HomeMy WebLinkAbout07-19-12 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
THURSDAY
July 19, 2012
11:30 A.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 JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
DISCUSSION ITEMS
3. APPROVE THE ISSUANCE OF A PURCHASE ORDER TO RDO EQUIPMENT
COMPANY, INC. IN THE AMOUNT OF $102,515.50 FOR THE PURCHASE OF
ONE (1) JOHN DEERE BACKHOE (MARTINEZ) [5 minutes]
4. ADOPT ORDINANCE NO. 534 AMENDING THE DISTRICT’S CODE OF
ORDINANCES SECTION 28, CONNECTION FEES AND CHARGES FOR
POTABLE OR RECLAIMED WATER SERVICE; APPENDIX A, SCHEDULE OF
FEES AND CHARGES, SECTION 28.02; AND SECTION 27, REQUIREMENTS
AND LIMITATIONS FOR OBTAINING WATER SERVICE, EFFECTIVE
SEPTEMBER 1, 2012 (BELL/KENNEDY) [10 minutes]
5. ADOPT RESOLUTION NO. 4201 OF THE DISTRICT’S CODE OF ORDINANCE
AMENDING POLICY NO. 25, THE RESERVE POLICY, WHICH INCLUDES
UPDATED GLOSSARY DEFINITIONS (BELL) [5 minutes]
2
6. RECEIVE THE DISTRICT’S INVESTMENT POLICY (POLICY NO. 27) FOR
REVIEW AND TO RE-DELEGATE AUTHORITY FOR ALL INVESTMENT
RELATED ACTIVITIES TO THE CHIEF FINANCIAL OFFICER IN
ACCORDANCE WITH GOVERNMENT CODE SECTION 53607 (BELL) [5
minutes]
7. ADJOURNMENT
BOARD MEMBERS ATTENDING:
Jose Lopez, Chair
Mitch Thompson
All items appearing on this agenda, whether or not expressly listed for action, may be
deliberated and may be subject to action by the Board.
The Agenda, and any attachments containing written information, are available at the
District’s website at www.otaywater.gov. Written changes to any items to be considered
at the open meeting, or to any attachments, will be posted on the District’s website.
Copies of the Agenda and all attachments are also available through the District Secre-
tary by contacting her at (619) 670-2280.
If you have any disability which would require accommodation in order to enable you to
participate in this meeting, please call the District Secretary at 670-2280 at least 24
hours prior to the meeting.
Certification of Posting
I certify that on July 13, 2012 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 July 13, 2012.
______/s/_ Susan Cruz, District Secretary _____
STAFF REPORT
TYPE MEETING: Regular Board
MEETING DATE: August 1, 2012
SUBMITTED BY:
Jose Martinez, Utility
Services Manager
PROJECT: Various DIV. NO. ALL
APPROVED BY:
Pedro Porras, Chief of Water Operations
German Alvarez, Asst. General Manager
Mark Watton, General Manager
SUBJECT: Approval to Purchase Replacement Backhoe
GENERAL MANAGER’S RECOMMENDATION:
That the Board authorize the General Manager to issue a purchase
order to RDO Equipment Company Inc. in the amount of $102,515.50 for
the purchase of one (1) John Deere Backhoe.
COMMITTEE ACTION:
See Attachment “A”.
PURPOSE:
To obtain Board authorization to purchase a John Deere Backhoe.
ANALYSIS:
Included in the approved FY 2013 budget is one (1) new Backhoe. The
Backhoe is a replacement scheduled to be utilized by the Utility
Maintenance Staff.
Currently, the District’s essential equipment includes six (6)
backhoes, the oldest being unit #1565, a model year 1987 680 Case
Backhoe. Due to the age of this machine this unit is to be replaced
with a new APCD emissions compliant machine. Funding for this
purchase has been included in the CIP P2366.
AGENDA ITEM 3
2
Based on system operation evaluations of work flow by the
Construction/Maintenance supervision and management, it is
recommended that 1 new John Deer model 330 Backhoe be purchased and
the older Case Backhoe be declared surplus.
It should be noted that the existing backhoe is 25 years old. This
replacement will noticeably reduce the District’s diesel emissions
output and will be in compliance with APCD regulations. Purchase
price includes the John Deere Backhoe ($81,389.00), an Okada Breaker
($13,753.00) and applicable taxes ($7,373.51) for a total purchase
price of $102,515.51.
In accordance with District policy, bids were solicited for the
backhoe. Three (3) bids were received. Prices received include all
applicable fees and taxes and delivery.
Dealer Bid Bid Price
RDO Equipment Company 2012 John Deere 310SJ $102,515.51
Pape Machinery 2012 John Deere 310SJ $110,676.49
Blaine Equipment Co. 2012 John Deere 310SJ $112,045.99
FISCAL IMPACT: Joe Beachem, Chief Financial Officer
The original projected cost for the purchase of this equipment is
$105,000. The actual cost of the vehicle will be $102,515.51, to be
charged against the APCD Replacement and Retrofits CIP P2366. The
total cost in this equipment will not exceed budgeted funding.
The total FY13 project budget for the CIP P2366 APCD Replacement and
Retrofits is $120,000. Existing expenditures and current encumbrances
for the CIP, including the vehicle purchased under this request if
approved, is $117,515.51. Based on the Utility Service Manager’s
evaluation, the CIP P2366 budget is sufficient to complete the
budgeted purchase.
The Finance Department has determined that 100% of the funds are
available in the replacement fund.
Expenditure Summary:
For FY-13, two items are proposed for purchased under this CIP.
FY13 Equipment Replacement CIP P2366 Budget: $120,000.00
1. Proposed Equipment Purchase: Backhoe $102,515.51
2. Proposed Replacement Light Tower $15,000.00
Total, Projected Expenditures of Equipment
Replacements FY13, P2366 Budget: $117,515.51
3
STRATEGIC GOAL:
Have adequate equipment to operate the system to meet demand twenty-
four hours a day, seven days a week.
LEGAL IMPACT:
None.
Attachments: Attachment A – Committee Action
ATTACHMENT A
SUBJECT/PROJECT:
COMMITTEE ACTION:
The Finance, Administration and Communications Committee met on July
19, 2012 and supported staffs' 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.
1
STAFF REPORT
TYPE MEETING: Regular Board Meeting MEETING DATE: August 1, 2012
SUBMITTED BY: Rita Bell, Finance Manager
Bob Kennedy, Senior Civil
Engineer
PROJECT: DIV. NO. All
APPROVED BY:
(Chief)
Joseph R. Beachem, Chief Financial Officer
Rod Posada, Chief, Engineering
German Alvarez, Assistant General Manager
Mark Watton, General Manager
SUBJECT: Adopt Ordinance No. 534 Amending the District’s Code of
Ordinances Section 28, Connection Fees and Charges for
Potable or Reclaimed Water Service; Appendix A, Schedule of
Fees and Charges, Section 28.02; and Section 27, Requirements
and Limitations for Obtaining Water Service, Effective
September 1, 2012
GENERAL MANAGER’S RECOMMENDATION:
That the Board adopt Ordinance No. 534 to amend the District’s Code
of Ordinances Section 28, Connection Fees and Charges for Potable or
Reclaimed Water Service; Appendix A, Schedule of Fees and Charges,
Section 28.02; and Section 27, Requirements and Limitations for
Obtaining Water Service, effective September 1, 2012.
PURPOSE:
To present to the Board revisions to the District’s Code of
Ordinances Section 28, Connection Fees and Charges for Potable or
Reclaimed Water Service; Appendix A, Section 28.02, Installation
Charges for Water Meter and Water Service Laterals, to update the
District’s meter fees and installation charges due to changes in
material and labor costs; and to update Section 27, Requirements and
Limitations for Obtaining Water Service.
AGENDA ITEM 4
2
ANALYSIS:
Background
Water meter fees and installation charges have not been updated since
January 2002, when the automated meter reading (AMR) program was
implemented. At this time, an AMR fee of $147 was created to cover
the higher cost of the AMR meters. Currently, about 48,200 of the
approximately 48,500 District customer accounts have AMR water
meters. These numbers reflect meters that were either replaced over
the past ten years with an AMR meter or installed as a new AMR meter.
Having a separate AMR fee is no longer necessary since all new meters
sold are AMR.
By the end of Fiscal Year 2013, it is anticipated that all of the
District’s water meters will be AMR with some exceptions, such as
temporary and fire service meters.
Since January 2002, meter technology regulations such as no-lead
meters and installation methods have changed, making this an
appropriate time to reexamine the method and cost involved with
purchasing and installing meters.
In addition, staff evaluated Section 27, “Requirements for Obtaining
Water Service,” and is proposing changes. It is proposed to add
Section 27.02G Phased Projects. This change will provide a developer
option to phase the delivery of water meters based on the project
implementation to build-out. It is also proposed to revise Section
27.03 “Manufacturers Recommended Maximum Flow Rate for District
Meters.” This change reflects advancements in equipment implemented
by the District to capture volumes through the meters at both the
high and low end of the meter spectrum.
Proposed Fees and Installation Charges
Historic meter costs, including additional parts, were based on the
technology of the day and meters were priced by size only. Since
many things have changed over the years, a review and update of these
meters and fees was necessary.
The proposed meter fees are based on the actual purchase costs of the
meters and the ancillary parts needed to install these meters. The
meters and materials are based on size and service type which is
categorized as Potable Non-Irrigation, Potable/Recycled Irrigation,
and Combined Fire and Domestic.
3
The proposed installation charges are based on the District’s
standard labor rates (including fringe and overhead charges) for the
salaries of Meter Maintenance Workers or Utility Crew as of July 1,
2012. The weight and configuration of current meters from ¾” up to
2” require the same amount of time to install, based on the Meter
Shop’s most recent experience. Therefore, the proposed installation
charge of $96 will be the same for ¾” to 2” meters. Meters that are
3” to 4” require an installation fee of $578, based on two hours of
labor for two Meter Maintenance Workers. The installation for a 6”
meter is $913, based on two hours of labor for three Meter
Maintenance Workers. Lastly, the 8” and 10” meter installation fee
of $1,400 is based on a Utility Crew’s average cost to install these
meters.
The following table shows the existing and proposed installation fees
and the elimination of the AMR fees:
Current Installation Fees
Meter Size Install Fee AMR Fee Total Proposed Fee Change
3/4" $ 60.00 $ 147.00 $ 207.00 $ 96.00 $ (111.00)
1" 60.00 147.00 207.00 96.00 (111.00)
1.5" 103.00 147.00 250.00 96.00 (154.00)
2" 240.00 147.00 387.00 96.00 (291.00)
3" 300.00 147.00 447.00 578.00 131.00
4" 300.00 147.00 447.00 578.00 131.00
6" 300.00 147.00 447.00 913.00 466.00
8" 300.00 147.00 447.00 1,400.00 953.00
10" 300.00 147.00 447.00 1,400.00 953.00
All fees within the Code of Ordinances are listed in Appendix A.
Proposed meter fees and installation charges are listed in Exhibit IV
of the Attachments, which reflects the pending changes to Appendix A.
Additionally, similar to Capacity and Annexation Fees, the
recommendation is to increase meter fees on a quarterly basis, using
the Engineering News Record (ENR) Construction Cost Index for the Los
Angeles Region, to ensure fees keep up with current costs. The
benefit of increasing the fees on a quarterly basis, tied to this
index, is that they will maintain a more up-to-date full cost
recovery in the interim periods between another fee review, which
should be conducted at least every five years to keep up with changes
in meter and installation costs and technologies.
4
FISCAL IMPACT: Joseph R. Beachem, Chief Financial Officer
Based on projected potable and recycled water meter sales, the fiscal
impact for Fiscal Year 2013 is an increase in meter fee revenues of
approximately $16,700.
There is no fiscal impact for Section 27.
STRATEGIC GOAL:
To ensure that the costs of service are kept current, this revenue
source will help the District meet its fiscal responsibility to its
ratepayers.
LEGAL IMPACT:
None.
Attachments:
A) Committee Action Form
B) Ordinance No. 534
Exhibit I Strike-through Section 28
Exhibit II Proposed Section 28
Exhibit III Strike-through Appendix A
Exhibit IV Proposed Appendix A
Exhibit V Strike-through Section 27
Exhibit VI Proposed Section 27
ATTACHMENT A
SUBJECT/PROJECT:
Adopt Ordinance No. 534 Amending the District’s Code of
Ordinances Section 28, Connection Fees and Charges for
Potable or Reclaimed Water Service; Appendix A, Schedule of
Fees and Charges, Section 28.02; and Section 27,
Requirements and Limitations for Obtaining Water Service,
Effective September 1, 2012
COMMITTEE ACTION:
That the Finance, Administration and Communications Committee
recommend that the Board adopt Ordinance No. 534 amending the
District’s Code of Ordinances Section 28, Connection Fees and
Charges for Potable or Reclaimed Water Service; Appendix A,
Schedule of Fees and Charges, Section 28.02; and Section 27,
Requirements and Limitations for Obtaining Water Service,
effective September 1, 2012.
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.
1
ORDINANCE NO. 534
AN ORDINANCE OF THE BOARD OF DIRECTORS OF THE OTAY WATER
DISTRICT AMENDING SECTION 28, CONNECTION FEES AND CHARGES FOR
POTABLE OR RECLAIMED WATER SERVICE; APPENDIX A, SCHEDULE OF FEES
AND CHARGES, SECTION 28.02; AND SECTION 27, REQUIREMENTS AND
LIMITATIONS FOR OBTAINING WATER SERVICE
BE IT ORDAINED by the Board of Directors of Otay Water
District that the District’s Code of Ordinances, Section 28,
Connection Fees and Charges for Potable or Reclaimed Water
Service; and Appendix A, Section 28.02, Installation Charges for
Water Meter and Water Service Laterals; and Section 27,
Requirements and Limitations for Obtaining Water Service (per
Exhibits II, IV and VI) be replaced.
NOW, THEREFORE, BE IT RESOLVED that the new proposed
Section 28, Connection Fees and Charges for Potable or Recycled
Water Service; Appendix A, Section 28.02, Installation Charges
for Water Meter and Water Service Laterals; and Section 27,
Requirements and Limitations for Obtaining Water Service of the
Code of Ordinances shall become effective September 1, 2012.
Attachment B
2
PASSED, APPROVED AND ADOPTED by the Board of Directors of
the Otay Water District at a regular meeting duly held this 1st
day of August 2012, by the following roll call vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
________________________________
President
ATTEST:
_____________________________
District Secretary
28-1
SECTION 28 CONNECTION FEES AND CHARGES FOR POTABLE OR RECLAIMED
RECYCLED WATER SERVICE
28.01 COLLECTION OF FEES AND CHARGES
A. Fees and Charges to be paid by the Customer.
The following fees and charges shall be paid by the customer to connect to a District water system for potable
water or reclaimed recycled water service; these are in
addition to the fees and charges in Section 9 and 25. Fees and charges shall include, but not be limited to, District
fees, San Diego County Water Authority fees, applicable
zone charge and charges for work performed by District personnel on behalf of the customer. These charges may include the installation by District personnel of a water
service lateral, and inspections required due to the
requirement of a back flow device. These charges may also include a meter fee, installation fee (where laterals
exist), lateral fee, meter box fee, and excavation permit
fee. B. Basis for Determination of Connection Fees and Charges.
The fees and charges shall be determined as follows: For permanent water meters, including potable or
recycled irrigation service, the total water
connection fee shall be determined on the basis of the demand to be placed on the District water system. The
extent of demand will be determined on the basis of
the size of the water meter, as set forth in Section 27 of the Code. For fire service, as outlined in Section 38.03 of the Code, the size and fee would be
set based on water use requirements without additional
fire capacity. The water connection fee will be determined by multiplying the demand factor for the
meter size, as set forth below, by the total of the
District-wide capacity fee and applicable zone charge.
Meter Size Demand Factor
3/4" 1
1 2-1/2
1-1/2" 5
2" 8
3" 16
4" 25
6" 50
8" 80
10" 115
Exhibit I
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28-2
1. The District-wide capacity fee and the applicable zone
charge shall constitute the "base rate." For fees or
charges after July 1, 2010, the base rate shall be
adjusted quarterly for fluctuations in construction
costs, as measured by the Engineering News Record
Construction Cost Index for the Los Angeles Region.
The ENR Construction Cost Index of 9777.19(as of July
1, 2009) shall be deemed the "base index." The
adjustment shall be in an amount equal to the percent-
age change in the ENR Construction Cost Index from the
base index for the period from June 10, 2009 to the
date of payment. (See Appendix A, 28.01 B.1. for
fees.)
2. The District-wide new water supply fee shall
constitute the “base rate.” For fees or charges after
July 1, 2010, the base rate shall be adjusted
quarterly for fluctuations in construction costs, as
measured by the Engineering News Record Construction
Cost Index for the Los Angeles Region. The ENR
Construction Cost Index of 9777.19 (as of July 1,
2009) shall be deemed the “base index.” The
adjustment shall be in an amount equal to the
percentage change in the ENR Construction Cost Index
from the base index for the period from June 10, 2009
to the date of payment. (See Appendix A, 28.01 B.2.
for fees.)
28.02 INSTALLATION CHARGES FOR WATER METER AND WATER SERVICE LATERALS
The determination of the water meter or service lateral size shall be based upon the information provided by the
customer as detailed in Section 27 of the Code. The meter fees
and installation charges are set forth in Appendix A, 28.02. Where a water meter larger than 2-inch or a new water
lateral is required, a customized, written estimate of the
District's costs will be prepared. The customer shall deposit the estimated costs with the
District prior to commencement of the work. If actual costs
incurred by the District are less than the amount deposited, the District shall refund the excess to the customer. If the actual
costs incurred exceed the amount deposited, the customer shall
reimburse the District for the additional costs.
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28-3
A. The meter fees and installation charges shall be set effective AugustSeptember 1, 2012, and then adjusted in the
same manner as capacity fees as described in Section 28.01
B.1 above (See Appendix A, 28.01 B.2. for fees).
28.03 METER FEE REFUND
A. If a water meter/service has been paid for but not
installed, a customer may receive a refund of the
District’s capacity fee and charges. If San Diego County Water Authority capacity fees have been paid to San Diego
County Water Authority, the customer shall request a refund
from San Diego County Water Authority. B. If the customer wants to change the meter/service size,
they will be credited with the number of equivalent
dwelling units they have previously purchased and will be refunded any balance per Section 28.03 A, above. If
additional equivalent dwelling units are required, the
customer will be charged based on 28.01 and 28.02. C. If a water meter/service has been previously paid and
installed, and the customer requests a different meter
size, the customer shall pay for the new meter and installation fees, plus any differential in capacity and
new water supply fees as described in Section 28.03 B
above.
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28-1
SECTION 28 CONNECTION FEES AND CHARGES FOR POTABLE OR RECYCLED WATER
SERVICE
28.01 COLLECTION OF FEES AND CHARGES
A. Fees and Charges to be paid by the Customer.
The following fees and charges shall be paid by the
customer to connect to a District water system for potable
water or recycled water service; these are in addition to
the fees and charges in Section 9 and 25. Fees and charges
shall include, but not be limited to, District fees, San
Diego County Water Authority fees, applicable zone charge
and charges for work performed by District personnel on
behalf of the customer. These charges may include the
installation by District personnel of a water service
lateral, and inspections required due to the requirement of
a back flow device. These charges may also include a meter
fee, installation fee (where laterals exist), lateral fee,
meter box fee, and excavation permit fee.
B. Basis for Determination of Connection Fees and Charges.
The fees and charges shall be determined as follows:
For permanent water meters, including potable or
recycled irrigation service, the total water
connection fee shall be determined on the basis of the
demand to be placed on the District water system. The
extent of demand will be determined on the basis of
the size of the water meter, as set forth in Section
27 of the Code. For fire service, as outlined in
Section 38.03 of the Code, the size and fee would be
set based on water use requirements without additional
fire capacity. The water connection fee will be
determined by multiplying the demand factor for the
meter size, as set forth below, by the total of the
District-wide capacity fee and applicable zone charge.
Meter Size Demand Factor
3/4" 1
1 2-1/2
1-1/2" 5
2" 8
3" 16
4" 25
6" 50
8" 80
10" 115
Exhibit II
28-2
1. The District-wide capacity fee and the applicable zone
charge shall constitute the "base rate." For fees or
charges after July 1, 2010, the base rate shall be
adjusted quarterly for fluctuations in construction
costs, as measured by the Engineering News Record
Construction Cost Index for the Los Angeles Region.
The ENR Construction Cost Index of 9777.19(as of July
1, 2009) shall be deemed the "base index." The
adjustment shall be in an amount equal to the percent-
age change in the ENR Construction Cost Index from the
base index for the period from June 10, 2009 to the
date of payment. (See Appendix A, 28.01 B.1. for
fees.)
2. The District-wide new water supply fee shall
constitute the “base rate.” For fees or charges after
July 1, 2010, the base rate shall be adjusted
quarterly for fluctuations in construction costs, as
measured by the Engineering News Record Construction
Cost Index for the Los Angeles Region. The ENR
Construction Cost Index of 9777.19 (as of July 1,
2009) shall be deemed the “base index.” The
adjustment shall be in an amount equal to the
percentage change in the ENR Construction Cost Index
from the base index for the period from June 10, 2009
to the date of payment. (See Appendix A, 28.01 B.2.
for fees.)
28.02 INSTALLATION CHARGES FOR WATER METER AND WATER SERVICE LATERALS
The determination of the water meter or service lateral
size shall be based upon the information provided by the
customer as detailed in Section 27 of the Code. The meter fees
and installation charges are set forth in Appendix A, 28.02.
Where a new water lateral is required, a customized,
written estimate of the District's costs will be prepared.
The customer shall deposit the estimated costs with the
District prior to commencement of the work. If actual costs
incurred by the District are less than the amount deposited, the
District shall refund the excess to the customer. If the actual
costs incurred exceed the amount deposited, the customer shall
reimburse the District for the additional costs.
28-3
A. The meter fees and installation charges shall be set
effective September 1, 2012, and then adjusted in the same
manner as capacity fees as described in Section 28.01 B.1
above (See Appendix A, 28.01 B.2. for fees).
28.03 METER FEE REFUND
A. If a water meter/service has been paid for but not
installed, a customer may receive a refund of the
District’s capacity fee and charges. If San Diego County
Water Authority capacity fees have been paid to San Diego
County Water Authority, the customer shall request a refund
from San Diego County Water Authority.
B. If the customer wants to change the meter/service size,
they will be credited with the number of equivalent
dwelling units they have previously purchased and will be
refunded any balance per Section 28.03 A, above. If
additional equivalent dwelling units are required, the
customer will be charged based on 28.01 and 28.02.
C. If a water meter/service has been previously paid and
installed, and the customer requests a different meter
size, the customer shall pay for the new meter and
installation fees, plus any differential in capacity and
new water supply fees as described in Section 28.03 B
above.
Section #Code #Fee Description Meter Size
9 9.04 A.1.District Annexation Processing Fee $744.00
9.04 B.
Annexation Fees for Water Annexations
into Otay Water District Boundaries
District-wide
Annexation Fee
3/4" $1,556.00
1" $3,890.00
1-1/2" $7,780.00
2" $12,448.00
3" $24,896.00
4 $38,900.00
6" $77,800.00
8" $124,480.00
10" $178,940.00
9.04 C.4.
Annexation Fees for Annexations to
Sewer Improvement Districts $5,741.00
10 10.01 Filing of Petition $50.00
23 23.04 Backflow Certification
- Second Notification $10.00
- Third Notification $25.00
- Reconnection (service resumed)$50.00
- Initial Filing Fee (New applicants for
addition to the list of approved backflow
prevention device testers)$25.00
- Renewal Filing Fee (to remain on list
of approved backflow prevention device
testers)Annually $10.00
25 25.03 A. Set-up Fees for Accounts $10.00
Otay Water District
Appendix A
Charges
Appendix A
1 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
25 25.03 C.
Monthly Fixed System Charges, MWD &
CWA Charges (1)Meter Size System Charge
MWD & CWA
Fixed Charge
Total Fixed
Charge
3/4"$14.58 $14.01 $28.59
1"$18.52 $23.33 $41.85
1-1/2"$28.37 $46.74 $75.11
2"$40.18 $74.74 $114.92
3"$71.68 $149.48 $221.16
4"$107.13 $233.58 $340.71
6"$205.59 $467.09 $672.68
8"$323.73 $747.39 $1,071.12
10"$461.57 $1,070.74 $1,532.31
25 25.03 E.1.(b) Domestic Residential Water Rates (1)Unit Charge
0 - 5 $1.58
6-10 $2.45
11-22 $3.19
23 or more $4.92
25 25.03 E.2.(b)
Multiple Residential Water Rates - Per
Dwelling Unit (1) 0-4 $2.43
5-9 $3.15
10 or more $4.85
25 25.03 E.3.(b)
Business and Publicly-Owned Water
Rates (1)under 10"0-173 $2.59
174-831 $2.66
832 or more $2.70
10" & larger 0-7,426 $2.59
7,427-14,616 $2.66
14,617 or more $2.70
25 25.03 E.4.(c)
Irrigation and Commercial Agricultural
Using Potable Water Rates (1)1" & smaller 0-49 $3.53
50-132 $3.60
133 or more $3.66
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
2 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
25 25.03 E.4.(c)
Irrigation and Commercial Agricultural
Using Potable Water Rates (continued) (1)1.5" & 2"0-144 $3.53
145-355 $3.60
356 or more $3.66
3" & larger 0-1,044 $3.53
1,045-8,067 $3.60
8,068 or more $3.66
25 25.03 E.5.(c) Recycled Water Rates (1)3/4" - 1" 0-42 $3.02
43-97 $3.06
98 or more $3.12
1.5" & 2"0-168 $3.02
169-402 $3.06
403 or more $3.12
3" & 4"0-403 $3.02
404-820 $3.06
821 or more $3.12
6" & larger 0-7,916 $3.02
7,917-16,357 $3.06
16,358 or more $3.12
25 25.03 E.6.(b)
Temporary and Construction Water
Service Rates (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
3 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
25 25.03 E.8.(b) Tank Trucks Water Rates (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 E.9.(c)
Application Fee for Water Service Outside
District Boundaries $500.00
25 25.03 E.9.(d)
Water Rate for Service Outside District
Boundaries (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 E.10.(b)
Application Fee for Water Service Outside
an Improvement District $275.00
25 25.03 E.10.(c)
Water Rate for Service Outside
Improvement District (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
4 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
25 25.03 E.10.(c)
Water Rate for Service Outside
Improvement District (continued) (1)1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 E.11.(c) Fire Service Monthly Charge $30.11
25 25.03 E.12.(b)
Additional Water Service for Property Not
Subject to District Taxes per unit $0.293
25 25.03 E.13.(b)
Interim Service Water Rate in
Improvement District 7 (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 F.Energy Charges for Pumping Water (1)
Per 100 ft of lift
over 450 ft per
unit $0.045
25 25.03 G.1.
Additional Water Charge for Service in the
North District
Per unit charge
except for the
first 5 units of
residential $0.08
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
5 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
25 25.03 H.1.
Additional Water Charges for Service in
the Improvement District 9 Water Service
Zone
Per unit charge
except for the
first 5 units of
residential $0.27
25 25.03 H.2.
Additional Monthly System Fee for
Improvement District 9 $2.00
25 25.03 I.1.(a)
Additional Water Charges for Services in
Improvement District 3
Per unit charge
except for the
first 5 units of
residential 0.19 per H.C.F.
Effective
Jan 1, 2011
"0.20 per H.C.F.
Effective
Jan 1, 2012
"0.21 per H.C.F.
Effective
Jan 1, 2013
25 25.03 I.1.(b)
Additional Water Charges for Services in
Improvement District 10
Per unit charge
except for the
first 5 units of
residential 0.27 per H.C.F.
Effective
Jan 1st
2011-2018
25 25.03 I.1.(c)
Additional Water Charges for Services in
La Presa
Per unit charge
except for the
first 5 units of
residential 0.08 per H.C.F.
Effective
Jan 1st
2011-2013
25 25.04 A.Deposits for Non-Property Owners 3/4"$75.00
1"$150.00
1-1/2"$200.00
2"$360.00
3"$800.00
4"$1,350.00
6"$3,300.00
8"$4,400.00
10"$5,500.00
Appendix A
6 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
28 28.01 B.1.Capacity Fees and Zone Charge
District-wide
Capacity Fee
3/4" $7,900.00
1" $19,750.00
1-1/2" $39,500.00
2" $63,200.00
3" $126,400.00
4 $197,500.00
6" $395,000.00
8" $632,000.00
10" $908,500.00
- 22/27 TRIAD 3/4" $5,912.00
1" $14,780.00
1 -1/2" $29,560.00
2" $47,296.00
3" $94,592.00
4 $147,800.00
6" $295,600.00
8" $472,960.00
10" $679,880.00
28 28.01 B.2.New Water Supply Fee
- All IDs including Triad 3/4" $910.00
1" $2,275.00
1-1/2" $4,550.00
2" $7,280.00
3" $14,560.00
4" $22,750.00
6" $45,500.00
8" $72,800.00
10" $104,650.00
28 28.02
Installation Charges for Water Meter and
Water Service Laterals Meter Size Meter Fee Meter Box Installation Total Fee
3/4"$59.00 $47.00 $60.00 $166.00
1"$117.00 $47.00 $60.00 $224.00
1-1/2"$250.00 $61.00 $103.00 $414.00
- I.D.'s 1,2,3,5,7,9,10,19,20,22,22/27
(excluding Triad), and 25 (only I.D.'s
5,7,10,19,22, and 22/27 require reclaimed
irrigation meters).
Appendix A
7 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
28 28.02
Installation Charges for Water Meter and
Water Service Laterals (continued)Meter Size
2"$475.00 $61.00 $240.00 $776.00
3" $653.00 $1,770.00 $300.00 $2,723.00
4"$1,370.00 $1,770.00 $300.00 $3,440.00
6"$2,500.00 $1,770.00 $300.00 $4,570.00
8"$3,737.00 $2,760.00 $300.00 $6,797.00
10"$5,060.00 $2,760.00 $300.00 $8,120.00
31 31.02 D.1.
Requirement of Temporary Meter for
Service
minimum/per
day $25.00
31 31.03 A.1.Requirement of Deposit for Temporary Meters
3/4"$150.00
1"$180.00
1-1/2"$330.00
2"$2,046.00
3"$850.00
4"$1,986.00
6"$2,465.00
- Construction Trailer Temporary Meter 2"$2,046.00
- Tank Truck Temporary Meter
(Ordinance No. 372)2"$850.00
31 31.03 A.4.Temporary Meter Install & Removal $128.00
31 31.03 A.5.
Temporary Meter Move Fee (includes
backflow certification)3/4" - 2"$64.00
3" and larger No backflow test $64.00
33 33.07 A.
Customer Request for Meter Test
(Deposit)5/8", 3/4" & 1"$25.00
1-1/2" & 2 "$50.00
3" & Larger $125.00
34 34.01 D.2. Returned Check Charges $25.00
Appendix A
8 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
34 34.02 B.Late Payment Charge
5% of
Delinquent
Balance
34 34.02 G.1.(d)Delinquency Tag $10.00
34 34.02 G.3.(a)Meter "Turn-On" Charge
During regular
business hours $35.00
34 34.02 G.3.(b)Meter "Turn-On" Charge
After regular
business hours $65.00
53 53.04 C.1.Sewer Connection Fee - Russell Square $7,500.00
53 53.04 C.2.Monthly Sewer Service Charge - Russell Square $200.00
53 53.11 A.Set-up Fees for Accounts $10.00
53 53.11 B.2.Residential Sewer Charges (2)
Rate multiplied
by winter
average units $1.77
53 53.11 B.3.Residential Sewer Charges Base Fee (2)5/8" & 3/4"$12.26
1" & larger $17.88
53 53.11 B.4.
Monthly Residential Sewer Rate Without
Consumption History (2)5/8" & 3/4"$34.83
1" & larger $40.45
53 53.11.C.4.Winter Averaging - Sewer
- Single Residential
15 units - 15%
discount = 12.75
units
- Multi-Residential
6 units - 15%
discount = 5.1
units
(2) Sewer rates on all billing cycles beginning in calendar year 2012
Appendix A
9 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
53 53.11 D.2.Multi-Residential Rate Charges - Sewer (2)
Rate multiplied
by winter
average units $1.77
53 53.11 E.6.Public Schools Sewer Rate (2)
Per ASU (Based
on Student
Count)$41.75
53 53.11 F.1.
Monthly Service Charge for Commercial
and Institutional Sewer (2)Per ASU $41.75
60 60.03
Issuance of Availability Letters for Water
and/or Sewer Service $75.00
72 72.04 A.1.
- To Pull and Reset Meter 3/4" - 2"$170.00
- Broken Curbstop or Tabs 3/4" - 1"$192.00
- If Customer uses Jumper 3/4" - 1"$149.00
- Broken Lock/Locking Device 3/4" - 1"$56.00
- Cap Lock (Welded)3/4" - 1"$158.00
- Broken Curbstop or Tabs 1.5" - 2"$265.00
- To Pull and Reset Meter 3"$351.00
- To Pull and Reset Meter 4"$454.00
- To Pull and Reset Meter 6"$454.00
- To Pull and Reset Meter 8"$600.00
- To Pull and Reset Meter 10"$600.00
72 72.05 D. A.
- First Violation $100.00
- Second Violations $200.00
$500.00
Type I Fine
- Third or each additional violation of that same
ordinance or requirement within a twelve-month period
Locking or Removing Damaged or
Tampered Meters
(2) Sewer rates on all billing cycles beginning in calendar year 2012
Appendix A
10 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
Type II Fine $5,000.00
Type III Fine $500.00
Type IV Fine $500.00
State
Water
Code
#71630 & Annual Board
Resolution #4142
Water Availability/Standby Annual Special
Assessment Charge $10.00
$10.00
$30.00
$3.00
$3.00
State
Water
Code
#71630 & Annual Board
Resolution #4142
Sewer Availability/Standby Annual Special
Assessment Charge $10.00
$30.00
Less than one-acre Outside I.D.
and greater than one mile from
District facilities.
Per acre for outside I.D. &
greater than one mile from
District facilities.
Less than one acre I.D. 4, 14, &
18
Per acre I.D. 4, 14, & 18
Will not exceed per each day the
violation is identified or
continues.
Fine up to amount specified per
each day the violation is
identified or continues.
Fine up to amount specified per
each day the violation is
identified or continues.
Less than one-acre all I.D.s &
Outside an I.D.
Per acre in I.D. 1, 5, & Outside
an I.D.
Per acre in I.D.
2,3,7,9,10,19,20,22,25,& 27
Appendix A
11 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size Charges
Annual
Board
Resolution
General Obligation Bond Annual Tax
Assessment $0.005
Policies
5 Copies of Identifiable Public Records $0.10/page
Cassette Tape Duplication $2.00/tape
Yearly Subscription Service for Agendas
and Ratified Minutes
$20.00/year or
$0.50/meeting
Yearly Subscription Service for Board
Packet and Ratified Minutes
$100.00/year
for first copy
and
$200.00/year
for each copy
thereafter
Per $1000 of assessed value for
I.D. 27
Appendix A
12 of 12
EXHIBIT III
Section #Code #Fee Description Meter Size
9 9.04 A.1.District Annexation Processing Fee $744.00
9.04 B.
Annexation Fees for Water Annexations
into Otay Water District Boundaries
District-wide
Annexation Fee
3/4" $1,556.00
1" $3,890.00
1-1/2" $7,780.00
2" $12,448.00
3" $24,896.00
4 $38,900.00
6" $77,800.00
8" $124,480.00
10" $178,940.00
9.04 C.4.
Annexation Fees for Annexations to
Sewer Improvement Districts $5,741.00
10 10.01 Filing of Petition $50.00
23 23.04 Backflow Certification
- Second Notification $10.00
- Third Notification $25.00
- Reconnection (service resumed)$50.00
- Initial Filing Fee (New applicants for
addition to the list of approved backflow
prevention device testers)$25.00
- Renewal Filing Fee (to remain on list
of approved backflow prevention device
testers)Annually $10.00
25 25.03 A. Set-up Fees for Accounts $10.00
Otay Water District
Appendix A
Charges
Appendix A
1 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
25 25.03 C.
Monthly Fixed System Charges, MWD &
CWA Charges (1)Meter Size System Charge
MWD & CWA
Fixed Charge
Total Fixed
Charge
3/4"$14.58 $14.01 $28.59
1"$18.52 $23.33 $41.85
1-1/2"$28.37 $46.74 $75.11
2"$40.18 $74.74 $114.92
3"$71.68 $149.48 $221.16
4"$107.13 $233.58 $340.71
6"$205.59 $467.09 $672.68
8"$323.73 $747.39 $1,071.12
10"$461.57 $1,070.74 $1,532.31
25 25.03 E.1.(b) Domestic Residential Water Rates (1)Unit Charge
0 - 5 $1.58
6-10 $2.45
11-22 $3.19
23 or more $4.92
25 25.03 E.2.(b)
Multiple Residential Water Rates - Per
Dwelling Unit (1) 0-4 $2.43
5-9 $3.15
10 or more $4.85
25 25.03 E.3.(b)
Business and Publicly-Owned Water
Rates (1)under 10"0-173 $2.59
174-831 $2.66
832 or more $2.70
10" & larger 0-7,426 $2.59
7,427-14,616 $2.66
14,617 or more $2.70
25 25.03 E.4.(c)
Irrigation and Commercial Agricultural
Using Potable Water Rates (1)1" & smaller 0-49 $3.53
50-132 $3.60
133 or more $3.66
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
2 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
25 25.03 E.4.(c)
Irrigation and Commercial Agricultural
Using Potable Water Rates (continued) (1) 1.5" & 2"0-144 $3.53
145-355 $3.60
356 or more $3.66
3" & larger 0-1,044 $3.53
1,045-8,067 $3.60
8,068 or more $3.66
25 25.03 E.5.(c) Recycled Water Rates (1)3/4" - 1" 0-42 $3.02
43-97 $3.06
98 or more $3.12
1.5" & 2"0-168 $3.02
169-402 $3.06
403 or more $3.12
3" & 4"0-403 $3.02
404-820 $3.06
821 or more $3.12
6" & larger 0-7,916 $3.02
7,917-16,357 $3.06
16,358 or more $3.12
25 25.03 E.6.(b)
Temporary and Construction Water
Service Rates (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
3 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
25 25.03 E.8.(b) Tank Trucks Water Rates (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 E.9.(c)
Application Fee for Water Service Outside
District Boundaries $500.00
25 25.03 E.9.(d)
Water Rate for Service Outside District
Boundaries (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 E.10.(b)
Application Fee for Water Service Outside
an Improvement District $275.00
25 25.03 E.10.(c)
Water Rate for Service Outside
Improvement District (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
4 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
25 25.03 E.10.(c)
Water Rate for Service Outside
Improvement District (continued) (1) 3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 E.11.(c) Fire Service Monthly Charge $30.11
25 25.03 E.12.(b)
Additional Water Service for Property Not
Subject to District Taxes per unit $0.293
25 25.03 E.13.(b)
Interim Service Water Rate in
Improvement District 7 (1)1" & smaller 0-49 $7.06
50-132 $7.20
133 or more $7.32
1.5" & 2"0-144 $7.06
145-355 $7.20
356 or more $7.32
3" & larger 0-1,044 $7.06
1,045-8,067 $7.20
8,068 or more $7.32
25 25.03 F.Energy Charges for Pumping Water (1)
Per 100 ft of lift
over 450 ft per
unit $0.045
25 25.03 G.1.
Additional Water Charge for Service in the
North District
Per unit charge
except for the
first 5 units of
residential $0.08
25 25.03 H.1.
Additional Water Charges for Service in
the Improvement District 9 Water Service
Zone
Per unit charge
except for the
first 5 units of
residential $0.27
25 25.03 H.2.
Additional Monthly System Fee for
Improvement District 9 $2.00
(1) Water rates on all billing cycles beginning in calendar year 2012
Appendix A
5 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
25 25.03 I.1.(a)
Additional Water Charges for Services in
Improvement District 3
Per unit charge
except for the
first 5 units of
residential 0.19 per H.C.F.
Effective
Jan 1, 2011
"0.20 per H.C.F.
Effective
Jan 1, 2012
"0.21 per H.C.F.
Effective
Jan 1, 2013
25 25.03 I.1.(b)
Additional Water Charges for Services in
Improvement District 10
Per unit charge
except for the
first 5 units of
residential 0.27 per H.C.F.
Effective
Jan 1st
2011-2018
25 25.03 I.1.(c)
Additional Water Charges for Services in
La Presa
Per unit charge
except for the
first 5 units of
residential 0.08 per H.C.F.
Effective
Jan 1st
2011-2013
25 25.04 A.Deposits for Non-Property Owners 3/4"$75.00
1"$150.00
1-1/2"$200.00
2"$360.00
3"$800.00
4"$1,350.00
6"$3,300.00
8"$4,400.00
10"$5,500.00
28 28.01 B.1.Capacity Fees and Zone Charge
District-wide
Capacity Fee
3/4" $7,900.00
1" $19,750.00
1-1/2" $39,500.00
2" $63,200.00
3" $126,400.00
4 $197,500.00
6" $395,000.00
8" $632,000.00
10" $908,500.00
- I.D.'s 1,2,3,5,7,9,10,19,20,22,22/27
(excluding Triad), and 25 (only I.D.'s
5,7,10,19,22, and 22/27 require reclaimed
irrigation meters).
Appendix A
6 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
28 28.01 B.1. - 22/27 TRIAD 3/4" $5,912.00
1" $14,780.00
1 -1/2" $29,560.00
2" $47,296.00
3" $94,592.00
4 $147,800.00
6" $295,600.00
8" $472,960.00
10" $679,880.00
28 28.01 B.2.New Water Supply Fee 3/4" $910.00
- All IDs including Triad 1" $2,275.00
1-1/2" $4,550.00
2" $7,280.00
3" $14,560.00
4" $22,750.00
6" $45,500.00
8" $72,800.00
10" $104,650.00
28 28.02
Installation Charges for Water Meter and
Water Service Laterals Meter Size Meter Cost Installation Total
Meter
Box/Vault
(if Needed)
Potable (Non-Irrigation)3/4" x 7.5"$202.30 $96.00 $298.30 $81.50
3/4" x 9"$215.39 $96.00 $311.39 $81.50
1"$261.05 $96.00 $357.05 $81.50
1.5"$424.31 $96.00 $520.31 $184.76
2"$607.99 $96.00 $703.99 $184.76
3"$1,894.74 $578.00 $2,472.74 $3,295.81
4"$3,290.86 $578.00 $3,868.86 $3,295.81
6"$5,684.21 $913.00 $6,597.21 $3,295.81
8"$7,102.00 $1,400.00 $8,502.00 $4,728.07
10"$10,214.00 $1,400.00 $11,614.00 $4,728.07
Potable/Recycled Irrigation 3/4" x 7.5"$202.30 $96.00 $298.30 $207.70
3/4" x 9"$215.39 $96.00 $311.39 $207.70
1"$261.05 $96.00 $357.05 $207.70
1.5"$424.31 $96.00 $520.31 $207.70
2"$607.99 $96.00 $703.99 $207.70
3"$1,311.35 $578.00 $1,889.35 $3,295.81
4"$2,553.00 $578.00 $3,131.00 $3,295.81
Appendix A
7 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
Potable/Recycled Irrigation (continued)6"$4,596.23 $913.00 $5,509.23 $3,295.81
8"$6,123.00 $1,400.00 $7,523.00 $4,728.07
10"$8,689.00 $1,400.00 $10,089.00 $4,728.07
Combined Fire and Domestic 4"$7,829.25 $578.00 $8,407.25 $3,295.81
6"$10,420.05 $913.00 $11,333.05 $3,295.81
8"$15,150.00 $1,400.00 $16,550.00 $4,728.07
10"$20,674.74 $1,400.00 $22,074.74 $4,728.07
31 31.02 D.1.
Requirement of Temporary Meter for
Service
minimum/per
day $25.00
31 31.03 A.1.Requirement of Deposit for Temporary Meters
2"$2,046.00
4"$1,986.00
6"$2,465.00
- Construction Trailer Temporary Meter 2"$2,046.00
- Tank Truck Temporary Meter
(Ordinance No. 372)2"$850.00
31 31.03 A.4.Temporary Meter Install & Removal $128.00
31 31.03 A.5.
Temporary Meter Move Fee (includes
backflow certification)3/4" - 2"$64.00
3" and larger No backflow test $64.00
33 33.07 A.
Customer Request for Meter Test
(Deposit)5/8", 3/4" & 1"$25.00
1-1/2" & 2 "$50.00
3" & Larger $125.00
34 34.01 D.2. Returned Check Charges $25.00
34 34.02 B.Late Payment Charge
5% of
Delinquent
Balance
34 34.02 G.1.(d)Delinquency Tag $10.00
Appendix A
8 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
34 34.02 G.3.(a)Meter "Turn-On" Charge
During regular
business hours $35.00
34 34.02 G.3.(b)Meter "Turn-On" Charge
After regular
business hours $65.00
53 53.04 C.1.Sewer Connection Fee - Russell Square $7,500.00
53 53.04 C.2.Monthly Sewer Service Charge - Russell Square $200.00
53 53.11 A.Set-up Fees for Accounts $10.00
53 53.11 B.2.Residential Sewer Charges (2)
Rate multiplied
by winter
average units $1.77
53 53.11 B.3.Residential Sewer Charges Base Fee (2)5/8" & 3/4"$12.26
1" & larger $17.88
53 53.11 B.4.
Monthly Residential Sewer Rate Without
Consumption History (2)5/8" & 3/4"$34.83
1" & larger $40.45
53 53.11.C.4.Winter Averaging - Sewer
- Single Residential
15 units - 15%
discount = 12.75
units
- Multi-Residential
6 units - 15%
discount = 5.1
units
53 53.11 D.2.Multi-Residential Rate Charges - Sewer (2)
Rate multiplied
by winter
average units $1.77
53 53.11 E.6.Public Schools Sewer Rate (2)
Per ASU (Based
on Student
Count)$41.75
53 53.11 F.1.
Monthly Service Charge for Commercial
and Institutional Sewer (2)Per ASU $41.75
(2) Sewer rates on all billing cycles beginning in calendar year 2012
Appendix A
9 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
60 60.03
Issuance of Availability Letters for Water
and/or Sewer Service $75.00
72 72.04 A.1.
- To Pull and Reset Meter 3/4" - 2"$170.00
- Broken Curbstop or Tabs 3/4" - 1"$192.00
- If Customer uses Jumper 3/4" - 1"$149.00
- Broken Lock/Locking Device 3/4" - 1"$56.00
- Cap Lock (Welded)3/4" - 1"$158.00
- Broken Curbstop or Tabs 1.5" - 2"$265.00
- To Pull and Reset Meter 3"$351.00
- To Pull and Reset Meter 4"$454.00
- To Pull and Reset Meter 6"$454.00
- To Pull and Reset Meter 8"$600.00
- To Pull and Reset Meter 10"$600.00
72 72.05 D. A.
- First Violation $100.00
- Second Violations $200.00
$500.00
Type II Fine $5,000.00
Type III Fine $500.00
Type IV Fine $500.00
Locking or Removing Damaged or
Tampered Meters
Type I Fine
- Third or each additional violation of that same
ordinance or requirement within a twelve-month period
Will not exceed per each day the
violation is identified or
continues.
Fine up to amount specified per
each day the violation is
identified or continues.
(2) Sewer rates on all billing cycles beginning in calendar year 2012
Fine up to amount specified per
each day the violation is
identified or continues.
Appendix A
10 of 11
EXHIBIT IV
Section #Code #Fee Description Meter Size Charges
State
Water
Code
#71630 & Annual Board
Resolution #4142
Water Availability/Standby Annual Special
Assessment Charge $10.00
$10.00
$30.00
$3.00
$3.00
State
Water
Code
#71630 & Annual Board
Resolution #4142
Sewer Availability/Standby Annual Special
Assessment Charge $10.00
$30.00
Annual
Board
Resolution
General Obligation Bond Annual Tax
Assessment $0.005
Policies
5 Copies of Identifiable Public Records $0.10/page
Cassette Tape Duplication $2.00/tape
Yearly Subscription Service for Agendas
and Ratified Minutes
$20.00/year or
$0.50/meeting
Yearly Subscription Service for Board
Packet and Ratified Minutes
$100.00/year
for first copy
and
$200.00/year
for each copy
thereafter
Less than one acre I.D. 4, 14, &
18
Per acre I.D. 4, 14, & 18
Per $1000 of assessed value for
I.D. 27
Per acre in I.D.
2,3,7,9,10,19,20,22,25,& 27
Less than one-acre Outside I.D.
and greater than one mile from
District facilities.
Per acre for outside I.D. &
greater than one mile from
District facilities.
Less than one-acre all I.D.s &
Outside an I.D.
Per acre in I.D. 1, 5, & Outside
an I.D.
Appendix A
11 of 11
EXHIBIT IV
EXHIBIT V Formatted: Right
SECTION 27 REQUIREMENTS 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 for 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. Reclaimed Water Service Areas. In areas
designated as reclaimed water service areas, the customer
shall be required to install a separate reclaimed 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:
Formatted: Different first page header
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.
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 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.
27-3
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.
o 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 that they understand that
they must purchase a larger meter, paying all
applicable meter upsize fees when they connect
future phases to this system. 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
In Inches Maximum Rate in U. S. Gallons
per Minute
3/4 30
1 50
1-1/2 100
2 160
3 530500
4 13501000
6 27002000
8 35003400
10 65005000
COMPOUND METERS
(Multi-family, Apartments etc.) Formatted: Font: Italic, Strikethrough, Doublestrikethrough
27-4
2 285 3 480 4 750 6 1700 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 Submeters 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 submetering 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 submeters, 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 submeters is a
cost imposed by the property owner or operator and not by Otay Water District.
B. Ratio Utility Billing Systems. To the extent permitted
under law, owners or operators of multiunit structures
where submeters 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.
1. Indoor Fixtures and Appliances. All water fixtures and
appliances installed, including the ones in the following
list, must be high-efficiency:
• Toilets and urinals
• Faucets
• Showerheads
• Clothes Washers
27-5
• 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.
2. 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.
a. 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.
b. 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.
c. 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 the applicable City and County’s
regulations.
d. Dedicated irrigation meters shall be installed
in:
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
• All parks and common areas with 5,000 square
feet or more of irrigated landscape
• Commercial sites with 5,000 square feet or
more of irrigated landscape
e. 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.
5. New commercial developments must install separate,
dual-distribution systems for potable and recycled water.
6. 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.
EXHIBIT VI
SECTION 27 REQUIREMENTS 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
for 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. Reclaimed Water Service Areas. In areas
designated as reclaimed water service areas, the customer
shall be required to install a separate reclaimed 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.
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 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
27-3
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.
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 that they
understand that they must purchase a larger meter, paying
all applicable meter upsize fees when they connect future
phases to this system. 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
In Inches Maximum Rate in U. S. Gallons
per Minute
3/4 30
1 50
1-1/2 100
2 160
3 500
4 1000
6 2000
8 3400
10 5000
27-4
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 Submeters 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 submetering 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 submeters, 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 submeters is a
cost imposed by the property owner or operator and not
by Otay Water District.
B. Ratio Utility Billing Systems. To the extent permitted
under law, owners or operators of multiunit structures
where submeters 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.
1. Indoor Fixtures and Appliances. All water fixtures and
appliances installed, including the ones in the following
list, must be high-efficiency:
• Toilets and urinals
• Faucets
• Showerheads
• Clothes Washers
• Dishwashers
“High-efficiency” means fixtures and appliances that comply
with the most efficient specifications under the EPA
27-5
WaterSense® or Energy Star programs,1 as in effect at the
time installation commences.
2. 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.
a. 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.
b. 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.
c. 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 the applicable City and County’s
regulations.
d. Dedicated irrigation meters shall be installed
in:
• All parks and common areas with 5,000 square
feet or more of irrigated landscape
• Commercial sites with 5,000 square feet or
more of irrigated landscape
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
e. 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.
5. New commercial developments must install separate,
dual-distribution systems for potable and recycled water.
6. 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: August 1, 2012
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: Adopt Resolution No. 4201 of the District’s Code of
Ordinances Amending Policy No. 25, the Reserve Policy, which
Includes Updated Glossary Definitions
GENERAL MANAGER’S RECOMMENDATION:
That the Board adopt Resolution No. 4201 of the District’s Code of
Ordinances amending Policy No. 25, the Reserve Policy, which includes
updated glossary definitions.
COMMITTEE ACTION:
Please see Attachment A.
PURPOSE:
To present to the Board three revisions of the Reserve Policy.
First, to remove the State Loan Assessment wording in Section 2.2, c.
as the loan has been paid in full. Second, to modify the definition
of Late Charges/Penalties. Lastly, to modify the definition of Water
Rates. The two definitions are in the Reserve Policy Glossary and
are changed to reflect current practices.
BACKGROUND:
In March 2006, the Reserve Policy was updated to reflect industry
best practices, clearly defining the sources and uses of the
District’s funds and establishing the minimums, maximums, and targets
for each of the funds. In May 2010, the Board adopted a new capacity
fee and annexation fee methodology, as well as a new water supply
fee. As a result of these Board approved changes, the new sources
and uses of fees were incorporated into the Reserve Policy.
ANALYSIS:
In October 2010, the District made the final payment on the Sewer
State Loan. Accordingly, the District no longer collects a fee on
AGENDA ITEM 5
the county tax roll to pay for this debt. Therefore, it is being
proposed that paragraph 2.2.c. “State Loan Assessment (Restricted)”
be removed from the Reserve Policy.
As part of continuous quality assurance review performed by staff,
some necessary changes to the glossary definitions were identified
and are being recommended for Board approval.
In 2008, the Board approved the elimination of charges for contacting
customers and notifying them of past due status. The definition of
“Late Charges/Penalties” in the Glossary was not updated at that time
to reflect this change. The proposed definition has been modified to
delete the phone contact charges and also modified to add other
penalties for infringements. The District charges penalties for
infringements such as broken curb stops, and meter reset fees. This
modification is necessary for completeness of the definition. The
proposed definition of “Late Charges/Penalties” in the Glossary
states that charges and penalties are imposed on customer accounts
for late payments, returned payments, and other infringements of the
District’s Code of Ordinances.
In 2009, the Board approved moving from a flat rate structure for
non-residential customers to a tiered rate structure. In this
structure, water rates are based on meter size and amounts of units
consumed. The glossary’s definition of “Water Rates” for non-
residential customers was not updated at that time to reflect this
change. This update to the Reserve Policy modifies the Glossary
definition to reflect the current inclining block rate structure.
The proposed policy is in alignment with the District’s financial
plan and is an integral part of the annual rate model update which
impacts the District’s rates and fees.
FISCAL IMPACT:
None.
STRATEGIC GOAL:
The District ensures its continued financial health through long-term
financial planning and debt planning.
LEGAL IMPACT:
None.
Attachments:
A) Committee Action Form
B) Resolution No. 4201
Exhibit 1 Strike-through Policy No. 25
Exhibit 2 Proposed Policy No. 25
ATTACHMENT A
SUBJECT/PROJECT:
Adopt Resolution No. 4201 of the District’s Code of
Ordinances Amending Policy No. 25, the Reserve Policy,
which Includes Updated Glossary Definitions
COMMITTEE ACTION:
The Finance, Administration and Communications Committee
recommends that the Board adopt Resolution No. 4201 of the
District’s Code of Ordinances amending Policy No. 25, the
Reserve Policy, which includes updated glossary definitions.
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
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RESOLUTION NO.4201
A RESOLUTION OF THE BOARD OF DIRECTORS OF
THE OTAY WATER DISTRICT AMENDING
RESERVE POLICY NO.25 OF THE
DISTRICT’S CODE OF ORDINANCES
WHEREAS, the Otay Water District Board of Directors have
been presented with an amended Reserve Policy No. 25 of the
District’s Code of Ordinances for the financial management of
the Otay Water District; and
WHEREAS, the amended Reserve Policy has been reviewed and
considered by the Board, and it is in the interest of the
District to adopt the amended Reserve 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 Reserve Policy, incorporated herein as an attachment, 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
August 2012, by the following vote:
Ayes:
Noes:
Abstain:
Absent:
________________________
President
Attachment B
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ATTEST:
____________________________
District Secretary
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1.0 The District
The Otay Water District is a California municipal water district,
authorized in 1956 by the State Legislature under the provisions
of the Municipal Water District Act of 1911. The District is a
"revenue neutral" public agency; meaning each end user pays their
fair share of the District's costs of water acquisition,
construction of infrastructure, and the operation and maintenance
of the public water facilities.
The District provides water service within its boundaries, and
provides sewer and recycled water service within certain portions
of the District. As such, the District operates three distinct
business segments:
Potable water
Recycled water
Sewer
Each of these business segments has an identifiable customer base.
In addition, the developer community, large and small, makes up a
significant class of customer for each business segment. As a
result, the District has four distinct customer service types:
Developers
Potable water users
Recycled water users
Sewer users
The District has established practices and developed computer
systems that have enabled the District to maintain a clear
separation between the service costs relating to each of its four
customer service types. Regardless of customer class, financial
principles regarding cost allocation and fund accounting are
fundamental to the District’s Reserve Policy. These principles
are derived from the statements of the Governmental Accounting
Standards Board (GASB), and from oversight and advisory bodies
such as the California State Auditor, the Little Hoover
Commission, and the Government Finance Officers Association
(GFOA). These have significant impacts on how the finances of
Exhibit I
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the District are organized and how financial processes work within
the organization.
1.1 The District’s Use of Financial Resources
All of the District’s expenditures fall into two broad categories:
operating costs and capital expenditures. The operating costs
include costs relating to the purchase and delivery of potable and
recycled water, and the transportation and treatment of sewage.
The capital expenditures support the construction of
infrastructure necessary to deliver services. The District uses
various funds to support the operating and capital efforts.
Operations and maintenance is financed only by rates and charges,
also called pay-as-you-go, while capital infrastructure is
financed using two financing methods: pay-as-you-go and debt
issuance (requiring annual debt service). The Capital Improvement
Program (CIP) and the two funding methods support the
construction, betterment, and replacement of infrastructure in all
three business areas: potable, recycled, and sewer.
The District establishes different funds to track revenues
allocated to different activities. Once established, each fund
receives financial resources up to the levels defined in this
policy. Every year, as a part of the annual budget process, the
District’s rate model is updated for each fund with the current
fund balances and the estimated revenues and expenditures for the
next six years. The expenditure requirements and financial
resources are then evaluated to ensure that the existing fund
balances and additional revenues are sufficient within the current
budget cycle and for the next five years to maintain target fund
levels. If a deficit is identified, then options for transfers,
shifting CIP projects, debt, cost saving measures, and/or rate
increases are evaluated.
1.2 The District’s Capital Improvement Program (CIP)
The planning, design, and construction costs of all capital
facilities within the three business segments are allocated to
four cost types and corresponding fund categories: New Water
Supply, Expansion, Replacement, and/or Betterment. The allocation
to these four cost types is defined in the District’s Capital
Improvement Program (CIP) and is determined by an engineering
analysis that identifies which type of customer will benefit from
each facility, planned or existing. The costs of the capital
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improvements are borne by either existing users or by the
developing areas, or by a combination of the two, as applicable.
This Reserve Policy protects both the existing users and the
developing areas from incurring unwarranted costs. Developing
areas are not required to finance facilities that are replacement
or betterment and established areas are not required to replace
facilities before they are worn out because of new development.
However, to ensure a fair allocation of costs, each facility has
the potential to be classified into any or all of the four cost
types. In addition to these cost types there are occasional CIPs
that may be billable to a third party, if for example a third
party requires a District facility be relocated. Paragraphs a
through d below, describe how the costs of capital facilities are
financed through various fees.
a. New Water Supply
The portion of a new supply project that benefits new users
is financed from the reserves in the New Water Supply Fund
category. These reserves are primarily derived from proceeds
of the new water supply fee. The New Water Supply Fund is
restricted, meaning the amounts credited to this fund are
accounted for separately and are used solely for the
planning, design, and construction of the new water supply
expansion facilities. Debt financing may also be a temporary
financial resource to finance new water supply projects. The
District has a Debt Policy (Policy No. 45) that guides the
debt issuance process. Any debt proceeds used for this
purpose would be restricted in nature and tracked separately.
General use reserves may also be placed in the Designated New
Water Supply Fund and used for water supply projects.
b. Expansion
The portion of a CIP project that benefits new users is
financed from the reserves in the Expansion Fund category.
These reserves are primarily derived from proceeds of the
“incremental” portion of the capacity fees collected within
developing areas. Capacity fees are accounted for separately
and used for the planning, design, and construction of
expansion facilities. Additionally, expansion may be
financed by annexation fees or the “buy-in” portion of the
capacity fee. Both of these fees are restricted for CIP
purposes, but not specifically for expansion. Debt financing
may also be a temporary financial resource for expansion
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projects. General use reserves may also be placed in the
Designated Expansion Fund and used for expansion projects.
c. Replacement
The portion of a CIP project that benefits existing users by
replacing an existing facility is financed from the reserves
in the Replacement Fund category. Replacement of facilities
may be financed with proceeds of annexation fees, the “buy-
in” portion of the capacity fees, general use reserves held
in the Designated Replacement Fund and debt proceeds. The
various funding sources available for replacement projects is
anticipated to provide the necessary flexibility to begin
projects while any necessary debt financing is being
obtained.
d. Betterment
Facilities that improve reliability, meet new regulations, or
create increased levels of service are considered betterment
facilities that benefit existing users. The reserves in the
Better Fund category are used to finance these projects or
portions of projects. Certain user rates, charges, and
betterment fees are restricted geographically for betterment
of facilities, but may also be used for general maintenance
of facilities in that area. Proceeds of the annexation fee
and the “buy-in” portion of the capacity fees may also be
used to finance betterment projects. General use reserves
may be placed in the Designated Betterment Fund and used for
betterment projects.
1.21 Relocations
Occasionally, relocation of a District facility is required by a
third party. If the District has a superior easement the
relocation cost will be paid by the third party, but only to the
extent that the District does not benefit from the relocation.
When relocation is required, a CIP project may be created which is
wholly or partially financed by a third party. On occasion, the
District will require that its own facilities be relocated.
Depending on the nature of the facilities, the financial resources
for these projects could be from new water supply, expansion,
replacement, betterment or third party financing. Each project is
individually negotiated with the third party based on the facts
and circumstances of the relocation. Occasionally, the District
will improve the facilities that are being relocated. When
determining how to allocate costs to various funds the following
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guideline is suggested: if a project has more than five years of
useful life remaining, an incremental cost view should be
considered; if the project has less than five years of useful life
remaining, a pro-rata cost approach should be considered. Also,
the likelihood the District will benefit from an asset’s life
extension should be evaluated prior to allocating costs.
1.22 Oversizing
If deemed reasonable by the District, in connection with the
construction of backbone facilities, a developer may be required
to oversize new facilities for future development. The developer
is reimbursed for incremental oversizing costs as per Policy
No. 26. These reimbursements are not available for the
distribution system within a development which is an obligation
of the developer.
1.23 Exclusion of Developed Areas from Expansion Costs
Developed areas are assumed to have sufficient supply and capacity
to meet their current requirements as provided by the developers.
In addition, they are considered to have borne capital financial
costs that are at least proportionate to the benefits they have
received from capital facilities. Accordingly, no regional
capital financing costs are allocated to these areas so that they
will not incur any costs for newly developing areas, except for
capital projects that produce district-wide benefit or cost
savings.
1.24 Improvement Districts (IDs)
Improvement Districts (IDs) are established to facilitate the
financing of particular improvements by the specific
beneficiaries. The District has a number of improvement districts
that were established for General Obligation (GO) debt repayment.
Most GO debt has been paid off and it is unlikely that the
District will issue additional GO debt. Improvement districts
continue to be used for other purposes: 1) to distinguish sewer
customers from water customers on the county tax roll; 2) to place
parcels on the county tax roll for the collection of availability
fees; or 3) for charging special water rates.
Over the years, the District moved to a district-wide perspective
of financing improvements. This philosophy is evident by the
district-wide capacity and annexation fees. The District also
uses district-wide water rates. As time goes on, it is expected
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that IDs will continue to outgrow their purpose and their use will
diminish.
1.3 The Purpose of the Policy
Public entities accumulate and maintain reserves to ensure both
financial stability and continuous availability of services.
Financial stability and the resulting improved credit quality
allow the public entity to weather times of uncertainty and the
impact of negative events, both major and minor. Reserves allow
for the ongoing maintenance of property and timely payment of
expenses even when such expenses exceed money available from a
single fiscal period. In the final analysis, the type and level
of reserves are driven by the type and magnitude of uncertainty
faced by the public entity.
A “reserve” has a number of meanings, as follows:
Working capital is required to insure timely payment of
obligations.
A buffer against volatility in revenues.
Liquidity is required to obtain other goods and services
(e.g., bank services).
Designated money to protect creditors.
Money set aside to replace assets at the end of their useful
lives.
Money set aside to repair or replace assets damaged or
destroyed at unanticipated times.
It is important to note that reserves, fund balance, and net
assets are not the same. Fund balance and net assets are
accounting terms and may not always be in the form of cash or
liquid investments. Fund balances and net assets may not always
be reserves unless a designation of all or a portion of fund
balance is made. In addition, the term fund balance was replaced
by net assets as codified by the Governmental Accounting Standards
Board (GASB).
In short, reserves are the liquid assets of the District,
accumulated and maintained for application to finance contingent
future activities, whether known or unanticipated, operating or
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capital in nature. The District’s Reserve Policy governs the
management and use of these financial resources. Few policies
have a more significant impact on the financial health and
stability of the District. This policy explains several key
financial concepts used by the District and provides some
background information to the overall strategies and practices
utilized. The District has a fiduciary obligation to its
customers, to manage and direct the use of public funds for the
purpose of providing water and sewer services in an efficient and
financially sound manner.
1.4 Policy Guidelines
In 2000, the Little Hoover Commission reviewed the levels of
reserve funds for special districts in California and prepared a
report reflecting that special districts were accumulating
unreasonable levels of funds. As a proactive response, the
California Special Districts Association (CSDA) prepared Reserve
Guidelines for its members. The Reserve Guidelines were
significant in noting that reserve levels need to be in context of
the organization’s overall business model and capital improvement
plan.
There are a number of potential events which the District should
consider in the development of reserves:
Economic Uncertainty - performance of the regional economy
and the impact of that performance on demand for water.
Weather - the amount of rainfall and the impact of weather on
the availability and the cost of water as well as the demand
for water.
Government Mandates - the impact of federal and state
regulation, particularly environmental regulation.
Tax Changes - limitations on the District’s taxing and
spending powers through the passage of a voter referendum,
the impound of District property taxes or the removal of the
District’s power to levy property taxes, further increases to
Educational Revenue Augmentation Fund (ERAF) contributions or
changes in calculation methodology.
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Operating Costs - increases in operating and maintenance
costs because of inflation, labor agreement or other
modification.
Force Majeure - unanticipated expenditures resulting from
natural disasters or intentional acts.
Emergency Maintenance - unanticipated expenditures resulting
from unexpected failure of assets (e.g., rupture in the
primary transmission system).
Unexpected Variation in Cash Flow - the incidence of
additional costs or decreased revenues that require short-
term borrowing in the absence of sufficient financial
resources.
The California State Auditor has, in its oversight role, offered a
number of quality recommendations for the development of reserve
policies as outlined in its report entitled, “California’s
Independent Water Districts: Reserve Amounts Are Not Always
Sufficiently Justified, and Some Expenses and Contract Decisions
Are Questionable,” dated June 2004, Report No. 2003-137. All of
these recommendations have been incorporated into this policy in
an effort to address key issues surrounding the management and use
of District reserves. The detailed objectives as identified by
the State Auditor are as follows:
Distinguish between restricted and unrestricted reserves.
Establish distinct purposes for all reserves.
Set target levels, including minimums and maximums, for the
accumulation of reserves.
Identify the events or conditions that prompt the use of
reserves.
Conform to plans to acquire or build capital assets.
Receive Board approval and that it is in writing.
Require periodic review of reserve balances and rationale for
maintaining them.
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Yet, the State Auditor’s report acknowledges that the California
Constitution (Article XIII B, Section 5) is vague in its
provisions governing the accumulation and use of reserves.1
1 California State Auditor, Bureau of State Audits, “California’s Independent Water Districts: Reserve Amounts Are
Not Always Sufficiently Justified, and Some Expenses and Contract Decisions Are Questionable,” dated June 2004,
2003-137; p. 8.
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Specifically, the Constitution states that “each entity of the
government can establish contingency, emergency, unemployment,
reserve, sinking fund…or similar funds as it shall deem reasonable
and proper.”2 Similarly, the State’s Water Code does not impose
any requirements as to specific or recommended reserve fund
levels. As a result, the public finance community as a whole has
yet to settle on any real objective standards for the level of
reserve funds appropriate for governmental enterprises. This lack
of consensus as to specific standards is indicative of the wide
variance of the financial and operations context for different
districts and different contingencies justifying reserves.
The Government Finance Officers Association (GFOA) in its
“Recommended Practice on Appropriate Level of Unreserved Fund
Balance in the General Fund” (2002) states that in
establishing a policy governing the level of unreserved fund
balance in the general fund, a government should consider a
variety of factors. These include:
The predictability of its revenues and the volatility of
its expenditures (i.e., higher levels of the unreserved
fund balances may be needed if significant revenue
sources are subject to unpredictable fluctuations or if
operating expenditures are highly volatile).
The availability of resources in other funds as well as
the potential drain upon general fund resources from
other funds (i.e., the availability of resources in
other funds may reduce the amount of the unreserved fund
balance needed in the general fund, just as deficits in
other funds may require that a higher level of
unreserved fund balance be maintained in the general
fund).
Liquidity (i.e., a disparity between when financial
resources actually become available to make payments and
the average maturity of related liabilities may require
that a higher level of resources be maintained).
Designations (i.e., governments may wish to maintain
higher levels of the unreserved fund balance to
2 California Constitution, Article XIII B, Section 5.
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compensate for any portion of unreserved fund balance
already designated for a specific purpose).
In the preparation of this policy, each of the CSDA guidelines and
the GFOA recommendations has been considered. In addition, all
seven objectives provided by the State Auditor are specifically
addressed for each reserve. The District wholly supports the
State Auditor’s efforts to bring a high-level of quality to
reserve governance and establishing a standard of performance.
The District recognizes that the customer pays for services
provided. Quality management requires that periodic valuations be
performed so that fees and charges can be set at appropriate
levels to recover the cost of service. The District’s Reserve
Policy has been drafted with consideration of the GFOA, CSDA, and
State Auditor’s general guidelines as provided above. In
addition, the District has adopted the following principles in the
management of its financial resources:
Reserves are held and used only for the purpose for which
they are collected. This is done to maintain equity among
customers.
Each of the service types is tracked separately so that
expenditures and revenues can be monitored and evaluated for
each customer type. This provides the District with the
necessary information to appropriately charge for each of the
services.
Separation of operations and maintenance from capital
expenditures occurs within each of the service types. This
is done because the financing of these expenditures is often
on different timelines or use different reserves.
The District will hold its reserves at responsible and
prudent levels. This policy sets minimum, maximum, and
target levels for each of the various funds. This has been
done so that the District can maintain reserves to meet the
purpose for which the funds were established. The levels are
set by reference to line items in the District’s financial
statements and approved budgets. This allows reserve levels
to adjust to the District’s changing financial circumstances.
Debt financing of facilities provides intergenerational
equity and maintains rates at reasonable levels. This equity
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is accomplished with long-term financing which spreads the
cost of facilities over the life of the facilities. The
burden to pay for facilities is then paid by those who use
them. The District could amass significant reserves by pre-
collecting financial resources in a Replacement Reserve Fund
allowing the District to cash finance all replacements.
However, this would require significant rate increases
burdening the current customers and creating reserve levels
difficult to defend to the ratepayers or other oversight
entities.
These concepts are fundamental to the way the District manages its
funds and have a direct impact on the way rates and charges are
set. The District performs annual budget evaluations and updates
its rate model on an annual basis to monitor and adjust the
various funds and revenue sources. The separation, tracking, and
projecting of the various funds and expenditures create the
essential information necessary for the equitable rate structure
maintained by the District. The annual review preserves the
balance between services provided and the fees charged. This
review also insures that reserves will be available to continue to
serve the District’s customers.
Financial Sources
2.0 Developers
a. Meter Installation Charges (General Use)
Meter fees are charges collected for new water service
connections. Fees vary depending upon meter size and type of
service. The costs associated with meter installations are
included in the Operating Expenses section of the budget.
These charges are financed by developers.
b. Developer Deposits (General Use)
These deposits are for the engineering and operations
services provided to developers. They are tracked separately
for each developer and any excess amount is returned to the
developer.
c. Annexation Fees (Restricted)
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Annexation fees3 are collected as a condition of annexing
into the District’s potable and recycled water facilities.
Since the existing facilities have been built and maintained
by developers or customers within the District, the
annexation fee is calculated based on the present value of
all property taxes (1% property tax and availability fees)
paid by existing and prior customers. The annexation fee
insures that future users finance a portion of facilities
that were sized, built, and maintained for both existing and
future users. Proceeds of annexation fees are restricted and
can be used for expansion, replacement, or betterment
projects. These reserves may be shifted back and forth as
financing needs change.
d. Annexation Fees (Unrestricted)
A sewer annexation fee is collected when property is annexed
into an improvement district. This fee is calculated using
the “buy-in” basis and therefore is unrestricted.
e. New Water Supply Fee (Restricted)
New water supply fees4 are based on the cost of the expansion
portion of new water supply projects divided by the number of
future equivalent dwelling units (EDU). The new water supply
fee covers the cost of planning, design, construction, and
financing associated with facilities for the District’s new
supply needs. These fees are paid by developers. The
proceeds of this fee may be used only for new potable or
recycled water supply projects. Although the fees collected
are not restricted separately, one portion for potable and
the other for recycled, they are tracked separately.
f. Capacity Fees (Restricted)
Capacity fees4 are based on the value of existing and future
facilities divided by the number of existing and future
equivalent dwelling units. This method of calculating
capacity fees is called the combined method, where the “buy-
in” portion of the capacity fee covers costs to repay
existing customers for the facilities that they have built,
and where the “incremental” portion of the capacity fee
covers the cost of future expansion facilities. The “buy-in”
3 Code of Ordinances, Section 9. 4 Code of Ordinances, Section 28
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portion of the capacity fee is restricted to pay for
planning, design, construction, and financing associated with
expansion, replacement or betterment facilities. The “buy-
in” portion may be shifted back and forth between expansion,
betterment or replacement as the financing needs change. The
“incremental” portion of the capacity fee is limited to
planning, design, construction, and financing exclusively for
expansion facilities (excluding new water supply expansion).
Facility needs are based on projected land use planning. Changes
in anticipated future land use occur and can alter projected
facility requirements. Thus, both the anticipated facilities
needs and their projected costs change over time as regulatory
agencies make changes to land use. The District periodically
reviews the capacity fee calculation to accommodate such
variations. These fees are paid by developers.
The District’s construction of infrastructure occurs prior to the
addition of EDUs. This sequence serves two purposes: one it
ensures that the District can serve the pending construction as it
is completed; and two, it is more efficient to oversize many
facilities at the outset rather than build for the current need
and then reconstruct when the future need is realized. As a
result of this strategy, the District has financed construction
with bond financing as the existing expansion reserves are
depleted.
The capacity fee is calculated based on the combined recycled and
potable water systems needs. This methodology is used because the
two water systems work hand-in-hand. All capacity fees can be
used for either potable or recycled but must be tracked to
distinguish between the “buy-in” and “incremental” portions as
described above. So, while capacity fees are not restricted
separately by potable and recycled, they are tracked separately.
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2.1 Customers/Users
a. Uniform Rates and Charges (General Use)
Charges to users for water, sewer, and recycled water are
uniform throughout the District for similar customer types.
b. Monthly System Fees (General Use)
This is a fixed revenue source that is charged monthly. The
amount of the charge is based on the meter size.
c. Energy Charges (General Use)
The energy pumping fee is a charge per unit of water for each
100 feet of lift, or fraction thereof, above the base
elevation of 450 feet. This charge is placed on the monthly
water bills of all water customers.
d. Penalties (General Use)
Penalties are added to the monthly water and sewer bills for
late charges, locks, etc.
e. Pass-through Fixed Charges (General Use)
A fixed monthly charge to the District’s customers intended
to collect sufficient funds to pass-through the increased
DEVELOPERS
Diagram 2.0: Flow of Funds - Developer Sources
Unrestricted and
Undesignated
(General Use) Funds
Meter
Installation
Charges
Developer
Deposits
Restricted Funds
Annexation
Fees
Capacity
Fees
New Water
Supply Fees
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fixed costs from the County Water Authority (CWA) and the
Metropolitan Water District (MWD).
f. Special Rates and Charges (Restricted)
In addition to the uniform water charges, the District
currently has five special water rates and one sewer rate.
The five water rates are for construction, installation, and
maintenance of water storage reservoirs, pump stations, and
water lines. Each of these rates and charges must be used
within the respective geographic areas from which they are
collected. These special charges are listed below:
North District water charge (Code section 25.03G)
ID 9 water charge (Code section 25.03H)
ID 3 water charge (Code section 25.03I)
ID 10 water charge (Code section 25.03I)
La Presa water charge (Code section 25.03I)
Russell Square sewer charge (Code section 53.04C)
When these rates were established they were for the specific
purpose of constructing, installing, and maintaining the
water and sewer systems in the areas in which the fees were
collected. Therefore, these are restricted reserves by
geographic area as well as by purpose. These rates and
charges can also be used for maintenance; unlike the
availability fees (discussed in 2.2 B.). These six special
rates and charges along with availability fees are tracked
separately, by geographic area, so they can be individually
evaluated to maintain the targeted reserve levels. To meet
this need, each special rate and charge is accounted for in a
“sub-fund” of the Betterment Fund.
g. Temporary Meter Fees (General Use/Restricted)
Water charges, in lieu of capacity fees, are charged on
temporary meters. This is done because temporary meters use
system capacity but they are not charged a capacity fee.
Temporary water use is charged at two times the water rate
with the added charge placed in the Restricted Expansion
Fund. The primary users of these temporary meters are
developers; however, general customers also use these for
various purposes.
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2.2 County-Collected Taxes and Fees
a. General Levy Property Tax Receipts (1% Property Tax)
(General Use)
In 1978, Proposition 13 limited the levy of ad valorem
property taxes on real property to one percent of the
assessed value of such property. Subsequent legislation,
AB 8, established that the receipts from the one percent levy
were to be distributed to taxing agencies proportionate to
each agency’s general levy receipts prior to Proposition 13.
Taxes received are for general use.
b. Availability Charges (General Use/Restricted)
The District levies availability charges each year in
developed and undeveloped areas. Current legislation
provides that any amount up to $10 per parcel is general use
and any amount over $10 per parcel is restricted to be
expended in and for the improvement district (ID) within
which it is collected. Accordingly, the District may use
availability charges in excess of $10 toward costs of water
CUSTOMERS / USERS
Diagram 2.1: Flow of Funds - Customer Sources
Unrestricted and
Undesignated
(General Use) Funds
Monthly
System Fees
Restricted Funds
Energy
Charges
Penalties
Pass –Through
Fixed Charges 2x Water
Rate
Special Rates
and Charges
Uniform Rates
and Charges
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and sewer facilities which are either, expansion, betterment,
or replacement of facilities consistent with the purpose of
the ID in which they are collected. This portion of the
proceeds of availability charges is geographically restricted
and restricted by purpose. As costs are incurred on these
projects the respective IDs are charged, reducing the
reserves. To the extent that availability charges are not
used for the purpose for which they are collected, they must
be returned to the property owners that paid them. The
District has historically used these reserves for betterment
capital facilities thus, the restricted reserves are
accounted for in “sub-funds” of the Betterment Fund
(see 2.1 f.).
c. State Loan Assessment (Restricted)
The District assesses a charge per unit of sewer service each
year on the sewer customers. This is collected via the
county tax roll and is specifically collected for the
repayment of the state loan. When this loan is paid off the
charge will be removed.
d. c. Improvement District General Obligation (GO) Bond
Assessments (Restricted)
The District has historically issued general obligation (GO)
debt and establishes an improvement district for the
repayment of that debt. When this financing method is used,
the county tax roll can be used to collect special taxes or
assessments within the ID to pay the debt obligation. The
proceeds of the debt are restricted for the purpose as
defined in the bond documents.
Formatted: Indent: Left: 0.5", Hanging: 0.5", No bullets or numbering
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COUNTY COLLECTED TAXES AND FEES
Unrestricted and
Undesignated
(General Use)
Funds
General Levy
Property Tax
Receipts
Availability
Charges
Restricted Funds
State Loan
Assessments
General Obligation
Bond Assessments
Diagram 2.2: Flow of Funds – County Collection Sources
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2.3 Miscellaneous Income
a. Miscellaneous Rents and Leases (General Use)
Revenues received from the rental and lease of District
property are general use revenues. Not only are they
periodic revenues, but there is also a one-time fee charged
with the setup of each new lease. The District incurs
expenses related to these rents and leases. The one-time
fees are calculated to recover the costs to setup the leases.
b. Sewer Billing Fees (General Use)
Sewer billing fees are general use revenues. The District
provides processing and billing services to the City of Chula
Vista to bill and collect from their customers for sewer
service. These fees are to recover the cost the District
incurs to provide this service.
c. Interest Income or Expense Allocation (General Use,
Designated, and Restricted)
Interest income (expense) will be allocated every month based
upon each fund's month-ending balance. In this way, each
fund receives credit for interest earned by that fund and
each fund with a negative balance is charged for the use of
the other fund’s reserves.
MISCELLANEOUS INCOME
Unrestricted and
Undesignated
(General Use) Funds
Miscellaneous
Rents and Leases
Sewer Billing
Fees
Restricted Funds
Interest Income or
Expense Allocation
Diagram 2.3: Flow of Funds – Miscellaneous Income Sources
Designated Funds
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2.4 Debt Issuance
a. Loans (General/Restricted Use)
As the District determines that additional financing is
required for a particular purpose, the option of borrowing is
considered. The determination to borrow is made as a part of
the annual rate model update and is evaluated in accordance
with the Debt Policy before it is recommended to the Board
for action. As an option to bond indebtedness, loans are
available to satisfy short-term financing needs. These loans
may or may not be contractually restricted for a particular
purpose.
b. General Obligation (GO) Bonds (Restricted)
As the District becomes more developed it becomes less likely
that general obligation debt will be used as it requires a
vote of the public to be approved. Bond proceeds are
restricted for the construction of those facilities
identified in the GO bond issuance. Occasionally, specific
portions of bond proceeds may be allocated for the repayment
of the principal and interest, also called debt service, on
these bonds. As the District determines that additional
financing is required for a particular purpose, the option of
debt issuance is considered. The determination to issue debt
is made as a part of the annual rate model update and is
evaluated in accordance with the Debt Policy before it is
recommended to the Board for action.
c. Certificates of Participation (COPs) (Restricted)
General revenues of the District are pledged as security for
Certificates of Participation (COPs) indebtedness. If the
District determines that additional financing is required for
a particular purpose, the option of debt issuance is
considered. The determination to issue debt is made as a
part of the annual rate model update and is evaluated in
accordance with the Debt Policy before it is recommended to
the Board for action. This form of financing has become the
industry’s preferred form of financing as it does not require
a vote of the general public.
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DEBT PROCEEDS
Unrestricted and
Undesignated
(General Use) Funds
Loans General
Obligation Bonds
Restricted Funds
Certificates of
Participation
Diagram 2.4: Flow of Funds – Debt Issuance Sources
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2.5 Inter-fund Transfers
Each year in the budgeting process, future fund levels are
projected for the next six years. Based on these projections
transfers are recommended. Reserves may be transferred
between Unrestricted or Designated Funds and the General Fund
(see 4.0 “Funding Levels” and 4.1 “Fund Transfers”).
Reserves may not be transferred to or from any of the
restricted funds unless it is between two restricted funds
with a shared purpose.
Fund Types and Categories
3.0 General Funds
a. Purpose
The General Fund is neither restricted nor designated. The
District maintains one General Fund for each business segment
(water, sewer, and recycled). This fund holds the working
capital and emergency operating reserves. While the General
Fund has a short-term focus to finance the District’s annual
operations, it is supported by the six-year rate model. This
fund is primarily used to finance the operations of the
District; however, it can be used for any District purpose.
This fund can be used to supplement the District’s rates and
charges and be a temporary source of revenue to balance the
Operating Budget. This fund can also be used to avoid spikes
in the rates or significant and abrupt increases. It is an
industry practice to have a fund that can be used to
stabilize rates. This would only occur if there was a
temporary need for reserves that would smooth out a rate
spike or to ramp up what would otherwise be a dramatic rate
increase.
The General Fund also plays a role in the debt planning of
the District. This fund is viewed by the debt markets as a
commitment by the District to ensure financial stability of
the rates and charges of the District. The District is
anticipated to need a number of debt issuances over the years
and this fund will help the District not only to stabilize
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rate fluctuations but also to access low cost financing for
future projects.
b. Sources
Meter installation charges, temporary meter fees, uniform
rates and charges, monthly system fees, energy charges,
penalties, pass-through fixed charges, general levy property
tax receipts, availability charges, miscellaneous rents and
leases, sewer billing fees, interest income or expense
allocation, loans, and a portion of the temporary water
sales.
The sewer general fund receives sewer charges, penalties,
availability charges, sewer annexation fees (calculated on
the “buy-in” basis), and interest income or expense
allocation.
c. Funding Levels
I. Minimum Level – The minimum reserve level for each
business segment of the General Fund is three
months of operating budget expenses (evaluated
separately for each segment).
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II. Maximum Level – The maximum reserve level for the
General Fund is nine months of operating budget
expenses. In the event that this fund exceeds the
seven month level, the excess will be evaluated or
transferred to one or more of the designated funds.
III. Target Level – The target level of reserves is
three months of operating budget expenses. In the
event that the fund drops below the target level,
rate increases or fund transfers would be
considered.
3.1 Designated Other Post Employment Benefits (OPEB) Fund
a. Purpose
Designated Other Post Employment Benefits (OPEB) reserves are
“general use” reserves that have been set apart by Board
action to finance the medical benefits of qualified retirees
as outlined in the District’s benefits plan. This District
fund holds only a portion of the total OPEB reserves. The
other portion is held in a trust at CalPERS and is restricted
for the purpose of financing the OPEB liability. The two
portions are considered jointly when looking at target
reserve levels. Every two years, the fund is evaluated by an
actuary to update the annual financing requirements. Changes
in the actuarial valuation may result from changes in benefit
levels, employee population, health insurance costs, or
general market conditions. The reserves held by the District
are currently designated and may be placed into the CalPERS
trust to legally restrict the funds, removing the District’s
legal access to these reserves.
b. Sources
The OPEB liability may be financed by general use reserves
coming from user rates and charges, either from an operating
budget expenditure or from interfund transfers. Transfers of
unrestricted reserves may come from the various designated
funds or from the General Fund. As a part of the normal
budget process, annual operating revenues have been
sufficient to finance the ongoing needs of this designated
fund. While debt financing is also an option, the District
has only used user rates and charges to finance this fund.
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c. Funding Levels
I. Minimum Level – The minimum reserve level for this
fund is equal to the District’s OPEB liability as
determined by the actuarial study. When
considering the reserve level of this fund, both
the District held OPEB reserves and CalPERS held
OPEB reserves must be considered jointly.
II. Maximum Level – The maximum reserve level for this
fund is equal to the District’s OPEB liability as
determined by the actuarial study. In the event
that the two funds, as described above, exceed the
OPEB liability, the District will reduce the annual
funding levels as defined by the actuarial study.
III. Target Level – The target reserve level for this
fund is equal to the District’s OPEB liability as
determined by the actuarial study. In the event
that the two funds, as described above, fall below
the OPEB liability, the District will increase the
annual funding levels as defined by the actuarial
study.
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3.2 New Water Supply Fund Category
a. Purpose
The New Water Supply Fund category is to finance the
expansion portion of new water supply projects and is
therefore to be paid by developers. When considering the
reserve level of the New Water Supply category; the New Water
Supply Fund, the New Water Supply Debt Fund, and the
Designated New Water Supply Fund all work in concert and must
be considered jointly.
b. Sources
The New Water Supply Fund receives reserves only from the new
water supply fee. Other funds within the new water supply
category of funds receive debt proceeds and general use
reserves through a designation to this category.
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c. Funding Levels
I. Minimum Level – As the District matures the CIP
will move to purely replacement projects. As the
District moves through its lifecycle the need for
new water supply reserves will decrease and may be
reduced to zero.
II. Maximum Level – The maximum reserve level for the
new water supply category of funds is limited to
five years of the unfinanced new water supply
facilities as described in the District’s CIP
Budget. To determine the unfinanced amount, the
total new water supply financing needs must be
reduced by the projected new water supply revenues,
general fund designations, and bond financing. If
the combined new water supply reserves exceed the
target level, the District should consider
transferring designated reserves to meet other
purposes, reduce the new water supply fee, or
change the timing of the new water supply projects.
III. Target Level – In order to facilitate debt
financing of the new water supply, it is important
that the various new water supply funds retain an
overall reserve level of six months, prior to any
attempt to obtain debt financing. This reserve
level allows the District the time necessary to
issue additional debt without depleting new water
supply reserves. If the combined new water supply
reserve levels drop below six months of
expenditures, this would trigger a transfer of
general use reserves, a bond sale, or a change in
the timing of new water supply projects. Bond
proceeds would be placed in the Restricted New
Water Supply Debt Fund while transfers would be
placed in the Designated New Water Supply Fund.
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Restricted Funds
Unrestricted and
Undesignated Funding
Sources
Funding Source New Water
Supply Fees
Debt
Proceeds
Restricted Funds
Restricted Funds
Designated Funds
New Water
Supply Fund
Expansion
New Water
Supply Fund
Designated
New Water
Supply Fund
Debt Fund
General Fund – Rates and Charges
New Water
Supply Fund
Category
New Water
Supply
Debt Fund
Diagram 3.2: New Water Supply Fund Category
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3.3 Expansion Fund Category
a. Purpose
The Expansion Fund category is to finance the expansion
portion of capital projects and therefore is to be paid for
by developers. When considering the reserve levels of the
expansion category, the following funds work in concert and
must be considered jointly: the Expansion Fund, Expansion
Debt Fund, Annexation Fund (potable and recycled only),
Capital Improvement Fund, and the Designated Expansion Fund.
Potable and recycled reserves are considered jointly while
sewer is evaluated separately.
b. Sources
The Expansion Fund is financed by water charges in lieu of
capacity fees (for temporary meters) and the “incremental”
portion of the capacity fee. The other funds in this
category may also be financed by debt proceeds, annexation
fees, the “buy-in” portion of the capacity fee, and the
general fund through a designation of reserves.
c. Funding Levels
I. Minimum Level – As the District matures the CIP
will move to purely replacement and betterment
projects. As the District moves through this
lifecycle the need for expansion reserves will
decrease and may be reduced to zero.
II. Maximum Level – The maximum reserve level for the
expansion category of funds is limited to five
years of unfinanced expansion facilities as
described in the District’s CIP Budget. To
determine the unfinanced amount, the total
financing needs must be reduced by the projected
expansion revenues, bond financing, and any
restricted or general fund revenues allocated to
this fund category. If the combined expansion
reserves exceed target levels, the District should
consider reducing capacity fees, reallocating
Formatted: Font: 10 pt
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restricted or designated funds to meet other
purposes, or shifting the timing of expansion
projects.
III. Target Level – The target level is six months of
expansion expenditures. It is important that the
expansion reserves remain at a minimum of six
months of expansion expenditures. This reserve
level allows the District the time necessary to
issue additional debt without depleting expansion
reserves. If the combined expansion reserves drop
below six months of expenditures this would trigger
a transfer of general use reserves, a bond sale, an
adjustment to the timing of expansion projects, or
a reallocation of restricted reserves. Bond
proceeds would be placed in the Restricted Bond
Fund, transfers of general use reserves would be
placed in the Designated Expansion Fund, and
transfers of restricted reserves would be placed in
either the Expansion Annexation Fund or the
Expansion Capital Improvement Fund.
OTAY WATER DISTRICT
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Unrestricted and
Undesignated Funding
Sources
Diagram 3.3: Expansion Fund Category
Funding Source 2x Water
Rates
Capacity
Fees
Restricted Funds
Restricted Funds
Designated Funds
Expansion
Fund
Expansion
Debt Fund
Annexation
Fund
General Fund – Rates and Charges
Annexation
Fees
Restricted Funds Expansion Capital
Improvement
Fund
Debt
Proceeds
Restricted Funds
Capital
Improvement
Fund
Bond
Debt
Expansion
Fund
Designated
Expansion
Fund
59.4%
Expansion
Fund
Category
Restricted Funds Expansion
Annexation Fund
40.6%
%%%
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3.4 Replacement Fund Category
a. Purpose
The Replacement Fund category is to finance replacement
projects. When considering the reserve levels of the
replacement category of funds, the following funds work
in concert and must be considered jointly: the
Annexation Fund, Debt Fund, Capital Improvement Fund,
and the Designated Replacement Fund. The purpose of
these reserves is to pay for the replacement of capital
infrastructure and capital purchases. These reserves
are not to be used for the replacement of non-capital
items.
With the District’s development of its financial systems
and the greater need and ability to separate and track
reserves, the replacement reserves have been separated
into three funds: water, recycled, and sewer.
Projects undertaken solely for the purpose of replacing
major capital equipment or facilities, i.e., where the
cost exceeds $10,000 for capital purchases or $20,000
for infrastructure items, generally these are not
considered normal maintenance. When the cost is below
$10,000, the costs are financed annually as operational
maintenance. As charges are incurred on replacement
projects the reserves are deducted from the respective
Replacement Funds on a monthly basis.
b. Sources
The various funds in this category are financed by debt
proceeds, annexation fees, the “buy-in” portion of the
capacity fee, and general fund designations.
c. Funding Levels
I. Minimum Level – The minimum reserve level of this
category of funds is 3% of the historical value of
existing assets as identified in the District’s
current financial statements. Potable, recycled,
and sewer replacement are evaluated separately.
II. Maximum Level – The maximum reserve level of this
category of funds is 6% of existing assets. If the
OTAY WATER DISTRICT
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combined replacement reserves exceed target levels,
the District should consider transferring
annexation fees or the “buy-in” portion of the
capacity fee to meet other purposes. Another
consideration would be to shift the timing of
replacement projects.
III. Target Level – The target reserve level of this
category of funds is 4% of existing assets. In the
event that the reserves fall below the recommended
target level, the District should consider
transferring annexation fees or the “buy-in”
portion of the capacity fee. The District should
also consider shifting the timing of replacement
projects or issuing debt to support the planned
level of facility replacement. The District will
act based on the annual six-year rate model, to
insure that at the end of that planning horizon the
reserves exceed the minimum level and is
approaching the target level.
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Funding Source
Unrestricted and
Undesignated Funding
Sources
Capacity
Fees
Diagram 3.4: Replacement Fund Category
Annexation
Fees
Restricted Funds
Restricted Funds
Designated Funds
Capital
Improvement Fund
Replacement
Debt Fund
Designated
Replacement
Fund
Annexation Fund
General Fund – Rates and Charges
Debt
Proceeds
Restricted Funds
Debt Fund
Replacement
Annexation
Fund
Restricted Funds
Replacement
Capital
Improvement
Fund
59.4%
Replacement
Fund
Category
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3.5 Betterment Fund Category
a. Purpose
The Betterment Fund category is to finance the
betterment portion of capital projects with a portion
going to maintenance of the potable, recycled, and sewer
systems. The District maintains separate Betterment
Fund categories, one for each improvement district. An
improvement district is a legally defined geographic
area usually established for the purpose of bond
financing of facilities. The betterment reserves within
these funds are restricted by law for use within the
improvement district in which the fees were collected
(Water Code 71631.6). However, the legal restriction of
this reserve depends upon the particular revenue source.
(See Section 2.1 f. for a review of the special rates
and availability fees).
When considering the reserve levels of the betterment
category of funds, the following funds work in concert
and must be considered jointly: the Betterment Fund,
Annexation Fund, Debt Fund, Capital Improvement Fund,
and Designated Betterment Fund.
b. Sources
The Betterment Fund category receives restricted
revenues by improvement district via special water rates
and from availability fees collected through the county
tax roll. Betterment may also be financed by debt
proceeds, annexation fees, the “buy-in” portion of the
capacity fee, as well as the general fund through a
designation of reserves.
c. Funding Levels
I. Minimum Level – As the District matures the CIP
will move to purely replacement projects. As the
District moves through this lifecycle the need for
betterment reserves will decrease and may be
reduced to zero.
II. Maximum Level – The maximum reserve level for the
betterment category of funds is limited to five
years of unfinanced betterment facilities as
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described in the District’s CIP Budget. To
determine the unfinanced amount, the total
financing need must be reduced by the projected
betterment revenues, bond financing, annexation,
and general fund designations. If this maximum is
exceeded, then the District should evaluate
reductions in the special water rates and
availability fees, transferring designated reserves
to meet other purposes, or shifting the timing of
betterment projects.
III. Target Level – The target is six months of
betterment expenditures. It is important that the
betterment reserves remain at a minimum of six
months of betterment expenditures. This reserve
level allows the District the time necessary to
issue additional debt without depleting betterment
reserves. If the combined betterment reserves drop
below six months of expenditures this would trigger
a transfer of general use reserves, a bond sale, or
an adjustment to the timing of betterment projects.
Bond proceeds would be placed in the Betterment
Bond Fund while transfers would be placed in the
Designated Betterment Fund.
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Fund
Diagram 3.6: Fund Targets
Restricted Funds
Unrestricted and
Undesignated Funding
Sources
Diagram 3.5: Betterment Fund Category
Funding Source Capacity
Fees
Annexation
Fees
Restricted Funds
Restricted Funds
Designated Funds
Capital
Improvement
Fund
Betterment
Debt Fund
Betterment
Fund
General Fund – Rates and Charges
Special Rates
and Availability
Charges
Restricted Funds
Betterment
Annexation
Fund
Debt
Proceeds
Restricted Funds
Annexation
Fund
Bond
Debt
Designated
Betterment
Fund
Betterment
Fund
Betterment
Capital
Improvement
Fund
59.4%
Betterment
Fund
Category
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Diagram 3.6: Fund Targets
Fund or Fund
Category
Actions to Consider if
below Target Target Maximum
New Supply Fund
Category
New supply fee
increase, bond
financing, or transfer to
designation or to CIF or
Annexation Fund
Total of all funds in fund
category = six months
of capital expenditures
Nexus of cost to fee
Expansion Fund
Category
Capacity fee increase,
bond financing, or
transfer to designation
or to CIF or Annexation
Fund
Total of all funds in fund
category = six months
of capital expenditures
Nexus of cost to fee
Replacement Fund
Category
Bond financing, or
transfer to designation
or to CIF or Annexation
Fund
Total of all funds in fund
category = 4% of
infrastructure
Nexus of cost to fee
Betterment Fund
Category
Bond financing, or
transfer to designation
or to CIF or Annexation
Fund
Total of all funds in fund
category = six months
of capital expenditures
5 years unfunded needs
Debt Reserve Fund Increase tax collection
or rates
One semi-annual
payment
Two semi-annual
payments
OPEB Fund Fund transfers Full funding Full funding
General Fund Rate increase or fund
transfers
Three months of
operating budget
expenses
Nine months of
operating budget
expenses
Note: The annexation fee for sewer is a general fund revenue.
Additional Restricted Funds
4.0 Capital Improvement Fund
a. Purpose
The “Capital Improvement Fund’s sole purpose is to track the
“buy-in” portion of the capacity fee and to ensure these fees
are expended solely for the purpose for which they were
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collected. In this case it is to pay for facilities that
were in existence at the time this fee was established.
These fees may be used for expansion, replacement, or
betterment projects or any debt related to these categories.
These fees may also be used for either the potable or the
recycled systems. As capacity fees are collected, the “buy-
in” portion of the fee is allocated as needed to one of three
capital improvement funds, one in each of the Expansion,
Replacement, and Betterment Fund categories. These reserves
are used to pay debt or offset any negative balance within
these three categories of funds. These fees may not be used
to finance the New Water Supply category, as there were no
new water supply facilities in existence at the time the new
methodology for capacity fees was established.
b. Sources
The “buy-in” portion of the capacity fee collected after
June 30, 2010.
c. Funding Levels
There are no minimums, maximums, or target levels for these
reserves on an individual basis. The allocation of this fee
to the various capital improvement funds is dependent on the
overall reserve levels within each fund category.
4.1 Annexation Fund
a. Purpose
The Annexation Fund’s sole purpose is to track the potable
and recycled annexation fees collected and to ensure these
fees are expended solely for the purpose for which they were
collected. The annexation fees may be used for expansion,
replacement, or betterment projects or any debt related to
these categories. These fees may be used for either the
potable or recycled systems. These reserves may not be used
to finance the New Water Supply category, as it was not in
existence at the time the fee was established. As these fees
are collected they are allocated as needed to one of three
capital improvement funds, one in each of the Expansion,
Replacement, and Better Fund categories.
b. Sources
Potable and recycled annexation fees collected after
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June 30, 2010.
c. Uses
There are no minimums, maximums, or target levels for these
reserves on an individual basis. The allocation of this fee
to the various Annexation Funds is dependent on the overall
reserve levels within each fund category.
4.2 Debt Reserve Fund
a. Purpose
The Debt Reserve Fund is established to hold the proceeds
from the various debt issuances. There are two types of
debt, General Obligation bonds and Certificates of
Participation bonds. The proceeds are transferred to the New
Water Supply, Expansion, Replacement, or Betterment Debt
Funds as they are expended for various facilities within
those fund categories. As repayment of the debt occurs, the
balances within these individual funds are reduced so that
the financial impact of issuing debt is tracked within the
category for which the debt was issued.
b. Sources
Debt proceeds.
c. Uses
There are no minimums, maximums, or target levels for this
fund on an individual basis. This fund is available on an as
needed basis to fund CIP projects for new water supply,
expansion, replacement, or betterment. From a funding level
perspective, these reserves are evaluated in the context of
all the various funds within each fund category.
Fund Transfers
5.0 Funding Levels
As described in the preceding sections, the District maintains
reserves for its operating and capital activities. These reserves
can be of three types: 1) undesignated or general use reserves, 2)
designated, and 3) restricted for a specific purpose. The
restricted reserves can be restricted geographically and/or by
purpose. The District maintains various funds to track the
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various designations and restrictions. The source of the money
for each fund was discussed along with the purpose, source of
funds, and levels. Key characteristics of these funds are the
target levels, minimums, and maximums. The funding levels must be
viewed in the context of the economic environment, political
environment, and in light of the District’s rate model. The
District’s six-year rate model not only shows the current balance
but also shows the trend of the fund balances. Often the trend of
the fund is a greater indicator of financial stability than is the
current balance.
The rate model is updated each year with the budget process and
evaluates each fund over the next six years. The rate model will
take into account the general economic environment, looking at the
development rate, supply rate increases, the possibility of
raising rates, capital infrastructure spending, and strategic plan
initiatives. The fund balances may at times be over or under the
target amount. This is not only acceptable but expected. The
rate model provides an empirical estimate of the conformance
between the projected District’s financial activities and the
guidelines of this policy.
5.1 Fund Transfers
Reserves within the District’s various designated funds come from
interfund transfers of unrestricted general use reserves. It is
important to note that the District has the ability to use general
use reserves for any business purpose. General use reserves may
be transferred to and from any unrestricted fund for any business
need. Designated reserves are general use reserves which have
been set aside for a specific purpose by Board action. These
reserves can only be used for the purpose they were designated, or
with Board action they may be used for any other business purpose.
While general use reserves may be used for any restricted purpose
they may not be transferred to Restricted Funds due to the
sensitivity of the tracking of restricted reserves. If reserves
are needed for a restricted purpose they are transferred to a
Designated Fund within the fund category with that particular
purpose. Reserves restricted to a fund category may only be used
within that category and may not be transferred to another
category. For example, the new water supply fee and the
“incremental” portion of the capacity fee are restricted reserves
for a specific purpose, and may not be transferred to another
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category as no other category has the same purpose. However, the
“buy-in” portion of the capacity fees and annexation fees are
restricted for purposes that are shared by more than one category
of funds and may therefore be transferred to a restricted fund
within another fund category as long as it shares the same
purpose.
In many situations reserve transfers are expected as some fund
categories will exceed their maximums or drop below their
minimums. Only fund categories that are below the stated target
are eligible to receive transferred reserves. Fund categories
that exceed their maximums are first to be considered for
transfers out, followed by funds that exceed their targets. Funds
that exceed their minimums are also available for reserve
transfers out, but only when other options are not available.
The rationale for prioritizing reserve transfers is based on the
immediacy of the need and the availability of reserves from other
funding sources. For example, the General Fund is first to
receive reserves when it drops below its target or minimum levels.
This is because of the immediate and ongoing nature of the
expenditures that are served by this fund. The operation of the
District is first and foremost of the objectives of the District.
On the other end of the spectrum, the Replacement Fund has a long-
term perspective and will be used to partially finance replacement
assets for many years to come. Debt financing is available to
respond to this long term, foreseeable, and planned cash flow.
This fund is less likely to have immediate needs and has other
financing options.
When making the determination of when transfers are necessary, all
funds within a fund category work as a group. The combined
balance of the restricted and designated funds is looked at when
determining whether the fund category requires additional funding
from the Restricted Capital Improvement Fund, Restricted
Annexation Fund, Restricted Debt Fund, or the General Fund.
Because the Capital Improvement Fund and Annexation Fund may
finance expansion, replacement or betterment reserves may be
transferred between these fund categories, but only back and forth
within its own type of restricted fund.
As an example, if during the rate model update process it was
determined that the Expansion Funds (designated and restricted)
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would drop and stay below the minimum during the six-year planning
horizon, this would trigger a bond sale, a transfer of general use
reserves, and/or a transfer of restricted reserves. If in the
cash planning process, it was anticipated that the General Fund
would remain above target during the planning horizon and that the
trend did not present a problematic underfunded status, then
General Fund reserves would be considered available for transfer
prior to making proceeds available from a bond sale. Also, if
during this period the Betterment Fund category was anticipated to
exceed its maximum, then reserves from either the Designated
Betterment Fund, the Annexation Fund, or the Capital Improvement
Fund would be transferred to the corresponding Expansion Fund
prior to a bond sale. All funds are evaluated to determine which
has the greatest need or availability of reserves before any
reserve transfer recommendation is presented to the Board.
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GLOSSARY
The Reserve Policy contains terminology that is unique to public
finance and budgeting. The following glossary provides assistance
in understanding these terms.
Annexation Fees: When water service is requested for land outside
the boundaries of the District, the land to be serviced must first
be annexed. For sewer service the land must be annexed into an
improvement district within the District.
Assets: Resources owned or held by Otay Water District that has
monetary value.
Availability Fees: The District levies charges each year in
developed areas to be used for upgrades, betterment, or
replacement and in undeveloped areas to provide a source of
funding for planning, mapping, and preliminary design of
facilities to meet future development. Current legislation
provides that any availability charge in excess of $10.00 per acre
shall be used only for the purpose of the improvement district for
which it was assessed.
Betterment Fees: In addition to other applicable water rates and
charges, water customers pay a fee based on water service zone or
Improvement District. These fees are restricted for use in the
area where they are collected and may be used for the construction
and maintenance of facilities.
Bond: A written promise to pay a sum of money on a specific date
at a specified interest rate. The interest payments and the
repayment of the principal are authorized in a District bond
resolution. The most common types of bonds are General Obligation
(GO) bonds and Certificates of Participation (COPs). These are
frequently used for construction of large capital projects such as
buildings, reservoirs, pipelines and pump stations.
Capital Equipment: Fixed assets such as vehicles, marine
equipment, computers, furniture, technical instruments, etc. which
have a life expectancy of more than two years and a value over
$10,000.
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Capital Improvement Program: A long-range plan of the District
for the construction, rehabilitation and modernization of the
District-owned and operated infrastructure.
CWA: The County Water Authority was organized in 1944 under the
State County Water Authority Act for the primary purpose of
importing Colorado River water to augment the local water supplies
of the Authority's member agencies. The Authority purchases water
from the Metropolitan Water District of Southern California (MWD)
which imports water from the Colorado River and the State Water
Project.
Debt Service: The District's obligation to pay the principal and
interest of bonds and other debt instruments according to a
predetermined payment schedule.
Expenditures/Expenses: These terms refer to the outflow of funds
paid or to be paid for an asset, goods, or services obtained
regardless of when actually paid for. (Note: An encumbrance is
not an expenditure). An encumbrance reserves funds to be expended
in a future period.
Fund: An account used to track the collection and use of monies
for a specifically defined purpose.
Fund Balance: The current funds on hand resulting from the
historical collection and use of monies. The difference between
assets and liabilities reported in the District’s Operating Fund
plus residual equities or balances and changes therein, from the
results of operations.
Interest Income: Earnings from the investment portfolio. Per
District Policy Number 25, interest income will be allocated to
the various funds each month based upon each fund’s prior month-
ending balance.
Late Charges/Penalties: Charges and penalties are imposed on
customer accounts for late payments, returned checkspayments, and
related telephone contacts other infringements of the District’s
Code of Ordinances.
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1% Property Tax: In 1978, Proposition 13 limited general levy
property tax rates for all taxing authorities to a total rate of
1% of full cash value. Subsequent legislation, AB 8, established
that the receipts from the 1% levy were to be distributed to
taxing agencies according to approximately the same proportions
received prior to Proposition 13. Funds received are to be used
for facilities construction or debt service on bonds sold to build
facilities.
Operating Budget: The portion of the budget that pertains to
daily operations that provide basic governmental services. The
operating budget contains appropriations for such expenditures as
personnel, supplies, utilities, materials, travel and fuel, and
does not include purchases of major capital plant or equipment
which is budgeted for separately in the Capital Budget. The
Operating Budget also identifies planned non-operating revenues
and expenses.
Revenue: Monies that the District receives as income. It
includes such items as water sales and sewer fees. Estimated
revenues are those expected to be collected during the fiscal
year.
System Fees: Each water service customer pays a monthly system
charge for water system replacement, maintenance, and operation
expenses. The charge is based on the size of the meter and class
of service.
Taxes: California Water Code Section 72091 authorizes the
District, as a municipal water district, to levy ad valorem
property taxes which are equal to the amount required to make
annual payments for principal and interest on General Obligation
bonds approved by the voters prior to July 1, 1978.
Water Rates: Rates vary among classes of service and are measured
in units. The water rates for residential customers are based on
an accelerated block structure. As more units are consumed, a
higher unit rate is charged. Effective in 2009, all non-
residential customers are charged for water based on a tiered rate
structure in which water rates are based on meter size and amount
of units consumed. All non-residential customers are charged a
flat rate per unit. A unit of water is 100 cubic feet or 748
gallons of water.
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1.0 The District
The Otay Water District is a California municipal water district,
authorized in 1956 by the State Legislature under the provisions
of the Municipal Water District Act of 1911. The District is a
"revenue neutral" public agency; meaning each end user pays their
fair share of the District's costs of water acquisition,
construction of infrastructure, and the operation and maintenance
of the public water facilities.
The District provides water service within its boundaries, and
provides sewer and recycled water service within certain portions
of the District. As such, the District operates three distinct
business segments:
Potable water
Recycled water
Sewer
Each of these business segments has an identifiable customer base.
In addition, the developer community, large and small, makes up a
significant class of customer for each business segment. As a
result, the District has four distinct customer service types:
Developers
Potable water users
Recycled water users
Sewer users
The District has established practices and developed computer
systems that have enabled the District to maintain a clear
separation between the service costs relating to each of its four
customer service types. Regardless of customer class, financial
principles regarding cost allocation and fund accounting are
fundamental to the District’s Reserve Policy. These principles
are derived from the statements of the Governmental Accounting
Standards Board (GASB), and from oversight and advisory bodies
such as the California State Auditor, the Little Hoover
Commission, and the Government Finance Officers Association
(GFOA). These have significant impacts on how the finances of
the District are organized and how financial processes work within
the organization.
Exhibit II
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1.1 The District’s Use of Financial Resources
All of the District’s expenditures fall into two broad categories:
operating costs and capital expenditures. The operating costs
include costs relating to the purchase and delivery of potable and
recycled water, and the transportation and treatment of sewage.
The capital expenditures support the construction of
infrastructure necessary to deliver services. The District uses
various funds to support the operating and capital efforts.
Operations and maintenance is financed only by rates and charges,
also called pay-as-you-go, while capital infrastructure is
financed using two financing methods: pay-as-you-go and debt
issuance (requiring annual debt service). The Capital Improvement
Program (CIP) and the two funding methods support the
construction, betterment, and replacement of infrastructure in all
three business areas: potable, recycled, and sewer.
The District establishes different funds to track revenues
allocated to different activities. Once established, each fund
receives financial resources up to the levels defined in this
policy. Every year, as a part of the annual budget process, the
District’s rate model is updated for each fund with the current
fund balances and the estimated revenues and expenditures for the
next six years. The expenditure requirements and financial
resources are then evaluated to ensure that the existing fund
balances and additional revenues are sufficient within the current
budget cycle and for the next five years to maintain target fund
levels. If a deficit is identified, then options for transfers,
shifting CIP projects, debt, cost saving measures, and/or rate
increases are evaluated.
1.2 The District’s Capital Improvement Program (CIP)
The planning, design, and construction costs of all capital
facilities within the three business segments are allocated to
four cost types and corresponding fund categories: New Water
Supply, Expansion, Replacement, and/or Betterment. The allocation
to these four cost types is defined in the District’s Capital
Improvement Program (CIP) and is determined by an engineering
analysis that identifies which type of customer will benefit from
each facility, planned or existing. The costs of the capital
improvements are borne by either existing users or by the
developing areas, or by a combination of the two, as applicable.
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This Reserve Policy protects both the existing users and the
developing areas from incurring unwarranted costs. Developing
areas are not required to finance facilities that are replacement
or betterment and established areas are not required to replace
facilities before they are worn out because of new development.
However, to ensure a fair allocation of costs, each facility has
the potential to be classified into any or all of the four cost
types. In addition to these cost types there are occasional CIPs
that may be billable to a third party, if for example a third
party requires a District facility be relocated. Paragraphs a
through d below, describe how the costs of capital facilities are
financed through various fees.
a. New Water Supply
The portion of a new supply project that benefits new users
is financed from the reserves in the New Water Supply Fund
category. These reserves are primarily derived from proceeds
of the new water supply fee. The New Water Supply Fund is
restricted, meaning the amounts credited to this fund are
accounted for separately and are used solely for the
planning, design, and construction of the new water supply
expansion facilities. Debt financing may also be a temporary
financial resource to finance new water supply projects. The
District has a Debt Policy (Policy No. 45) that guides the
debt issuance process. Any debt proceeds used for this
purpose would be restricted in nature and tracked separately.
General use reserves may also be placed in the Designated New
Water Supply Fund and used for water supply projects.
b. Expansion
The portion of a CIP project that benefits new users is
financed from the reserves in the Expansion Fund category.
These reserves are primarily derived from proceeds of the
“incremental” portion of the capacity fees collected within
developing areas. Capacity fees are accounted for separately
and used for the planning, design, and construction of
expansion facilities. Additionally, expansion may be
financed by annexation fees or the “buy-in” portion of the
capacity fee. Both of these fees are restricted for CIP
purposes, but not specifically for expansion. Debt financing
may also be a temporary financial resource for expansion
projects. General use reserves may also be placed in the
Designated Expansion Fund and used for expansion projects.
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c. Replacement
The portion of a CIP project that benefits existing users by
replacing an existing facility is financed from the reserves
in the Replacement Fund category. Replacement of facilities
may be financed with proceeds of annexation fees, the “buy-
in” portion of the capacity fees, general use reserves held
in the Designated Replacement Fund and debt proceeds. The
various funding sources available for replacement projects is
anticipated to provide the necessary flexibility to begin
projects while any necessary debt financing is being
obtained.
d. Betterment
Facilities that improve reliability, meet new regulations, or
create increased levels of service are considered betterment
facilities that benefit existing users. The reserves in the
Better Fund category are used to finance these projects or
portions of projects. Certain user rates, charges, and
betterment fees are restricted geographically for betterment
of facilities, but may also be used for general maintenance
of facilities in that area. Proceeds of the annexation fee
and the “buy-in” portion of the capacity fees may also be
used to finance betterment projects. General use reserves
may be placed in the Designated Betterment Fund and used for
betterment projects.
1.21 Relocations
Occasionally, relocation of a District facility is required by a
third party. If the District has a superior easement the
relocation cost will be paid by the third party, but only to the
extent that the District does not benefit from the relocation.
When relocation is required, a CIP project may be created which is
wholly or partially financed by a third party. On occasion, the
District will require that its own facilities be relocated.
Depending on the nature of the facilities, the financial resources
for these projects could be from new water supply, expansion,
replacement, betterment or third party financing. Each project is
individually negotiated with the third party based on the facts
and circumstances of the relocation. Occasionally, the District
will improve the facilities that are being relocated. When
determining how to allocate costs to various funds the following
guideline is suggested: if a project has more than five years of
useful life remaining, an incremental cost view should be
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considered; if the project has less than five years of useful life
remaining, a pro-rata cost approach should be considered. Also,
the likelihood the District will benefit from an asset’s life
extension should be evaluated prior to allocating costs.
1.22 Oversizing
If deemed reasonable by the District, in connection with the
construction of backbone facilities, a developer may be required
to oversize new facilities for future development. The developer
is reimbursed for incremental oversizing costs as per Policy
No. 26. These reimbursements are not available for the
distribution system within a development which is an obligation
of the developer.
1.23 Exclusion of Developed Areas from Expansion Costs
Developed areas are assumed to have sufficient supply and capacity
to meet their current requirements as provided by the developers.
In addition, they are considered to have borne capital financial
costs that are at least proportionate to the benefits they have
received from capital facilities. Accordingly, no regional
capital financing costs are allocated to these areas so that they
will not incur any costs for newly developing areas, except for
capital projects that produce district-wide benefit or cost
savings.
1.24 Improvement Districts (IDs)
Improvement Districts (IDs) are established to facilitate the
financing of particular improvements by the specific
beneficiaries. The District has a number of improvement districts
that were established for General Obligation (GO) debt repayment.
Most GO debt has been paid off and it is unlikely that the
District will issue additional GO debt. Improvement districts
continue to be used for other purposes: 1) to distinguish sewer
customers from water customers on the county tax roll; 2) to place
parcels on the county tax roll for the collection of availability
fees; or 3) for charging special water rates.
Over the years, the District moved to a district-wide perspective
of financing improvements. This philosophy is evident by the
district-wide capacity and annexation fees. The District also
uses district-wide water rates. As time goes on, it is expected
that IDs will continue to outgrow their purpose and their use will
diminish.
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1.3 The Purpose of the Policy
Public entities accumulate and maintain reserves to ensure both
financial stability and continuous availability of services.
Financial stability and the resulting improved credit quality
allow the public entity to weather times of uncertainty and the
impact of negative events, both major and minor. Reserves allow
for the ongoing maintenance of property and timely payment of
expenses even when such expenses exceed money available from a
single fiscal period. In the final analysis, the type and level
of reserves are driven by the type and magnitude of uncertainty
faced by the public entity.
A “reserve” has a number of meanings, as follows:
Working capital is required to insure timely payment of
obligations.
A buffer against volatility in revenues.
Liquidity is required to obtain other goods and services
(e.g., bank services).
Designated money to protect creditors.
Money set aside to replace assets at the end of their useful
lives.
Money set aside to repair or replace assets damaged or
destroyed at unanticipated times.
It is important to note that reserves, fund balance, and net
assets are not the same. Fund balance and net assets are
accounting terms and may not always be in the form of cash or
liquid investments. Fund balances and net assets may not always
be reserves unless a designation of all or a portion of fund
balance is made. In addition, the term fund balance was replaced
by net assets as codified by the Governmental Accounting Standards
Board (GASB).
In short, reserves are the liquid assets of the District,
accumulated and maintained for application to finance contingent
future activities, whether known or unanticipated, operating or
capital in nature. The District’s Reserve Policy governs the
management and use of these financial resources. Few policies
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have a more significant impact on the financial health and
stability of the District. This policy explains several key
financial concepts used by the District and provides some
background information to the overall strategies and practices
utilized. The District has a fiduciary obligation to its
customers, to manage and direct the use of public funds for the
purpose of providing water and sewer services in an efficient and
financially sound manner.
1.4 Policy Guidelines
In 2000, the Little Hoover Commission reviewed the levels of
reserve funds for special districts in California and prepared a
report reflecting that special districts were accumulating
unreasonable levels of funds. As a proactive response, the
California Special Districts Association (CSDA) prepared Reserve
Guidelines for its members. The Reserve Guidelines were
significant in noting that reserve levels need to be in context of
the organization’s overall business model and capital improvement
plan.
There are a number of potential events which the District should
consider in the development of reserves:
Economic Uncertainty - performance of the regional economy
and the impact of that performance on demand for water.
Weather - the amount of rainfall and the impact of weather on
the availability and the cost of water as well as the demand
for water.
Government Mandates - the impact of federal and state
regulation, particularly environmental regulation.
Tax Changes - limitations on the District’s taxing and
spending powers through the passage of a voter referendum,
the impound of District property taxes or the removal of the
District’s power to levy property taxes, further increases to
Educational Revenue Augmentation Fund (ERAF) contributions or
changes in calculation methodology.
Operating Costs - increases in operating and maintenance
costs because of inflation, labor agreement or other
modification.
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Force Majeure - unanticipated expenditures resulting from
natural disasters or intentional acts.
Emergency Maintenance - unanticipated expenditures resulting
from unexpected failure of assets (e.g., rupture in the
primary transmission system).
Unexpected Variation in Cash Flow - the incidence of
additional costs or decreased revenues that require short-
term borrowing in the absence of sufficient financial
resources.
The California State Auditor has, in its oversight role, offered a
number of quality recommendations for the development of reserve
policies as outlined in its report entitled, “California’s
Independent Water Districts: Reserve Amounts Are Not Always
Sufficiently Justified, and Some Expenses and Contract Decisions
Are Questionable,” dated June 2004, Report No. 2003-137. All of
these recommendations have been incorporated into this policy in
an effort to address key issues surrounding the management and use
of District reserves. The detailed objectives as identified by
the State Auditor are as follows:
Distinguish between restricted and unrestricted reserves.
Establish distinct purposes for all reserves.
Set target levels, including minimums and maximums, for the
accumulation of reserves.
Identify the events or conditions that prompt the use of
reserves.
Conform to plans to acquire or build capital assets.
Receive Board approval and that it is in writing.
Require periodic review of reserve balances and rationale for
maintaining them.
Yet, the State Auditor’s report acknowledges that the California
Constitution (Article XIII B, Section 5) is vague in its
provisions governing the accumulation and use of reserves.1
1 California State Auditor, Bureau of State Audits, “California’s Independent Water Districts: Reserve Amounts Are
Not Always Sufficiently Justified, and Some Expenses and Contract Decisions Are Questionable,” dated June 2004,
2003-137; p. 8.
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Specifically, the Constitution states that “each entity of the
government can establish contingency, emergency, unemployment,
reserve, sinking fund…or similar funds as it shall deem reasonable
and proper.”2 Similarly, the State’s Water Code does not impose
any requirements as to specific or recommended reserve fund
levels. As a result, the public finance community as a whole has
yet to settle on any real objective standards for the level of
reserve funds appropriate for governmental enterprises. This lack
of consensus as to specific standards is indicative of the wide
variance of the financial and operations context for different
districts and different contingencies justifying reserves.
The Government Finance Officers Association (GFOA) in its
“Recommended Practice on Appropriate Level of Unreserved Fund
Balance in the General Fund” (2002) states that in
establishing a policy governing the level of unreserved fund
balance in the general fund, a government should consider a
variety of factors. These include:
The predictability of its revenues and the volatility of
its expenditures (i.e., higher levels of the unreserved
fund balances may be needed if significant revenue
sources are subject to unpredictable fluctuations or if
operating expenditures are highly volatile).
The availability of resources in other funds as well as
the potential drain upon general fund resources from
other funds (i.e., the availability of resources in
other funds may reduce the amount of the unreserved fund
balance needed in the general fund, just as deficits in
other funds may require that a higher level of
unreserved fund balance be maintained in the general
fund).
Liquidity (i.e., a disparity between when financial
resources actually become available to make payments and
the average maturity of related liabilities may require
that a higher level of resources be maintained).
Designations (i.e., governments may wish to maintain
higher levels of the unreserved fund balance to
compensate for any portion of unreserved fund balance
already designated for a specific purpose).
2 California Constitution, Article XIII B, Section 5.
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In the preparation of this policy, each of the CSDA guidelines and
the GFOA recommendations has been considered. In addition, all
seven objectives provided by the State Auditor are specifically
addressed for each reserve. The District wholly supports the
State Auditor’s efforts to bring a high-level of quality to
reserve governance and establishing a standard of performance.
The District recognizes that the customer pays for services
provided. Quality management requires that periodic valuations be
performed so that fees and charges can be set at appropriate
levels to recover the cost of service. The District’s Reserve
Policy has been drafted with consideration of the GFOA, CSDA, and
State Auditor’s general guidelines as provided above. In
addition, the District has adopted the following principles in the
management of its financial resources:
Reserves are held and used only for the purpose for which
they are collected. This is done to maintain equity among
customers.
Each of the service types is tracked separately so that
expenditures and revenues can be monitored and evaluated for
each customer type. This provides the District with the
necessary information to appropriately charge for each of the
services.
Separation of operations and maintenance from capital
expenditures occurs within each of the service types. This
is done because the financing of these expenditures is often
on different timelines or use different reserves.
The District will hold its reserves at responsible and
prudent levels. This policy sets minimum, maximum, and
target levels for each of the various funds. This has been
done so that the District can maintain reserves to meet the
purpose for which the funds were established. The levels are
set by reference to line items in the District’s financial
statements and approved budgets. This allows reserve levels
to adjust to the District’s changing financial circumstances.
Debt financing of facilities provides intergenerational
equity and maintains rates at reasonable levels. This equity
is accomplished with long-term financing which spreads the
cost of facilities over the life of the facilities. The
burden to pay for facilities is then paid by those who use
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them. The District could amass significant reserves by pre-
collecting financial resources in a Replacement Reserve Fund
allowing the District to cash finance all replacements.
However, this would require significant rate increases
burdening the current customers and creating reserve levels
difficult to defend to the ratepayers or other oversight
entities.
These concepts are fundamental to the way the District manages its
funds and have a direct impact on the way rates and charges are
set. The District performs annual budget evaluations and updates
its rate model on an annual basis to monitor and adjust the
various funds and revenue sources. The separation, tracking, and
projecting of the various funds and expenditures create the
essential information necessary for the equitable rate structure
maintained by the District. The annual review preserves the
balance between services provided and the fees charged. This
review also insures that reserves will be available to continue to
serve the District’s customers.
Financial Sources
2.0 Developers
a. Meter Installation Charges (General Use)
Meter fees are charges collected for new water service
connections. Fees vary depending upon meter size and type of
service. The costs associated with meter installations are
included in the Operating Expenses section of the budget.
These charges are financed by developers.
b. Developer Deposits (General Use)
These deposits are for the engineering and operations
services provided to developers. They are tracked separately
for each developer and any excess amount is returned to the
developer.
c. Annexation Fees (Restricted)
Annexation fees3 are collected as a condition of annexing
into the District’s potable and recycled water facilities.
Since the existing facilities have been built and maintained
by developers or customers within the District, the
3 Code of Ordinances, Section 9.
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annexation fee is calculated based on the present value of
all property taxes (1% property tax and availability fees)
paid by existing and prior customers. The annexation fee
insures that future users finance a portion of facilities
that were sized, built, and maintained for both existing and
future users. Proceeds of annexation fees are restricted and
can be used for expansion, replacement, or betterment
projects. These reserves may be shifted back and forth as
financing needs change.
d. Annexation Fees (Unrestricted)
A sewer annexation fee is collected when property is annexed
into an improvement district. This fee is calculated using
the “buy-in” basis and therefore is unrestricted.
e. New Water Supply Fee (Restricted)
New water supply fees4 are based on the cost of the expansion
portion of new water supply projects divided by the number of
future equivalent dwelling units (EDU). The new water supply
fee covers the cost of planning, design, construction, and
financing associated with facilities for the District’s new
supply needs. These fees are paid by developers. The
proceeds of this fee may be used only for new potable or
recycled water supply projects. Although the fees collected
are not restricted separately, one portion for potable and
the other for recycled, they are tracked separately.
f. Capacity Fees (Restricted)
Capacity fees4 are based on the value of existing and future
facilities divided by the number of existing and future
equivalent dwelling units. This method of calculating
capacity fees is called the combined method, where the “buy-
in” portion of the capacity fee covers costs to repay
existing customers for the facilities that they have built,
and where the “incremental” portion of the capacity fee
covers the cost of future expansion facilities. The “buy-in”
portion of the capacity fee is restricted to pay for
planning, design, construction, and financing associated with
expansion, replacement or betterment facilities. The “buy-
in” portion may be shifted back and forth between expansion,
betterment or replacement as the financing needs change. The
4 Code of Ordinances, Section 28
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“incremental” portion of the capacity fee is limited to
planning, design, construction, and financing exclusively for
expansion facilities (excluding new water supply expansion).
Facility needs are based on projected land use planning. Changes
in anticipated future land use occur and can alter projected
facility requirements. Thus, both the anticipated facilities
needs and their projected costs change over time as regulatory
agencies make changes to land use. The District periodically
reviews the capacity fee calculation to accommodate such
variations. These fees are paid by developers.
The District’s construction of infrastructure occurs prior to the
addition of EDUs. This sequence serves two purposes: one it
ensures that the District can serve the pending construction as it
is completed; and two, it is more efficient to oversize many
facilities at the outset rather than build for the current need
and then reconstruct when the future need is realized. As a
result of this strategy, the District has financed construction
with bond financing as the existing expansion reserves are
depleted.
The capacity fee is calculated based on the combined recycled and
potable water systems needs. This methodology is used because the
two water systems work hand-in-hand. All capacity fees can be
used for either potable or recycled but must be tracked to
distinguish between the “buy-in” and “incremental” portions as
described above. So, while capacity fees are not restricted
separately by potable and recycled, they are tracked separately.
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2.1 Customers/Users
a. Uniform Rates and Charges (General Use)
Charges to users for water, sewer, and recycled water are
uniform throughout the District for similar customer types.
b. Monthly System Fees (General Use)
This is a fixed revenue source that is charged monthly. The
amount of the charge is based on the meter size.
c. Energy Charges (General Use)
The energy pumping fee is a charge per unit of water for each
100 feet of lift, or fraction thereof, above the base
elevation of 450 feet. This charge is placed on the monthly
water bills of all water customers.
d. Penalties (General Use)
Penalties are added to the monthly water and sewer bills for
late charges, locks, etc.
e. Pass-through Fixed Charges (General Use)
A fixed monthly charge to the District’s customers intended
to collect sufficient funds to pass-through the increased
DEVELOPERS
Diagram 2.0: Flow of Funds - Developer Sources
Unrestricted and
Undesignated
(General Use) Funds
Meter
Installation
Charges
Developer
Deposits
Restricted Funds
Annexation
Fees
Capacity
Fees
New Water
Supply Fees
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fixed costs from the County Water Authority (CWA) and the
Metropolitan Water District (MWD).
f. Special Rates and Charges (Restricted)
In addition to the uniform water charges, the District
currently has five special water rates and one sewer rate.
The five water rates are for construction, installation, and
maintenance of water storage reservoirs, pump stations, and
water lines. Each of these rates and charges must be used
within the respective geographic areas from which they are
collected. These special charges are listed below:
North District water charge (Code section 25.03G)
ID 9 water charge (Code section 25.03H)
ID 3 water charge (Code section 25.03I)
ID 10 water charge (Code section 25.03I)
La Presa water charge (Code section 25.03I)
Russell Square sewer charge (Code section 53.04C)
When these rates were established they were for the specific
purpose of constructing, installing, and maintaining the
water and sewer systems in the areas in which the fees were
collected. Therefore, these are restricted reserves by
geographic area as well as by purpose. These rates and
charges can also be used for maintenance; unlike the
availability fees (discussed in 2.2 B.). These six special
rates and charges along with availability fees are tracked
separately, by geographic area, so they can be individually
evaluated to maintain the targeted reserve levels. To meet
this need, each special rate and charge is accounted for in a
“sub-fund” of the Betterment Fund.
g. Temporary Meter Fees (General Use/Restricted)
Water charges, in lieu of capacity fees, are charged on
temporary meters. This is done because temporary meters use
system capacity but they are not charged a capacity fee.
Temporary water use is charged at two times the water rate
with the added charge placed in the Restricted Expansion
Fund. The primary users of these temporary meters are
developers; however, general customers also use these for
various purposes.
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2.2 County-Collected Taxes and Fees
a. General Levy Property Tax Receipts (1% Property Tax)
(General Use)
In 1978, Proposition 13 limited the levy of ad valorem
property taxes on real property to one percent of the
assessed value of such property. Subsequent legislation,
AB 8, established that the receipts from the one percent levy
were to be distributed to taxing agencies proportionate to
each agency’s general levy receipts prior to Proposition 13.
Taxes received are for general use.
b. Availability Charges (General Use/Restricted)
The District levies availability charges each year in
developed and undeveloped areas. Current legislation
provides that any amount up to $10 per parcel is general use
and any amount over $10 per parcel is restricted to be
expended in and for the improvement district (ID) within
which it is collected. Accordingly, the District may use
availability charges in excess of $10 toward costs of water
CUSTOMERS / USERS
Diagram 2.1: Flow of Funds - Customer Sources
Unrestricted and
Undesignated
(General Use) Funds
Monthly
System Fees
Restricted Funds
Energy
Charges
Penalties
Pass –Through
Fixed Charges 2x Water
Rate
Special Rates
and Charges
Uniform Rates
and Charges
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and sewer facilities which are either, expansion, betterment,
or replacement of facilities consistent with the purpose of
the ID in which they are collected. This portion of the
proceeds of availability charges is geographically restricted
and restricted by purpose. As costs are incurred on these
projects the respective IDs are charged, reducing the
reserves. To the extent that availability charges are not
used for the purpose for which they are collected, they must
be returned to the property owners that paid them. The
District has historically used these reserves for betterment
capital facilities thus, the restricted reserves are
accounted for in “sub-funds” of the Betterment Fund
(see 2.1 f.).
c. Improvement District General Obligation (GO) Bond
Assessments (Restricted)
The District has historically issued general obligation (GO)
debt and establishes an improvement district for the
repayment of that debt. When this financing method is used,
the county tax roll can be used to collect special taxes or
assessments within the ID to pay the debt obligation. The
proceeds of the debt are restricted for the purpose as
defined in the bond documents.
COUNTY COLLECTED TAXES AND FEES
Unrestricted and
Undesignated
(General Use)
Funds
General Levy
Property Tax
Receipts
Availability
Charges
Restricted Funds
General Obligation
Bond Assessments
Diagram 2.2: Flow of Funds – County Collection Sources
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2.3 Miscellaneous Income
a. Miscellaneous Rents and Leases (General Use)
Revenues received from the rental and lease of District
property are general use revenues. Not only are they
periodic revenues, but there is also a one-time fee charged
with the setup of each new lease. The District incurs
expenses related to these rents and leases. The one-time
fees are calculated to recover the costs to setup the leases.
b. Sewer Billing Fees (General Use)
Sewer billing fees are general use revenues. The District
provides processing and billing services to the City of Chula
Vista to bill and collect from their customers for sewer
service. These fees are to recover the cost the District
incurs to provide this service.
c. Interest Income or Expense Allocation (General Use,
Designated, and Restricted)
Interest income (expense) will be allocated every month based
upon each fund's month-ending balance. In this way, each
fund receives credit for interest earned by that fund and
each fund with a negative balance is charged for the use of
the other fund’s reserves.
MISCELLANEOUS INCOME
Unrestricted and
Undesignated
(General Use) Funds
Miscellaneous
Rents and Leases
Sewer Billing
Fees
Restricted Funds
Interest Income or
Expense Allocation
Diagram 2.3: Flow of Funds – Miscellaneous Income Sources
Designated Funds
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2.4 Debt Issuance
a. Loans (General/Restricted Use)
As the District determines that additional financing is
required for a particular purpose, the option of borrowing is
considered. The determination to borrow is made as a part of
the annual rate model update and is evaluated in accordance
with the Debt Policy before it is recommended to the Board
for action. As an option to bond indebtedness, loans are
available to satisfy short-term financing needs. These loans
may or may not be contractually restricted for a particular
purpose.
b. General Obligation (GO) Bonds (Restricted)
As the District becomes more developed it becomes less likely
that general obligation debt will be used as it requires a
vote of the public to be approved. Bond proceeds are
restricted for the construction of those facilities
identified in the GO bond issuance. Occasionally, specific
portions of bond proceeds may be allocated for the repayment
of the principal and interest, also called debt service, on
these bonds. As the District determines that additional
financing is required for a particular purpose, the option of
debt issuance is considered. The determination to issue debt
is made as a part of the annual rate model update and is
evaluated in accordance with the Debt Policy before it is
recommended to the Board for action.
c. Certificates of Participation (COPs) (Restricted)
General revenues of the District are pledged as security for
Certificates of Participation (COPs) indebtedness. If the
District determines that additional financing is required for
a particular purpose, the option of debt issuance is
considered. The determination to issue debt is made as a
part of the annual rate model update and is evaluated in
accordance with the Debt Policy before it is recommended to
the Board for action. This form of financing has become the
industry’s preferred form of financing as it does not require
a vote of the general public.
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2.5 Inter-fund Transfers
Each year in the budgeting process, future fund levels are
projected for the next six years. Based on these projections
transfers are recommended. Reserves may be transferred
between Unrestricted or Designated Funds and the General Fund
(see 4.0 “Funding Levels” and 4.1 “Fund Transfers”).
Reserves may not be transferred to or from any of the
restricted funds unless it is between two restricted funds
with a shared purpose.
Fund Types and Categories
3.0 General Funds
a. Purpose
The General Fund is neither restricted nor designated. The
District maintains one General Fund for each business segment
(water, sewer, and recycled). This fund holds the working
capital and emergency operating reserves. While the General
Fund has a short-term focus to finance the District’s annual
operations, it is supported by the six-year rate model. This
DEBT PROCEEDS
Unrestricted and
Undesignated
(General Use) Funds
Loans General
Obligation Bonds
Restricted Funds
Certificates of
Participation
Diagram 2.4: Flow of Funds – Debt Issuance Sources
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fund is primarily used to finance the operations of the
District; however, it can be used for any District purpose.
This fund can be used to supplement the District’s rates and
charges and be a temporary source of revenue to balance the
Operating Budget. This fund can also be used to avoid spikes
in the rates or significant and abrupt increases. It is an
industry practice to have a fund that can be used to
stabilize rates. This would only occur if there was a
temporary need for reserves that would smooth out a rate
spike or to ramp up what would otherwise be a dramatic rate
increase.
The General Fund also plays a role in the debt planning of
the District. This fund is viewed by the debt markets as a
commitment by the District to ensure financial stability of
the rates and charges of the District. The District is
anticipated to need a number of debt issuances over the years
and this fund will help the District not only to stabilize
rate fluctuations but also to access low cost financing for
future projects.
b. Sources
Meter installation charges, temporary meter fees, uniform
rates and charges, monthly system fees, energy charges,
penalties, pass-through fixed charges, general levy property
tax receipts, availability charges, miscellaneous rents and
leases, sewer billing fees, interest income or expense
allocation, loans, and a portion of the temporary water
sales.
The sewer general fund receives sewer charges, penalties,
availability charges, sewer annexation fees (calculated on
the “buy-in” basis), and interest income or expense
allocation.
c. Funding Levels
I. Minimum Level – The minimum reserve level for each
business segment of the General Fund is three
months of operating budget expenses (evaluated
separately for each segment).
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II. Maximum Level – The maximum reserve level for the
General Fund is nine months of operating budget
expenses. In the event that this fund exceeds the
seven month level, the excess will be evaluated or
transferred to one or more of the designated funds.
III. Target Level – The target level of reserves is
three months of operating budget expenses. In the
event that the fund drops below the target level,
rate increases or fund transfers would be
considered.
3.1 Designated Other Post Employment Benefits (OPEB) Fund
a. Purpose
Designated Other Post Employment Benefits (OPEB) reserves are
“general use” reserves that have been set apart by Board
action to finance the medical benefits of qualified retirees
as outlined in the District’s benefits plan. This District
fund holds only a portion of the total OPEB reserves. The
other portion is held in a trust at CalPERS and is restricted
for the purpose of financing the OPEB liability. The two
portions are considered jointly when looking at target
reserve levels. Every two years, the fund is evaluated by an
actuary to update the annual financing requirements. Changes
in the actuarial valuation may result from changes in benefit
levels, employee population, health insurance costs, or
general market conditions. The reserves held by the District
are currently designated and may be placed into the CalPERS
trust to legally restrict the funds, removing the District’s
legal access to these reserves.
b. Sources
The OPEB liability may be financed by general use reserves
coming from user rates and charges, either from an operating
budget expenditure or from interfund transfers. Transfers of
unrestricted reserves may come from the various designated
funds or from the General Fund. As a part of the normal
budget process, annual operating revenues have been
sufficient to finance the ongoing needs of this designated
fund. While debt financing is also an option, the District
has only used user rates and charges to finance this fund.
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c. Funding Levels
I. Minimum Level – The minimum reserve level for this
fund is equal to the District’s OPEB liability as
determined by the actuarial study. When
considering the reserve level of this fund, both
the District held OPEB reserves and CalPERS held
OPEB reserves must be considered jointly.
II. Maximum Level – The maximum reserve level for this
fund is equal to the District’s OPEB liability as
determined by the actuarial study. In the event
that the two funds, as described above, exceed the
OPEB liability, the District will reduce the annual
funding levels as defined by the actuarial study.
III. Target Level – The target reserve level for this
fund is equal to the District’s OPEB liability as
determined by the actuarial study. In the event
that the two funds, as described above, fall below
the OPEB liability, the District will increase the
annual funding levels as defined by the actuarial
study.
3.2 New Water Supply Fund Category
a. Purpose
The New Water Supply Fund category is to finance the
expansion portion of new water supply projects and is
therefore to be paid by developers. When considering the
reserve level of the New Water Supply category; the New Water
Supply Fund, the New Water Supply Debt Fund, and the
Designated New Water Supply Fund all work in concert and must
be considered jointly.
b. Sources
The New Water Supply Fund receives reserves only from the new
water supply fee. Other funds within the new water supply
category of funds receive debt proceeds and general use
reserves through a designation to this category.
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c. Funding Levels
I. Minimum Level – As the District matures the CIP
will move to purely replacement projects. As the
District moves through its lifecycle the need for
new water supply reserves will decrease and may be
reduced to zero.
II. Maximum Level – The maximum reserve level for the
new water supply category of funds is limited to
five years of the unfinanced new water supply
facilities as described in the District’s CIP
Budget. To determine the unfinanced amount, the
total new water supply financing needs must be
reduced by the projected new water supply revenues,
general fund designations, and bond financing. If
the combined new water supply reserves exceed the
target level, the District should consider
transferring designated reserves to meet other
purposes, reduce the new water supply fee, or
change the timing of the new water supply projects.
III. Target Level – In order to facilitate debt
financing of the new water supply, it is important
that the various new water supply funds retain an
overall reserve level of six months, prior to any
attempt to obtain debt financing. This reserve
level allows the District the time necessary to
issue additional debt without depleting new water
supply reserves. If the combined new water supply
reserve levels drop below six months of
expenditures, this would trigger a transfer of
general use reserves, a bond sale, or a change in
the timing of new water supply projects. Bond
proceeds would be placed in the Restricted New
Water Supply Debt Fund while transfers would be
placed in the Designated New Water Supply Fund.
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3.3 Expansion Fund Category
a. Purpose
The Expansion Fund category is to finance the expansion
portion of capital projects and therefore is to be paid for
by developers. When considering the reserve levels of the
expansion category, the following funds work in concert and
must be considered jointly: the Expansion Fund, Expansion
Debt Fund, Annexation Fund (potable and recycled only),
Restricted Funds
Unrestricted and
Undesignated Funding
Sources
Funding Source New Water
Supply Fees
Debt
Proceeds
Restricted Funds
Restricted Funds
Designated Funds
New Water
Supply Fund
Expansion
New Water
Supply Fund
Designated
New Water
Supply Fund
Debt Fund
General Fund – Rates and Charges
New Water
Supply Fund
Category
New Water
Supply
Debt Fund
Diagram 3.2: New Water Supply Fund Category
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Capital Improvement Fund, and the Designated Expansion Fund.
Potable and recycled reserves are considered jointly while
sewer is evaluated separately.
b. Sources
The Expansion Fund is financed by water charges in lieu of
capacity fees (for temporary meters) and the “incremental”
portion of the capacity fee. The other funds in this
category may also be financed by debt proceeds, annexation
fees, the “buy-in” portion of the capacity fee, and the
general fund through a designation of reserves.
c. Funding Levels
I. Minimum Level – As the District matures the CIP
will move to purely replacement and betterment
projects. As the District moves through this
lifecycle the need for expansion reserves will
decrease and may be reduced to zero.
II. Maximum Level – The maximum reserve level for the
expansion category of funds is limited to five
years of unfinanced expansion facilities as
described in the District’s CIP Budget. To
determine the unfinanced amount, the total
financing needs must be reduced by the projected
expansion revenues, bond financing, and any
restricted or general fund revenues allocated to
this fund category. If the combined expansion
reserves exceed target levels, the District should
consider reducing capacity fees, reallocating
restricted or designated funds to meet other
purposes, or shifting the timing of expansion
projects.
III. Target Level – The target level is six months of
expansion expenditures. It is important that the
expansion reserves remain at a minimum of six
months of expansion expenditures. This reserve
level allows the District the time necessary to
issue additional debt without depleting expansion
reserves. If the combined expansion reserves drop
below six months of expenditures this would trigger
a transfer of general use reserves, a bond sale, an
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adjustment to the timing of expansion projects, or
a reallocation of restricted reserves. Bond
proceeds would be placed in the Restricted Bond
Fund, transfers of general use reserves would be
placed in the Designated Expansion Fund, and
transfers of restricted reserves would be placed in
either the Expansion Annexation Fund or the
Expansion Capital Improvement Fund.
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Unrestricted and
Undesignated Funding
Sources
Diagram 3.3: Expansion Fund Category
Funding Source 2x Water
Rates
Capacity
Fees
Restricted Funds
Restricted Funds
Designated Funds
Expansion
Fund
Expansion
Debt Fund
Annexation
Fund
General Fund – Rates and Charges
Annexation
Fees
Restricted Funds Expansion Capital
Improvement
Fund
Debt
Proceeds
Restricted Funds
Capital
Improvement
Fund
Bond
Debt
Expansion
Fund
Designated
Expansion
Fund
59.4%
Expansion
Fund
Category
Restricted Funds Expansion
Annexation Fund
40.6%
%%%
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3.4 Replacement Fund Category
a. Purpose
The Replacement Fund category is to finance replacement
projects. When considering the reserve levels of the
replacement category of funds, the following funds work
in concert and must be considered jointly: the
Annexation Fund, Debt Fund, Capital Improvement Fund,
and the Designated Replacement Fund. The purpose of
these reserves is to pay for the replacement of capital
infrastructure and capital purchases. These reserves
are not to be used for the replacement of non-capital
items.
With the District’s development of its financial systems
and the greater need and ability to separate and track
reserves, the replacement reserves have been separated
into three funds: water, recycled, and sewer.
Projects undertaken solely for the purpose of replacing
major capital equipment or facilities, i.e., where the
cost exceeds $10,000 for capital purchases or $20,000
for infrastructure items, generally these are not
considered normal maintenance. When the cost is below
$10,000, the costs are financed annually as operational
maintenance. As charges are incurred on replacement
projects the reserves are deducted from the respective
Replacement Funds on a monthly basis.
b. Sources
The various funds in this category are financed by debt
proceeds, annexation fees, the “buy-in” portion of the
capacity fee, and general fund designations.
c. Funding Levels
I. Minimum Level – The minimum reserve level of this
category of funds is 3% of the historical value of
existing assets as identified in the District’s
current financial statements. Potable, recycled,
and sewer replacement are evaluated separately.
II. Maximum Level – The maximum reserve level of this
category of funds is 6% of existing assets. If the
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combined replacement reserves exceed target levels,
the District should consider transferring
annexation fees or the “buy-in” portion of the
capacity fee to meet other purposes. Another
consideration would be to shift the timing of
replacement projects.
III. Target Level – The target reserve level of this
category of funds is 4% of existing assets. In the
event that the reserves fall below the recommended
target level, the District should consider
transferring annexation fees or the “buy-in”
portion of the capacity fee. The District should
also consider shifting the timing of replacement
projects or issuing debt to support the planned
level of facility replacement. The District will
act based on the annual six-year rate model, to
insure that at the end of that planning horizon the
reserves exceed the minimum level and is
approaching the target level.
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Funding Source
Unrestricted and
Undesignated Funding
Sources
Capacity
Fees
Diagram 3.4: Replacement Fund Category
Annexation
Fees
Restricted Funds
Restricted Funds
Designated Funds
Capital
Improvement Fund
Replacement
Debt Fund
Designated
Replacement
Fund
Annexation Fund
General Fund – Rates and Charges
Debt
Proceeds
Restricted Funds
Debt Fund
Replacement
Annexation
Fund
Restricted Funds
Replacement
Capital
Improvement
Fund
59.4%
Replacement
Fund
Category
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3.5 Betterment Fund Category
a. Purpose
The Betterment Fund category is to finance the
betterment portion of capital projects with a portion
going to maintenance of the potable, recycled, and sewer
systems. The District maintains separate Betterment
Fund categories, one for each improvement district. An
improvement district is a legally defined geographic
area usually established for the purpose of bond
financing of facilities. The betterment reserves within
these funds are restricted by law for use within the
improvement district in which the fees were collected
(Water Code 71631.6). However, the legal restriction of
this reserve depends upon the particular revenue source.
(See Section 2.1 f. for a review of the special rates
and availability fees).
When considering the reserve levels of the betterment
category of funds, the following funds work in concert
and must be considered jointly: the Betterment Fund,
Annexation Fund, Debt Fund, Capital Improvement Fund,
and Designated Betterment Fund.
b. Sources
The Betterment Fund category receives restricted
revenues by improvement district via special water rates
and from availability fees collected through the county
tax roll. Betterment may also be financed by debt
proceeds, annexation fees, the “buy-in” portion of the
capacity fee, as well as the general fund through a
designation of reserves.
c. Funding Levels
I. Minimum Level – As the District matures the CIP
will move to purely replacement projects. As the
District moves through this lifecycle the need for
betterment reserves will decrease and may be
reduced to zero.
II. Maximum Level – The maximum reserve level for the
betterment category of funds is limited to five
years of unfinanced betterment facilities as
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described in the District’s CIP Budget. To
determine the unfinanced amount, the total
financing need must be reduced by the projected
betterment revenues, bond financing, annexation,
and general fund designations. If this maximum is
exceeded, then the District should evaluate
reductions in the special water rates and
availability fees, transferring designated reserves
to meet other purposes, or shifting the timing of
betterment projects.
III. Target Level – The target is six months of
betterment expenditures. It is important that the
betterment reserves remain at a minimum of six
months of betterment expenditures. This reserve
level allows the District the time necessary to
issue additional debt without depleting betterment
reserves. If the combined betterment reserves drop
below six months of expenditures this would trigger
a transfer of general use reserves, a bond sale, or
an adjustment to the timing of betterment projects.
Bond proceeds would be placed in the Betterment
Bond Fund while transfers would be placed in the
Designated Betterment Fund.
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Fund
Diagram 3.6: Fund Targets
Restricted Funds
Unrestricted and
Undesignated Funding
Sources
Diagram 3.5: Betterment Fund Category
Funding Source Capacity
Fees
Annexation
Fees
Restricted Funds
Restricted Funds
Designated Funds
Capital
Improvement
Fund
Betterment
Debt Fund
Betterment
Fund
General Fund – Rates and Charges
Special Rates
and Availability
Charges
Restricted Funds
Betterment
Annexation
Fund
Debt
Proceeds
Restricted Funds
Annexation
Fund
Bond
Debt
Designated
Betterment
Fund
Betterment
Fund
Betterment
Capital
Improvement
Fund
59.4%
Betterment
Fund
Category
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Diagram 3.6: Fund Targets
Fund or Fund
Category
Actions to Consider if
below Target Target Maximum
New Supply Fund
Category
New supply fee
increase, bond
financing, or transfer to
designation or to CIF or
Annexation Fund
Total of all funds in fund
category = six months
of capital expenditures
Nexus of cost to fee
Expansion Fund
Category
Capacity fee increase,
bond financing, or
transfer to designation
or to CIF or Annexation
Fund
Total of all funds in fund
category = six months
of capital expenditures
Nexus of cost to fee
Replacement Fund
Category
Bond financing, or
transfer to designation
or to CIF or Annexation
Fund
Total of all funds in fund
category = 4% of
infrastructure
Nexus of cost to fee
Betterment Fund
Category
Bond financing, or
transfer to designation
or to CIF or Annexation
Fund
Total of all funds in fund
category = six months
of capital expenditures
5 years unfunded needs
Debt Reserve Fund Increase tax collection
or rates
One semi-annual
payment
Two semi-annual
payments
OPEB Fund Fund transfers Full funding Full funding
General Fund Rate increase or fund
transfers
Three months of
operating budget
expenses
Nine months of
operating budget
expenses
Note: The annexation fee for sewer is a general fund revenue.
Additional Restricted Funds
4.0 Capital Improvement Fund
a. Purpose
The “Capital Improvement Fund’s sole purpose is to track the
“buy-in” portion of the capacity fee and to ensure these fees
are expended solely for the purpose for which they were
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collected. In this case it is to pay for facilities that
were in existence at the time this fee was established.
These fees may be used for expansion, replacement, or
betterment projects or any debt related to these categories.
These fees may also be used for either the potable or the
recycled systems. As capacity fees are collected, the “buy-
in” portion of the fee is allocated as needed to one of three
capital improvement funds, one in each of the Expansion,
Replacement, and Betterment Fund categories. These reserves
are used to pay debt or offset any negative balance within
these three categories of funds. These fees may not be used
to finance the New Water Supply category, as there were no
new water supply facilities in existence at the time the new
methodology for capacity fees was established.
b. Sources
The “buy-in” portion of the capacity fee collected after
June 30, 2010.
c. Funding Levels
There are no minimums, maximums, or target levels for these
reserves on an individual basis. The allocation of this fee
to the various capital improvement funds is dependent on the
overall reserve levels within each fund category.
4.1 Annexation Fund
a. Purpose
The Annexation Fund’s sole purpose is to track the potable
and recycled annexation fees collected and to ensure these
fees are expended solely for the purpose for which they were
collected. The annexation fees may be used for expansion,
replacement, or betterment projects or any debt related to
these categories. These fees may be used for either the
potable or recycled systems. These reserves may not be used
to finance the New Water Supply category, as it was not in
existence at the time the fee was established. As these fees
are collected they are allocated as needed to one of three
capital improvement funds, one in each of the Expansion,
Replacement, and Better Fund categories.
b. Sources
Potable and recycled annexation fees collected after
June 30, 2010.
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c. Uses
There are no minimums, maximums, or target levels for these
reserves on an individual basis. The allocation of this fee
to the various Annexation Funds is dependent on the overall
reserve levels within each fund category.
4.2 Debt Reserve Fund
a. Purpose
The Debt Reserve Fund is established to hold the proceeds
from the various debt issuances. There are two types of
debt, General Obligation bonds and Certificates of
Participation bonds. The proceeds are transferred to the New
Water Supply, Expansion, Replacement, or Betterment Debt
Funds as they are expended for various facilities within
those fund categories. As repayment of the debt occurs, the
balances within these individual funds are reduced so that
the financial impact of issuing debt is tracked within the
category for which the debt was issued.
b. Sources
Debt proceeds.
c. Uses
There are no minimums, maximums, or target levels for this
fund on an individual basis. This fund is available on an as
needed basis to fund CIP projects for new water supply,
expansion, replacement, or betterment. From a funding level
perspective, these reserves are evaluated in the context of
all the various funds within each fund category.
Fund Transfers
5.0 Funding Levels
As described in the preceding sections, the District maintains
reserves for its operating and capital activities. These reserves
can be of three types: 1) undesignated or general use reserves, 2)
designated, and 3) restricted for a specific purpose. The
restricted reserves can be restricted geographically and/or by
purpose. The District maintains various funds to track the
various designations and restrictions. The source of the money
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for each fund was discussed along with the purpose, source of
funds, and levels. Key characteristics of these funds are the
target levels, minimums, and maximums. The funding levels must be
viewed in the context of the economic environment, political
environment, and in light of the District’s rate model. The
District’s six-year rate model not only shows the current balance
but also shows the trend of the fund balances. Often the trend of
the fund is a greater indicator of financial stability than is the
current balance.
The rate model is updated each year with the budget process and
evaluates each fund over the next six years. The rate model will
take into account the general economic environment, looking at the
development rate, supply rate increases, the possibility of
raising rates, capital infrastructure spending, and strategic plan
initiatives. The fund balances may at times be over or under the
target amount. This is not only acceptable but expected. The
rate model provides an empirical estimate of the conformance
between the projected District’s financial activities and the
guidelines of this policy.
5.1 Fund Transfers
Reserves within the District’s various designated funds come from
interfund transfers of unrestricted general use reserves. It is
important to note that the District has the ability to use general
use reserves for any business purpose. General use reserves may
be transferred to and from any unrestricted fund for any business
need. Designated reserves are general use reserves which have
been set aside for a specific purpose by Board action. These
reserves can only be used for the purpose they were designated, or
with Board action they may be used for any other business purpose.
While general use reserves may be used for any restricted purpose
they may not be transferred to Restricted Funds due to the
sensitivity of the tracking of restricted reserves. If reserves
are needed for a restricted purpose they are transferred to a
Designated Fund within the fund category with that particular
purpose. Reserves restricted to a fund category may only be used
within that category and may not be transferred to another
category. For example, the new water supply fee and the
“incremental” portion of the capacity fee are restricted reserves
for a specific purpose, and may not be transferred to another
category as no other category has the same purpose. However, the
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“buy-in” portion of the capacity fees and annexation fees are
restricted for purposes that are shared by more than one category
of funds and may therefore be transferred to a restricted fund
within another fund category as long as it shares the same
purpose.
In many situations reserve transfers are expected as some fund
categories will exceed their maximums or drop below their
minimums. Only fund categories that are below the stated target
are eligible to receive transferred reserves. Fund categories
that exceed their maximums are first to be considered for
transfers out, followed by funds that exceed their targets. Funds
that exceed their minimums are also available for reserve
transfers out, but only when other options are not available.
The rationale for prioritizing reserve transfers is based on the
immediacy of the need and the availability of reserves from other
funding sources. For example, the General Fund is first to
receive reserves when it drops below its target or minimum levels.
This is because of the immediate and ongoing nature of the
expenditures that are served by this fund. The operation of the
District is first and foremost of the objectives of the District.
On the other end of the spectrum, the Replacement Fund has a long-
term perspective and will be used to partially finance replacement
assets for many years to come. Debt financing is available to
respond to this long term, foreseeable, and planned cash flow.
This fund is less likely to have immediate needs and has other
financing options.
When making the determination of when transfers are necessary, all
funds within a fund category work as a group. The combined
balance of the restricted and designated funds is looked at when
determining whether the fund category requires additional funding
from the Restricted Capital Improvement Fund, Restricted
Annexation Fund, Restricted Debt Fund, or the General Fund.
Because the Capital Improvement Fund and Annexation Fund may
finance expansion, replacement or betterment reserves may be
transferred between these fund categories, but only back and forth
within its own type of restricted fund.
As an example, if during the rate model update process it was
determined that the Expansion Funds (designated and restricted)
would drop and stay below the minimum during the six-year planning
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horizon, this would trigger a bond sale, a transfer of general use
reserves, and/or a transfer of restricted reserves. If in the
cash planning process, it was anticipated that the General Fund
would remain above target during the planning horizon and that the
trend did not present a problematic underfunded status, then
General Fund reserves would be considered available for transfer
prior to making proceeds available from a bond sale. Also, if
during this period the Betterment Fund category was anticipated to
exceed its maximum, then reserves from either the Designated
Betterment Fund, the Annexation Fund, or the Capital Improvement
Fund would be transferred to the corresponding Expansion Fund
prior to a bond sale. All funds are evaluated to determine which
has the greatest need or availability of reserves before any
reserve transfer recommendation is presented to the Board.
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GLOSSARY
The Reserve Policy contains terminology that is unique to public
finance and budgeting. The following glossary provides assistance
in understanding these terms.
Annexation Fees: When water service is requested for land outside
the boundaries of the District, the land to be serviced must first
be annexed. For sewer service the land must be annexed into an
improvement district within the District.
Assets: Resources owned or held by Otay Water District that has
monetary value.
Availability Fees: The District levies charges each year in
developed areas to be used for upgrades, betterment, or
replacement and in undeveloped areas to provide a source of
funding for planning, mapping, and preliminary design of
facilities to meet future development. Current legislation
provides that any availability charge in excess of $10.00 per acre
shall be used only for the purpose of the improvement district for
which it was assessed.
Betterment Fees: In addition to other applicable water rates and
charges, water customers pay a fee based on water service zone or
Improvement District. These fees are restricted for use in the
area where they are collected and may be used for the construction
and maintenance of facilities.
Bond: A written promise to pay a sum of money on a specific date
at a specified interest rate. The interest payments and the
repayment of the principal are authorized in a District bond
resolution. The most common types of bonds are General Obligation
(GO) bonds and Certificates of Participation (COPs). These are
frequently used for construction of large capital projects such as
buildings, reservoirs, pipelines and pump stations.
Capital Equipment: Fixed assets such as vehicles, marine
equipment, computers, furniture, technical instruments, etc. which
have a life expectancy of more than two years and a value over
$10,000.
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Capital Improvement Program: A long-range plan of the District
for the construction, rehabilitation and modernization of the
District-owned and operated infrastructure.
CWA: The County Water Authority was organized in 1944 under the
State County Water Authority Act for the primary purpose of
importing Colorado River water to augment the local water supplies
of the Authority's member agencies. The Authority purchases water
from the Metropolitan Water District of Southern California (MWD)
which imports water from the Colorado River and the State Water
Project.
Debt Service: The District's obligation to pay the principal and
interest of bonds and other debt instruments according to a
predetermined payment schedule.
Expenditures/Expenses: These terms refer to the outflow of funds
paid or to be paid for an asset, goods, or services obtained
regardless of when actually paid for. (Note: An encumbrance is
not an expenditure). An encumbrance reserves funds to be expended
in a future period.
Fund: An account used to track the collection and use of monies
for a specifically defined purpose.
Fund Balance: The current funds on hand resulting from the
historical collection and use of monies. The difference between
assets and liabilities reported in the District’s Operating Fund
plus residual equities or balances and changes therein, from the
results of operations.
Interest Income: Earnings from the investment portfolio. Per
District Policy Number 25, interest income will be allocated to
the various funds each month based upon each fund’s prior month-
ending balance.
Late Charges/Penalties: Charges and penalties are imposed on
customer accounts for late payments, returned payments, and other
infringements of the District’s Code of Ordinances.
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1% Property Tax: In 1978, Proposition 13 limited general levy
property tax rates for all taxing authorities to a total rate of
1% of full cash value. Subsequent legislation, AB 8, established
that the receipts from the 1% levy were to be distributed to
taxing agencies according to approximately the same proportions
received prior to Proposition 13. Funds received are to be used
for facilities construction or debt service on bonds sold to build
facilities.
Operating Budget: The portion of the budget that pertains to
daily operations that provide basic governmental services. The
operating budget contains appropriations for such expenditures as
personnel, supplies, utilities, materials, travel and fuel, and
does not include purchases of major capital plant or equipment
which is budgeted for separately in the Capital Budget. The
Operating Budget also identifies planned non-operating revenues
and expenses.
Revenue: Monies that the District receives as income. It
includes such items as water sales and sewer fees. Estimated
revenues are those expected to be collected during the fiscal
year.
System Fees: Each water service customer pays a monthly system
charge for water system replacement, maintenance, and operation
expenses. The charge is based on the size of the meter and class
of service.
Taxes: California Water Code Section 72091 authorizes the
District, as a municipal water district, to levy ad valorem
property taxes which are equal to the amount required to make
annual payments for principal and interest on General Obligation
bonds approved by the voters prior to July 1, 1978.
Water Rates: Rates vary among classes of service and are measured
in units. The water rates for residential customers are based on
an accelerated block structure. As more units are consumed, a
higher unit rate is charged. Effective in 2009, all non-
residential customers are charged for water based on a tiered rate
structure in which water rates are based on meter size and amount
of units consumed. A unit of water is 100 cubic feet or 748
gallons of water.
STAFF REPORT
TYPE MEETING: Regular Board MEETING DATE: August 1, 2012
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: Annual Review of the District’s Investment Policy (Policy
No. 27) and Re-Delegation of Authority for All Investment
Related Activities to the Chief Financial Officer
GENERAL MANAGER’S RECOMMENDATION:
That the Board receive the District’s Investment Policy (Policy
No. 27) for review and to re-delegate authority for all investment
related activities to the Chief Financial Officer (CFO), in
accordance with Government Code Section 53607.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
Government Code Section 53646 recommends that the District’s
Investment Policy be rendered to the Board on an annual basis for
review. In addition, Government Code Section 53607 requires that for
the CFO’s delegation of authority to remain effective, the governing
board must re-delegate authority over investment activities on an
annual basis. There are no recommended changes to the Investment
Policy and staff is requesting that the Board re-delegate authority
to the CFO.
ANALYSIS:
The primary goals of the investment policy are to assure compliance
with the California Government Code, Sections 53600 et seq, and to
protect the principal of the funds. The code provides a broad range
of investment options for local agencies, including Federal
Treasuries, Federal Agencies, Callable Federal Agencies, the State
Pool, the County Pool, high-grade corporate debt, and others. Over
the past years, the size of the District’s portfolio has fluctuated
between $103 million and $88 million due to planned outlays for
construction projects.
AGENDA ITEM 6
Because of the District’s adherence to a conservative range of
authorized investments, we have been able to maintain a healthy and
diversified portfolio with no investment losses despite an extended
period of turmoil and instability in the national financial markets.
The policy is consistent with the current law and the overall
objectives of the policy are being met.
FISCAL IMPACT:
None.
STRATEGIC GOAL:
Demonstrate financial health through formalized policies, prudent
investing, and efficient operations.
LEGAL IMPACT:
None.
Attachments:
A) Committee Action Form
B) Investment Policy No. 27
C) Portfolio Management: Portfolio Summary
D) Investment Policy Presentation
ATTACHMENT A
SUBJECT/PROJECT:
Annual Review of Investment Policy (Policy No. 27) and Re-
delegation of Authority for All Investment Related
Activities to the Chief Financial Officer
COMMITTEE ACTION:
The Finance, Administration, and Communications Committee
receive the Investment Policy (Policy No. 27) for review, and to
re-delegate authority for all investment related activities to
the Chief Financial Officer (CFO), in accordance with Government
Code Section 53607.
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.
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1.0: POLICY
It is the policy of the Otay Water District to invest public funds in
a manner which will provide maximum security with the best interest
return, while meeting the daily cash flow demands of the entity and
conforming to all state statues governing the investment of public
funds.
2.0: SCOPE
This investment policy applies to all financial assets of the Otay
Water District. The District pools all cash for investment purposes.
These funds are accounted for in the District’s audited Comprehensive
Annual Financial Report (CAFR) and include:
2.1) General Fund
2.2) Capital Project Funds
2.2.1) Designated Expansion Fund
2.2.2) Restricted Expansion Fund
2.2.3) Designated Betterment Fund
2.2.4) Restricted Betterment Fund
2.2.5) Designated Replacement Fund
2.3) Other Post Employment Fund (OPEB)
2.4) Debt Reserve Fund
Exceptions to the pooling of funds do exist for tax-exempt debt
proceeds and deferred compensation funds. Funds received from the
sale of general obligation bonds, certificates of participation or
other tax-exempt financing vehicles are segregated from pooled
investments and the investment of such funds are guided by the legal
documents that govern the terms of such debt issuances.
3.0: PRUDENCE
Investments should be made with judgment and care, under current
prevailing circumstances, which persons of prudence, discretion and
intelligent exercise in the management of their own affairs, not for
speculation, but for investment, considering the probable safety of
their capital as well as the probable income to be derived.
The standard of prudence to be used by investment officials shall be
the “Prudent Person” and/or "Prudent Investor" standard (California
Attachment B
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Government Code 53600.3) and shall be applied in the context of
managing an overall portfolio. Investment officers acting in
accordance with written procedures and the investment policy and
exercising due diligence shall be relieved of personal responsibility
for an individual security's credit risk or market price changes,
provided deviations from expectations are reported in a timely fashion
and appropriate action is taken to control adverse developments.
4.0: OBJECTIVE
As specified in the California Government Code 53600.5, when
investing, reinvesting, purchasing, acquiring, exchanging, selling and
managing public funds, the primary objectives, in priority order, of
the investment activities shall be:
4.1) Safety: Safety of principal is the foremost objective of
the investment program. Investments of the Otay Water
District shall be undertaken in a manner that seeks to
ensure the preservation of capital in the overall portfolio.
To attain this objective, the District will diversify its
investments by investing funds among a variety of securities
offering independent returns and financial institutions.
4.2) Liquidity: The Otay Water District’s investment portfolio
will remain sufficiently liquid to enable the District to
meet all operating requirements which might be reasonably
anticipated.
4.3) Return on Investment: The Otay Water District’s investment
portfolio shall be designed with the objective of attaining
a benchmark rate of return throughout budgetary and economic
cycles, commensurate with the District’s investment risk
constraints and the cash flow characteristics of the
portfolio.
5.0 DELEGATION OF AUTHORITY
Authority to manage the Otay Water District’s investment program is
derived from the California Government Code, Sections 53600 through
53692. Management responsibility for the investment program is hereby
delegated to the Chief Financial Officer (CFO), who shall be
responsible for all transactions undertaken and shall establish a
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system of controls to regulate the activities of subordinate officials
and their procedures in the absence of the CFO.
The CFO shall establish written investment policy procedures for the
operation of the investment program consistent with this policy. Such
procedures shall include explicit delegation of authority to persons
responsible for investment transactions. No person may engage in an
investment transaction except as provided under the terms of this
policy and the procedures established by the CFO.
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6.0: ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process shall
refrain from personal business activity that could conflict with the
proper execution and management of the investment program, or that
could impair their ability to make impartial investment decisions.
Employees and investment officials shall disclose to the General
Manager any material financial interests in financial institutions
with which they conduct business. They shall further disclose any
personal financial/investment positions that could be related to the
performance of the investment portfolio. Employees and officers shall
refrain from undertaking personal investment transactions with the
same individual with whom business is conducted on behalf of the
District.
7.0: AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The Chief Financial Officer shall maintain a list of financial
institutions authorized to provide investment services. In addition,
a list will also be maintained of approved security broker/dealers who
are authorized to provide investment services in the State of
California. These may include “primary” dealers or regional dealers
that qualify under Securities & Exchange Commission Rule 15C3-1
(Uniform Net Capital Rule). No public deposit shall be made except in
a qualified public depository as established by state laws.
All financial institutions and broker/dealers who desire to become
qualified bidders for investment transactions must supply the District
with the following, as appropriate:
Audited Financial Statements.
Proof of National Association of Security Dealers (NASD)
certification.
Proof of state registration.
Completed broker/dealer questionnaire.
Certification of having read the District’s Investment
Policy.
Evidence of adequate insurance coverage.
As annual review of the financial condition and registrations of
qualified bidders will be conducted by the CFO. A current audited
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financial statement is required to be on file for each financial
institution and broker/dealer in which the District invests.
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8.0: AUTHORIZED AND SUITABLE INVESTMENTS
From the governing body perspective, special care must be taken to
ensure that the list of instruments includes only those allowed by law
and those that local investment managers are trained and competent to
handle. The District is governed by the California Government Code,
Sections 53600 through 53692, to invest in the following types of
securities, as further limited herein:
8.01) United States Treasury Bills, Bonds, Notes or those
instruments for which the full faith and credit of the United
States are pledged for payment of principal and interest. There
is no percentage limitation of the portfolio which can be
invested in this category, although a five-year maturity
limitation is applicable.
8.02) Local Agency Investment Fund (LAIF), which is a State
of California managed investment pool, may be used up to the
maximum permitted by State Law (currently $40 million). The
District may also invest bond proceeds in LAIF with the same but
independent maximum limitation.
8.03) Bonds, debentures, notes and other evidence of
indebtedness issued by any of the following government agency
issuers:
Federal Home Loan Bank (FHLB)
Federal Home Loan Mortgage Corporation (FHLMC or "Freddie
Mac")
Federal National Mortgage Association (FNMA or "Fannie Mae")
Government National Mortgage Association (GNMA or “Ginnie
Mae”)
Student Loan Marketing Association (SLMA or "Sallie Mae")
Federal Farm Credit Bank (FFCB)
There is no percentage limitation of the portfolio which can be
invested in this category, although a five-year maturity
limitation is applicable.
8.04) Interest-bearing demand deposit accounts and
Certificates of Deposit (CD) will be made only in Federal Deposit
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Insurance Corporation (FDIC) insured accounts. For deposits in
excess of the insured maximum of $100,000, approved collateral
shall be required in accordance with California Government Code,
Section 53652. Investments in CD’s are limited to 15 percent of
the District’s portfolio.
8.05) Commercial paper, which is short-term, unsecured
promissory notes of corporate and public entities. Purchases of
eligible commercial paper may not exceed 10 percent of the
outstanding paper of an issuing corporation, and maximum
investment maturity will be restricted to 270 days. Investment is
further limited as described in California Government Code,
Section 53601(g). Purchases of commercial paper may not exceed 15
percent of the District’s portfolio.
8.06) Medium-term notes defined as all corporate debt
securities with a maximum remaining maturity of five years or
less, and that meet the further requirements of California
Government Code, Section 53601(j). Investments in medium-term
notes are limited to 15 percent of the District’s portfolio.
8.07) Money market mutual funds that invest only in Treasury
securities and repurchase agreements collateralized with Treasury
securities, and that meet the further requirements of California
Government Code, Section 53601(k). Investments in money market
mutual funds are limited to 15 percent of the District's
portfolio.
8.08) The San Diego County Treasurer’s Pooled Money Fund,
which is a County managed investment pool, may be used by the
Otay Water District to invest excess funds. There is no
percentage limitation of the portfolio which can be invested in
this category.
8.09) Under the provisions of California Government Code
53601.6, the Otay Water District shall not invest any funds
covered by this Investment Policy in inverse floaters, range
notes, interest-only strips derived from mortgage pools, or any
investment that may result in a zero interest accrual if held to
maturity. Also, the borrowing of funds for investment purposes,
known a leveraging, is prohibited.
9.0: INVESTMENT POOLS/MUTUAL FUNDS
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A thorough investigation of the pool/fund is required prior to
investing, and on a continual basis. There shall be a questionnaire
developed which will answer the following general questions:
A description of eligible investment securities, and a
written statement of investment policy and objectives.
A description of interest calculations and how it is
distributed, and how gains and losses are treated.
A description of how the securities are safeguarded
(including the settlement processes), and how often the
securities are priced and the program audited.
A description of who may invest in the program, how often,
and what size deposits and withdrawals are allowed.
A schedule for receiving statements and portfolio listings.
Are reserves, retained earnings, etc., utilized by the
pool/fund?
A fee schedule, and when and how is it assessed.
Is the pool/fund eligible for bond proceeds and/or will it
accept such proceeds?
10.0 COLLATERALIZATION
Collateralization will be required on certificates of deposit. In
order to anticipate market changes and provide a level of security for
all funds, the collateralization level will be 102% of market value of
principal and accrued interest. Collateral will always be held by an
independent third party with whom the entity has a current custodial
agreement. A clearly marked evidence of ownership (safekeeping
receipt) must be supplied to the entity and retained. The right of
collateral substitution is granted.
11.0: SAFEKEEPING AND CUSTODY
All security transactions entered into by the Otay Water District
shall be conducted on a delivery-versus-payment (DVP) basis.
Securities will be held by a third party custodian designated by the
District and evidenced by safekeeping receipts.
12.0: DIVERSIFICATION
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The Otay Water District will diversify its investments by security
type and institution, with limitations on the total amounts invested
in each security type as detailed in Paragraph 8.0, above, so as to
reduce overall portfolio risks while attaining benchmark average rate
of return. With the exception of U.S. Treasury securities, government
agencies, and authorized pools, no more than 50% of the District’s
total investment portfolio will be invested with a single financial
institution.
13.0: MAXIMUM MATURITIES
To the extent possible, the Otay Water District will attempt to match
its investments with anticipated cash flow requirements. Unless
matched to a specific cash flow, the District will not directly invest
in securities maturing more than five years from the date of purchase.
However, for time deposits with banks or savings and loan
associations, investment maturities will not exceed two years.
Investments in commercial paper will be restricted to 270 days.
14.0: INTERNAL CONTROL
The Chief Financial Officer shall establish an annual process of
independent review by an external auditor. This review will provide
internal control by assuring compliance with policies and procedures.
15.0: PERFORMANCE STANDARDS
The investment portfolio shall be designed with the objective of
obtaining a rate of return throughout budgetary and economic cycles,
commensurate with the investment risk constraints and the cash flow
needs.
The Otay Water District’s investment strategy is passive. Given this
strategy, the basis used by the CFO to determine whether market yields
are being achieved shall be the State of California Local Agency
Investment Fund (LAIF) as a comparable benchmark.
16.0: REPORTING
The Chief Financial Officer shall provide the Board of Directors
monthly investment reports which provide a clear picture of the status
of the current investment portfolio. The management report should
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include comments on the fixed income markets and economic conditions,
discussions regarding restrictions on percentage of investment by
categories, possible changes in the portfolio structure going forward
and thoughts on investment strategies. Schedules in the quarterly
report should include the following:
A listing of individual securities held at the end of the
reporting period by authorized investment category.
Average life and final maturity of all investments listed.
Coupon, discount or earnings rate.
Par value, amortized book value, and market value.
Percentage of the portfolio represented by each investment
category.
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17.0: INVESTMENT POLICY ADOPTION
The Otay Water District’s investment policy shall be adopted by
resolution of the District’s Board of Directors. The policy shall be
reviewed annually by the Board and any modifications made thereto must
be approved by the Board.
18.0: GLOSSARY
See Appendix A.
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APPENDIX A: GLOSSARY
ACTIVE INVESTING: Active investors will purchase investments and
continuously monitor their activity, often looking at the price
movements of their stocks many times a day, in order to exploit
profitable conditions. Typically, active investors are seeking short
term profits.
AGENCIES: Federal agency securities and/or Government-sponsored
enterprises.
BANKERS’ ACCEPTANCE (BA): A draft or bill or exchange accepted by a
bank or trust company. The accepting institution guarantees payment
of the bill, as well as the issuer.
BENCHMARK: A comparative base for measuring the performance or risk
tolerance of the investment portfolio. A benchmark should represent a
close correlation to the level of risk and the average duration of the
portfolio’s investments.
BROKER/DEALER: Any individual or firm in the business of buying and
selling securities for itself and others. Broker/dealers must register
with the SEC. When acting as a broker, a broker/dealer executes
orders on behalf of his/her client. When acting as a dealer, a
broker/dealer executes trades for his/her firm's own account.
Securities bought for the firm's own account may be sold to clients or
other firms, or become a part of the firm's holdings.
CERTIFICATE OF DEPOSIT (CD): A short or medium term, interest bearing,
FDIC insured debt instrument offered by banks and savings and loans.
Money removed before maturity is subject to a penalty. CDs are a low
risk, low return investment, and are also known as “time deposits”,
because the account holder has agreed to keep the money in the account
for a specified amount of time, anywhere from a few months to several
years.
COLLATERAL: Securities, evidence of deposit or other property, which a
borrower pledges to secure repayment of a loan. Also refers to
securities pledged by a bank to secure deposits of public monies.
COMMERCIAL PAPER: An unsecured short-term promissory note, issued by
corporations, with maturities ranging from 2 to 270 days.
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COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual
report for the Otay Water District. It includes detailed financial
information prepared in conformity with generally accepted accounting
principles (GAAP). It also includes supporting schedules necessary to
demonstrate compliance with finance-related legal and contractual
provisions, extensive introductory material, and a detailed
statistical section.
COUPON: (a) The annual rate of interest that a bond’s issuer promises
to pay the bondholder on the bond’s face value. (b) A certificate
attached to a bond evidencing interest due on a set date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all
transactions, buying and selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of
securities: delivery versus payment and delivery versus receipt.
Delivery versus payment is delivery of securities with an exchange of
money for the securities. Delivery versus receipt is delivery of
securities with an exchange of a signed receipt for the securities.
DERIVATIVES: (1) Financial instruments whose return profile is linked
to, or derived from, the movement of one or more underlying index or
security, and may include a leveraging factor, or (2) financial
contracts based upon notional amounts whose value is derived from an
underlying index or security (interest rates, foreign exchange rates,
equities or commodities).
DISCOUNT: The difference between the cost price of a security and its
maturity when quoted at lower than face value. A security selling
below original offering price shortly after sale also is considered to
be at a discount.
DISCOUNT SECURITIES: Non-interest bearing money market instruments
that are issued at a discount and redeemed at maturity for full face
value, e.g., U.S. Treasury Bills.
DIVERSIFICATION: Dividing investment funds among a variety of
securities offering independent returns.
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FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to
supply credit to various classes of institutions and individuals,
e.g., S&L’s, small business firms, students, farmers, farm
cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that
insures deposits in member banks and thrifts, currently up to $100,000
per deposit.
FEDERAL FARM CREDIT BANK (FFCB): The Federal Farm Credit Bank system
supports agricultural loans and issues securities and bonds in
financial markets backed by these loans. It has consolidated the
financing programs of several related farm credit agencies and
corporations.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are
traded. This rate is currently pegged by the Federal Reserve through
open-market operations.
FEDERAL HOME LOAN BANK (FHLB): Government sponsored wholesale banks
(currently 12 regional banks), which lend funds and provide
correspondent banking services to member commercial banks, thrift
institutions, credit unions and insurance companies.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC or Freddie Mac): A
stockholder owned, publicly traded company chartered by the United
States federal government in 1970 to purchase mortgages and related
securities, and then issue securities and bonds in financial markets
backed by those mortgages in secondary markets. Freddie Mac, like its
competitor Fannie Mae, is regulated by the United States Department of
Housing and Urban Development (HUD).
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Mae): FNMA, like
GNMA was chartered under the Federal National Mortgage Association Act
in 1938. FNMA is a federal corporation working under the auspices of
the Department of Housing and Urban Development (HUD). It is the
largest single provider of residential mortgage funds in the United
States. Fannie Mae is a private stockholder-owned corporation. The
corporation’s purchases include a variety of adjustable mortgages and
second loans, in addition to fixed-rate mortgages. FNMA’s securities
are also highly liquid and are widely accepted. FNMA assumes and
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guarantees that all security holders will receive timely payment of
principal and interest.
FEDERAL RESERVE SYSTEM: The central bank of the United States created
by Congress and consisting of a seven member Board of Governors in
Washington, D.C., 12 regional banks and about 5,700 commercial banks
that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): A
government owned agency which buys mortgages from lending
institutions, securitizes them, and then sells them to investors.
Because the payments to investors are guaranteed by the full faith and
credit of the U.S. Government, they return slightly less interest than
other mortgage-backed securities.
INTEREST-ONLY STRIPS: A mortgage backed instrument where the investor
receives only the interest, no principal, from a pool of mortgages.
Issues are highly interest rate sensitive, and cash flows vary between
interest periods. Also, the maturity date may occur earlier than that
stated if all loans within the pool are pre-paid. High prepayments on
underlying mortgages can return less to the holder than the dollar
amount invested.
INVERSE FLOATER: A bond or note that does not earn a fixed rate of
interest. Rather, the interest rate is tied to a specific interest
rate index identified in the bond/note structure. The interest rate
earned by the bond/note will move in the opposite direction of the
index. An inverse floater increases the market rate risk and modified
duration of the investment.
LEVERAGE: Investing with borrowed money with the expectation that the
interest earned on the investment will exceed the interest paid on the
borrowed money.
LIQUIDITY: A liquid asset is one that can be converted easily and
rapidly into cash without a substantial loss of value. In the money
market, a security is said to be liquid if the spread between bid and
asked prices is narrow and reasonable size can be done at those
quotes.
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LOCAL AGENCY INVESTMENT FUND (LAIF): The aggregate of all funds from
political subdivisions that are placed in the custody of the State
Treasurer for investment and reinvestment.
MARKET VALUE: The price at which a security is trading and could
presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future
transactions between the parties to repurchase/reverse repurchase
agreements that establish each party’s rights in the transactions. A
master agreement will often specify, among other things, the right of
the buyer-lender to liquidate the underlying securities in the event
of default by the seller borrower.
MATURITY: The date upon which the principal or stated value of an
investment becomes due and payable.
MONEY MARKET: The market in which short-term debt instruments (bills,
commercial paper, bankers’ acceptances, etc.) are issued and traded.
MUTUAL FUNDS: An open-ended fund operated by an investment company
which raises money from shareholders and invests in a group of assets,
in accordance with a stated set of objectives. Mutual funds raise
money by selling shares of the fund to the public. Mutual funds then
take the money they receive from the sale of their shares (along with
any money made from previous investments) and use it to purchase
various investment vehicles, such as stocks, bonds, and money market
instruments.
MONEY MARKET MUTUAL FUNDS: An open-end mutual fund which invests only
in money markets. These funds invest in short term (one day to one
year) debt obligations such as Treasury bills, certificates of
deposit, and commercial paper.
NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD): A self-regulatory
organization of the securities industry responsible for the operation
and regulation of the NASDAQ stock market and over-the-counter
markets. Its regulatory mandate includes authority over firms that
distribute mutual fund shares as well as other securities.
PASSIVE INVESTING: An investment strategy involving limited ongoing
buying and selling actions. Passive investors will purchase
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investments with the intention of long term appreciation and limited
maintenance, and typically don’t actively attempt to profit from short
term price fluctuations. Also known as a buy-and-hold strategy.
PRIMARY DEALER: A designation given by the Federal Reserve System to
commercial banks or broker/dealers who meet specific criteria,
including capital requirements and participation in Treasury auctions.
These dealers submit daily reports of market activity and positions
and monthly financial statements to the Federal Reserve Bank of New
York and are subject to its informal oversight. Primary dealers
include Securities and Exchange Commission registered securities
broker/dealers, banks, and a few unregulated firms.
PRUDENT PERSON RULE: An investment standard. In some states the law
requires that a fiduciary, such as a trustee, may invest money only in
a list of securities selected by the custody state—the so-called legal
list. In other states the trustee may invest in a security if it is
one which would be bought by a prudent person of discretion and
intelligence who is seeking a reasonable income and preservation of
capital.
PUBLIC SECURITIES ASSOCIATION (PSA): A trade organization of dealers,
brokers, and bankers who underwrite and trade securities offerings.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not
claim exemption from the payment of any sales or compensating use or
ad valorem taxes under the laws of this state, which has segregated
for the benefit of the commission eligible collateral having a value
of not less than its maximum liability and which has been approved by
the Public Deposit Protection Commission to hold public deposits.
RANGE NOTE: An investment whose coupon payment varies and is dependent
on whether the current benchmark falls within a pre-determined range.
RATE OF RETURN: The yield obtainable on a security based on its
purchase price or its current market price. This may be the amortized
yield to maturity on a bond the current income return.
REGIONAL DEALER: A securities broker/dealer, registered with the
Securities & Exchange Commission (SEC), who meets all of the licensing
requirements for buying and selling securities.
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy
Number
Date
Adopted
Date
Revised
DISTRICT INVESTMENT POLICY 27 9/15/93 9/6/06
Page 18 of 19
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them at a
fixed price on a fixed date. The security “buyer” in effect lends the
“seller” money for the period of the agreement, and the terms of the
agreement are structured to compensate him for this. Dealers use RP
extensively to finance their positions. Exception: When the Fed is
said to be doing RP, it is lending money that is increasing bank
reserves.
SAFEKEEPING: A service to customers rendered by banks for a fee
whereby securities and valuables of all types and descriptions are
held in the bank’s vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of
outstanding securities issues following their initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to
protect investors in securities transactions by administering
securities legislation.
SEC RULE 15C3-1: See Uniform Net Capital Rule.
STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises
(FHLB, FNMA, SLMA, etc.), and Corporations, which have imbedded
options (e.g., call features, step-up coupons, floating rate coupons,
derivative-based returns) into their debt structure. Their market
performance is impacted by the fluctuation of interest rates, the
volatility of the imbedded options and shifts in the shape of the
yield curve.
STUDENT LOAN MARKETING ASSOCIATION (SLMA or Sallie Mae): A federally
established, publicly traded corporation which buys student loans from
colleges and other lenders, pools them, and sells them to investors.
TREASURY BILLS: A non-interest bearing discount security issued by the
U.S. Treasury to finance the national debt. Most bills are issued to
mature in three months, six months, or one year.
TREASURY BONDS: Long-term coupon-bearing U.S. Treasury securities
issued as direct obligations of the U.S. Government and having initial
maturities of more than 10 years.
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy
Number
Date
Adopted
Date
Revised
DISTRICT INVESTMENT POLICY 27 9/15/93 9/6/06
Page 19 of 19
TREASURY NOTES: Medium-term coupon-bearing U.S. Treasury securities
issued as direct obligations of the U.S. Government and having initial
maturities from two to 10 years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission
requirement that member firms as well as nonmember broker-dealers in
securities maintain a maximum ratio of indebtedness to liquid capital
of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans
and commitments to purchase securities, one reason new public issues
are spread among members of underwriting syndicates. Liquid capital
includes cash and assets easily converted into cash.
YIELD: The rate of annual income return on an investment, expressed as
a percentage. (a) INCOME YIELD is obtained by dividing the current
dollar income by the current market price for the security. (b) NET
YIELD or YIELD TO MATURITY is the current income yield minus any
premium above par or plus any discount from par in purchase price,
with the adjustment spread over the period from the date of purchase
to the date of maturity of the bond.
DISTRICT INVESTMENT
POLICY
Policy No. 27
August 1, 2012
Attachment D
POLICY REVIEW
Purpose:
Annual Review
Delegation of Investment Authority
INVESTMENT POLICY GUIDELINES
A. California Government Code:
Sections 53600 through 53692
B. Investment Policy Certification:
Association of Public Treasurers of the
United States & Canada (APT US&C)
INVESTMENT PORTFOLIO: 6/30/12
Authorized
$(‘000s) $ / % Actual %
LAIF (Operating) $7,533 $50 M 8.52%
LAIF (Bonds) $4,068 100% 4.61%
Govt. Agency Bonds $53,097 100% 60.11%
Bank Deposits & CDs $1,526 15% 1.73%
San Diego County Pool $22,109 50% 25.03%
TOTAL: $88,333
INVESTMENT PORTFOLIO: 6/30/12
$1,525,799
1.73%
$33,710,052
38.16%
$53,095,134
60.11%
Otay Water District
Investment Portfolio: 06/30/12
Banks (Passbook/Checking/CD)Pools (LAIF & County)Agencies & Corporate Notes
INVESTMENT PERFORMANCE
Fund Objectives
Safety
Liquidity
Return on Investment
Fund Performance: FY-12 FY-11
OTAY: 0.60% 1.25%
LAIF: 0.40% 0.50%
REQUESTED BOARD ACTION
Re-delegate authority for all
investment related activities to the
Chief Financial Officer (CFO), in
accordance with Government Code
Section 53607.