvements and are repaid by the assessments charged to the benefiting property owners. Swap: A customized financial transaction between two or more counterparties who agree to make periodic payments to one another. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 9/4/13 2/1/17 Page 24 of 23 Swaps cover interest rate, equity, commodity and currency products. They can be simple floating for fixed exchanges or complex hybrid products with multiple option features. True Interest Cost (TIC): A method of calculating the overall cost of a financing that takes into account the time value of money. The TIC is the rate of interest that will discount all future payments so that the sum of their present value equals the issue proceeds. Underwriter: The term used broadly in the municipal market, to refer to the firm that purchases a securities offering from a governmental issuer. Yield Curve: Refers to the graphical or tabular representation of interest rates across different maturities. The presentation often starts with the shortest-term rates and extends towards longer maturities. It reflects the market’s views about implied inflation/deflation, liquidity, economic and financial activity, and other market forces. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 1 of 24 1.0: POLICY It is the policy of the Otay Water District to finance the acquisition of high value assets that have an extended useful life through a combination of current revenues and debt financing. Regularly updated debt policies and procedures are an important tool to insure the use of the District’s resources to meet its commitments, to provide the highest quality of service to the District’s customers, and to maintain sound financial management practices. These guidelines are for general use and allow for exceptions as circumstances dictate. 2.0: SCOPE This policy is enacted in an effort to standardize the issuance and management of debt by the Otay Water District. The primary objective is to establish conditions for the use of debt, to minimize the District’s debt service requirements and cost of issuance, to retain the highest practical credit rating, maintain full and complete financial disclosure and reporting, and to maintain financial flexibility for the District. This policy applies to all debt issued by the District including general obligation bonds, revenue bonds, capital leases and special assessment debt. 3.0: LEGAL & REGULATORY REQUIREMENTS The Chief Financial Officer (CFO) and the District’s Legal Counsel will coordinate their activities to ensure that all securities are issued in full compliance with Federal and State law. 4.0: CAPITAL FACILITIES FUNDING Financial Planning The District maintains a six-year financial projection that identifies operating requirements and public facility and equipment requirements, and has developed a Rate Model for funding the District’s 6-Year Capital Improvement Program (CIP). The District’s CIP Budget places the capital requirements in order of priority and schedules them for funding and implementation. It identifies a full range of capital needs, provides for the ranking of the importance of such needs, and identifies all the funding sources that are available to cover the costs of the projects. In cases where the program identifies project funding through the use of debt financing, the budget should provide information needed to determine debt capacity. The Rate Model and the OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 2 of 24 CIP Budget give the Board part of the data needed to make informed judgments concerning the possibility of issuing debt. Funding Criteria The Chief Financial Officer (CFO) will evaluate all capital project requests and develop a proposed funding plan. Priority may be given to those projects that can be funded with current resources (annual cash flow, fund balances or reserves). Those projects that cannot be funded with current resources may be deferred or the CFO may recommend that they be funded with debt financing. However, debt financing will not be considered appropriate for any recurring purpose such as current operating and maintenance expenditures. The issuance of short-term cash-flow instruments is excluded from this limitation. The General Manager will recommend the funding plan to the Board. The General Manager may deem it necessary or desirable in certain circumstances to convene a Finance Committee meeting to evaluate funding options presented by the Chief Financial Officer. Funding Sources The District’s capital improvements can be classified in three categories: those related to an expansion of the system (“expansion”), those related to upgrading the existing system (“betterment”) and those related to repairing or replacing existing infrastructure (“replacement”). In general, capital improvements for betterment or replacement are financed primarily through user charges, availability charges, and betterment charges. Capital improvements for expansion are financed through capacity fees. Accordingly, these fees are reviewed at least annually or more frequently as required and set at levels sufficient to ensure that new development pays its fair share of the costs of constructing necessary infrastructure. Additionally, the District will seek State and Federal grants and other forms of intergovernmental aid wherever possible. Pay-As-You-Go Projects The District’s capacity fees are the major funding source in financing additions to the water system and the recycled water system. Over time, the fees collected and the cost to construct the capital projects should balance. However, collection of these fees is subject to significant fluctuation based on the rate of new development. Accordingly, the Chief Financial Officer, in developing the funding plan for the CIP, will determine that current revenues and adequate OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 3 of 24 fund balances are available so project phasing can be accomplished. If this is not the case, the Chief Financial Officer may recommend that: 1. The project be deferred until funds are available, or 2. Based on the priority of the project, long-term debt is issued to finance the project. Debt Financed Projects If a project or projects are to be financed with long-term debt, the District should use the following criteria to evaluate the suitability of the financing for the particular project or projects: 1. The life of the project or asset to be financed is 10 years or longer and its useful life is expected to exceed the term of the financing. 2. Revenues available for debt service are deemed to be sufficient and reliable so that long-term financing can be marketed without jeopardizing the credit rating of the District. 3. Market conditions present favorable interest rates and demand for District financing. 4. The project is mandated by State and/or Federal requirements and current resources are insufficient or unavailable. 5. The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable. 5.0: DEBT STRUCTURE General The District will normally issue debt with a maturity of not more than 30 years. The structure should approximate level debt service for the term where it is practical or desirable. There will be no debt structures that include increasing debt service levels in subsequent years, with the first and second year of a debt payoff schedule the exception and related to projected additional income to be generated by the project to be funded. There will be no "balloon" debt repayment schedules that consist of low annual payments and one large payment of the balance due at the end of the term. There will always be at least interest paid in the first fiscal year after debt issuance OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 4 of 24 and principal starting no later than the first fiscal year after the date the facility or equipment is expected to be placed in service. Capitalized interest will not be for a period of more than necessary to provide adequate security for the financing. Limitations on the Issuance of Variable Rate Debt The District will normally issue debt with a fixed rate of interest. The District may issue variable rate for the purpose of managing its interest costs. At the same time, the District should protect itself from too much exposure to interest rate fluctuations. In determining that it is in the District’s best interest to issue certain debt at variable rates instead of fixed rates, at the time of issuing any variable rate debt, there should be at least a 10% estimated reduction in annual debt costs by issuing variable rate debt when compared to a similar issuance of fixed rate debt. If the estimated overall cost savings from issuing variable rate debt is not at least 10% at the time of issuance, relatively small fluctuations in rates could actually increase the District’s financing costs over the life of the bonds compared to a similar fixed rate financing. By using this 10% factor at the time of issuance, the District can be relatively assured that its variable rate financing will be cost-effective over the term of the bonds. The comparison will be based on the following criteria: 1. The interest rate used to estimate variable interest costs will be the higher of the 10 year average rate or the current weekly variable rate. 2. The variable rate debt costs will include an estimate for annual costs such as letter of credit fees, liquidity fees, remarketing fees, monthly draw fees and annual rating fees applicable to the letter of credit. 3. Any potential reserve fund earnings will reduce the fixed rate debt service or variable rate debt service as applicable. Periodically, using the criteria described above, the Chief Financial Officer will compare the estimated annual debt service costs to maturity of any variable rate debt with estimated debt service if the debt was converted to fixed rates. If this analysis produces a break even in total payments over the life of the issue, the Chief Financial Officer will recommend converting such variable rate debt to fixed rate. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 5 of 24 Variable rate debt should not represent more than 25% of the District’s total debt portfolio. This level of exposure to interest rate fluctuations is considered to be manageable in an environment of increasing interest rates. At a higher ratio than this, the District might be faced with an unplanned water rate increase to meet its Rate Covenants. Rating agencies use this ratio in their analysis of the District’s overall credit rating. Further, Rate Covenants applicable to variable rate debt shall not compromise the issuance of additional debt planned by the District and variable rate debt should always contain a provision to allow conversion to a fixed rate at the District’s option. 6.0: CREDIT OBJECTIVES The Otay Water District seeks to maintain the highest possible credit ratings for all categories of long-term debt that can be achieved without compromising delivery of basic services and achievement of District policy objectives. Factors taken into account in determining the credit rating for a financing include: 1. Diversity of the District’s customer base. 2. Proven track record of completing capital projects on time and within budget. 3. Strong, professional management. 4. Adequate levels of staffing for services provided. 5. Reserves. 6. Ability to consistently meet or exceed Rate Covenants. The District recognizes that external economic, natural, or other events may from time to time affect the creditworthiness of its debt. Nevertheless, the District is committed to ensuring that actions within its control are prudent and well planned. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 6 of 24 7.0: COMPETITIVE AND NEGOTIATED SALE CRITERIA Competitive Sale The District will use a competitive bidding process in the sale of debt unless the nature of the issue or specific circumstances warrants a negotiated sale. The CFO will determine the best bid in a competitive sale by calculating the true interest cost (TIC) of each bid. Negotiated Sale Types of debt that would typically lend themselves to the negotiated sale format are variable rate debt and unrated debt. Circumstances that might warrant a negotiated sale may occur when the issue is of a limited size that would not attract wide-spread investor interest, during periods of high levels of issuance by other entities in the State, or during periods of market volatility or with relatively new financing techniques. In the event the District decides to use a negotiated sale, it will pay management fees only to those firms that place orders for bonds. If the size of the District’s proposed issue is not cost effective, the District may also consider issuing its debt by private placement or through any qualified Joint Power Authority (JPA) in the State of California whose principal business is issuing bonds. 8.0: REFUNDING DEBT Purpose Periodic reviews of all outstanding debt will be undertaken by the Chief Financial Officer to determine refunding (refinancing) opportunities. The purpose of the refinancing may be to: 1. Lower annual debt service by taking advantage of lower current interest rates. 2. Update or revise covenants on outstanding debt issue if a Rate Covenant appears to be too high, has precluded the District from implementing its financing plan, or has caused the District to increase rates to customers. 3. Restructure debt service associated with an issue to facilitate the issuance of additional debt, usually in order to smooth out OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 7 of 24 peaks in total debt service which can occur frequently as one debt issue is layered on top of existing debt issues. 4. Alter bond characteristics such as call provisions or payment dates. 5. Pay for conversion costs such as funding a reserve fund or paying for credit enhancement when converting variable rate debt to fixed rate debt. Restrictions on Refunding Tax-exempt bonds typically have provisions that preclude early redemption of the bonds for a period of years after issuance. The number of times a tax-exempt bond can be refinanced prior to its Optional Redemption date (known as Advance Refunding) is limited by the IRS. For debt issued after 1986, issuers may only provide for Advance Refunding of obligations in advance of the Optional Redemption date one time. There is no limit by the IRS on the ability of issuers to redeem bonds early once the Optional Redemption date has been reached (known as Current Refunding). Savings Criteria In cases where an Advance Refunding or Current Refunding is intended to provide debt service savings, the District may commence the refinancing process if a minimum five percent (5%) present value savings net of issuance costs and any cash contributions can be demonstrated. Since interest rates may fluctuate between the time when a refinancing is authorized and when the debt is issued, beginning the process with at least a 5% savings should provide the District with some level of protection that it can achieve a minimum of three percent (3%) net present value savings of the refunding bonds when and if the debt is issued. These minimum standards are intended to protect the District staff from spending time on refinancings that become marginally cost-effective after the entire issuance process is complete. The savings target may be waived, however, if sufficient justification for lowering the savings target can be provided by meeting one or more of the other refunding objectives described above. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 8 of 24 9.0: SUBORDINATE LIEN DEBT The District will issue subordinate lien debt only if it is financially beneficial to the District or consistent with creditworthiness objectives. Subordinate lien debt is structured to be payable second in priority to the District’s other outstanding debt. Typically, subordinate lien debt might be issued if the District desired a more flexible Rate Covenant with respect to its new obligations and did not want to refinance all of its existing debt to obtain that less restrictive Rate Covenant. 10.0: FINANCING PARTICIPANTS The District’s purchasing guidelines provide the process for securing professional services related to individual debt issues. The solicitation and selection process include encouraging participation from qualified service providers, both local and national, and securing services at competitive prices. Financial Advisor: The use of a Financial Advisor is necessary for the sale of debt by a competitive bid process and is desirable when issuing debt through a negotiated sale. The Financial Advisor has a fiduciary duty to the District and will seek to structure the District’s debt in the manner that is saleable, yet meets the District’s objectives for the financing. The Financial Advisor will advise the District on alternative structures for its debt, the cost of different debt structures and potential pricing mechanisms that can be expected from underwriters (such as call features, term bonds and premium and discount bond pricing) and, at the District’s direction, will write the offering document (preliminary official statement). With respect to competitive sales, the Financial Advisor will arrange for distributing the preliminary official statement, accepting bids via an internet bidding platform, verifying the lowest bid and provide detailed instructions for the flow of funds at closing to the winning Underwriter, the Trustee and the District. In a negotiated sale, the Financial Advisor will provide independent confirmation on the Underwriter’s proposed pricing to ensure that interest rates and Underwriter’s compensation are appropriate for the credit quality of the issue and competitive in the overall public finance market in California. Underwriter: The Underwriter markets the bonds for sale to investors. While the District’s preference is to select the Underwriter for the OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 9 of 24 debt via sale of the debt at competitive bid, there are circumstances when a negotiated issue is in the best interests of the District. Negotiated sales are preferable if the security features are particularly complex or market conditions are volatile. The Chief Financial Officer will recommend whether the method of sale is competitive or negotiated based on the type of issue and other market conditions. In the case of negotiated sales, the Underwriter will be required to demonstrate sufficient capitalization and sufficient experience related to the specific type of debt issuance. The Underwriter will work in connection with the District’s Financial Advisor on structuring the issue and offering different pricing ideas. Bond Counsel: The District’s Bond Counsel provides the primary legal documents that detail the security for the bonds and the authority under which bonds are issued. The Bond Counsel also provides an opinion to bond holders that the bonds are tax-exempt under both State and Federal law. All closing documents in connection with an issue are also prepared by Bond Counsel. Disclosure Counsel: The District’s Disclosure Counsel provides legal advice to the District regarding the adequacy of the District’s disclosure of financial information or risks of investing in the District’s debt issue to the investing public. The Disclosure Counsel can prepare the official statement or review the official statement and gives the District an opinion that there is no information missing from the official statement of a material nature that would be necessary for an investor to make an informed decision about investing in the District’s bonds. Trustee: The Trustee is a financial institution selected by the District to administer the collection of revenues pledged to repay the bonds and to distribute those funds to bondholders. Letter of Credit Bank: The Letter of Credit Bank is a U.S. or foreign bank that has issued a letter of credit providing both credit enhancement (the Letter of Credit Bank will pay the debt in the event that the District defaults on the payment) and liquidity for a variable rate bond issue. These banks have their own short-term credit rating, which can be higher than the District’s short-term credit rating. Liquidity is needed because variable rate bondholders are allowed to “put” their bonds back to the District if they do not like the interest rate currently being offered. The District’s Remarketing Agent then finds a new buyer for those bonds, but in the event that no buyer is found, a draw is made under the letter of OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 10 of 24 credit to purchase the bonds that have been “put.” As soon as the bonds are remarketed to another buyer, the letter of credit is repaid. The letter of credit fees are paid annually or quarterly. Letter of credits are typically issued for not more than 3 years and must be renewed during the life of the bonds. Credit enhancement is discussed further under the heading “CREDIT ENHANCEMENT.” Municipal Bond Insurer: The Municipal Bond Insurer can be one of several insurance companies that provide municipal bond insurance policies securing payment of the District’s debt. These policies provide that the Municipal Bond Insurer will pay the District’s debt in the event that the District defaults on its payments. Debt which is insured carries the Municipal Bond Insurer’s credit rating. The insurance premium for the bond insurance policy is paid one time at the issuance of the debt and is non-cancelable for the term of the debt. Unlike a letter of credit, bond insurance policies do not provide liquidity and are most typically purchased for fixed rate debt. Remarketing Agent: The Remarketing Agent is an investment bank that, each week, determines the interest rate for the District’s variable rate obligations. The rate is set at the rate at which the obligations could be sold on the open market at 100% of their face value. The Remarketing Agent also finds new buyers for any of the obligations that are “put” back to the District. Rating Agencies: Currently, there are three widely recognized rating agencies that rate municipal debt in the United States: Standard & Poor’s, Moody’s Investors Service, and Fitch Investors Service. Rating agencies establish objective criteria under which each type of financing undertaken by the District is to be analyzed. Upon request, a rating agency will rate the underlying strength of the District’s financings, without regard to the purchase of any credit enhancement. The rating is released to the general public and thereafter, the rating agency will periodically update its analysis of a particular issue, and may raise or lower the rating if circumstances warrant. Investment-grade ratings range from “AAA” to “BBB-.” A rating below “BBB-” is not investment grade. Many mutual funds cannot buy bonds that do not carry an investment grade. Verification Agent: In a refunding, the District will deposit funds with an escrow agent (usually the trustee) in an amount sufficient, together with earnings thereon, to pay the debt service and redemption price of the debt being refunded through and including the call date. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 11 of 24 The Verification Agent verifies the mathematical accuracy of calculation of the amount to be deposited in escrow and the bond counsel relies on this verification in giving their opinion that the debt is defeased within the meaning of the indenture and that the lien of the debt on the revenues pledged to the debt being refunded is released. 11.0: CONFLICT OF INTEREST AND STANDARDS OF CONDUCT Members of the District, the Board of Directors and its consultants, service providers and underwriters shall adhere to standards of conduct and conflict of interest rules as stipulated by the California Political Reform Act or the Municipal Securities Rulemaking Board (MSRB), as applicable. All debt financing participants shall maintain the highest standards of professional conduct at all times, in accordance with MSRB Rules, including Rule G-37. There shall be no conflict of interest with the District with any debt financing participant. 12.0: CONTINUING DISCLOSURE The District acknowledges the responsibilities of the underwriting community and pledges to make all reasonable efforts to assist underwriters in their efforts to comply with SEC Rule 15c2-12 and MSRB Rule G-36. The District will file its official statements with the MSRB and the nationally recognized municipal securities information repositories. The District will also post copies of its comprehensive financial reports on the MSRB’s Electronic Municipal Market Access (EMMA) website, and will disseminate other information that it deems pertinent to the market in a timely manner (For bonds issued after 2012, 10 days). While initial bond disclosure requirements pertain to underwriters, the District will provide financial information and notices of material events on an ongoing basis throughout the life of the issue. Material events are defined as those events which are considered to likely reflect on the credit supporting the securities. (a) The events considered material according to the SEC are: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 12 of 24 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; 5. Adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701-TEB); 6. Tender offers; 7. Defeasances; 8. Ratings changes; and 9. Bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9) above, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this section (b), the District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. Unless described in paragraph (a) above, notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 13 of 24 2. The consummation of a merger, consolidation or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; 3. Appointment of a successor or additional trustee or the change of the name of a trustee; 4. Nonpayment related defaults; 5. Modifications to the rights of Owners of the Bonds; 6. Notices of redemption; and 7. Release, substitution or sale of property securing repayment of the Bonds. Whenever the District obtains knowledge of the occurrence of a Listed Event under (b) above, the District shall as soon as possible determine if such event would be material under applicable federal securities laws. 13:0 INVESTMENT & ARBITRAGE COMPLIANCE Tax-exempt bonds are required to meet certain provisions of the federal tax code in order to maintain their tax-exempt status. In order to prevent municipal issuers from borrowing money at tax-exempt rates solely for the purpose of investing the proceeds in higher yielding investments and making a profit (“arbitrage”), the federal tax code contains a provision that requires issuers to compare the interest earned on any bond funds held (such as a reserve fund) with interest that would theoretically be earned if the funds were invested at the yield of the bonds, and to “rebate” to the federal government any interest earned in excess of the theoretical earnings limit. The Chief Financial Officer shall invest the bond proceeds subject to the District’s Investment Policy in a timely manner, to ensure the availability of funds to meet operational requirements. In doing so, OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 14 of 24 the CFO will maintain a system of record keeping and reporting to meet the arbitrage rebate compliance requirements of the federal tax code. 14.0: INTERNAL CONTROL The District has implemented the following procedure to ensure that the proceeds of the proposed debt issuance will be directed to the intended use: 1. A separate Reserve/Cash Account shall be maintained for the proceeds of each bond to ensure that there is no comingling of funds. 2. All related expenditures charged against the bond proceeds shall be properly approved by the authorized authority. 3. All related transactions shall be fully documented so that an undisputable audit trail exists. 4. All related transactions shall be tracked in the District’s Accounting System. A financial report reflecting all charges related to the bond shall be prepared and maintained. 5. The District shall establish a retention policy which states that all supporting documents related to bond proceeds spending shall be kept indefinitely. 6. The Reserve Account shall be reconciled on a monthly basis. 15.0: TYPES OF DEBT FINANCING General Obligation Bonds General obligation bonds are secured by a pledge of the ad-valorem taxing power of the issuer and are also known as a full faith and credit obligations. Bonds of this nature must serve a public purpose to be considered lawful taxation of the property owners within the District and require a two third’s majority vote in a general election. The benefit of the improvements or assets constructed and acquired as a result of this type of bond must be generally available to all property owners. The District can issue general obligation bonds up to but not in excess of 15% of the assessed valuation under Article XVI, Section 18 of the State constitution. An annual amount of the levy necessary to OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 15 of 24 meet debt service requirements is calculated and placed on the tax roll through the County of San Diego. The District also has a policy that the ad-valorem tax to be used to pay debt service on general obligation bonds will not exceed $.10 per $100 of assessed value. Voters within Improvement District No. 27 of the District authorized $100 million general obligation bonds in 1989. The District issued $11,500,000 general obligation bonds in 1992 and refinanced the bonds in 1998 and again in 2009. The District also has approximately $29 million in general obligation bonds authorized between 1960 and 1978 for various improvement districts throughout the District, but unissued. General obligation bonds can only be issued under these existing authorizations to the extent necessary to fund the improvements specified by each ballot measure. General obligation bonds generally are regarded as the broadest and soundest security among tax-secured debt instruments. An unlimited- tax pledge would enable a trustee to invoke mandamus to force the District to raise the tax rate as much as necessary to pay off the bonds. General obligation bonds have other credit strengths as well: the property tax tends to be a steady and predictable revenue source, and when a vote is required to issue them, bondholders have some indication of taxpayers’ willingness to pay. General obligation bonds carry the highest credit rating that a public agency can achieve and therefore, the lowest interest cost. General obligation bonds typically are issued to finance capital facilities and not for ongoing operational or maintenance costs. The District will use an objective analytical approach to determine whether it can afford to assume new general obligation debt for the improvement districts, or in the case of projects not approved by the original ID 27 vote, prior to any submission of a general obligation bond ballot measure to voters. This process will compare generally accepted standards of affordability to the current values for the District. These standards will include debt per capita, debt as a percent of taxable value, debt service payments as a percent of current revenues and current expenditures, and the level of overlapping net debt of all local taxing jurisdictions. The process will also examine the direct costs and benefits of the proposed expenditures. The decision on whether or not to assume new debt will be based on these costs and benefits, the current conditions of the municipal bond market, and the District’s ability to "afford" new debt as determined by the aforementioned standards. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 16 of 24 Revenue Bonds Revenue bonds are limited-liability obligations that pledge net revenues of the District to debt service. The net revenue pledge is after payment of all operating costs. Since revenue bonds are not generally secured by the full faith and credit of the District, the financial markets require coverage ratios of the pledged revenue stream and a covenant to levy rates and charges sufficient to produce net income at some level in excess of debt service (a Rate Covenant). Also there may be a test required to demonstrate that future revenues will be sufficient to maintain debt service coverage levels after any proposed additional bonds are issued. The District will strive to meet industry and financial market standards with such ratios without impacting the current rating. Annual adjustments to the District’s rate structure may be necessary to maintain these coverage ratios. The underlying credit of revenue bonds is judged on the ability of the District’s existing rates to provide sufficient net income to pay debt service and the perceived willingness of the District to raise rates and charges in accordance with its Rate Covenant. Actual past performance also plays a role in evaluating the credit quality of revenue bonds, as well as the diversity of the customer base. Revenue bonds generally carry a credit rating one or two investment grades below a general obligation bond rating. The District may use a debt structure called “Certificates of Participation” to finance capital facilities. However, if the certificates contain a pledge of net revenues and a Rate Covenant, they are treated as essentially the same as a revenue bond. Lease/Purchase Agreements Over the lifetime of a lease, the total cost to the District will generally be higher than purchasing the asset outright. As a result, the use of lease/purchase agreements in the acquisition of vehicles, equipment and other capital assets will generally be avoided, particularly if smaller quantities of the capital asset(s) can be purchased on a "pay-as-you-go" basis. The District may utilize lease-purchase agreements to acquire needed equipment and facilities. Criteria for such agreements should be that the asset life is three years or more, the minimum value of the agreement is $50,000 and interest costs must not exceed the interest rate earned by the District’s portfolio for the average of the past 6 OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 17 of 24 months. Lease payments of this type are considered operating expenses and would reduce net operating income available to pay any District revenue bonds. There are no coverage requirements or rate covenants associated with lease/purchase agreements. State Water Loans The State Water Resources Control Board makes certain funds available to water districts throughout the State. These loans typically carry a below-market rate of interest and are short term in nature. While State loans should be incorporated into the District’s debt portfolio for the financing of capital improvements, the payment of the loan should not compromise the District’s ability to issue other planned debt or cause the District to violate its rate covenants or make it necessary for the District to increase rates to maintain existing rate covenants. Land Based Financing The District may consider developer or property owner initiated applications requesting the formation of community facilities or assessment districts and the issuance of bonds to finance eligible District facilities necessary to serve newly developing commercial, industrial and/or residential projects. Facilities will be financed in accordance with the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915, or the Mello-Roos Community Facilities Act of 1982. Typically, the bonds issued would be used to prepay, in a lump-sum, the District’s capacity fees with respect to a large tract of land under development, or to finance in-tract infrastructure that will eventually be dedicated to the District. The bonds are secured by a special tax or assessment to be levied on property within the boundaries established for the community facilities district (sometimes known as a “Mello-Roos” district) or the assessment district. If the District becomes the sponsoring public agency for such financing district and the issuance of debt, the District will be required to enter into a Funding, Construction and Acquisition agreement for any of the facilities to be dedicated to the District upon completion. This agreement governs the type of facilities to be constructed with bond proceeds and how the facilities will be accepted by the District. In some cases, the District may not be asked to be the sponsoring agency for the formation of a financing district, rather, the OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 18 of 24 developer or property owner may approach a school district or a city to be the sponsoring agency. Nonetheless, the property owner may want to include lump-sum payment of District fees in the financing or construction of certain facilities to be dedicated to the District upon completion. In this case, if the District desired to participate, the District would enter into a Joint Financing Agreement with the sponsoring agency, again governing the type of facilities to be constructed with bond proceeds and how the facilities will be accepted by the District. On a case-by-case basis, the Board shall make the determination as to whether a proposed district will proceed under the provisions of the Assessment Acts or the Mello-Roos Community Facilities Act. The Board may confer with other consultants and the applicant to learn of any unique district requirements, such as long-term development phasing, prior to making any final determination. All District and District consultant costs incurred in the evaluation of new development, district applications and the establishment of districts will be paid by the applicant(s) by advance deposits in those instances where a party or parties other than the District have initiated a proposed district. Expenses not legally reimbursable by the financing district will be borne by the applicant. The District may incur expenses for analyzing proposed assessment or community facilities districts where the District is the principal proponent of the formation or financing of the district. Prior to the issuance of any land secured financing and in accordance with State law, the Board will adopt policies and procedures with criteria to be met before any special tax bonds or assessment district bonds may be issued. These criteria include the qualifications of the appraiser, the minimum value to lien ratio to be achieved prior to issuing the land secured debt and the maximum tax to be levied on different categories of property. 16.0: RATING AGENCY APPLICATIONS The District may seek one or more ratings on all new issues that are being sold in the public market. These rating agencies include, but are not limited to, Fitch Investors Service, Moody’s Investors Service, and Standard & Poor’s. When applying for a rating on an issue over $1 million or more, the District shall make a formal presentation of the finances and positive developments within the District to the rating agencies. The District will report all OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 19 of 24 financial information to the rating agencies upon request. This information shall include, but shall not be limited to, the District’s Comprehensive Annual Financial Report (CAFR), and the Adopted Operating and Capital Budget. 17.0: USE OF CREDIT ENHANCEMENT Credit enhancement is a generic term that means any third-party guarantee of debt service. Credit enhancement providers include municipal bond insurance companies or financial institutions. The purchase of credit enhancement allows the District’s bond issue to carry the same credit rating as the credit provider. The District will seek to use credit enhancement when such credit enhancement proves cost-effective. Selection of credit enhancement providers will be subject to a competitive bid process using the District’s purchasing guidelines, if applicable. Fixed Rate Bonds Credit enhancement for fixed rate bonds is obtained by the purchase of bond insurance. If a commitment for bond insurance is obtained for a particular issue, the District will estimate the annual debt service for the issue based on current interest rates applicable to the credit rating of the bond insurer. If the estimated debt service on this basis is less than or equal to estimated debt service for the issue based on interest rates for bonds with the District’s underlying or stand-alone credit rating, the District will purchase the bond insurance. Any intention of the District to prepay the debt ahead of its scheduled maturity will be taken into account in the analysis. Credit enhancement may be used to improve or establish a credit rating on a District debt obligation even if such credit enhancement is not cost effective if, in the opinion of the Chief Financial Officer, the use of such credit enhancement meets the District’s debt financing goals and objectives, such as, funding of a reserve fund for the bonds. Variable Rate Bonds Credit enhancement for variable rate bonds is comprised of two components: credit support and liquidity. The interest on variable rate bonds is based on a short-term investment rate (usually 7 days). Any investor can tender their bonds back to the District to be repurchased on short notice (usually 7 days). Because of the short- term nature of the investment, the securities that the District is OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 20 of 24 “competing” with for investors are AA-rated mutual funds. Therefore, variable debt needs to have credit enhancement to achieve a comparable AA rating, as well as liquidity support to provide the District with a mechanism to purchase any bonds that are tendered before they can be remarketed to new investors. A limited number of financial institutions offer letters of credit that combine both credit support and liquidity for one fee. An alternative is to purchase bond insurance to provide credit support and enter into a separate purchase agreement with a financial institution to provide liquidity. The difference in cost between the two structures will be analyzed before either alternative is selected for variable rate debt. 18.0: GLOSSARY Ad Valorem Tax: A tax calculated “according to the value” of property. Such a tax is based on the assessed valuation of tangible personal property. In most jurisdictions, the tax is a lien on the property enforceable by seizure and sale of the property. General restrictions, such as overall restrictions on rates, or the percent of charge allowed, sometimes apply. As a result, ad valorem taxes often function as the balancing element in local budgets. Advance Refunding: A procedure whereby outstanding bonds are refinanced by the proceeds of a new bond issue prior to the date on which outstanding bonds become due or are callable. Typically an advance refunding is performed to take advantage of interest rates that are significantly lower than those associated with the original bond issue. At times, however, an advance refunding is performed to remove restrictive language or debt service reserve requirements required by the original issue. Amortization: The planned reduction of a debt obligation according to a stated maturity or redemption schedule. Arbitrage: The gain that may be obtained by borrowing funds at a lower (often tax-exempt) rate and investing the proceeds at higher (often taxable) rates. The ability to earn arbitrage by issuing tax- exempt securities has been severely curtailed by the Tax Reform Act of 1986, as amended. Assessed Valuation: The appraised worth of property as set by a taxing authority through assessments for purposes of ad valorem taxation. Basis Point: One one-hundredth of one percent. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 21 of 24 Bond: A security that represents an obligation to pay a specified amount of money on a specific date in the future, typically with periodic interest payments. Bond Counsel: An attorney (or firm of attorneys) retained by the issuer to give a legal opinion concerning the validity of the securities. The bond counsel’s opinion usually addresses the subject of tax exemption. Bond counsel may prepare, or review and advise the issuer regarding authorizing resolutions or ordinances, trust indentures, official statements, validation proceedings and litigation. Bond Insurance: A type of credit enhancement whereby a monocline insurance company indemnifies an investor against a default by the issuer. In the event of a failure by the issuer to pay principal and interest in-full and on-time, investors may call upon the insurance company to do so. Once assigned, the municipal bond insurance policy generally is irrevocable. The insurance company receives an up-front fee, or premium, when the policy is issued. Call Option: A contract through which the owner is given the right but is not obligated to purchase the underlying security or commodity at a fixed price within a limited time frame. Cap: A ceiling on the interest rate that would be paid. Capital Lease: The acquisition of a capital asset over time rather than merely paying rent for temporary use. A lease-purchase agreement, in which provision is made for transfer of ownership of the property for a nominal price at the scheduled termination of the lease, is referred to as a capital lease. Certificate of Participation: A financial instrument representing a proportionate interest in payments such as lease payments by one party (such as the District acting as a lessee) to another party (often a trustee). CIP: Capital Improvement Program. Competitive Sale: The sale of securities in which the securities are awarded to the bidder who offers to purchase the issue at the best price or lowest cost. Continuing Disclosure: The requirement by the Securities and Exchange Commission for most issuers of municipal debt to provide current OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 22 of 24 financial information to the informational repositories for access by the general marketplace. Debt Service: The amount necessary to pay principal and interest requirements on outstanding bonds for a given year or series of years. Defeasance: Providing for payment of principal of premium, if any, and interest on debt through the first call date or scheduled principal maturity in accordance with the terms and requirements of the instrument pursuant to which the debt was issued. A legal defeasance usually involves establishing an irrevocable escrow funded with only cash and U.S. Government obligations. Derivative: A financial product that is based upon another product. Generally, derivatives are risk mitigation tools. Discount: The difference between a bond’s par value and the price for which it is sold when the latter is less than par. Financial Advisor: A consultant who advises an issuer on matters pertinent to a debt issue, such as structure, sizing, timing, marketing, pricing, terms and bond ratings. General Obligation Bonds: Debt that is secured by a pledge of the ad valorem taxing power of the issuer. Also known as a full faith and credit obligation. Municipal Securities Rulemaking Board (MSRB): The MSRB, comprised of representatives from investment banking firms, dealer bank representatives, and public representatives, is entrusted with the responsibility of writing rules of conduct for the municipal securities market. Negotiated Sale: A sale of securities in which the terms of sale are determined through negotiation between the issuer and the purchaser, typically an underwriter, without competitive bidding. Official Statement: A document published by the issuer that discloses material information on a new issue of municipal securities including the purposes of the issue, how the securities will be repaid, and the financial, economic and social characteristics of the issuing government. Investors may use this information to evaluate the credit quality of the securities. Option: A derivative contract. There are two primary types of options (see Put Option and Call Option). An option is considered a OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 23 of 24 wasting asset because it has a stipulated life to expiration and may expire worthless. Hence, the premium could be wasted. Optional Redemption: The redemption of an obligation prior to its stated maturity, which can only occur on dates specified in the bond indenture. Overlapping Debt: The legal boundaries of local governments often overlap. In some cases, one unit of government is located entirely within the boundaries of another. Overlapping debt represents the proportionate share of debt that must be borne by one unit of government because another government with overlapping or underlying taxing authority issued its own bonds. Par Value: The face value or principal amount of a security. Pay-as-you-go: To pay for capital improvements from current resources and fund balances rather than from debt proceeds. Put Option: A contract that grants to the purchaser the right but not the obligation to exercise. Rate Covenant: A covenant between the District and bondholders, under which the District agrees to maintain a certain level of net income compared to its debt payments, and covenants to increase rates if net income is not sufficient to meet such level. Refunding: A procedure whereby an issuer refinances an outstanding bond issue by issuing new bonds. Revenue Bonds: A bond which is payable from a specific source of revenue and to which the full faith and credit of an issuer with taxing power is not pledged. Revenue bonds are payable from identified sources of revenue, and do not permit the bondholders to compel a jurisdiction to pay debt service from any other source. Pledged revenues often are derived from the operation of an enterprise. Generally, no voter approval is required prior to issuance. Special Assessments: A charge imposed against property or parcel of land that receives a special benefit by virtue of some public improvement that is not, or cannot be enjoyed by the public at large. Special assessment debt issues are those that finance such improvements and are repaid by the assessments charged to the benefiting property owners. OTAY WATER DISTRICT BOARD OF DIRECTORS POLICY Subject DEBT POLICY Policy Number Date Adopted Date Revised 45 4/13/04 2/1/17 Page 24 of 24 Swap: A customized financial transaction between two or more counterparties who agree to make periodic payments to one another. Swaps cover interest rate, equity, commodity and currency products. They can be simple floating for fixed exchanges or complex hybrid products with multiple option features. True Interest Cost (TIC): A method of calculating the overall cost of a financing that takes into account the time value of money. The TIC is the rate of interest that will discount all future payments so that the sum of their present value equals the issue proceeds. Underwriter: The term used broadly in the municipal market, to refer to the firm that purchases a securities offering from a governmental issuer. Yield Curve: Refers to the graphical or tabular representation of interest rates across different maturities. The presentation often starts with the shortest term rates and extends towards longer maturities. It reflects the market’s views about implied inflation/deflation, liquidity, economic and financial activity, and other market forces. District Debt Policy Policy No. 45 Board of Director’s Meeting February 1, 2017 Attachment D 1 Policy Review Review Existing Outstanding Debt Debt Coverage Ratio Update of the Debt Policy 2 Schedule of Debt Outstanding Debt December 31st, 2016 Description Year  Issued Year of Final  Payment Call  Options Effective  Rate Original Amount Amount  Outstanding Purpose 1996 Certificates of  Participation  (Non‐taxable) 1996 2026 Any time Variable  (1.15% as of  8/7/13) $15,400,000 $8,200,000  Terminal Storage, Water Storage Ponds,  Pump Stations, Operational Reservoirs,  Pipeline Projects, Headquarters 2016 Water Revenue  Refunding Bonds  (Non‐taxable) 2016 2036 Not  Callable 2.90% $33,385,000 $32,185,000  Refunding of 2007 COPS, which were  used for 640‐1 and 640‐2 Reservoirs,  which were both 10MM gallon reservoirs 2009 General Obligation  Bonds (Non‐taxable) 2009 2022 Not  Callable 3.39% $7,780,000 $3,995,000  Redemption of 1998 GO Bonds, which  were used for ID 27 including: 30MM  gallon reservoir and  replacement/addition of pipeline 2010 Build America Bonds  ‐ A (Non‐taxable)2010 2024 3/1/2020 4.18% $13,840,000 $8,820,000  2010 Build America Bonds  ‐ B (Taxable)2010 2040 Any time (Make‐ Whole*) 4.18% $36,355,000 $36,355,000  2013 Water Revenue  Refunding Bonds 2013 2023 Not  Callable 1.56% $7,735,000 $5,220,000  Refunding of 1993/2004 COPS, which  were used for terminal storage  reservoirs, pump stations, operational  reservoirs and 50,000 feet of pipeline Total $114,495,000 $94,775,000  Jamacha Road Pipeline Project Conveyance System for desal plant 3 Debt Coverage Ratio 1.96 2.40 2.80 3.12 3.36 3.54 1.60 1.68 1.71 1.71 1.74 1.73 1.25 1.25 1.25 1.25 1.25 1.25 0% 50% 100% 150% 200% 250% 300% 350% 400% 2017 2018 2019 2020 2021 2022 Debt Ratio Operational Debt Ratio Minimum Debt Ratio* * FY 17 Strategic Plan Debt ratio is 150% which excludes growth. 4 Debt Policy Guidelines Professional Finance Organizations: Government Finance Officers Association (GFOA) California Municipal Treasurers Association (CMTA) California Society of Municipal Finance Officers (CSMFO) 5 Debt Policy Changes Added an Internal Control Section to comply with Senate Bill 1029 Section 2(i)(1) “The District has implemented the following procedures to ensure that the proceeds of the proposed debt issuance will be directed to the intended use.” 6 Debt Policy Changes A separate reserve/cash account shall be maintained for the proceeds of each bond to ensure that there is no comingling of funds. All related expenditure charges against the bond proceeds shall be properly approved by the authorized authority. All related transactions shall be fully documented so that an undisputable audit trail exists. 7 Debt Policy Changes All related transactions shall be tracked in the District’s accounting system. A financial report reflecting all charges related to the bond shall be prepared and maintained. The District shall establish a retention policy which states that all supporting documents related to bond proceeds spending shall be kept indefinitely. The reserve account shall be reconciled on a monthly basis. 8 Requested Board Action The Finance, Administration and Communications Committee reviewed the amended Debt Policy No. 45 and recommends the Board adopt Resolution No. 4323 amending the Debt Policy. 9 STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 1, 2017 SUBMITTED BY: Dan Martin Engineering Manager PROJECT: Various DIV. NO. ALL APPROVED BY: Rod Posada, Chief of Engineering German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Adopt Ordinance No. 560 Amending Section 27 Requirements and Limitations for Obtaining Water Service of the District’s Code of Ordinances GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) adopt Ordinance No. 560 amending Section 27 Requirements and Limitations for Obtaining Water Service of the District’s Code of Ordinances. COMMITTEE ACTION: Please see Attachment A. PURPOSE: The purpose of the proposed amendments to Section 27 of the District’s Code of Ordinances is to provide clarification on requirements for multiple meters - specifically for buildings that contain a mix of commercial units and multi-family residential dwelling units. ANALYSIS: Section 27 of the District’s Code of Ordinances provides the requirements and limitations for obtaining water service. Within Section 27.02, “Size of Water Meter,” under subparagraph F, the 2 language states that the General Manager may require multiple meters when it is in the best interest of the District. As new areas of the District develop, the approved developments include multistory buildings that contain both commercial units on the street level and multiple-family residential dwelling units above (mixed use buildings). Staff is recommending language that requires separate metering for commercial and multiple-family uses in mixed use buildings. The primary reasons for this requirement includes the following:  The District has established separate water rates for multi- family residential verses commercial use. The separate rates are the result of different peaking factors associated with each use type. The basis for these rates are supported by the District’s rate study.  A mixed use building is anticipated to have a life that exceeds fifty years. Over the life of a mixed use building, the type and use of the commercial space is anticipated to change multiple times resulting in different fixtures being added or subtracted, which may require changes to the meter sizing associated with the commercial use.  This year, the Governor of California issued Executive Order B- 37-16 (https://www.gov.ca.gov/docs/5.9.16_Executive_Order.pdf) titled, “Making Water Conservation a California Way of Life”. Within that Executive Order, there is language stating that the Department of Water Resources shall establish new water use targets. The Executive Order states that the new water use targets shall generate more statewide conservation than existing requirements and be based on strengthened standards for indoor residential per capita use and commercial, industrial, and institutional water use. The State is moving towards requiring Water Agencies to provide separate reporting for residential and commercial water use to demonstrate compliance with targets established by the Water Resources Department. Separate metering for commercial and multi-family residential will support compliance reporting to the State. The proposed changes to the District’s Code of Ordinance include the following:  Section 27.03 F - language is added to state that buildings that contain a mix of commercial units and multiple-family residential dwelling units are required to isolate commercial water use from multiple-family residential water use through separate master meters. 3 The draft language included in the proposed Section 27 of the Code of Ordinances was transmitted to the development community on November 8, 2016 with a request to receive comments. As of January 3, 2017, two (2) letters have been received regarding the proposed changes (Exhibit A). The comments received express hardship with respect to the additional metering required to separate the commercial and multi-family residential use. Staff has responded to the comment letters received and discussed the reasons for the change, as described in this staff report. No additional concerns have been expressed. FISCAL IMPACT: Joe Beachem, Chief Financial Officer None. STRATEGIC GOAL: Adoption of Ordinance No. 560 supports the District’s Mission statement, “To provide high quality and reliable water and wastewater services to the customers of the Otay Water District, in a professional, effective, and efficient manner” and the General Manager’s Vision, "A District that is innovative in providing water services at competitive rates, with a reputation for outstanding customer service." LEGAL IMPACT: None. DM/RP: P:\Public-s\STAFF REPORTS\2017\BD 02-01-17\BD 02-01-17 Staff Report Code Section 27 Proposed Changes Report (DM).docx Attachments: Attachment A – Committee Action Attachment B - Ordinance No. 560 Exhibit 1 – Strike-through Section 27 Attachment C – Proposed Section 27 Exhibit A - Comment letters ATTACHMENT A SUBJECT/PROJECT: VARIOUS Adopt Ordinance No. 560 Amending Section 27 Requirements and Limitations for Obtaining Water Service of the District’s Code of Ordinances COMMITTEE ACTION: The Finance, Administration, and Communications Committee (Committee) reviewed this item at a Committee Meeting held on January 18, 2017. The Committee supported Staff’s recommendation. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for Board approval. This report will be sent to the Board as a Committee approved item, or modified to reflect any discussion or changes as directed from the Committee prior to presentation to the full Board. Attachment B ORDINANCE NO. 560 AN ORDINANCE OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT AMENDING SECTION 27 REQUIREMENTS AND LIMITATIONS FOR OBTAINING WATER SERVICE OF THE DISTRICT’S CODE OF ORDINANCES BE IT ORDAINED by the Board of Directors of Otay Water District that the District’s Code of Ordinances, Section 27 Requirements and Limitations for Obtaining Water Service be amended as per Exhibit 1 (attached). NOW, THEREFORE, BE IT RESOLVED that the new proposed Section 27 (Attachment C) of the Code of Ordinances shall become effective February 1, 2017. PASSED, APPROVED, AND ADOPTED by the Board of Directors of the Otay Water District at a regular meeting duly held this 1st day of February, 2017, by the following roll call vote: AYES: NOES: ABSENT: ABSTAIN: ________________________________ President ATTEST: _____________________________ District Secretary Attachment B - Exhibit 1 SECTION 27REQUIREMENTS AND LIMITATIONS FOR OBTAINING WATER SERVICE 27.01 REQUIREMENT FOR WATER/SEWER PERMIT AND PAYMENT OF FEES, CHARGES, AND DEPOSITS A. Requirement for Water/Sewer Permits. Water meters shall not be installed nor water service furnished until an application, in the form of a water/sewer permit, has been executed by the customer at the District office. B. Requirement for Payment of Fees, Charges, and Deposits. Payment of all required fees, charges, and depos- its shall be made by the customer at the time the water meter is purchased. A customer requesting water service shall pay the fees, charges, and deposits as set forth in Section 28 of this Code. C. Requirement for a Building Permit. A customer requesting permanent water service shall be required to present a valid building permit for the property issued by the appropriate governmental agency, except that a building permit is not required by a customer requesting permanent water service to: 1) install and maintain landscaping prior to the construction of a building; 2) perform mass grading operations; or 3) to satisfy conditions imposed by other government agencies, including a single meter for grading four lots or less which are part of the same parcel map. Government agencies shall be exempt from the requirement of presenting a valid building permit. D. Requirement for a Service Lateral. The customer requesting water service shall either have an existing service lateral or purchase a new lateral installation at the time of the meter purchase. E. Commercial Parcels -- 5,000 square feet or Larger Irrigated Landscape. When a customer requests water service on a parcel of land with irrigated landscape equal to 5,000 square feet or more, a separate meter will be required for irrigation purposes on the site. F. Recycled Water Service Areas. In areas designated as recycled water service areas, the customer may be required to install a separate recycled water service lateral and meter to supply irrigation to the parcel. G. Second Meter for Indoor Use. Any customer who obtained a single meter prior to October 17, 1990, a second meter for indoor use may be obtained, without paying water capacity fees, San Diego County Water Authority fees, and applicable zone charges on the second meter, if the following criteria are met: 27-2 1. The additional meter is solely for the purpose of isolating current domestic (indoor) water use from that used for outdoor landscaping. The additional meter shall be on a separate lateral. 2. All costs of on-site plumbing changes, including approved back-flow prevention devices, will be the responsibility of the customer. 3. The customer acknowledges that adding a second meter will result in a second water bill and associated monthly system fee. 4. The customer will be required to pay all fees and charges prior to meter installation. H. Water Service Use Changes Resulting in Increased System Utilization. The use of a water service shall be limited to the type and size authorized by the original water meter permit. The property owner shall make a supplementary water permit application to the District before adding or subtracting any additional equivalent dwelling units; adding or subtracting buildings; modifying existing buildings; or changing occupancy type. The property owner shall be responsible for all additional fees, as may be applicable resulting from the changes included in the supplementary water permit application. 1. If the supplementary water permit application requires a larger meter, the property owner will be responsible for all costs associated with the upsize of the existing meter in the manner provided in Section 33.05 paragraph C. 2. Periodic inspections of the premises may be made by the District to verify conformance with the approved permit. The District may also perform periodic inspections if actual use is greater than estimated use as included in the original water meter permit. If it is determined by periodic inspections that the type and size authorized by the original water meter permit has been exceeded, the property owner will be responsible for all costs associated with the upsize of the existing meter in the manner provided in Section 33.05 paragraph C. 27.02 SIZE OF WATER METER A water meter shall be sized to ensure that the maximum demand (in gallons per minute) will not exceed 80% of the manufacturer's recommended maximum flow rate, as shown in 27-3 Section 27.03. In no case shall the water meter size be less than ¾-inch. The size of the water meter and service lateral required for water service shall be determined by the General Manager as follows: A. Detached Single-Family Residential Dwelling Unit. The customer may submit calculated maximum demand (in gallons per minute), provided that maximum demand must be no more than twenty four (24) gallons per minute for a ¾-inch meter. B. Apartments, Condominiums, Mobile Home Parks, and other Multiple Family Residential Dwelling Units with Individual Meters. The calculated maximum demand shall be per Section 27.02A. C. Business, Commercial, Industrial, Apartments, Condominiums, Mobile Home Parks, and other Multiple-Family Residential Dwelling Units. The customer shall submit building plans signed by a licensed building architect. The plans shall list the number of fixture units, the parcel size (in acres), and the calculated maximum demand (in gallons per minute) to be placed on each water meter. D. Irrigation. The customer shall submit irrigation plans signed by a licensed landscape architect. The plans shall indicate the calculated maximum demand (in gallons per minute) to be placed on each water meter and the total area to be irrigated (in square feet). The plans must also be in compliance with the requirements of Section 27.05. E. Other. In the case of other types of service not included above, the customer shall submit information as requested by the General Manager. Any customer may request and purchase a separate meter to isolate landscaping from indoor use. F. Requirement for Multiple Meters. The General Manager may require multiple meters when it is in the best interest of the District. Buildings that contain a mix of commercial units and multiple-family residential dwelling units are required to isolate commercial water use from multiple-family residential water use through separate master meters. G. Phased Projects. Should the developer choose to phase a multi-family project and determines the use of a smaller meter is practical within the initial phase, they must provide fixture unit calculations for review and approval by the District for each phase of development, including the build-out of the project. The developer shall provide a letter to the District stating they acknowledge the initial meter is temporary and they understand that they must purchase a larger meter, paying all applicable meter upsize fees when they connect future phases to this system. 27-4 At Plan Review and Submittal the developer shall show fixture count and meter size for each of the phases to final build-out. 27.03 MANUFACTURERS RECOMMENDED MAXIMUM FLOW RATE FOR DISTRICT METERS Customers are cautioned to control the rates of flow of water through District meters. Operation of a meter at flows in excess of the manufacturer's recommendations will cause severe damage to operating parts. Rated capacities for meters used in this District are as follows: ORDINARY METERS Meter Size Manufacturer's Recommended Maximum Rate in U.S. Gallons in Inches per Minute 3/4 30 1 50 1-1/2 100 2 160 3 500 4 1000 6 2000 8 3400 10 5000 27.04 RESALE OR DISTRIBUTION OF WATER No customer may resell or redistribute any portion of the water furnished by the District except as provided below: A. Use of Sub Meters for Resale or Redistribution of Water. Owners or operators of mobile home parks, apartments, condominium complexes, industrial complexes, and land used for agricultural purposes may resell water furnished by the District through the use of a sub metering system under the following conditions: 1. Owners and operators shall comply with State law (California Code of Regulations Section 4090) prohibiting any surcharge on the water rate; 2. The water system on the private property side of the master meter, including the sub meters, shall be solely the responsibility of the owner or operator; and 3. The owner or operator shall clearly delineate on the bill that any cost associated with the sub meters is a cost imposed by the property 27-5 owner or operator and not by Otay Water District. B. Ratio Utility Billing Systems. To the extent permitted under law, owners or operators of multi-unit structures where sub meters have not been installed may elect to implement a Ratio Utility Billing System (RUBS) or alternative billing system to determine proportionate shares of water charges and bill tenants accordingly. 27.05 CONSERVATION AND LOCAL SUPPLY USE REQUIREMENTS The requirements below apply to all new residential and commercial developments or redevelopments. The landscape requirements also apply to any re-landscaping that is subject to review by the District, the County of San Diego, City of Chula Vista, or the City of San Diego. A. Indoor Fixtures and Appliances. All water fixtures and appliances installed, including the ones in the following list, must be high-efficiency: o Toilets and urinals o Faucets o Showerheads o Clothes Washers o Dishwashers ‘‘High-efficiency’’ means fixtures and appliances that comply with the most efficient specifications under the EPA WaterSense® or Energy Star programs,1 as in effect at the time installation commences. B. Landscape requirements. Only ‘‘Smart’’ irrigation controllers2 may be installed and only low-water use plants may be used in non-recreational landscapes. All landscapes must also be designed and managed consistent with requirements of the local agency within which the property is located, be it the County of San Diego, the City of Chula Vista, or the City of San Diego. 1. Installed smart irrigation controllers shall be properly programmed/scheduled according to the manufacturer’s instructions and/or site specific conditions based on soil type, plant type, irrigation type, weather, and/or reference evapotranspiration data. 1 Certified EPA WaterSense® products, and Energy Star products, are at least 20% more efficient than the applicable federal standards. 2 Smart Irrigation Controller means a controller that uses real time, soil moisture or weather data to automatically adjust irrigation run- times. Furthermore, to qualify as a Smart Irrigation Controller, the device must be certified by the Irrigation Association and/or the EPA WaterSense® program. 27-6 2. Two irrigation schedules shall be prepared, one for the initial establishment period of three months or until summer hardened, and one for the established landscape which incorporates the specific water needs of the plants and turf throughout the calendar year. The schedules shall be continuously available on site to those responsible for the landscape maintenance and posted at the smart controller. 3. Any Covenants, Conditions, and Restrictions (CC&Rs) pertaining to a new subdivision/development shall not limit or prohibit the use and maintenance of low water use plant materials and the use of artificial turf, and shall require property owners to design and maintain their landscapes consistent with applicable City and County regulations. 4. Dedicated irrigation meters shall be installed in: o All parks and common areas with 5,000 square feet or more of irrigated landscape; and o Commercial sites with 5,000 square feet or more of irrigated landscape 5. In compliance with Section 23.03 of this Code of Ordinance, pressure regulators must be installed when and where appropriate to maximize the life expectancy and efficiency of the irrigation system. C. New commercial developments must install separate, dual-distribution systems for potable and recycled water. D. The requirements of this Section shall not be interpreted in any way to limit the owner’s obligation to comply with any other applicable federal, state, or local laws or regulations. Attachment C SECTION 27REQUIREMENTS AND LIMITATIONS FOR OBTAINING WATER SERVICE 27.01 REQUIREMENT FOR WATER/SEWER PERMIT AND PAYMENT OF FEES, CHARGES, AND DEPOSITS A. Requirement for Water/Sewer Permits. Water meters shall not be installed nor water service furnished until an application, in the form of a water/sewer permit, has been executed by the customer at the District office. B. Requirement for Payment of Fees, Charges, and Deposits. Payment of all required fees, charges, and depos- its shall be made by the customer at the time the water meter is purchased. A customer requesting water service shall pay the fees, charges, and deposits as set forth in Section 28 of this Code. C. Requirement for a Building Permit. A customer requesting permanent water service shall be required to present a valid building permit for the property issued by the appropriate governmental agency, except that a building permit is not required by a customer requesting permanent water service to: 1) install and maintain landscaping prior to the construction of a building; 2) perform mass grading operations; or 3) to satisfy conditions imposed by other government agencies, including a single meter for grading four lots or less which are part of the same parcel map. Government agencies shall be exempt from the requirement of presenting a valid building permit. D. Requirement for a Service Lateral. The customer requesting water service shall either have an existing service lateral or purchase a new lateral installation at the time of the meter purchase. E. Commercial Parcels -- 5,000 square feet or Larger Irrigated Landscape. When a customer requests water service on a parcel of land with irrigated landscape equal to 5,000 square feet or more, a separate meter will be required for irrigation purposes on the site. F. Recycled Water Service Areas. In areas designated as recycled water service areas, the customer may be required to install a separate recycled water service lateral and meter to supply irrigation to the parcel. G. Second Meter for Indoor Use. Any customer who obtained a single meter prior to October 17, 1990, a second meter for indoor use may be obtained, without paying water capacity fees, San Diego County Water Authority fees, and applicable zone charges on the second meter, if the following criteria are met: 27-2 1. The additional meter is solely for the purpose of isolating current domestic (indoor) water use from that used for outdoor landscaping. The additional meter shall be on a separate lateral. 2. All costs of on-site plumbing changes, including approved back-flow prevention devices, will be the responsibility of the customer. 3. The customer acknowledges that adding a second meter will result in a second water bill and associated monthly system fee. 4. The customer will be required to pay all fees and charges prior to meter installation. H. Water Service Use Changes Resulting in Increased System Utilization. The use of a water service shall be limited to the type and size authorized by the original water meter permit. The property owner shall make a supplementary water permit application to the District before adding or subtracting any additional equivalent dwelling units; adding or subtracting buildings; modifying existing buildings; or changing occupancy type. The property owner shall be responsible for all additional fees, as may be applicable resulting from the changes included in the supplementary water permit application. 1. If the supplementary water permit application requires a larger meter, the property owner will be responsible for all costs associated with the upsize of the existing meter in the manner provided in Section 33.05 paragraph C. 2. Periodic inspections of the premises may be made by the District to verify conformance with the approved permit. The District may also perform periodic inspections if actual use is greater than estimated use as included in the original water meter permit. If it is determined by periodic inspections that the type and size authorized by the original water meter permit has been exceeded, the property owner will be responsible for all costs associated with the upsize of the existing meter in the manner provided in Section 33.05 paragraph C. 27.02 SIZE OF WATER METER A water meter shall be sized to ensure that the maximum demand (in gallons per minute) will not exceed 80% of the manufacturer's recommended maximum flow rate, as shown in 27-3 Section 27.03. In no case shall the water meter size be less than ¾-inch. The size of the water meter and service lateral required for water service shall be determined by the General Manager as follows: A. Detached Single-Family Residential Dwelling Unit. The customer may submit calculated maximum demand (in gallons per minute), provided that maximum demand must be no more than twenty four (24) gallons per minute for a ¾-inch meter. B. Apartments, Condominiums, Mobile Home Parks, and other Multiple Family Residential Dwelling Units with Individual Meters. The calculated maximum demand shall be per Section 27.02A. C. Business, Commercial, Industrial, Apartments, Condominiums, Mobile Home Parks, and other Multiple-Family Residential Dwelling Units. The customer shall submit building plans signed by a licensed building architect. The plans shall list the number of fixture units, the parcel size (in acres), and the calculated maximum demand (in gallons per minute) to be placed on each water meter. D. Irrigation. The customer shall submit irrigation plans signed by a licensed landscape architect. The plans shall indicate the calculated maximum demand (in gallons per minute) to be placed on each water meter and the total area to be irrigated (in square feet). The plans must also be in compliance with the requirements of Section 27.05. E. Other. In the case of other types of service not included above, the customer shall submit information as requested by the General Manager. Any customer may request and purchase a separate meter to isolate landscaping from indoor use. F. Requirement for Multiple Meters. The General Manager may require multiple meters when it is in the best interest of the District. Buildings that contain a mix of commercial units and multiple-family residential dwelling units are required to isolate commercial water use from multiple-family residential water use through separate master meters. G. Phased Projects. Should the developer choose to phase a multi-family project and determines the use of a smaller meter is practical within the initial phase, they must provide fixture unit calculations for review and approval by the District for each phase of development, including the build-out of the project. The developer shall provide a letter to the District stating they acknowledge the initial meter is temporary and they understand that they must purchase a larger meter, paying all applicable meter upsize fees when they connect future phases to this system. 27-4 At Plan Review and Submittal the developer shall show fixture count and meter size for each of the phases to final build-out. 27.03 MANUFACTURERS RECOMMENDED MAXIMUM FLOW RATE FOR DISTRICT METERS Customers are cautioned to control the rates of flow of water through District meters. Operation of a meter at flows in excess of the manufacturer's recommendations will cause severe damage to operating parts. Rated capacities for meters used in this District are as follows: ORDINARY METERS Meter Size Manufacturer's Recommended Maximum Rate in U.S. Gallons in Inches per Minute 3/4 30 1 50 1-1/2 100 2 160 3 500 4 1000 6 2000 8 3400 10 5000 27.04 RESALE OR DISTRIBUTION OF WATER No customer may resell or redistribute any portion of the water furnished by the District except as provided below: A. Use of Sub Meters for Resale or Redistribution of Water. Owners or operators of mobile home parks, apartments, condominium complexes, industrial complexes, and land used for agricultural purposes may resell water furnished by the District through the use of a sub metering system under the following conditions: 1. Owners and operators shall comply with State law (California Code of Regulations Section 4090) prohibiting any surcharge on the water rate; 2. The water system on the private property side of the master meter, including the sub meters, shall be solely the responsibility of the owner or operator; and 3. The owner or operator shall clearly delineate on the bill that any cost associated with the sub meters is a cost imposed by the property 27-5 owner or operator and not by Otay Water District. B. Ratio Utility Billing Systems. To the extent permitted under law, owners or operators of multi-unit structures where sub meters have not been installed may elect to implement a Ratio Utility Billing System (RUBS) or alternative billing system to determine proportionate shares of water charges and bill tenants accordingly. 27.05 CONSERVATION AND LOCAL SUPPLY USE REQUIREMENTS The requirements below apply to all new residential and commercial developments or redevelopments. The landscape requirements also apply to any re-landscaping that is subject to review by the District, the County of San Diego, City of Chula Vista, or the City of San Diego. A. Indoor Fixtures and Appliances. All water fixtures and appliances installed, including the ones in the following list, must be high-efficiency: o Toilets and urinals o Faucets o Showerheads o Clothes Washers o Dishwashers ‘‘High-efficiency’’ means fixtures and appliances that comply with the most efficient specifications under the EPA WaterSense® or Energy Star programs,1 as in effect at the time installation commences. B. Landscape requirements. Only ‘‘Smart’’ irrigation controllers2 may be installed and only low-water use plants may be used in non-recreational landscapes. All landscapes must also be designed and managed consistent with requirements of the local agency within which the property is located, be it the County of San Diego, the City of Chula Vista, or the City of San Diego. 1. Installed smart irrigation controllers shall be properly programmed/scheduled according to the manufacturer’s instructions and/or site specific conditions based on soil type, plant type, irrigation type, weather, and/or reference evapotranspiration data. 1 Certified EPA WaterSense® products, and Energy Star products, are at least 20% more efficient than the applicable federal standards. 2 Smart Irrigation Controller means a controller that uses real time, soil moisture or weather data to automatically adjust irrigation run- times. Furthermore, to qualify as a Smart Irrigation Controller, the device must be certified by the Irrigation Association and/or the EPA WaterSense® program. 27-6 2. Two irrigation schedules shall be prepared, one for the initial establishment period of three months or until summer hardened, and one for the established landscape which incorporates the specific water needs of the plants and turf throughout the calendar year. The schedules shall be continuously available on site to those responsible for the landscape maintenance and posted at the smart controller. 3. Any Covenants, Conditions, and Restrictions (CC&Rs) pertaining to a new subdivision/development shall not limit or prohibit the use and maintenance of low water use plant materials and the use of artificial turf, and shall require property owners to design and maintain their landscapes consistent with applicable City and County regulations. 4. Dedicated irrigation meters shall be installed in: o All parks and common areas with 5,000 square feet or more of irrigated landscape; and o Commercial sites with 5,000 square feet or more of irrigated landscape 5. In compliance with Section 23.03 of this Code of Ordinance, pressure regulators must be installed when and where appropriate to maximize the life expectancy and efficiency of the irrigation system. C. New commercial developments must install separate, dual-distribution systems for potable and recycled water. D. The requirements of this Section shall not be interpreted in any way to limit the owner’s obligation to comply with any other applicable federal, state, or local laws or regulations. STAFF REPORT TYPE MEETING: Regular Board MEETING DATE: February 1, 2017 SUBMITTED BY: Tenille M. Otero, Communications Officer PROJECT: Various DIV. NO. ALL APPROVED BY: Mark Watton, General Manager SUBJECT: 2017 Legislative Program Guidelines GENERAL MANAGER’S RECOMMENDATION: That the Board of Directors adopt the 2017 Otay Water District Legislative Program Guidelines. COMMITTEE ACTION: See Attachment A. PURPOSE: To provide direction to staff and the District’s Legislative Advocates in the formulation of the District’s response to legislative initiatives on issues affecting the District during the 2017 legislative session. ANALYSIS: Otay Water District maintains a set of legislative policy guidelines to direct staff and legislative advocates on issues important to the District. The legislative guidelines are updated annually with the proposed updates presented to the Otay Water District’s Board of Directors for review, comment, and adoption. The attached 2017 Legislative Program represents policy positions on legislation for the Board’s consideration. Each legislative session, representatives to the California Legislature sponsor 2,000 or more bills or significant resolutions. 2 While many bills fail to make it out of their house of origin, many others go on to be signed by the governor and become law. These new laws can affect special districts in substantive ways. The same is true with each session of the House of Representatives and the U.S. Senate. The 2017 Legislative Program establishes guidelines and policy direction that can be used by staff when monitoring legislative activity to facilitate actions that can be taken quickly in response to proposed bills. The guidelines provide a useful framework for staff when evaluating the potential impact of state or federal legislation on the District. This is particularly helpful when a timely response is necessary to address a last minute amendment to legislation and should calls or letters of support or opposition be needed. Legislation that does not meet the guidelines as set forth or that has potentially complicated or varied implications will not be acted upon by staff or the legislative advocates, and will instead be presented to the Board directly for guidance in advance of any position being taken. The 2017 Legislative Guidelines presents staff’s initial recommendations for the Board’s review, and seeks the Board’s recommendations for any additional modifications. Staff will then incorporate feedback into the final document. In general, the guidelines look to protect the District’s interest in a reliable, diverse, and affordable water supply. Moreover, they seek to maintain local control over special district actions to protect the Board’s discretion and ratepayer interests, and maintain the ability to effectively and efficiently manage District operations. In addition they express the District’s ongoing support for water conservation, recycled water, seawater desalination, capital improvement project development, organization-wide safety and security, binational cooperation, and the equitable distribution of water bond proceeds. FISCAL IMPACT: Joe Beachem, Chief Financial Officer None. LEGAL IMPACT: None 3 Attachments: Attachment A – Committee Action Attachment B – 2017 Otay Water District Legislative Program Attachment C - 2017 Otay Water District Legislative Program Redline ATTACHMENT A SUBJECT/PROJECT: 2017 Legislative Program Guidelines COMMITTEE ACTION: The Finance, Administration, and Communications Committee is scheduled to review this item on January 18, 2017. Attachment A will be updated with notes from the committee’s discussion. Otay Water District Legislative Program 2017 1 | Page Effective Date: 02/01/2017 Legislative Policy Guidelines The Otay Water Legislative Policy Guidelines for the 2017 Legislative Session includes the following: Sacramento-San Joaquin Bay Delta (Bay-Delta) Support efforts to: 1. Finalize and implement the Bay-Delta Conservation Plan to address Bay-Delta environmental and water quality issues. 2. Analyze or support a “Portfolio Approach”, “Around-the-Delta”, “right-sized”, or other alternatives that feature smaller conveyance facilities as a way to improve water quality, water transport, and reduce the possibility or impacts of levee failure, lower costs to water users and the public, reduce the level of environmental impacts, while potentially facing fewer legal and political challenges. 3. Finalize Bay-Delta planning work and ongoing studies of new water storage facilities, and support efforts to promote additional surface and underground water storage infrastructure that are cost effective ensure water availability and quality. 4. Resolve conflicts between urban and rural water users, water management and the environment in the Bay-Delta. 5. Provide ongoing federal and state funding for the Bay-Delta, and those, which focus attention to Bay-Delta financing, affordability, commitments to pay, and the demand for Bay-Delta water. 6. Equitably allocate costs of the Bay-Delta solution to all those benefiting from improvements in proportion to the benefits they receive. 7. Fast-track design, permits and construction for pilot projects in the Bay-Delta to create barriers to keep fish away from Bay-Delta water pumps, improve water quality and supply reliability. 8. Provide deliberative processes that are designed to ensure meaningful dialogue with all stakeholders in an open and transparent process in order to reduce future conflicts and challenges in implementing a Bay-Delta solution. 9. Provide a Bay-Delta solution that acknowledges, integrates and supports the development of water resources at the local level. 10. Improve the ability of water-users to divert water from the Bay-Delta during wet periods when impacts to fish and the ecosystem are lower and water quality is higher. 11. Improve the existing Bay-Delta water conveyance system to increase flexibility and enhance water supply, water quality, levee stability and environmental protection. 12. Evaluate long-term threats to the Bay-Delta levees and conveyance system and pursues actions to reduce risks to the state’s water supply and the environment. 13. Improve coordination of the Central Valley Project and State Water Project Operations. 14. Provide a Bay-Delta solution and facilities that are cost-effective when compared with other water supply development options for meeting Southern California’s water needs. Otay Water District Legislative Program 2017 2 | Page 15. Identify the total cost or perform appropriate cost studies to estimate consumer financial impact as well as the expected yield of any Bay-Delta solution before financing and funding decision are made to determine whether the solution is worth the expense. 16. Provide the State Water Project (SWP) with more flexibility to operate their systems to maximize water deliveries while avoiding unacceptable impacts to third parties, habitat or the environment. 17. Require a firm commitment and funding stream by all parties to pay for the proportional benefits they will receive from a Bay-Delta solution through take-or-pay contracts or the legal equivalent, and identify the impact to the remaining contractors if one or more contractors default or back out. 18. Provide “right-sized” facilities to match firm commitments to pay for the Bay-Delta solution. 19. Provide SWP contractors and their member agencies access to all SWP facilities to facilitate water transfers to improve water management. 20. Continue state ownership and operation of SWP as a public resource. 21. Improve efficiency and transparency of all SWP operations. 22. Focus on statewide priorities, including construction of an approved method of conveyance of water through or around the Delta that provides water supply reliability to the Delta water uses. 23. Provide a solution that acknowledges, integrates and supports the development of resources at the local level including water-use efficiency, seawater desalination, groundwater storage and conjunctive use, and recycled water including direct and indirect potable water reuse. 24. Provides for the state’s share of funding for Bay-Delta conveyance projects. 25. Consider complementary investments in local water supply sources, regional coordination, and south of Delta storage as part of an overall comprehensive Bay-Delta solution. 26. Protects and safeguards San Diego region’s Preferential Rights. Oppose efforts that: 1. Require additional reviews or approvals of Delta conveyance options beyond those provided by SBX7-1 (2009). 2. Transfer control of the State Water Project from the state to Metropolitan Water District of Southern California (MWD), the State Water Contractors, the Central Valley Project Contractors, the State and Federal Water Contractors Authority, or to any entity comprised of MWD and other water contractors. Otay Water District Legislative Program 2017 3 | Page Recycled Water Support efforts to: 1. Reduce restrictions on recycled water usage or promote consistent regulation of recycled water projects to reduce impediments to the increased use of recycled water. 2. Reduce restrictions on injecting recycled water into basins where there is no direct potable use. 3. Provide financial incentives for recharge of groundwater aquifers using recycled water. 4. Make recycled water regulations clear, consolidated, and understandable to expedite related project permitting. 5. Promote recycled water as a sustainable supplemental source of water. 6. Allow the safe use of recycled water. 7. Facilitate development of technology aimed at improving water recycling. 8. Increasing funding for water recycling projects. 9. Support continued funding of the Title XVI Water Reclamation and Reuse Program including Water Reclamation and Reuse Projects, the WaterSMART Program, and the Desalination and Water Purification Research Program. 10. Increase awareness of the ways recycled water can help address the region’s water supply challenges. 11. Create federal and state incentives to promote recycled water use and production. 12. Establish federal tax incentives to support U.S. companies in the development of new water technologies that can lower productions costs, address by products such as concentrates, and enhance public acceptance of recycled water. 13. Establish a comprehensive national research and development, and technology demonstration, program to advance the public and scientific understanding of water recycling technologies to encourage reuse as an alternative source of water supply. 14. Provide incentives for local agencies to work cooperatively, share costs or resources to promote or expand the use of recycled water. 15. Further refine emergency regulations to reward local suppliers that have invested in using recycled water for landscape irrigation to maintain an incentive to continue expanding areas served by recycled water. 16. Encourages the use of recycled water in commercial, industrial, institutional, and residential settings. 17. Recognizes and supports the development of potable reuse as a new supply. 18. Defines purified recycled water as a source of water supply and not as waste. 19. Mandates the reduction of wastewater discharges to the ocean absent inclusion of funding to offset the significant costs of implementation. Oppose efforts that: 1. Restrict use of recycled water for groundwater recharge. 2. Establish new water or recycled water fees solely to recover State costs without also providing some benefit. 3. Establish unreasonable regulatory requirements or fees, which may unreasonably impede or create a disincentive to the existing authority for the development of the safe use of recycled water. Otay Water District Legislative Program 2017 4 | Page Water Services and Facilities Support efforts to: 1. Provide funding to implement actions identified in the California Water Action Plan to lay a solid fiscal foundation for implementing near-term actions, including funding for water efficiency projects, wetland and watershed restoration, groundwater programs, conservation, flood control, and integrated water management and result in a reliable supply of high-quality water for the San Diego region. 2. Provide financial support to projects designed to mitigate the potential negative impacts of Global Climate Change on water supply reliability. 3. Promote the coordination and integration of local, state and federal climate change policies and practices to the greatest extent feasible. 4. Fund or otherwise facilitate ongoing implementation of the Quantification Settlement Agreement. 5. Provide reliable water supplies to meet California’s short and long-term needs. 6. Promote desalination pilot studies and projects. 7. Encourage feasibility studies of water resource initiatives. 8. Increase funding for infrastructure and grant programs for construction, modernization or expansion of water, wastewater treatment, reclamation facilities and sewer systems including water recycling, groundwater recovery and recharge, surface water development projects and seawater desalination. 9. Fund enhancements to water treatment, recycling, and other facilities to meet increased regulations. 10. Mandate uniform or similar regulations and procedures by state agencies in the processing and administering of grants and programs. 11. Streamline grant application procedures. 12. Reduce regulations and other impediments for willing sellers and buyers to engage in water transfer agreements. 13. Promote or assist voluntary water transfers between willing buyers and willing sellers and move those transactions through without delay. 14. Streamline the permitting and approval process for implementing water transfers. 15. Establish reasonable statewide approaches to sewer reporting standards. 16. Generate greater efficiencies, better coordinate program delivery, and eliminate duplication in programs for source water protection without lessening the focus on public health of the state’s Drinking Water Program. 17. Target efforts to fix specific issues with water supplies within the state’s Drinking Water Program. 18. Establish federal tax incentives to support U.S. companies in the development of new desalination technologies that can lower productions costs, eliminate or reduce impingement or entrainment, reduce energy use, and enhance public acceptance of desalinated water. 19. Establish a comprehensive national research and development, and technology demonstration program to advance the scientific understanding of desalination to expand its use as an alternative source of water supply. 20. Require the State Water Resources Control Board to exercise its authority, ensure robust funding, and implement the Salton Sea mitigation and restoration plan, meet state obligations, Otay Water District Legislative Program 2017 5 | Page and work with QSA stakeholders to find workable solutions to ensure the continuation of IID water transfers. 21. Support solutions to water supply issues that address common challenges, provide a comprehensive approach that is fair to all users, balance the needs of urban and rural communities, and take into consideration the interests of all stakeholders as well as the impact to the environment. 22. Further refine emergency drought regulations to eliminate a cap on credits and adjustments so as not to impose undue burden, financial or otherwise, on communities that have already invested in water conservation, development of new water sources, storage, or loss prevention. 23. Provide funding for water infrastructure development, infrastructure security, and rehabilitation and replacement projects that benefit ratepayers. 24. Provide funding for habitat preservation programs that address impacts resulting from construction or operation of water system facilities. 25. Provide funding for projects that enhance security against terrorist acts or other criminal threats to water operation, services, facilities, or supplies. 26. Provide incentives that encourage contractors to recycle or reduce waste associated with construction of water facilities. Oppose efforts that: 1. Make urban water supplies less reliable or substantially increase the cost of imported water without also improving the reliability and/or quality of the water. 2. Create unrealistic or costly water testing or reporting protocol. 3. Disproportionately apportion the cost of water. 4. Create undo hurtles for seawater desalination projects. 5. Create unreasonable or confusing sewer reporting standards. 6. Create administrative or other barriers to sales between willing buyers and willing sellers that delay water transfers. 7. Create a broad-based user fee that does not support a specific local program activity or benefit; any fee must provide a clear nexus to the benefit local ratepayers or local water supplies from the establishment that charge or fee would provide. 8. Create unrealistic or costly to obtain water quality standards for potable water, recycled water or storm water runoff. 9. Change the focus of the state’s Drinking Water Program or weaken the parts of the program that work well. 10. Lessen the focus on public health of the state’s Drinking Water Program. 11. Create one-size-fit-all approaches to emergency drought regulations that ignore variations among communities, regions, and counties with respect to their ability to withstand the impact and effects of drought. 12. Impose undue burden, financial or otherwise, on communities that have already invested in water conservation, development of new water sources, storage, or loss prevention. 13. Impose additional mitigation costs or obligations for the Salton Sea on the non-state parties to the Quantification Settlement Agreement. 14. Impairs local agencies’ ability to provide and operate the necessary facilities for a safe, reliable and operational flexible water system. Otay Water District Legislative Program 2017 6 | Page 15. Limits local agencies’ sole jurisdiction over planning, design, routing, approval, construction, operation, or maintenance of water facilities. 16. Restricts local agencies’ ability to respond swiftly and decisively to an emergency that threatens to disrupt water deliveries or restricts the draining of pipelines or other facilities in emergencies for repairs or preventive maintenance. 17. Authorizes state and federal wildlife agencies to control, prevent, or eradicate invasive species in a way that excessively interferes with the operations of water supplies. 18. Prohibit or in any way limit the ability of local agencies from making full beneficial use of any water, wastewater, or recycling facility and resource investments. Financial Support efforts to: 1. Require the federal government and State of California to reimburse special districts for all mandated costs or regulatory actions. 2. Give special districts the discretion to cease performance of unfunded mandates. 3. Provide for fiscal reform to enhance the equity, reliability, and certainty of special district funding. 4. Provide incentives for local agencies to work cooperatively, share costs or resources. 5. Provide for the stable, equitable and reliable allocation of property taxes. 6. Continue to reform workers compensation. 7. Authorize financing of water quality, water security, and water supply infrastructure improvement programs. 8. Promote competition in insurance underwriting for public agencies. 9. Establish spending caps on State of California overhead when administering voter approved grant and disbursement programs. 10. Require disbursement decisions in a manner appropriate to the service in question. 11. Encourage funding infrastructure programs that are currently in place and that have been proven effective. 12. Produce tangible results, such as water supply reliability or water quality improvement. 13. Provide financial incentives for energy projects that increase reliability, diversity, and reduce greenhouse gasses. 14. Continue energy rate incentives for the utilization of electricity during low-peak periods. 15. Provide loan or grant programs that encourage water conservation for water users who are least able to pay for capital projects. 16. Require the Metropolitan Water District of Southern California (MWD) to refund or credit to its member agencies revenues collected from them that result in reserve balances greater than the maximum reserve levels established pursuant to state legislation. 17. Maintains the authority of water agencies to establish water rates locally, consistent with the cost-of-service requirement of the law. 18. Maximizes the ability of water agencies to design rate structures to meet local water supply goals and that conform to the cost-of-service requirements of the law. Otay Water District Legislative Program 2017 7 | Page Oppose efforts that: 1. Impose new, unfunded state mandates on local agencies and their customers. 2. Undermine Proposition 1A - Protection of Local Government Revenues – and the comprehensive reform approved by voters in 2004. 3. Reallocate special district reserves in an effort to balance the state budget. 4. Reallocate special district revenues or reserves to fund infrastructure improvements or other activities in cities or counties. 5. Usurp special district funds, reserves, or other state actions that force special districts to raise rates, fees or charges. 6. Complicate or deter conservation-based rate structures. 7. Establish funding mechanisms that put undue burdens on local agencies or make local agencies de facto tax collectors for the state. 8. Complicate compliance with SB 610 and SB 221. 9. Adversely affect the cost of gas and electricity or reduce an organization’s flexibility to take advantage of low peak cost periods. 10. Add new reporting criteria, burdensome, unnecessary or costly reporting mandates to Urban Water Management Plans. 11. Add new mandates to the Department of Water Resources (DWR) to review and approve Urban Water Management Plans beyond those already addressed in DWR guidelines. 12. Mandate that water agencies include an embedded energy calculation for their water supply sources in Urban Water Management Plans or any other water resources planning or master planning document. 13. Weaken existing project retention and withholding provisions that limit the ability of public agencies to drive contractor performance. 14. Establish change order requirements that place an unreasonable burden on local agencies, or raise financial risk associated with public works contracts. 15. Establish a Public Goods Charge, excise tax for excessive water use, or other permanent tax or fee on water. 16. Impairs the San Diego County Water Authority or its member agencies’ ability to provide reasonable service at reasonable costs to member agencies or to charge all member agencies the same rate for each class of service consistent with cost-of-service requirements of the law. 17. Undermines or weakens cost-of-service rate-making requirements in existing law. 18. Impairs the local water agencies’ ability to maintain reasonable reserve funds and obtain and retain reasonable rates of return on its reserve accounts. 19. Mandates a specific rate structure for retail water agencies. 20. Imposes a water user fee on water agencies or water users that does not provide a commensurate and directly linked benefit in the local area or region from which the water user fee is collected. Otay Water District Legislative Program 2017 8 | Page Governance/Local Autonomy Support efforts to: 1. Expand local autonomy in governing special district affairs. 2. Promote comprehensive long-range planning. 3. Assist local agencies in the logical and efficient extension of services and facilities to promote efficiency and avoid duplication of services. 4. Streamline the Municipal Service Review Process or set limits on how long services reviews can take or cost. 5. Establish clear and reasonable guidelines for appropriate community sponsorship activities. 6. Reaffirm the existing “all-in” financial structure, or protect the San Diego County Water Authority voting structure based on population. 7. Promote measures that increase broader community and water industry representation/appointments on State decision making bodies Oppose efforts that: 1. Assume the state legislature is better able to make local decisions that affect special district governance. 2. Create one-size-fits-all approaches to special district reform. 3. Unfairly target one group of local elected officials. 4. Usurp local control from special districts regarding decisions involving local special district finance, operations or governance. 5. Limit the board of directors’ ability to govern the district. 6. Create unfunded local government mandates. 7. Create costly, unnecessary or duplicative oversight roles for the state government of special district affairs. 8. Create new oversight roles or responsibility for monitoring special district affairs. 9. Change the San Diego County Water Authority Act regarding voting structure, unless it is based on population. 10. Shift the liability to the public entity and relieve private entities of reasonable due diligence in their review of plans and specifications for errors, omissions and other issues. 11. Place a significant and unreasonable burden on public agencies, resulting in increased cost for public works construction or their operation. 12. Impair the ability of water districts to acquire property or property interests required for essential capital improvement projects. 13. Increase the cost of property and right-of-way acquisition, or restricts the use of right-of- ways. 14. Work to silence the voices of special districts and other local government associations on statewide ballot measures impacting local government policies and practices, including actions that could prohibit special districts and associations from advocating for positions on ballot measures by severely restricting the private resources used to fund those activities. 15. Prescribe mandatory conservation-based or other rate structures that override the authority of the board of directors to set its rate structure. Otay Water District Legislative Program 2017 9 | Page 16. Circumvent the legislative committee process, such as the use of budget trailer bills, to advance policy issues including impacting special districts without full disclosure, transparency, or public involvement. Conservation Support efforts to: 1. Provide funding for water conservation programs. 2. Encourage the installation of water-efficient fixtures in new and existing buildings. 3. Promote the environmental benefits of water conservation. 4. Enhance efforts to promote water awareness and conservation. 5. Offer incentives for landscape water-efficient devices including, but not limited to ET controllers and soil moisture sensors. 6. Develop landscape retrofit incentive programs and/or irrigation retrofit incentive programs. 7. Permit or require local agencies to adopt ordinances that require or promote water-wise landscape for commercial and residential developments. 8. Create tax incentives for citizens or developers who install water-wise landscapes. 9. Create tax incentives for citizens who purchase high-efficiency clothes washers, dual-flush and high-efficiency toilets and irrigation controllers above the state standards. 10. Expand community-based conservation and education programs. 11. Develop incentives for developers and existing customers to install water-wise landscape in existing developments or new construction. 12. Encourage large state users to conserve water by implementing water-efficient technologies in all facilities both new and retrofit. 13. Maintain incentives for solar power. 14. Encourage large state water users to conserve water outdoors. 15. Educate all Californians on the importance of water, and the need to conserve, manage, and plan for the future needs. 16. Encourage technological research targeted to more efficient water use. 17. Give local agencies maximum discretion in selecting conservation programs that work for their customers and the communities they serve. 18. Require the Department of Water Resources to implement a uniform statewide turf rebate subsidy or incentive program. 19. Require Property Owners Associations to allow low water use plants, mulch, artificial turf, or semi-permeable materials in well-maintained landscapes. 20. Creates a process for development and implementation of emergency drought declarations and regulations that recognizes variations among communities, regions, and counties with respect to their abilities to withstand the impacts and effects of drought. 21. Recognizes variations among communities, regions, and counties with respect to their abilities to withstand the impacts and effects of droughts, and ensures that any temporary or permanent statutory or regulatory direction for improving water-use efficiency to meet statutory or regulatory goals or standards is focused on regional achievement of objectives rather than a one-size-fits-all approach. 22. Provides for federal tax-exempt status for water use efficiency rebates, consistent with income tax treatment at the state level. Otay Water District Legislative Program 2017 10 | Page Oppose efforts that: 1. Weaken federal or state water-efficiency standards. 2. Introduce additional analytical and reporting requirements that are time-consuming for local agencies to perform and result in additional costs to consumers, yet yield no water savings. 3. Permit Property Owners Associations to restrict low water use plants, mulch, artificial turf, or semi-permeable materials in landscaping. 4. Create one-size-fit-all approaches to emergency drought regulations that ignore variations among communities, regions, and counties with respect to their ability to withstand the impact and effects of drought. Safety, Security and Information Technology Support efforts to: 1. Provide funding for information security upgrades to include integrated alarms, access/egress, and surveillance technology. 2. Provide incentives for utilities and other local agencies to work cooperatively, share costs or resources. 3. Provide funding for communication enhancements, wireless communications, GIS or other technological enhancements. 4. Encourage or promote compatible software systems. 5. Fund infrastructure and facility security improvements that include facility roadway access, remote gate access and physical security upgrades. 6. Protect state, local and regional drinking water systems from terrorist attack or deliberate acts of destruction, contamination or degradation. 7. Provide funds to support training or joint training exercises to include contingency funding for emergencies and emergency preparedness. 8. Equitably allocate security funding based on need, threats and/or population. 9. Encourage or promote compatible communication systems. 10. Encourage and promote funding of Department of Homeland Security Risk Mitigation programs. 11. Recognizes water agencies as emergency responders to damage and challenges caused by wildfires, earthquakes, and other natural disasters, as well as terrorist and other criminal activities that threaten water operations, facilities and supplies. 12. Provide state grant or other funding opportunities to support seismic risk assessment and mitigation plans, or to mitigate vulnerabilities. 13. Provide funding for projects that enhance security against terrorist acts or other criminal threats to water operation, services, facilities, or supplies. Oppose efforts that: 1. Create unnecessary, costly, or duplicative security or safety mandates. 2. Require expanded water system descriptions or additional public disclosure of public water systems details for large water suppliers in Urban Water Management Planning documents, potentially compromising public water systems and creating a conflict with the Department of Otay Water District Legislative Program 2017 11 | Page Homeland Security’s recommendation to avoid reference to water system details in plans available to the general public. Optimize District Effectiveness Support efforts to: 1. Give utilities the ability to avoid critical peak energy pricing or negotiate energy contracts that save ratepayers money. 2. Develop reasonable Air Pollution Control District engine permitting requirements. 3. Reimburse or reduce local government mandates. 4. Allow public agencies to continue offering defined benefit plans. 5. Result in predictable costs and benefits for employees and taxpayers. 6. Eliminate abuses. 7. Retain local control of pension systems. 8. Be constitutional, federally legal and technically possible. Oppose efforts that: 1. Restrict the use of, or reallocate, district property tax revenues to the detriment of special districts. 2. Create unrealistic ergonomic protocol. 3. Micromanage special district operations. 4. Balance the state budget by allowing regulatory agencies to increase permitting fees. 5. Tax dependent benefits. 6. Require new reporting criteria on energy intensity involved in water supply. Bi-National Initiatives Support efforts to: 1. Promote and finance cross-border infrastructure development such as water pipelines, desalination plants or water treatment facilities to serve the border region while protecting local interests. 2. Develop cooperative and collaborative solutions to cross-border issues. 3. Develop and enhance communications and understanding of the interdependence of communities on both sides of the border with the goal of improved cross-border cooperation. Oppose efforts that: 1. Usurp local control over the financing and construction of water supply and infrastructure projects in the San Diego/Baja California region. Otay Water District Legislative Program 2017 12 | Page State Water Bonds Support efforts to: 1. Ensure funding from various propositions for local and regional water-related projects. 2. Ensure funding for water infrastructure projects help to resolve conflicts in the state’s water system and provide long-term benefits to statewide issues including water supply, reliability, water quality, and ecosystem restoration. 3. Ensure primary consideration is given to funding priorities established by local and regional entities through their IRWM planning process. 4. Ensure that the application process for funding is not unnecessarily burdensome and costly, with an emphasis on streamlining the process. 5. Fund emergency and carryover storage projects including those in San Diego County. 6. Consolidate administration of all voter-approved water-related bond funding in one place, preserves existing expertise within the state bureaucracy to manage bond funding processes, and provide consistent application and evaluation of bond funding applications. 7. Expedite the funding for projects that advance the achievement of the co-equal goals of water supply reliability and Delta ecosystem restoration. Oppose efforts that: 1. Change the share of funding to make San Diego County’s share less equitable, not based on the San Diego County taxpayers’ proportional contribution to repayment of the bonds, or change the understanding that all beneficiaries pay an equitable share. 2. Do not provide funding for infrastructure that resolves statewide or regional conflicts of water supplies. 3. Do not provide funding that result in net increases in real water supply and water supply reliability. 4. Commit a significant portion of bond funding to projects that do not result in net increases in real water supply or water supply reliability. Otay Water District Legislative Program 20162017 1 | Page Effective Date: 02/031/20167 Legislative Policy Guidelines The Otay Water Legislative Policy Guidelines for the 20167 Legislative Session includes the following: Sacramento-San Joaquin Bay Delta (Bay-Delta) Support efforts to: a.1. Finalize and implement the Bay-Delta Conservation Plan to address Bay-Delta environmental and water quality issues. b.2.Analyze or support a “Portfolio Approach”, “Around-the-Delta”, “right-sized”, or other alternatives that feature smaller conveyance facilities as a way to improve water quality, water transport, and reduce the possibility or impacts of levee failure, lower costs to water users and the public, reduce the level of environmental impacts, while potentially facing fewer legal and political challenges. c.3. Finalize Bay-Delta planning work and ongoing studies of new water storage facilities, and support efforts to promote additional surface and underground water storage infrastructure that are cost effective ensure water availability and quality. d.4.Resolve conflicts between urban and rural water users, water management and the environment in the Bay-Delta. e.5. Provide ongoing federal and state funding for the Bay-Delta, and those whichthose, which focus attention to Bay-Delta financing, affordability, commitments to pay, and the demand for Bay-Delta water. f.6. Equitably allocate costs of the Bay-Delta solution to all those benefiting from improvements in proportion to the benefits they receive. g.7.Fast-track design, permits and construction for pilot projects in the Bay-Delta to create barriers to keep fish away from Bay-Delta water pumps, improve water quality and supply reliability. h.8.Provide deliberative processes that are designed to ensure meaningful dialogue with all stakeholders in an open and transparent process in order to reduce future conflicts and challenges in implementing a Bay-Delta solution. i.9. Provide a Bay-Delta solution that acknowledges, integrates and supports the development of water resources at the local level. j.10. Improve the ability of water-users to divert water from the Bay-Delta during wet periods when impacts to fish and the ecosystem are lower and water quality is higher. k.11. Improve the existing Bay-Delta water conveyance system to increase flexibility and enhance water supply, water quality, levee stability and environmental protection. l.12. Evaluate long-term threats to the Bay-Delta levees and conveyance system and pursues actions to reduce risks to the state’s water supply and the environment. m.13. Improve coordination of the Central Valley Project and State Water Project Operations. n.14. Provide a Bay-Delta solution and facilities that are cost-effective when compared with other water supply development options for meeting Southern California’s water needs. Formatted: Numbered + Level: 1 + Numbering Style: 1,2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 2 | Page o.15. Identify the total cost or perform appropriate cost studies to estimate consumer financial impact as well as the expected yield of any Bay-Delta solution before financing and funding decision are made to determine whether the solution is worth the expense. p.16. Provide the State Water Project (SWP) with more flexibility to operate their systems to maximize water deliveries while avoiding unacceptable impacts to third parties, habitat or the environment. q.17. Require a firm commitment and funding stream by all parties to pay for the proportional benefits they will receive from a Bay-Delta solution through take-or-pay contracts or the legal equivalent, and identify the impact to the remaining contractors if one or more contractors default or back out. r.18. Provide “right-sized” facilities to match firm commitments to pay for the Bay-Delta solution. s.19. Provide SWP contractors and their member agencies access to all SWP facilities to facilitate water transfers to improve water management. t.20. Continue state ownership and operation of SWP as a public resource. u.21. Improve efficiency and transparency of all SWP operations. 22. Focus on statewide priorities, including construction of an approved method of conveyance of water through or around the Delta that provides water supply reliability to the Delta water uses., promotion of greater regional and local self-sufficiency, surface storage and promotion of water use efficiency. v.23. Provide a solution that acknowledges, integrates and supports the development of resources at the local level including water-use efficiency, seawater desalination, groundwater storage and conjunctive use, and recycled water including direct and indirect potable water reuse. w.24. Provides for the state’s share of funding for Bay-Delta conveyance projects. x.25. Consider complementary investments in local water supply sources, regional coordination, and south of Delta storage as part of an overall comprehensive Bay-Delta solution. y.26. Protects and safeguards San Diego region’s Preferential Rights. Oppose efforts that: a.1. Require additional reviews or approvals of Delta conveyance options beyond those provided by SBX7-1 (2009). b.2.Transfer control of the State Water Project from the state to Metropolitan Water District of Southern California (MWD), the State Water Contractors, the Central Valley Project Contractors, the State and Federal Water Contractors Authority, or to any entity comprised of MWD and other water contractors. Formatted: Numbered + Level: 1 + Numbering Style: 1,2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 3 | Page Recycled Water Support efforts to: a.1. Reduce restrictions on recycled water usage or promote consistent regulation of recycled water projects to reduce impediments to the increased use of recycled water. b.2.Reduce restrictions on injecting recycled water into basins where there is no direct potable use. c.3. Provide financial incentives for recharge of groundwater aquifers using recycled water. d.4.Make recycled water regulations clear, consolidated, and understandable to expedite related project permitting. e.5. Promote recycled water as a sustainable supplemental source of water. f.6. Allow the safe use of recycled water. g.7.Facilitate development of technology aimed at improving water recycling. 8. Increasing funding for water recycling projects. h.9.Support continued funding of the Title XVI Water Reclamation and Reuse Program including Water Reclamation and Reuse Projects, the WaterSMART Program, and the Desalination and Water Purification Research Program. i.10. Increase awareness of the ways recycled water can help address the region’s water supply challenges. j.11. Create federal and state incentives to promote recycled water use and production. k.12. Establish federal tax incentives to support U.S. companies in the development of new water technologies that can lower productions costs, address by products such as concentrates, and enhance public acceptance of recycled water. l.13. Establish a comprehensive national research and development, and technology demonstration, program to advance the public and scientific understanding of water recycling technologies to encourage reuse as an alternative source of water supply. m.14. Provide incentives for local agencies to work cooperatively, share costs or resources to promote or expand the use of recycled water. n.15. Further refine emergency regulations to reward local suppliers that have invested in using recycled water for landscape irrigation to maintain an incentive to continue expanding areas served by recycled water. 16. Encourages the use of recycled water in commercial, industrial, institutional, and residential settings. 17. Recognizes and supports the development of potable reuse as a new supply. 18. Defines purified recycled water as a source of water supply and not as waste. o.19. Mandates the reduction of wastewater discharges to the ocean absent inclusion of funding to offset the significant costs of implementation. Oppose efforts that: a.1. Restrict use of recycled water for groundwater recharge. b.2.Establish new water or recycled water fees solely to recover State costs without also providing some benefit. c.3. Create Establish unreasonable regulatory requirements or fees, schemes that which may unreasonably impede or create a disincentive to the existing authority for the development of the safe use of recycled water.alter or limit the existing authority to reuse and recycle water. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) +Body (Calibri), 11 pt, Font color: Auto Formatted: Font: (Default) +Body (Calibri), 11 pt, Fontcolor: Auto Formatted: Font color: Auto Formatted: Font: (Default) Times New Roman, 12 pt Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 4 | Page Water Services and Facilities Support efforts to: a.1. Provide funding to implement actions identified in the California Water Action Plan to lay a solid fiscal foundation for implementing near-term actions, including funding for water efficiency projects, wetland and watershed restoration, groundwater programs, conservation, flood control, and integrated water management and result in a reliable supply of high-quality water for the San Diego region. b.2.Provide financial support to projects designed to mitigate the potential negative impacts of Global Climate Change on water supply reliability. c.3. Promote the coordination and integration of local, state and federal climate change policies and practices to the greatest extent feasible. d.4.Support Fund or otherwise facilitate ongoing implementation of the Quantitative Quantification Settlement Agreement. e.5. Provide reliable water supplies to meet California’s short and long-term needs. f.6. Reduce impediments for willing sellers and buyers to engage in water transfer agreements. g.7.Promote desalination pilot studies and projects. h.8.Encourage feasibility studies of water resource initiatives. 9. Increase funding for infrastructure and grant programs for construction, modernization or expansion of water, wastewater treatment, reclamation facilities and sewer systems including water recycling, groundwater recovery and recharge, surface water development projects and seawater desalination. i.10. Fund enhancements to water treatment, recycling, and other facilities to meet increased regulations. j.11. Mandate uniform or similar regulations and procedures by state agencies in the processing and administering of grants and programs. k.12. Streamline grant application procedures. 13. Reduce regulations and other impediments for willing sellers and buyers to engage in water transfer agreements. l.14. Promote or assist voluntary water transfers between willing buyers and willing sellers and move those transactions through without delay. m.15. Streamline the permitting and approval process for implementing water transfers. n.16. Establish reasonable statewide approaches to sewer reporting standards. o.17. Generate greater efficiencies, better coordinate program delivery, and eliminate duplication in programs for source water protection without lessening the focus on public health of the state’s Drinking Water Program. 18. Target efforts to fix specific issues with water supplies within the state’s Drinking Water Program. p. 19. Establish federal tax incentives to support U.S. companies in the development of new desalination technologies that can lower productions costs, eliminate or reduce impingement or entrainment, reduce energy use, and enhance public acceptance of desalinated water. p. 20. Establish a comprehensive national research and development, and technology demonstration program to advance the scientific understanding of desalination to expand its use as an alternative source of water supply. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt,Font color: Black Formatted: Indent: Left: 0.25", Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.5" + Indent at: 0.75" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: Italic Otay Water District Legislative Program 20162017 5 | Page q. 21. Require the State Water Resources Control Board to exercise its authority, ensure robust funding, and implement the Salton Sea mitigation and restoration plan, meet state obligations, and work with QSA stakeholders to find workable solutions to ensure the continuation of IID water transfers. r. 22. Support solutions to water supply issues that address common challenges, provide a comprehensive approach that is fair to all users, balance the needs of urban and rural communities, and take into consideration the interests of all stakeholders as well as the impact to the environment. 23. Further refine emergency drought regulations to eliminate a cap on credits and adjustments so as not to impose undue burden, financial or otherwise, on communities that have already invested in water conservation, development of new water sources, storage, or loss prevention. 24. Provide funding for water infrastructure development, infrastructure security, and rehabilitation and replacement projects that benefit ratepayers. 25. Provide funding for habitat preservation programs that address impacts resulting from construction or operation of water system facilities. 26. Provide funding for projects that enhance security against terrorist acts or other criminal threats to water operation, services, facilities, or supplies. 27. Provide incentives that encourage contractors to recycle or reduce waste associated with construction of water facilities. Oppose efforts that: a.1. Make urban water supplies less reliable or substantially increase the cost of imported water without also improving the reliability and/or quality of the water. b.2.Create unrealistic or costly water testing or reporting protocol. c.3. Disproportionately apportion the cost of water. d.4.Create undo hurtles for seawater desalination projects. e.5. Create unreasonable or confusing sewer reporting standards. f.6. Create administrative or other barriers to sales between willing buyers and willing sellers that delay water transfers. g.7.Create a broad-based user fee that does not support a specific local program activity or benefit; any fee must provide a clear nexus to the benefit local ratepayers or local water supplies from the establishment that charge or fee would provide. h.8.Create unrealistic or costly to obtain water quality standards for potable water, recycled water or storm water runoff. i.9. Change the focus of the state’s Drinking Water Program or weaken the parts of the program that work well. j.10. Lessen the focus on public health of the state’s Drinking Water Program. k.11. Create one-size-fit-all approaches to emergency drought regulations that ignore variations among communities, regions, and counties with respect to their ability to withstand the impact and effects of drought. l.12. Impose undue burden, financial or otherwise, on communities that have already invested in water conservation, development of new water sources, storage, or loss prevention. 13. Impose additional mitigation costs or obligations for the Salton Sea on the non-state parties to the Quantification Settlement Agreement. Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 23 + Alignment: Left + Aligned at: 0.5" + Indent at: 0.75" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 6 | Page 14. Impairs local agencies’ ability to provide and operate the necessary facilities for a safe, reliable and operational flexible water system. 15. Limits local agencies’ sole jurisdiction over planning, design, routing, approval, construction, operation, or maintenance of water facilities. 16. Restricts local agencies’ ability to respond swiftly and decisively to an emergency that threatens to disrupt water deliveries or restricts the draining of pipelines or other facilities in emergencies for repairs or preventive maintenance. 17. Authorizes state and federal wildlife agencies to control, prevent, or eradicate invasive species in a way that excessively interferes with the operations of water supplies. 18. Prohibit or in any way limit the ability of local agencies from making full beneficial use of any water, wastewater, or recycling facility and resource investments. Financial Support efforts to: a.1. Require the federal government and State of California to reimburse special districts for all mandated costs or regulatory actions. b.2.Give special districts the discretion to cease performance of unfunded mandates. c.3. Provide for fiscal reform to enhance the equity, reliability, and certainty of special district funding. d.4.Provide incentives for local agencies to work cooperatively, share costs or resources. e.5. Provide for the stable, equitable and reliable allocation of property taxes. f.6. Continue to reform workers compensation. g.7.Authorize financing of water quality, water security, and water supply infrastructure improvement programs. h.8.Promote competition in insurance underwriting for public agencies. i.9. Establish spending caps on State of California overhead when administering voter approved grant and disbursement programs. j.10. Require disbursement decisions in a manner appropriate to the service in question. k.11. Encourage funding infrastructure programs that are currently in place and that have been proven effective. l.12. Produce tangible results, such as water supply reliability or water quality improvement. m.13. Provide financial incentives for energy projects that increase reliability, diversity, and reduce greenhouse gasses. n.14. Continue energy rate incentives for the utilization of electricity during low-peak periods. o.15. Provide loan or grant programs that encourage water conservation for water users who are least able to pay for capital projects. 16. Require the Metropolitan Water District of Southern California (MWD) to refund or credit to its member agencies revenues collected from them that result in reserve balances greater than the maximum reserve levels established pursuant to state legislation. 17. Maintains the authority of water agencies to establish water rates locally, consistent with the cost-of-service requirement of the law. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 7 | Page p.18. Maximizes the ability of water agencies to design rate structures to meet local water supply goals and that conform to the cost-of-service requirements of the law. Oppose efforts that: a.1. Impose new, unfunded state mandates on local agencies and their customers. b.2.Undermine Proposition 1A - Protection of Local Government Revenues – and the comprehensive reform approved by voters in 2004. c.3. Reallocate special district reserves in an effort to balance the state budget. d.4.Reallocate special district revenues or reserves to fund infrastructure improvements or other activities in cities or counties. e.5. Usurp special district funds, reserves, or other state actions that force special districts to raise rates, fees or charges. f.6. Complicate or deter conservation-based rate structures. g.7.Establish funding mechanisms that put undue burdens on local agencies or make local agencies de facto tax collectors for the state. h.8.Complicate compliance with SB 610 and SB 221. i.9. Adversely affect the cost of gas and electricity or reduce an organization’s flexibility to take advantage of low peak cost periods. j.10. Add new reporting criteria, burdensome, unnecessary or costly reporting mandates to Urban Water Management Plans. k.11. Add new mandates to the Department of Water Resources (DWR) to review and approve Urban Water Management Plans beyond those already addressed in DWR guidelines. l.12. Mandate that water agencies include an embedded energy calculation for their water supply sources in Urban Water Management Plans or any other water resources planning or master planning document. m.13. Weaken existing project retention and withholding provisions that limit the ability of public agencies to drive contractor performance. n.14. Establish change order requirements that place an unreasonable burden on local agencies, or raise financial risk associated with public works contracts. 15. Establish a Public Goods Charge, excise tax for excessive water use, or other permanent tax or fee on water. 16. Impairs the San Diego County Water Authority or its member agencies’ ability to provide reasonable service at reasonable costs to member agencies or to charge all member agencies the same rate for each class of service consistent with cost-of-service requirements of the law. 17. Undermines or weakens cost-of-service rate-making requirements in existing law. 18. Impairs the local water agencies’ ability to maintain reasonable reserve funds and obtain and retain reasonable rates of return on its reserve accounts. 19. Mandates a specific rate structure for retail water agencies. o.20. Imposes a water user fee on water agencies or water users that does not provide a commensurate and directly linked benefit in the local area or region from which the water user fee is collected. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt,Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 8 | Page Governance/Local Autonomy Support efforts to: a.1. Expand local autonomy in governing special district affairs. b.2.Promote comprehensive long-range planning. c.3. Assist local agencies in the logical and efficient extension of services and facilities to promote efficiency and avoid duplication of services. d.4.Streamline the Municipal Service Review Process or set limits on how long services reviews can take or cost. e.5. Establish clear and reasonable guidelines for appropriate community sponsorship activities. f.6. Reaffirm the existing “all-in” financial structure, or protect the San Diego County Water Authority voting structure based on population. g.7.Promote measures that increase broader community and water industry representation/appointments on State decision making bodies Oppose efforts that: a.1. Assume the state legislature is better able to make local decisions that affect special district governance. b.2.Create one-size-fits-all approaches to special district reform. c.3. Unfairly target one group of local elected officials. d.4.Usurp local control from special districts regarding decisions involving local special district finance, operations or governance. e.5. Limit the board of directors’ ability to govern the district. f.6. Create unfunded local government mandates. g.7.Create costly, unnecessary or duplicative oversight roles for the state government of special district affairs. h.8.Create new oversight roles or responsibility for monitoring special district affairs. i.9. Change the San Diego County Water Authority Act regarding voting structure, unless it is based on population. j.10. Shift the liability to the public entity and relieve private entities of reasonable due diligence in their review of plans and specifications for errors, omissions and other issues. k.11. Place a significant and unreasonable burden on public agencies, resulting in increased cost for public works construction or their operation. l.12. Impair the ability of water districts to acquire property or property interests required for essential capital improvement projects. m.13. Increase the cost of property and right-of-way acquisition, or restricts the use of right- of-ways. n.14. Work to silence the voices of special districts and other local government associations on statewide ballot measures impacting local government policies and practices, including actions that could prohibit special districts and associations from advocating for positions on ballot measures by severely restricting the private resources used to fund those activities. o.15. Prescribe mandatory conservation-based or other rate structures that override the authority of the board of directors to set its rate structure. p.16. Circumvent the legislative committee process, such as the use of budget trailer bills, to advance policy issues including impacting special districts without full disclosure, transparency, or public involvement. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 9 | Page Conservation Support efforts to: a.1. Provide funding for water conservation programs. b.2.Encourage the installation of water-efficient conserving fixtures in new and existing buildings. c.3. Promote the environmental benefits of water conservation. d.4.Enhance efforts to promote water awareness and conservation. e.5. Offer incentives for landscape water- efficiency efficient devices such as including, but not limited to ET controllers and soil moisture sensors. f.6. Develop landscape retrofit incentive programs and/or irrigation retrofit incentive programs. g.7.Permit or require local agencies to adopt ordinances that require or promote water- wise landscape for commercial and residential developments. h.8.Create tax incentives for citizens or developers who install water- wise landscapes. i.9. Create tax incentives for citizens who purchase high- efficiency clothes washers, dual- flush and high-efficiency toilets and irrigation controllers above the state standards. j.10. Expand community-based conservation and education programs. k.11. Develop incentives for developers and existing customers to install water- wise landscape in existing developments or new construction. l.12. Encourage large state users to conserve water by implementing water- efficient technologies in all facilities both new and retrofit. m.13. Maintain incentives for solar power. n.14. Encourage large state water users to conserve water outdoors. o.15. Educate all Californians on the importance of water, and the need to conserve, manage, and plan for the future needs. p.16. Encourage technological research targeted to more efficient water use. q.17. Give local agencies maximum discretion in selecting conservation programs that work for their customers and the communities they serve. r.18. Require the Department of Water Resources to implement a uniform statewide turf rebate subsidy or incentive program. 19. Require Property Owners Associations to allow low water use plants, mulch, artificial turf, or semi-permeable materials in well-maintained landscapes. 20. Creates a process for development and implementation of emergency drought declarations and regulations that recognizes variations among communities, regions, and counties with respect to their abilities to withstand the impacts and effects of drought. 21. Recognizes variations among communities, regions, and counties with respect to their abilities to withstand the impacts and effects of droughts, and ensures that any temporary or permanent statutory or regulatory direction for improving water-use efficiency to meet statutory or regulatory goals or standards is focused on regional achievement of objectives rather than a one-size-fits-all approach. s.22. Provides for federal tax-exempt status for water use efficiency rebates, consistent with income tax treatment at the state level. Oppose efforts that: a.1. Weaken federal or state water- efficiency standards. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Font: (Default) Times New Roman, 12 pt,Font color: Black Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Otay Water District Legislative Program 20162017 10 | Page b.2. Introduce additional analytical and reporting requirements that are time-consuming for local agencies to perform and result in additional costs to consumers, yet yield no water savings. c. 3. Permit Property Owners Associations to restrict low water use plants, mulch, artificial turf, or semi-permeable materials in landscaping. 4. Create one-size-fit-all approaches to emergency drought regulations that ignore variations among communities, regions, and counties with respect to their ability to withstand the impact and effects of drought. Safety, Security and Information Technology Support efforts to: a.1. Provide funding for information security upgrades to include integrated alarms, access/egress, and surveillance technology. b.2.Provide incentives for utilities and other local agencies to work cooperatively, share costs or resources. c.3. Provide funding for communication enhancements, wireless communications, GIS or other technological enhancements. d.4.Encourage or promote compatible software systems. e.5. Fund infrastructure and facility security improvements that include facility roadway access, remote gate access and physical security upgrades. f.6. Protect state, local and regional drinking water systems from terrorist attack or deliberate acts of destruction, contamination or degradation. g.7.Provide funds to support training or joint training exercises to include contingency funding for emergencies and emergency preparedness. h.8.Equitably allocate security funding based on need, threats and/or population. i.9. Encourage or promote compatible communication systems. j.10. Encourage and promote funding of Department of Homeland Security Risk Mitigation programs. k.11. Recognizes water agencies as emergency responders to damage and challenges caused by wildfires, earthquakes, and other natural disasters, as well as terrorist and other criminal activities that threaten water operations, facilities and supplies. 12. Provide state grant or other funding opportunities to support seismic risk assessment and mitigation plans, or to mitigate vulnerabilities. l.13. Provide funding for projects that enhance security against terrorist acts or other criminal threats to water operation, services, facilities, or supplies. Oppose efforts that: a.1. Create unnecessary, costly, or duplicative security or safety mandates. b.2.Require expanded water system descriptions or additional public disclosure of public water systems details for large water suppliers in Urban Water Management Planning documents, potentially compromising public water systems and creating a conflict with the Department of Homeland Security’s recommendation to avoid reference to water system details in plans available to the general public. Formatted: Indent: Left: 0", Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: List Paragraph, Numbered + Level: 1 +Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Not Bold, Font color: Black Formatted: Font: Not Bold Formatted: Indent: Left: 0.25" Formatted: Font: (Default) Times New Roman, 12 pt, Bold, Underline, Font color: Black Formatted: Numbered + Level: 1 + Numbering Style: 1,2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Font: (Default) Times New Roman, 12 pt, Font color: Black Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Otay Water District Legislative Program 20162017 11 | Page Optimize District Effectiveness Support efforts to: a.1. Give utilities the ability to avoid critical peak energy pricing or negotiate energy contracts that save ratepayers money. b.2.Develop reasonable Air Pollution Control District engine permitting requirements. c.3. Reimburse or reduce local government mandates. d.4.Allow public agencies to continue offering defined benefit plans. e.5. Result in predictable costs and benefits for employees and taxpayers. f.6. Eliminate abuses. g.7.Retain local control of pension systems. h.8.Be constitutional, federally legal and technically possible. Oppose efforts that: a.1. Restrict the use of, or reallocate, district property tax revenues to the detriment of special districts. b.2.Create unrealistic ergonomic protocol. c.3. Micromanage special district operations. d.4.Balance the state budget by allowing regulatory agencies to increase permitting fees. e.5. Tax dependent benefits. f.6. Require new reporting criteria on energy intensity involved in water supply. Bi-National Initiatives Support efforts to: a.1. Promote and finance cross-border infrastructure development such as water pipelines, desalination plants or water treatment facilities to serve the border region while protecting local interests. b.2.Develop cooperative and collaborative solutions to cross-border issues. c.3. Develop and enhance communications and understanding of the interdependence of communities on both sides of the border with the goal of improved cross-border cooperation. Oppose efforts that: a.1. Usurp local control over the financing and construction of water supply and infrastructure projects in the San Diego/Baja California region. State Water Bonds Support efforts to: a. Ensure San Diego County receives an equitable share of funding from Proposition 1 (2014) with major funding categories being divided by county and funded on a per-capita basis to ensure bond proceeds are distributed throughout the state in proportion to taxpayers’ payments on the bonds. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Space After: 10 pt, Line spacing: Multiple 1.15 li, Adjust space between Latin and Asian text,Adjust space between Asian text and numbers Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5" Formatted: Indent: Left: 0.25", Space After: 0 pt, Linespacing: single, Don't adjust space between Latin and Asian text, Don't adjust space between Asian text and numbers Formatted: Font: (Default) Times New Roman, 12 pt, Bold, Underline, Font color: Black Formatted: Space After: 0 pt, Line spacing: single, Don't adjust space between Latin and Asian text, Don't adjust space between Asian text and numbers Formatted: List Paragraph, Don't adjust space betweenLatin and Asian text, Don't adjust space between Asian text and numbers Formatted: Indent: First line: 0.25" Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.31" + Indent at: 0.56" Otay Water District Legislative Program 20162017 12 | Page 1. Ensure funding from various propositions for local and regional water-related projects. b.2.Ensure funding for water infrastructure projects help to resolve conflicts in the state’s water system and provide long-term benefits to statewide issues including water supply, reliability, water quality, and ecosystem restoration. c.3. Ensure primary consideration is given to funding priorities established by local and regional entities through their IRWM planning process. d.4.Ensure that the application process for funding is not unnecessarily burdensome and costly, with an emphasis on streamlining the process. e.5. Fund emergency and carryover storage projects including those in San Diego County. f.6. Consolidate administration of all voter-approved water-related bond funding in one place, preserves existing expertise within the state bureaucracy to manage bond funding processes, and provide consistent application and evaluation of bond funding applications. g.7.Expedite the funding for projects that advance the achievement of the co-equal goals of water supply reliability and Delta ecosystem restoration. Oppose efforts that: a.1. Change the share of funding to make San Diego County’s share less equitable, not based on the San Diego County taxpayers’ proportional contribution to repayment of the bonds, or change the understanding that all beneficiaries pay an equitable share. b.2.Do not provide funding for infrastructure that resolves statewide or regional conflicts of water supplies. c.3. Do not provide funding that result in net increases in real water supply and water supply reliability. d.4. Commit a significant portion of bond funding to projects that do not result in net increases in real water supply or water supply reliability. Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, … + Start at: 1 + Alignment: Left + Aligned at: 0.25" + Indent at: 0.5"