HomeMy WebLinkAbout10-18-10 FA&C Committee PacketOTAY WATER DISTRICT
FINANCE,ADMINISTRATION AND COMMUNICATIONS
COMMITTEE MEETING
and
SPECIAL MEETING OF THE BOARD OF DIRECTORS
2554 SWEETWATER SPRINGS BOULEVARD
SPRING VALLEY,CALIFORNIA
BOARDROOM
TUESDAY
October 19,2010
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
wili 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 DISTRICTS AUDITED FINANCIAL STATEMENTS,
INCLUDING THE INDEPENDENT AUDITORS'UNQUALIFIED OPINION,FOR
FISCAL YEAR ENDED JUNE 30,2010 (CUDLlP)[5 minutes]
4.ADOPT RESOLUTION NO.4162 OF THE DISTRICTS CODE OF
ORDINANCES AMENDING POLICY NO.25,RESERVE POLICY,WHICH
INCLUDES THE UPDATED CAPACITY,ANNEXATION AND NEW WATER
SUPPLY FEES (BELL)[5 minutes]
5.APPROVE THE ADJUSTMENT OF THE WHEELING RATE FOR THE
DELIVERY OF TREATY WATER TO THE CITY OF TIJUANA TO $68.45 PER
ACRE-FOOT FOR CALENDAR YEAR 2011 (CUDLlP)[5 minutes]
6.APPROVE AGREEMENTS WITH ADVANCED CALL PROCESSING
CORPORATION IN AN AMOUNT NOT-TO-EXCEED $400,000 FOR
TELECOMMUNICATIONS EQUIPMENT AND SERVICES AND FANDEL
ENTERPRISES FOR AN AMOUNT NOT-TO-EXCEED $40,000 FOR
TELECOMMUNICATION CONSULTING AND IMPLEMENTATION SERVICES
(STEVENS)[5 minutes]
1
7.APPROVE AMENDMENTS TO SECTION 7.2.8,BOARD AUTHORIZED
PURCHASES EXCEEDING THE GENERAL MANAGER'S AUTHORITY,OF
THE DISTRICTS PURCHASING MANUAL (DOBRAWA)[5 minutes]
8.ADJOURNMENT
BOARD MEMBERS ATTENDING:
Jaime Bonilla,Chair
Mark Robak
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 October 15,2010 I posted a copy of the foregoing agenda near
the regular meeting place of the Board of Directors of Otay Water District,said time be-
ing 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 October 15,2010.
retary
2
AGENDA ITEM 3
W.O.lG.F.NO:
MEETING DATE:TYPE MEETING:
SUBMITTED BY:
APPROVED BY:
(Chief)
APPROVED BY:
(Ass!.GM):
STAFF REPORT
Regular Boa~,
James CUd~,-~e Manager~.-,2£JOSeph~em,Chief Financial Officer
German Alvarez,Assistant General Manager,
Administration
November 3,2010
DIV.NO.All
Finance and
SUBJECT:Approve the District's Audited Financial Statements for the
Fiscal Year Ended June 30,2010
GENERAL MANAGER'S RECOMMENDATION:
That the Board approves the District's Audited Financial
statements (Attachment B),including the Independent Auditors'
unqualified opinion,for the fiscal year ended June 30,2010.
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
To inform the Board of the significant financial events which
occurred during the fiscal year ended June 30,2010 as reflected
in the audited financial statements.
ANALYSIS:
Diehl,Evans &Company,LLP,performed the audit and found that,
in all material respects,the financial statements correctly
represent the financial position of the District.They found no
material errors or weaknesses;therefore,there are no findings
to present in their "Management Letter."See Attachment C.
Tota~Assets:
Total Assets increased by $55.5 million or 10.08%during Fiscal
Year 2010 due primarily to the issuance of $51.2 million in new
water revenue bonds.At the same time there was an increase in
capital assets of $17.0 million or 3.75%,net of related
accumulated depreciation.
Tota~Liabi~ities &Net Assets:
Total liabilities increased by approximately $52.6 million or
58.12%from the previous fiscal year.This was also directly
attributable to the issuance of the new bonds.Overall,long-
term debt increased $48.6 million or 70.30%.Additionally,
accounts payable increased $3.8 million or 32.52%.Fluctuations
of this magnitude are expected given the nature of accounts
payable,and result from the timing of large payments to vendors
and other third parties.
The increase in total assets,along with the decrease in total
liabilities,yielded an increase in net assets (equity)of
approximately $2.9 million or 0.63%.
Capita~Contributions:
Capital contributions totaled $9.1 million during Fiscal Year
2010,an increase of $2.1 million or 29.76%over Fiscal Year
2009 contributions.This increase is mainly due to the District
receiving $2.4 million more than expected in federal grant
monies as a result of last minute availability of funds from the
federal budget.
Resu~ts or Operations:
Operating revenues increased $3.4 million or 5.87%,mainly as a
result of the overall increase in water rates from the prior
fiscal year.
While cost of water sales increased $2.1 million or 5.60%due to
the increase in CWA water costs,cost savings achieved in other
areas were sufficient to keep total operating expenses from
rising significantly compared to the prior fiscal year.
Non-Operating Revenues &Expenses:
Non-operating revenues dropped $5.3 million or 37.70%due to a
combination of factors.First,there was a decrease in
investment income due to a continuing drop in rates on
investment securities.Also,in FY-2009 the District received a
large,one-time legal settlement as a member of a class action
lawsuit against a major supply vendor.Finally,in the prior
year the District brought in capacity fee revenue to offset the
write-off of a capital asset project that was deemed no longer
economically viable for continued operations.
2
Additiona~Audit Correspondence:
As a part of completing the audit engagement,the audit firm
also provides the following letters summarizing their
observations and conclusions concerning the District's overall
financial processes:
•Management Letter:The auditors did not identify any
deficiencies in internal control that they considered to
be material weaknesses.See Attachment C.
•Capitalized Interest Letter:The auditors reviewed the
District's new 2010 Water Revenue Bond documentation and
determined that a different,more recently enacted
accounting principle should be applied to account for the
interest capitalization of this debt issue.This
resulted in an audit reclassification from expense to
capital projects of $436,369.See Attachment D.
•Audit Committee Letter:There were no noted transactions
entered into by the District during the year that were
both significant and unusual,or transactions for which
there was a lack of authoritative guidance or consensus.
There were no disagreements with management concerning
financial accounting,reporting,or auditing matters,and
there were no significant difficulties in dealing with
management in performing the audit.See Attachment E.
•Report on Applying Agreed-Upon Procedures:A review of
the District's investment portfolio at year end,and a
sample of specific investment transactions completed
throughout the fiscal year,disclosed no exceptions to
compliance with the District's Investment Policy.See
Attachment F.
FISCAL IMPACT:
None.
STRATEGIC OUTLOOK:
The District ensures its continued financial health through
long-term financial planning,formalized financial policies,
enhanced budget controls,fair pricing,debt planning,and
improved financial reporting.
3
LEGAL IMPACT:
None.
Attachments:
A)Committee Action Form
B)Audited Annual Financial Statements
C)Management Letter
D)Capitalized Interest Letter
E)Audit Committee Letter
F)Report on Applying Agreed-Upon Procedures
4
ATTACHMENT A
Approve the District's Audited Financial Statements for the
SUBJECT/PROJECT:Fiscal Year Ended June 30,2010
COMMITTEE ACTION:
The Finance,Administration,and Communications Committee
recommend that the Board approves the District's audited
financial statements,including the Independent Auditor's
unqualified opinion,for the fiscal year ended June 30,2010.
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.
F:\DianeA\Staff Rpts 2010\CommMtgAuditedFinancialsl10310.doc
OTAY WATER DISTRICT
FINANCIAL STATEMENTS
WITH REPORT ON AUDIT BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
JUNE 30,2010 AND 2009
Attachment B
JUNE 30,2010 and 2009
Page
Number
Independent Auditors'Report
Management's Discussion and Analysis
Basic Financial Statements:
Statements ofNet Assets
Statements ofRevenues,Expenses,and Changes in Net Assets
Statements ofCash Flows
Notes to Financial Statements
Required Supplementary Information
Schedule ofFunding Progress for PERS
Schedule ofFunding Progress for DPHP
2-6
7-8
9
10 -11
12 -35
36
36
~DIEHL,EVANS &COMPANY,LLP~CERTIFIED PUBLIC ACCOUNTANTS &:CONSULTANTS
APARTNERSIDP INCLUDINGACCOUNTANCY CORPORAnONS
2965 ROOSEVELT STREET
CARLSBAD,CALIFORNIA 92008-2389
(760)729-2343 0 FAX (760)729-2234
www.diehlevans.com
October 12,2010
INDEPENDENT AUDITORS'REPORT
Board ofDirectors
Otay Water District .
Spring Valley,California
'PHILIP H.HOLTKAMP,CPA
'THOMASM.PERLOWSKI,CPA
'HARVEYJ.SCHROEDER,CPA
KENNETH R.AMES,CPA
WILLIAM C.PENTZ,CPA
MICHAEL R.LUDIN,CPA
CRAIG W.SPRAKER,CPA
NlTIN P.PATEL,CPA
ROBERT J.CALLANAN,CPA
*APROFF$SIONAT.rORPORATION
We have audited the accompanying basic financial statements of Otay Water District as of and for the years
ended June 30,2010 and 2009,as listed in the table of contents.These basic financial statements are the
responsibility of the Otay Water District's management.Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America.Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free ofmaterial misstatement.An audit includes examining,on a test basis,
evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing
the accounting principles used and significant estimates made by management,as well as evaluating the overall
financial statement presentation.We believe that our audits provide a reasonable basis for our opinions.
In our opinion,the basic financial statements referred to above present fairly,in all material respects,the
financial position of the Otay Water District as ofJune 30,2010 and 2009,and the changes in financial position
and cash flows for the years then ended in conformity with accounting principles generally accepted in the
United States ofAmerica.
Accounting principles generally accepted in the United States of America require that the management's
discussion and analysis,PERS Defined Benefit Pension Plan -schedule of funding progress,and other post-
employment benefit plan -schedule offunding progress,as identified in the accompanying table of contents be
presented to supplement the basic financial statements.Such information,although not a part of the basic
financial statements,is required by the Governmental Accounting Standards Board,who considers it to be an
essential part of financial reporting for placing the basic financial statements in an appropriate operational,
economic,or historical context.We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States of America,which
consisted of inquiries of management about the methods of preparing the information and comparing the
information for consistency with management's responses to our inquiries,the basic financial statements,and
other knowledge we obtained during our audit ofthe basic financial statements.We do not express an opinion or
provide any assurance on the information because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance.
1
OTHEROFFICES AT:613 W.VALLEY PARKWAY,SUITE 330
ESCONDIDO,CALIFORNIA 92025-2598
(760)741-31410 FAX (760)741-9890
5CORPORATE PARK,SUITE 100
IRVINE,CALIFORNIA 92606-5165
(949)-399-0600 •FAX (949)399-0610
e Management's Discussion and Analysis
As management ofthe Otay Water District (the "District"),we offer readers ofthe District's financial statements this
narrative overview and analysis ofthe District's financial performance during the fiscal year ending June 30,2010.Please
read it in conjunction with the District's financial statements that follow Management's Discussion and Analysis.All
amounts,unless otherwise indicated,are expressed in millions ofdollars.
Financial Highlights
•The assets ofthe District exceeded its liabilities at the close ofthe most recent fiscal year by $463.3 million
(net assets).Ofthis amount,$80.2 million (unrestricted net assets)may be used to meet the District's ongoing
obligations to citizens and creditors.
•The District's total net assets increased by $2.9 million.This is primarily attributable to the increase in capital
contributions of $9.1 million during the fiscal year.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the District's basic financial statements,which are
comprised ofthe following:1)Statement ofNet Assets,2)Statement ofRevenues,Expenses and Changes in Net Assets,
3)Statement ofCash Flows,and 4)Notes to the financial Statements.This report also contains other supplementary
information in addition to the basic financial statements.
The Statement ofNet Assets presents information on all ofthe District's assets and liabilities,with the difference between
the two reported as net assets.Over time,increases or decreases in net assets may serve as a useful indicator ofwhether
the financial position ofthe District is improving or weakening.
The Statement ofRevenues,Expenses alld Changes in Net Assets presents information showing how the District's net
assets changed during the most recent fiscal year.All changes in net assets are reported as soon as the underlying event
giving rise to the change occurs,regardless ofthe timing ofrelated cash flows.Thus,revenues and expenses are reported
in this statement for some items that will only result in cash flows in future fiscal periods (e.g.,uncollected taxes and
earned but unused vacation leave).
The Statement ofCash Flows presents information on cash receipts and payments for the fiscal year.
The Notes to the Financial Statements provide additional infOlmation that is essential to a full understanding ofthe data
supplied in each ofthe specific financial statements listed above.
In addition to the basic financial statements and accompanying notes,this report also presents certain required
supplementary iliformation concerning the District's progress in funding its obligation to provide pension benefits to its
employees.
Financial Analysis
As noted earlier,net assets may serve over time as a useful indicator of an entity's financial position.In the case ofthe
District,assets exceeded liabilities by $463.3 million at the close ofthe most recent fiscal year.
By far the largest portion ofthe District's net assets,$377.9 million (82%),reflects its investment in capital assets,less any
remaining outstanding debt used to acquire those assets.The District uses these capital assets to provide services to
citizens;consequently,these assets are not available for future spending.Although the District's investment in its capital
assets is reported net ofrelated debt,it should be noted that the resources needed to repay this debt must be provided from
other sources,since the capital assets themselves cannot be used to liquidate these liabilities.
2
',6 Management's Discussion and Analysis
Statements ofNet Assets
(In Millions ofDollars)
2010 2009 2008
Assets
Cunent and Other Assets $135.4 $96.8 $106.2
Capital Assets 471.1 454.1 446.7
Total Assets 606.5 550.9 552.9
Liabilities
Long-term Debt Outstanding 117.7 69.1 71.6
Other Liabilities 25.5 21.5 24.5
Total Liabilities 143.2 90.6 96.1
Net Assets
Invested in Capital Assets
Net ofRelated Debt 377.9 382.4 372.7
Restricted for Debt Service 5.2 1.8 3.8
Unrestricted 80.2 76.1 80.3
Total Net Assets $A63.3 $460.3 $456.8
At the end ofFY-2010 the District is able to report positive balances in all categories ofnet assets.This situation also held
true for the prior two fiscal years.In FY-20I0 total Net Assets increased approximately $2.9 million,to $463.3 million,as
compared to FY-2009 when Net Assets increased by over $3.5 million.While the District's operations and population
continue to grow,albeit at slower rates than in prior years,the pattern ofreduced growth ofthe District's Net Assets is
indicative ofthe reduction in new development projects within the District.This reduction is a result ofthe ongoing national
housing slump and financial crisis.
In FY-2009 the decrease in Current and Other Assets of$9.4 million corresponds with the increase in Capital Assets of$7.4
million (net ofaccumulated depreciation),due primarily to the District's Capital Improvement Plan (CIP),which was
financed in part by the funds remaining from the FY-2007 issuance of$42 million in Certificates ofParticipation (COPS-
2007).
In FY-2010 the District issued $51.2 million ofnew Water Revenue Bonds,contributing to the increase in CUiTent and Other
Assets of$38.5 million,and the increase in Long-term Debt Outstanding of$48.6 million.(See Note 5 in the Notes to
Financial Statements).The use of the 2010 Water Revenue Bonds is also reflected in the increase in Capital Assets of$17.0
million,as the District continued its CIP program.(See Note 3 iil the Notes to Financial Statements).
3
~~i~,:~!:~,Management's Discussion and Analysis~~Y'
Statements of Revenues,Expenses,and Changes in Net Assets
(In Millions ofDollars)
2010 2009 2008
Water Sales $56,3 $52,4 $50.8
Wastewater Revenue 2.3 2.2 2,4
Connection and Other Fees 1.9 2.5 2.5
Non-operating Revenues 8.7 14.0 13.6
Total Revenues 69.2 71.1 69.3
Depreciation Expense 13.3 12.5 13.0
Other Operating Expense 59.3 59.0 58.5
Non-operating Expense 2.8 3.1 2.9
Total Expenses 75,4 74.6 74,4
Loss BeforeCapital
Contributions (6.2)(3.5)(5.1 )
Capital Contributions 9.1 7.0 14.9
Change in Net Assets 2.9 3.5 9.8
Beginning Net Assets 460.3 456.8 447.0
Ending Net Assets $463.2 $460.3 $456.8
Water Sales increased by $1.6 million in FY-2009 and $3.9 million in FY-2010,mainly due to reduced rainfall during FY-
2009 as well as rate increases in both years.The slowdown in growth throughout the District was also reflected in the
decrease in Connection and Other Fees of$0.6 million in FY-201O.
Non-operating Revenues increased by $0.4 million in FY-2009 due primarily to increased property tax revenues.However In
FY-2010,Non-operating Revenues decreased by $5.3 million due to a combination offactors.First,there was a decrease in
investment income due to a continuing drop in rates on investment securities.Also,in FY-2009 the District received a large,
one-time legal settlement as a member ofa class action lawsuit against a major supply vendor.Finally,in the prior year the
District brought in capacity fee revenue to offset the write-offofa capital asset project that was deemed no longer
economically viable for continued operations.
Capital Contributions were $14.9 million in FY-2008 due to the completion ofseveral developer construction projects.
However,because ofthe nationwide housing mortgage crisis throughout the last several years,developers have either
slowed-down or totally stopped work on many projects until economic conditions improve and the demand for growth
returns.This has resulted in a decrease in Capital Contributions of$7.9 million in FY-2009.By FY-2010 this slowdown
appears to have stabilized,while the District received $2,4 million more than expected in federal grant monies due to last
minute availability of funds from the federal budget.
4
(Sj Management's Discussion and Analysis
~
Capital Assets and Debt Administration
Capital Assets.The District's capital assets as ofJune 30,2010,totaled $471.1 million (net ofaccumulated depreciation).
Included in thIs amount is land.The total increase in the District's capital assets was 1.7%for FY-2009 and 3.7%in FY-
2010.
Capital Assets
(In Millions of Dollars)
2010 2009 2008
Land $13.6 $13.4 $13.0
Construction in Progress 37.1 18.3 42.3
Water System 409.5 403.1 365.6
Recycled Water System 97.7 96.8 93.0
Sewer System 37.4 37.2 36.7
Field Equipment 18.5 18.2 17.6
Buildings 9.5 9.5 9.5
Transportation Equipment 3.3 3.3 3.1
Communication Equipment 1.3 0.8 0.7
Office Equipment 18.4 17.4 16.8
646.3 618.0 598.3
Less Accumulated
Depreciation 075.2)063.9)051.6)
Net Capital Assets $471.1 $454.1 $446.7
As indicated by figures in the table above,the majority ofcapital assets added during both fiscal years were related to the
potable and recycled water systems.In addition,the majority ofthe cost ofconstruction in progress is also related to these
water systems.
Additional information on the District's capital assets can be found in Note 3 ofthe Notes to Financial Statements.
Long-term Debt.At June 3D,2010,the District had $117.7 million in outstanding debt which consisted ofthe following:
General Obligation Bonds
Certificates ofParticipation
Revenue Bonds
Total Long-term Debt
$
$
6.8
59.7
51.2
117,7
Additional information on the District's long-term debt can be found in Note 5 ofthe Notes to Financial Statements.
5
:61 Management's Discussion and Analysis~
Fiscal Year 2010-2011 Budget
Economic Factors
Growth in the San Diego area has slowed over the last 3 years,and demand for housing is reflected in a similarly reduced
pace.Water sales volumes have gradually decreased as a result ofa combination ofthe slowing economy and expanded
efforts to promote water conservation.After years ofrecord low precipitation that dramatically curtailed snow runofffrom
the Sierra Nevada Mountains,California's governor declared an official statewide drought in June 2008.Following the
governor's action,all local jurisdictions were urged to implement water conservation ordinances and to "significantly
increase efforts"to conserve water.In addition to the drought,federal court orders have curtailed water deliveries from
Northern California due to environmental factors in the Sacramento-San Joaquin Bay Delta.A greater focus on
environmental conditions in the Bay Delta brings added challenges to the delivery ofwater through the State Water
Project.In order to maintain the ongoing supply of water to Southern California the various and competing interests need
to arrive at genuine solutions.The combination of these factors will add to the cost ofproviding water.At the same time,
ongoing water supply rate increases from the Metropolitan Water District (MWD)and the San Diego County Water
Authority (CWA)have required the District to implement rate increases to pass-through these costs,as well as increases in
energy costs and operating costs.
The District currently provides water service to about 70%ofits total projected population,serving approximately 206,000
people.Long-term,this percentage should continue to increase as the District's service area continues to develop and
grow.Ultimately,the District is projected to serve approximately 295,000 people,with an average daily demand of 55
million gallons per day (MGD).Currently,the District services the needs ofthis growing population by purchasing water
from CWA,who in tum purchases its water from MWD and the Imperial Irrigation District (lID).Otay takes delivery of
the water through several connections oflarge diameter pipelines owned and operated by CWA.The District currently
receives treated water from CWA,and the Helix Water District (HWD)by contract with CWA.In addition,the District
has an emergency agreement with the City ofSan Diego in the case ofa shutdown ofthe main treated water source.
Through innovative agreements like this,benefits can be achieved by both parties by using excess capacity ofanother
agency,and diversifying local supply,thereby increasing reliability.
Financial
The District is projected to deliver approximately 29,900 acre-feet ofpotable water to 48,060 potable customer accounts
during Fiscal Year 2010-2011.Management feels that these projections are very realistic after accounting for low growth,
supply changes,and a focus on conservation.Current economic conditions throughout America have created an
unprecedented uncertainty for business and economic projections in the current fiscal year.The nationwide housing
mortgage crisis has resulted in hundreds offoreclosures throughout the District.Additionally,the crisis in the banking and
financial industry has begun to have a ripple effect ofemployee layoffs across a wide swath ofthe business community.
One ofthe subsequent results ofthese two broad events is the relocation ofmany homeowners and renters into new
housing arrangements throughout San Diego County.Even with the housing patterns change throughout the District,
people's need for water remains an underlying constant.Staffcontinues working diligently on developing new water
supplies as it addresses the financial impacts ofconservation,preparing for the possibility ofa continued water shortage,
and prolonged sales reductions.
Management is unaware ofany other conditions that could have a significant impact on the District's current financial
position,net assets or operating results.
Contacting the District's Financial Management
This financial report is designed to provide a general overview of the Otay Water District's finances for the Board of
Directors,taxpayers,creditors,and other interested parties.Questions concerning any ofthe information provided in the
report or requests for additional information should be addressed to the District's Finance Department,2554 Sweetwater
Springs Blvd.,Spring Valley,CA 91978-2004.
6
2010 2009
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 2)$40,180,519 $50,823,237
Restricted cash and cash equivalents (Notes 1 and 2)21,131,924 1,760,631
Investments (Note 2)43,085,300 26,169,080
Restricted investments (Notes I and 2)11,150,549
Accounts receivable,net 8,959,367 8,029,609
Accrued interest receivable 239,355 319,186
Taxes and availability charges receivable,net 366,535 413,000
Restricted taxes and availability charges receivable,net 186,813 190,151
Inventories 954,007 816,865
Prepaid expenses and other current assets 626,421 976,045
Total Current Assets 126,880,790 89,497,804
NoncUlTent Assets:
Net OPEB asset (Note 8)6,783,385 6,204,876
Deferred bond issuance costs (Note 4)1,703,282 1,142,762
Capital Assets (Note 3):
Land 13,620,963 13,402,840
Construction in progress 37,081,849 18,280,278
Capital assets,net ofdepreciation 420,363,833 422,369,157
Total capital assets,net ofdepreciaton 471,066,645 454,052,275
Total Noncurrent Assets 479,553,312 461,399,913
Total Assets 606,434,102 550,897,717
See accompanying independent auditors'report and notes to financial statements.
(Continued)
7
i(;;;'~.STATEMENTS OF NET ASSETS (CONTINUED)
~;.;~~'JUNE 30,2010 AND 2009
2010 2009
LIABILITIES
Current Liabilities:
Current maturities of long-term debt (Note 5)2,668,734 2,521,772
Accounts payable 15,327,365 11,565,953
Accrued payroll liabilities 2,743,408 2,548,731
Other accrued liabilities 638,015 444,875
Customer deposits 2,146,360 2,806,990
Accrued interest 1,154,286 706,934
Liabilities Payable From Restricted Assets:
Restricted accrued interest 100,326 153,270
Total Current Liabilities 24,778,494 20,748,525
Noncurrent Liabilities:
Long-term debt (Note 5):
General obligation bonds 6,763,127 7,291,575
Certificates ofparticipation 59,694,612 61,468,693
Revenue bonds 51,255,224
Notes payable 6,010 359,744
Other noncun-ent liabilities 684,309 684,309
Total Noncurrent Liabilities 118,403,282 69,804,321
Total Liabilities 143,181,776 90,552,846
NET ASSETS
Invested in capital assets,net ofrelated debt 377,855,787 382,410,491
Restricted for debt service 5,192,111 1,797,512
Unrestricted 80,204,428 76,136,868
Total Net Assets $463,252,326 $460,344,871
See accompanying independent auditors'report and notes to financial statements.8
~~..J;"STATEMENTS OF REVENUES,EXPENSES AND CHANGES IN NET ASSETS\-~~~~~,--;.;~'FOR THE YEARS ENDED JUNE 30,20 I0 AND 2009
2010 2009
OPERATING REVENUES
Water sales $56,249,816 $52,428,648
Wastewater revenue 2,299,585 2,182,429
Connection and other fees 1,907,797 2,492,234
Total Operating Revenues 60,457,198 57,103,311
OPERATING EXPENSES
Cost ofwater sales 39,338,495 37,252,482
Wastewater 2,169,988 1,890,804
Administrative and general 17,750,713 19,888,161
Depreciation 13,297,497 12,475,714
Total Operating Expenses 72,556,693 71,507,161
Operating Income (Loss)(12,099,495)(14,403,850)
NONOPERATING REVENUES (EXPENSES)
Investment income 1,323,844 2,252,335
Taxes and assessments 3,973,328 4,586,823
Availability charges 670,784 625,065
Gain (loss)on sale ofcapital assets (143,086)5,206
Miscellaneous revenues 2,921,016 6,569,644
Donations (100,240)(95,270)
Interest expense (2,404,530)(1,340,110)
Miscellaneous expenses (303,541)(1,671,597)
Total Nonoperating Revenues (Expenses)5,937,575 10,932,096
Income (Loss)Before Capital Contributions (6,161,920)(3,471,754)
Capital Contributions 9,069,375 6,989,208
Changes in Net Assets 2,907,455 3,517,454
Total Net Assets,Beginning 460,344,871 456,827,417
Total Net Assets,Ending $463,252,326 $460,344,871
See accompanying independent auditors'report and notes to financial statements.9
,f:ir-;'STATEMENTS OF CASH FLOWS
~c~...~..~.;.>'FOR THE YEARS ENDED JUNE 30,2010 AND 2009
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Receipts from connections and other fees
Other receipts
Payments to suppliers
Payments to employees
Other payments
Net Cash Provided (Used)by Operating Activities
$56,959,013 $
1,907,797
1,837,028
(36,816,755)
(18,659,239)
(261,742)
4,966,102
54,358,847
2,492,234
5,538,973
(43,072,805)
(18,947,144)
(1,640,481 )
(\,270,376)
CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES
Receipts from taxes and assessments 4,023,131
Receipts from property rents and leases 1,083,988
4,520,867
1,070,881
Net Cash Provided (Used)by Noncapital
and Related Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Proceeds from capital contributions
Proceeds from sale ofcapital assets
Proceeds from debt related taxes and assessments
Net proceeds from issuance of long-tenn debt
Retirements oflong-tenn debt
Principal payments on long-tenn debt
Interest payments and fees
Acquisition and construction ofcapital assets
Net Cash Provided (Used)by Capital
and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received on investments
Proceeds from sale and maturities of investments
Purchase ofinvestments
Net Cash Provided (Used)by Investing Activities
Net Increase (Decrease)in
Cash and cash equivalents
Cash and cash equivalents,Beginning
Cash and cash equivalents,Ending
See accompanying independent auditors'report and notes to financial statements.
$
5,107,119
7,946,690
94,118
670,784
57,826,816
(7,231,OIl)
(2,52\,772)
(2,477,159)
(28,990,017)
25,318,450
1,336,944
53,997,000
(81,997,040)
(26,663,096)
8,728,575
52,583,868
61,312,443 $
5,591,748
4,014,110
5,206
625,065
(2,445,214)
(I,366,547)
(16,838,494)
(16,005,874)
2,494,196
70,703,937
(36,035,657)
37,162,476
25,477,974
27,105,894
52,583,868
(Continued)
10
E~~STATEMENTS OF CASH FLOWS (CONTINUED)
'~p
FOR THE YEARS ENDED JUNE 30,2010 AND 2009
2010 2009
Reconciliation ofoperating income (loss)to net cash flows provided
(used)by operating activities:
Operating income (loss)$(12,099,495)$ (14,403,850)
Adjustments to reconcile operating income
to net cash provided (used)by operating activities:
Depreciation 13,297,497 12,475,714
Miscellaneous revenues 1,837,028 5,538,973
Miscellaneous expenses (261 742)(1,640,481 )
(Increase)decrease in accounts receivable (929,758)(339,889)
(Increase)decrease in inventory (137,142)(105,625)
(Increase)decrease in net OPEB asset (578,509)(555,868)
(Increase)decrease in prepaid expenses and other current assets 349,624 931,983
Increase (decrease)in accounts payable 3,761,412 (2,139,613)
Increase (decrease)in accrued payroll and related expenses 194,677 57,549
Increase (decrease)in other accrued liabilities 193,140 (1,170,528)
Increase (decrease)in customer deposits (660,630)87,659
Increase (decrease)in prepaid capacity fees (6,400)
Net Cash Provided (Used)By Operating Activities $4,966,102 $(1,270,376)
Schedule of Cash and Cash EquivaJcDts:
CUlTent assets:
Cash and cash equivalents $40,180,519 $50,823,237
Restricted cash and cash equivalents 21,131,924 1,760,631
Total Cash and Cash Equivalents $61,312,443 $52,583,868
Supplemental Disclosures:
Non-cash Investing and Financing Activities Consisted ofthe Following:
Contributed Capital for Water and Sewer System
Change in Fair Value of Investments and Recognized Gains/Losses
Amortization Related to Long-Tenn Debt
See accompanying independent auditors'report and notes to financial statements.
$1,122,685
230,747
142,039
$2,975,098
21,613
126,387
II
I'.t~~NOTES To FINANCIAL STATEMENTSt;~~YEARS ENDED JUNE 30,2010 AND 2009
I
NOTE DESCRIPTION PAGE
Reporting Entity and Summary ofSignificant Accounting Policies.....12 -14
2 Cash and Investments..............................•.........15 -19
3 Capital Assets...................20 -21
4 Other Noncurrent Assets ,21
5 Long-Term Debt 22 -26
6 Net Assets................................ ......••.....26
7 Defined Benefit Pension Plan 26 -27
8 Other Post Employment Benefits..•28 -30
9 Water Conservation Authority................30
10 Commitments and Contingencies.........31
11 Risk Management..•.31 -32
12 Interest Expense n ••••••••••••32
13 Segment Information n...33 -35
Required Supplementary Information:
Schedule ofFunding Progress for PERS.36
2 Schedule ofFunding Progress for DPHP......36
'~~~NOTES To FINANCIAL STATEMENTS',-~~/YEARS ENDED JUNE 30,2010 AND 2009
1)REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A)Reporting Entity
Otay Water District (the "District")is a public entity established in 1956 pursuant to the Municipal Water District Law of
1911 (Section 711 et.Seq.of the California Water Code)for the purpose of providing water and sewer services to the
properties in the District.The District is governed by a Board of Directors consisting of five directors elected by
geographical divisions based on District population for a four-year alternating term.
B)Measurement Focus,Basis ofAccounting and Financial Statement Presentation
The basic financial statements of the Otay Water District have been prepared in conformity with accounting principles
generally accepted in the United States of America.The Governmental Accounting Standards Board (GASB)is the
accepted standard setting body for governmental accounting financial reporting purposes.
The District reports its activities as an enterprise fund,which is used to account for operations that are financed and
operated in a manner similar to a private business enterprise,where the intent of the District is that the costs
(including depreciation)of providing goods or services to the general public on a continuing basis be financed or
recovered primarily through user charges.Revenues and expenses are recognized on the accrual basis.Revenues are
recognized in the accounting period in which they are earned and expenses are recognized in the period incurred,
regardless of when the related cash flow takes place.
Net assets of the District are classified into three components:(1)invested in capital assets,net of related debt,(2)
restricted net assets,and (3)unrestricted net assets.These classifications are defined as follows:
Invested in Capital Assets,Net ofRelated Debt
This component of net assets consists of capital assets,net of accumulated depreciation and reduced by the
outstanding balances of notes or borrowing that are attributable to the acquisition of the asset,construction,or
improvement of those assets.Ifthere are significant unspent related debt proceeds at year-end,the portion ofthe debt
attributable to the unspent proceeds are not included in the calculation ofinvested in capital assets,net ofrelated debt.
Restricted Net Assets
This component of net assets consists of constraints placed on net asset use through external constraints imposed by
creditors (such as through debt covenants),grantors,contributors,or laws or regulations of other governments or
constraints imposed by law through constitutional provisions or enabling legislation.
Unrestricted Net Assets
This component ofnet asset consists of net assets that do not meet the definition of"invested in capital assets,net of
related debt"or "restricted net assets"
The District distinguishes operating revenues and expenses from those revenues and expenses that are nonoperating.
Operating revenues are those revenues that are generated by water sales and wastewater services while operating
expenses pertain directly to the furnishing ofthose services.Nonoperating revenues and expenses are those revenues and
expenses generated that are not directly associated with the nOlmal business ofsupplying water and wastewater treatment
services.
The District recognizes revenues from water sales,wastewater revenues,and meter fees as they are earned.Taxes and
assessments are recognized as revenues based upon amounts reported to the District by the County of San Diego,net of
allowance for delinquencies of$61,483 and $67,017 at June 30,2010and 2009,respectively.
See independent auditors'report.12
I~l NOTES To FINANCIAL STATEMENTS
'~.~~YEARS ENDED JUNE 30,2010 AND 2009
1)REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued
B)Measurement Focus,Basis of Accounting and Financial Statement Presentation -Continued
Additionally,capacity fee contributions received which are related to specific operating expenses are offset against
those expenses and included in Cost ofWater Sales in the Statement ofRevenues and Expenses and Changes in Net
Assets.
When both restricted and unrestricted resources are available for use,it is the District's practice to use restricted
resources first,then unrestricted resources as they are needed.
The District has elected under GASB Statement No.20,Accounting and Financial Reporting for Proprietary Funds
and Other Governmental Activities That Use Proprietary Fund Accounting,to apply all GASB pronouncements as
well as any applicable pronouncements of the Financial Accounting Standards Board (FASB),the Accounting
Principles Board (APB),or any Accounting Research Bulletins (ARB)issued on or before November 30,1989,
unless they contradict or conflict with GASB pronouncements.
C)Statement ofCash Flows
For purposes of the Statement of Cash Flows,the District considers all highly liquid investments (including
restricted assets)with a maturity period,at purchase,of three months or less to be cash equivalents.
D)Investments
The District's investments are stated at fair value,except for short-term investments,which are reported at cost,
which approximates fair value.Investments in governmental investment pools are reported on the fair value per
share ofthe pool's underlying pOlifolio.
E)Inventory and Prepaids
Inventory consists primarily of materials used In the construction and maintenance ofthe water and sewer system and
is valued at weighted average cost.Both inventory and prepaids use the consumption method whereby they are
reported as an asset and expensed as they are consumed.
F)Capital Assets
Capital assets are recorded at cost,where historical records are available,and at an estimated historical cost where no
historical records exist.Infrastructure assets in excess of $20,000 and other capital assets in excess of $10,000 are
capitalized if they have an expected useful life of two years or more.The District will also capitalize individual
purchases under the capitalization threshold ifthey are part ofa new capital program.The cost of purchased and self-
constructed additions to utility plant and major replacements ofproperty are capitalized.Costs include materials,direct
labor,transportation,and such indirect items as engineering,supervision,employee fringe benefits,and interest
incurred during the construction period.Repairs,maintenance,and minor replacements of property are charged to
expense.Donated assets are capitalized at their approximate fair market value on the date contributed.
The District capitalizes interest on construction projects up to the point in time that the project is substantially
completed.Capitalized interest is included in the cost of water system assets and is depreciated on the straight-line
basis over the estimated useful lives ofsuch assets.
See independent auditors'report.13
-",,9,NOTES To FINANCIAL STATEMENTS.~~YEARS ENDED JUNE 30,2010 AND 2009
1)REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued
F)Capital Assets -Continued
Depreciation is calculated using the straight-line method over the following estimated useful lives:
G)Compensated Absences
Water System
Field Equipment
Buildings
Communication Equipment
Transportation Equipment
Office Equipment
Recycled Water System
Sewer System
15-70 Years
2-50 Years
30-50 Years
2-10 Years
2-4 Years
2-10 Years
50-75 Years
25-50 Years
In accordance with GASB Statement No.16,a liability is recorded for unused vacation and sick leave balances since
the employees'entitlement to these balances are attributable to services already rendered and it is probable that
virtually all of these balances will be liquidated by either paid time-offor payment upon termination or retirement.
H)Restricted Assets and Liabilities
Certain cun'ent liabilities have been classified as current liabilities payable from restricted assets as they will be
funded from restricted assets.
I)Allowance for Doubtful Accounts
The District charges doubtful accounts arising from water sales receivable to bad debt expense when it is probable that
the accounts will be uncollectible.Uncollectible accounts are determined by the allowance method based upon prior
experience and management's assessment of the collectability of existing specific accounts.The allowance for
doubtful accounts were $12,937 and $17,531 for 2010 and 2009 respectively.
J)Use ofEstimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the
reported amounts of revenues and expenses during the reporting period.Actual results could differ from those
estimates.
K)Property Taxes
Tax levies are limited to 1%offull market value (at time ofpurchase)which results in a tax rate of $1.00 per $100
assessed valuation,under the provisions ofProposition 13.Tax rates for voter-approved indebtedness are excluded
from this limitation.
The County ofSan Diego (the "County")bills and collects property taxes on behalfofthe District.The County's tax
calendar year is July 1 to June 30.Property taxes attach as a lien on property on January 1.Taxes are levied on July I
and are payable in two equal installments on November I and February 1,and become delinquent after December 10
and April 10,respectively.
L)Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
See independent auditors'report.14
\~~NOTES To FINANCIAL STATEMENTS
~~'YEARS ENDED JUNE 30,2010 AND 2009
2)CASH AND INVESTMENTS
The primary goals of the District's Investment Policy are to assure compliance with all Federal,State,and Local laws
governing the investment of funds under the control ofthe organization,protect the principal of investments entrusted,and
generate income under the parameters ofsuch policies.
Cash and Investments are classified in the accompanying financial statements as follows:
Statement ofNet Assets:
Current Assets
Cash and Cash Equivalents
Restricted Cash and Cash Equivalents
Investments
Restricted Investments
Total Cash and Investments
$
$
2010 2009
40,180,519 $50,823,237
21,131,924 1,760,631
43,085,300 26,169,080
11,150,549
115,548,292 $78,752,948
Cash and Investments consist ofthe following:
2010 2009
Cash on Hand $2,800 $2,800
Deposits with Financial Institutions 4,158,859 5,701,125
Investments 111,386,633 73,049,023
Total Cash and Investments $115,548,292 $78,752,948
Investments Authorized by the California Government Code and the District's Investment Policy
The table below identifies the investment types that are authorized for the District by the California Government Code (or
the District's Investment Policy,where more restrictive).The table also identifies celiain provisions of the California
Government Code (or the District's Investment Policy,where more restrictive)that address interest rate risk,credit risk,
and concentration of credit risk.This table does not address investments of debt proceeds held by bond trustee that are
governed by the provisions of debt agreements of the District,rather than the general provisions of the California
Government Code or the District's Investment Policy.
Authorized
Investment Type
u.S.TreasUlY Obligations
U.S.Government Sponsored Entities
Certificates ofDeposit
Corporate Medium-Term Notes
Commercial Paper
Money Market Mutual Funds
County Pooled Investment Funds
Local Agency Investment Fund
(LAIF)
Maximum
Maturity
5 years
5 years
5 years
5 years
270 days
N/A
N/A
N/A
Maximum
Percentage
OfPortfolio(')
None
None
15%
15%
15%
15%
None
None
Maximum
Investment
In One Issuer
None
None
None
None
10%
None
None
None
(I)Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.
See independent auditors'report.15
,~Cl.NOTES To FINANCIAL STATEMENTS
'~~'YEARS ENDED JUNE 30,2010 AND 2009
2)CASH AND INVESTMENTS -Continued
Investments Authorized by Debt Agreements
Investments of debt proceeds held by the bond trustee are governed by provisions of the debt agreements,rather than the
general provisions ofthe California Government Code or the District's Investment Policy.
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.
Generally,the longer the maturity ofan investment,the greater the sensitivity of its fair value to changes in market interest
rates.One ofthe ways that the District manages its exposure to interest rate risk is by purchasing a combination of shorter
term and longer term investments and by timing cash flows from maturities so that a portion ofthe portfolio is maturing or
coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.
Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuations are
provided by the following tables that show the distribution ofthe District's investments by maturity as of June 30,2010
and 2009.
June30,2010
Investment Type
U.S.Government Sponsored Entities
Local Aj!,ency Investment Fund
(LAIF)
Corporate Medium-Term Notes
San Diej!,o County Pool
Total
June30,2009
Remaining Maturity (in Months)
12 Months 13 to 24 25 to 60 More Than
Or Less Months Months 60 Months
$53,911,225 $$21,801,325 $32,1 09,900 $
34,561,668 34,561,668
4,062,740 4,062,740
18.851.000 18,851.000
$111,386,633 $57,475,408 $21,801,325 $32,109,900 $
Remaining Maturity (in Months)
12 Months 13 to 24 25 to 60 More Than
Investment Type Or Less Months Months 60 Months
U.S.Government Sponsored Entities $22,048,400 $$22,048,400 $$
Local Agency Investment Fund
(LAlF)7,489,943 7,489,943
Corporate Medium-Term Notes 4,120,680 4,120,680
San Diego County Pool 39,390,000 39,390,000
Total $73,049,023 $46,879,943 $26,169,080 $$
See independent auditors'report.16
,e=l NOTES To FINANCIAL STATEMENTS~I YEARS ENDED JUNE 30,2010 AND 2009
2)CASH AND INVESTMENTS -Continued
Disclosures Relating to CreditRisk
Generally,credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder ofthe investment.
This is measured by the assignment of a rating by a nationally recognized statistical rating organization.Presented below is
the minimum rating required by (where applicable)the California Government Code or the District's Investment Policy,or
debt agreements,and the actual rating as ofJune 30,2010 and 2009 for each investment type.
June 30,2010
Investment Type
U.S.Government Sponsored Entities
Local AjZency Investment
Fund (LAIF)
Corporate Medium-Term Notes
San DiejZo County Pool
Total
June 30,2009
$53,911.225
34,561,668
4,062,740
18 851.000
$111,386,633
Minimum
Legal
Rating
N/A
N/A
A
N/A
Rating as ofYear End
Not
AAA AA Rated
$53,911,225 $$
34,561,668
4,062,740
18,851 000
$53,911,225 $4,062,740 $53,412,668
Minimum Rating as ofYear End
Legal Not
Investment Type Rating AAA AA Rated
U.S.Government Sponsored Entities $22,048,400 N/A $22,048,400 $$
Local Agency Investment
Fund (LAIF)7,489,943 N/A 7,489,943
Corporate Medium-Term Notes 4,120,680 A 2,061,960 2,058,720
San Diego County Pool 39,390,000 N/A 39,390,000
Total $73,049,023 $24,110,360 $2,058,720 $46,879,943
See independent auditors'report.17
i~~NOTES To FINANCIAL STATEMENTS'~J YEARS ENDED JUNE 30,2010 AND 2009
2)CASH AND INVESTMENTS -Continued
Concentration ofCredit Risk
The investment policy ofthe District contains various limitations on the amounts that can be invested in anyonetype or group
of investments and in any issuer,beyond that stipulated by the Califol11ia Govel11ment Code,Sections 53600 through 53692.
Investments in anyone issuer (other than U.S.Treasury securities,mutual funds,and extel11al investment pools)that represent
5%or more oftotal District investments as ofJune 30,2010 and 2009 are as follows:
June 30,2010
Issuer
Federal Home Loan Bank
Federal Home Loan Mortgage Corp
Federal National Mortgage Association
June 30,2009
Issuer
Federal Home Loan Bank
Federal Home Loan Mortgage Corp
Federal National Mortgage Association
Custodial CreditRisk
Investment Type
U.S.Government Sponsored Entities $
U.S.Govel11ment Sponsored Entities $
U.S.Govel11ment Sponsored Entities $
Investment Type
U.S.Govel11ment Sponsored Entities $
U.S.Govel11ment Sponsored Entities $
U.S.Govel11ment Sponsored Entities $
Reported Amount
20,044,400
11,791,825
22,075,000
Reported Amount
5,996,260
4,022,100
10,033,780
Custodial credit risk for deposits is the risk that,in the event ofthe failure ofa depository financial institution,a government
will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession ofan outside
patty.The custodial credit risk for investments is the risk that,in the event of the failure of the counterparty (e.g.,broker-
dealer)to a transaction,a government will not be able to recover the value ofits investment or collateral securities that are in
the possession ofanother party.The California Government Code and the Entity's investment policy do not contain legal or
policy requirements that would limit the exposure to custodial credit risk for deposits or investments,other than the following
provision for deposits:The California Government Code requires that a financial institution secure deposits made by state or
local government units by pledging securities in an undivided collateral pool held by a depository regulated under state law
(unless so waived by the governmental unit).The market value of the pledged securities in the collateral pool must equal at
least 110%of the total amount deposited by the public agencies.California law also allows financial institutions to secure
deposits by pledging first trust deed mortgage notes having a value of150%ofthe secured public deposits.
As of June 30,2010,$819,689 of the District's deposits with financial institutions in excess offederal depositOly insurance
limits were held in collateralized accounts.As of June 30,2009,$2,454,830 of the District's deposits with financial
institutions in excess offederal depository insurance limits were held in collateralized accounts.
See independent auditors'report.18
~~.NOTES To FINANCIAL STATEMENTS'~I YEARS ENDED JUNE 30,2010 AND 2009
2)CASH AND INVESTMENTS -Continued
Local Agency Investment Fund (LAIF)
The District is a voluntary participant in the Local Agency Investment Fund (LAIF)that is regulated by California
Government Code Section 16429 under the oversight of the Treasurer of the State of California.The fair value of the
District's investment in this pool is reported in the accompanying financial statements at amounts based upon District's pro-
rata share ofthe fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost ofthat portfolio).
The balance available for withdrawal is based on the accounting records maintained by LAIF,which are recorded on an
amortized cost-basis.
San Diego County Pooled Fund
The San Diego County Pooled Investment Fund (SDCPIF)is a pooled investment fund program governed by the County of
San Diego Board of Supervisors,and administered by the County of San Diego Treasurer and Tax Collector.Investments in
SDCPIF are highly liquid as deposits and withdrawals can be made at anytime without penalty.
The County of San Diego's bank deposits are either Federally insured or collateralized in accordance with the California
Government Code.Pool detail is included In the County of San Diego Comprehensive Annual Financial Report (CAFR).
Copies of the CAFR may be obtained from the County of San Diego Auditor-Controller's Office -1600 Pacific Coast
Highway -San Diego,CA 92101.
Collateral for Deposits
All cash and Certificates ofDeposit are entirely insured or collateralized.
Under the provisions ofthe California Government Code,California banks and savings and loan associations are required to
secure the District's deposits by pledging government securities as collateral.The market value ofthe pledged securities must
equal at least 110%of the District's deposits.California law also allows financial institutions to secure District deposits by
pledging first trust deed mOligage notes having a value of 150%ofthe District's total deposits.
The District may waive the 110%collateral requirement for deposits which are insured up to $250,000 by the FDIC.
See independent auditors'repOii.19
@.NOTES To FINANCIAL STATEMENTS
\~~I YEARS ENDED JUNE 30,2010 AND 2009
3)CAPITAL ASSETS
The following is a summary ofchanges in Capital Assets for the year ended June 30,201O:
Beginning
Balance Additions Deletions Ending Balance
Capital Assets,Not Depreciated
Land $13,402,840 $280,065 $(61,942)$13,620,963
Construction in Progress 18,280,278 28,300,354 (9,498,783)37,081,849
Total Capital Assets Not Depreciated 31,683,118 28,580,419 (9,560,725)50,702,812
Capital Assets,Being Depreciated
Infrastructure 537,188,394 8,508,856 (1,163,265)544,533,985
Field Equipment 9,473,571 422,577 (366,590)9,529,558
Buildings 18,165,527 299,465 (13,860)18,451,132
Transportation Equipment 3,284,639 325,228 (331,175)3,278,692
Communication Equipment 787,358 548,462 1,335,820
Office Equipment 17,403,147 1,362,848 (335,607)18,430,388
Total Capital Assets Being Depreciated 586,302,636 11,467,436 (2,210,497)595,559,575
Less Accumulated Depreciation:
Infrastructure 135,582,472 11,462,706 (939,178)146,106,000
Field Equipment 8,963,959 93,704 (372,084)8,685,579
Buildings 6,090,921 446,906 (62,686)6,475,141
TranspOitation Equipment 2,655,866 149,802 (327,814)2,477,854
Communication Equipment 410,205 58,343 468,548
Office Equipment 10,230,056 1,086,036 (333,472)10,982,620
Total Accumulated Depreciation 163,933,479 13,297,497 (2,035,234)175,195,742
Total Capital Assets Being Depreciated,Net 422,369,157 (1,830,061)(175,263)420,363,833
Total Capital Assets,Net $454,052,275 $26,750,358 $(9,735,988)$471,066,645
Depreciation expense for the years ended June 30,2010 and 2009 was $13,297,497 and $12,475,714,respectively.
See independent auditors'report.20
~~NOTES To FINANCIAL STATEMENTS.~~,YEARS ENDED JUNE 30,2010 AND 2009
3)CAPITAL ASSETS (Continued)
The following is a summary ofchanges in Capital Assets for the year ended June 30,2009:
Beginning
Balance Additions Deletions Ending Balance
Capital Assets,Not Depreciated:
Land $13,025,364 $377,476 $$13,402,840
Construction in Progress 42,338,220 19,496,000 (43,553,942)18,280,278
Total Capital Assets Not Depreciated 55,363,584 19,873,476 (43,553,942)31,683,118
Capital Assets,Being Depreciated:
Infrastructure 495,249,373 42,051,766 (112,745)537,188,394
Field Equipment 9,430,276 43,295 9,473,571
Buildings 17,636,124 529,403 18,165,527
Transportation Equipment 3,102,661 194,636 (12,658)3,284,639
Communication Equipment 689,954 97,404 787,358
Office Equipment 16,825,593 577,554 17,403,147
Total Capital Assets Being Depreciated 542,933,981 43,494,058 (125,403)586,302,636
Less Accumulated Depreciation:
Infrastructure 125,132,713 10,562,504 (112,745)135,582,472
Field Equipment 8,714,039 249,920 8,963,959
Buildings 5,637,685 453,236 6,090,921
Transportation Equipment 2,559,141 109,383 (12,658)2,655,866
Communication Equipment 369,564 40,641 410,205
Office Equipment 9,170,026 1,060,030 10,230,056
Total Accumulated Depreciation 151,583,I68 12,475,714 (125,403)163,933,479
Total Capital Assets Being Depreciated,Net 391,350,813 31,018,344 422,369,157
Total Capital Assets,Net $446,714,397 $50,891,820 $(43,553,942)$454,052,275
4)OTHER NONCURRENT ASSETS
Deferred bond issue costs totaled $1,703,282 and $1,142,762,net of accumulated amortization of$295,204 and $296,308 as
ofJune 30,2010 and 2009,respectively.The costs are amortized on the straight-line method based on the estimated term of
the related bond debt.Amortization expense of$66,704 and $56,030 for the years ended June 30,2010 and 2009 is included
in miscellaneous non-operating expenses.
See independent auditors'report.21
G·!!T..r:t,~
TAyJff¢,·NOTES To FINANCIAL STATEMENTS.,iJ.'YEARS ENDED JUNE 30,2010 AND 2009
5)LONG-TERM DEBT
Long-tenn liabilities for the year ended June 30,2010 are as follows:
Beginning Ending Due Within
Balance Additions Deletions Balance One Year
General Obligation Bonds:
Improvement District No.27 -1998 $8,395,000 $$8,395,000 $$
Unamortized Bond Discount (96,159)(96,159)
Deferred Amount on Refunding (572,266)(572,266)
Improvement District No.27 -2009 7,780,000 7,780,000 520,000
Unamortized Bond Premium 209,884 10,903 198,981
Deferred Amount on Refunding (728,990)(33,136)(695,854)
Net General Obligation Bonds 7,726,575 7,260,894 7,704,342 7,283,127 520,000
Certificates ofParticipation:
1996 Certificates of Participation 12,100,000 400,000 11,700,000 400,000
2004 Certificates of Participation 10,320,000 530,000 9,790,000 545,000
2007 Certificates ofParticipation 41,215,000 815,000 40,400,000 850,000
1996 COPS Unamortized Discount (13,413)(745)(12,668)
2007 COPS Unamortized Discount (250,219)(9,044)(241,175)
2004 COPS Unam0l1ized Premium 16,500 1,165 15,335
2004 COPS Deferred Amount on
Refunding (174,175)(12,295)(161,880)
Net Certificates of Participation 63,213,693 1,724,081 61,489,612 1,795,000
Revenue Bonds:
2010 Water Revenue Bonds Series A 13,840,000 13,840,000
2010 Water Revenue Bonds Series B 36,355,000 36,355,000
2010 Series A Unamortized Premium 1,078,824 18,600 1,060,224
Net Revenue Bonds 51,273,824 18,600 51,255,224
Notes Payable:
State Water Resource Control Board 701,516 341,772 359,744 353,734
Total Long-Tenn Liabilities $71,641,784 $58,534,718 $9,788,795 $120,387,707 $2,668,734
See independent auditors'report.22
,r::::.~:NOTES To FINANCIAL STATEMENTS~~YEARS ENDED JUNE 30,2010 AND 2009
5)LONG-TERM DEBT -Continued
General Obligation Bonds
In June 1998,the District issued $11,835,000 of General Obligation Refunding Bonds.The proceeds ofthis issue,together
with other lawfully available monies,were to be used to establish an irrevocable escrow to advance refund and defease in
their entirety the District's previous outstanding General Obligation Bond issue.In November 2009,The District issued
$7,780,000 of General Obligation Refunding Bonds to refund the 1998 issue.The proceeds from the bond issue were
$7,989,884,which included an original issue premium of $209,884.An amount of$7,824,647,which consisted of unpaid
principal and accrued interest,was deposited into an escrow fund.Pursuant to an optional redemption clause in the 1998
bonds,the District was able to redeem the 1998 bonds,without premium at any time after September 1,2009.On December
15,2009 the 1998 were refunded.
The savings between the cash flow required to service the old debt and the cash flow required to service the new debt is
$1,099,110 and represents an economic gain on refunding of$640,925.
These bonds are general obligations of Improvement District No.27 (ID 27)ofthe District.The Board ofDirectors has the
power and is obligated to levy annual ad valorem taxes without limitation,as to rate or amount for payment ofthe bonds and
the interest upon all property which is within ID 27 and subject to taxation.The General Obligation Bonds are payable from
District-wide tax revenues.The Board may utilize other sources for servicing the bond debt and interest.
The refunding ofthe 1998 bonds resulted in a defelTed amount of$728,989 which is being amortized over the remaining life
of the refunded debt.Amortization for the year ended June 30,2010 was $33,136 and is included in miscellaneous non-
operating expenses.As ofJune 30,2010,the unamortized defel1'ed amount ofrefunding is $695,853.
The 2009 General Obligation Bonds have interest rates from 3.00%to 4.00%with maturities through Fiscal Year 2023.
Future debt service requirements for the bonds are as follows:
For the Year Ended
June 30,Principal Interest Total
2011 $520,000 $267,012 $787,012
2012 505,000 251,637 756,637
2013 520,000 236,262 756,262
2014 535,000 220,437 755,437
2015 550,000 204,162 754,162
2016-2020 3,045,000 724,468 3,769,468
2021-2023 2,105,000 127,903 2,232,903
$7,780,000 $2,031,881 $9,811,881
See independent auditors'report.23
t=~NOTES To FINANCIAL STATEMENTS'~i#'YEARS ENDED JUNE 30,2010 AND 2009
5)LONG-TERM DEBT -Continued
Certificates ofParticipation (COPS)
In June 1996,COPS with face value of$15,400,000 were sold by the Otay Service Corporation to finance the cost of design,
acquisition,and construction of certain capital improvements.An installment purchase agreement between the District,as
Buyer,and the Corporation,as Seller,was executed for the scheduled payment of principal and interest associated with the
COPS.The installment payments are to be paid from taxes and "net revenues,"as described in the installment agreement.
The certificates bear interest at a variable weekly rate not to exceed 12%.The variable interest rate is tied to the 30-day
LIBOR index and the Securities Industry and Financial Markets Association (SIFMA)index.The interest rate at June 30,
2010 was 0.25%.The installment payments are to be paid annually at $350,000 to $900,000 from September 1,1996 through
September 1,2026.
In July 2004,Refunding Certificates ofParticipation (COPS)with a face value of$12,270,000 were sold by the Otay Service
Corporation to advance refund $11,680,000 of outstanding 1993 COPS.An installment agreement between the District,as
Buyer,and the Corporation,as Seller,was executed for the scheduled payment ofprincipal and interest associated with the
COPS.The installment payments are to be paid from taxes and "net revenues,"as described in the installment agreement.
The certificates are due in annual installments of$445,000 to $895,000 from September 1,2005 through September 1,2023;
bearing interest at 3%to 4.625%.
In March 2007,Revenue Certificates of participation (COPS)with face value of $42,000,000 were sold by the Otay Service
Corporation to improve the District's water storage system and distribution facilities.An installment purchase agreement
between the District,as a Buyer,and the Corporation,as Seller,was executed for the scheduled payment of principal and
interest associated with the COPS.The installment payments are to be paid trom taxes and "net revenues,"as described in the
installment agreement.The certificates are due in annual installments of $785,000 to $2,445,000 from September 1,2007
through September 1,2036;bearing interest at 3.7%to 4.47%.
There is no aggregate reserve requirement for the COPS.Future debt service requirements for the certificates are as follows:
For the Year 1996 COPS 2004 COPS 2007 COPS
Ended June 30,Principal 1nterest*Principal Interest Principal Interest
2011 $400,000 $28,417 $545,000 $386,236 $850,000 $1,655,395
2012 400,000 27,417 565,000 368,607 885,000 1,622,864
2013 500,000 26,208 580,000 349,566 920,000 1,589,020
2014 500,000 24,958 600,000 328,906 955,000 1,553,864
2015 500,000 23,708 625,000 306,388 995,000 1,517,301
2016-2020 3,200,000 95,583 3,505,000 1,133,050 5,580,000 6,979,134
2021-2025 4,100,000 49,708 3,370,000 314,597 6,785,000 5,762,360
2026-2030 2,100,000 3,626 8,335,000 4,192,867
2031-2035 12,650,000 2,208,438
2036-2038 2,445,000 211,640
$11,700,000 $279,625 $9,790,000 $3,187,350 $40,400,000 $27,292,883
..Variable Rate -Interest retlected at June 30,20 I0 at a rate of0.25%.
The three COP debt issues contain various covenants and restrictions,principally that the District fix,prescribe,revise and
collect rates,fees and charges for the Water System which will be at least sufficient to yield,during each fiscal year,taxes
and net revenues equal to one hundred twenty-five percent (125%)of the debt service for such fiscal year.The District
was in compliance with these rate covenants for the fiscal year ended June 30,2010.
See independent auditors'report.24
~~>-~,;;~~Yl NOTES To FINANCIAL STATEMENTS'ij~.YEARS ENDED JUNE 30,2010 AND 2009
5)LONG-TERM DEBT -Continued
Water Revenue Bonds
In April 2010,Water Revenue Bonds with a face value of $50,195,000 were sold by the Otay Water District Financing
Authority to provide funds for the construction of water storage and transmission facilities.The bond issue consisted oftwo
series;Water Revenue Bonds,Series 2010A (Non-AMT Tax Exempt)with a face value of $13,840,000 plus a $1,078,824
original issue premium,and Water Revenue Bonds Series 2010B (Taxable Build America Bonds)with a face value of
$36,255,000.The Selies 2010A bonds are due in annual installments of $785,000 to $1,295,000 /Tom September I,2011
through September 1,2025;bearing interest at 2%to 5.25%.The Series 2010B bonds are due in annual installments of
$1,365,000 to $3,505,000 from September 1,2026 through September 1,2040;bearing interest at 6.377%to 6.577%.Interest
on both Series is payable on September 1,2010 and semiannually thereafter on March 1st and September 1sl ofeach year until
maturity or earlier redemption.The installment payments are to be made /Tom Taxes and Net Revenues of the Water System
as described in the installment purchase agreement,on parity with the payments required to be made by the District for the
1996,2004 and 2007 Cet1ificates ofParticipation described above.
The proceeds ofthe bonds will be used to fund the project described above as well as to fund reserve funds of$1,030,688
(Series 201OA)and $2,707,418 (Series 2010B).$542,666 was used to fund various costs ofissuance.
The original issue premium is being amortized over the 14 year life ofthe Series 2010A bonds.At June 30,2010 $18,600 has
been amortized and is included in interest expense.The unamortized premium at June 30,2010 is $1,060,224.
The 2010 Water Revenue Bonds contains various covenants and restrictions,principally that the District fix,prescribe,
revise and collect rates,fees and charges for the Water System which will be at least sufficient to yield,during each fiscal
year,taxes and net revenues equal to one hundred twenty-five percent (125%)ofthe debt service for such fiscal year.The
District was in compliance with these rate covenants for the fiscal year ended June 30,2010.
The total amount outstanding at June 30,2010 and aggregate maturities ofthe revenue bonds for the fiscal years subsequent to
June 30,2010,are as follows:
For the Year 2010 Water Revenue Bond Series A 2010 Water Revenue Bond Series B
Ended June 30,Principal Interest Principal Interest
2011 $$498,928 $$2,049,031
2012 785,000 569,688 2,371,868
2013 800,000 553,838 2,371,868
2014 820,000 533,538 2,371,868
2015 845,000 508,563 2,371,868
2016-2020 4,700,000 2,018,963 11,859,342
2021-2025 5,890,000 779,567 11,859,342
2026-2030 7,745,000 10,685,177
2031-2035 10,570,000 7,756,703
2036-2040 14,535,000 3,664,211
2041 3,505,000 115,262
$13,840,000 $5.463,085 $36,355,000 $57,476,540
See independent auditors'report.25
G~~~NOTES To FINANCIAL STATEMENTS~~I YEARS ENDED JUNE 30,2010 AND 2009
5)LONG-TERM DEBT·Continued
Note Payable
In December 1990,the District entered into a 3.5%note payable to the State Water Resources Control Board.This note is
unsecured and payable in annual installments of$366,325 including principal and interest from 1992 through 2012.The total
amount outstanding at June 30,2010 and aggregate maturities ofthe note for the fiscal years subsequent to June 30,2010,are
as follows:
For the Year
Ended June 30,Principal Interest
2011 $353,734 $12,591
2012 6,010 1
$359,744 $12,592
6)NET ASSETS
Designated Net Assets
In addition to the restricted net assets,a pOliion of the unrestricted net assets have been designated by the Board of Directors
for the following purposes as ofJune 30,2010 and 2009:
2010 2009
Designated Betterment $6,653,909 $2,969,722
Expansion Reserve 21,096,749 18,569,610
Replacement Reserve 24,483,877 26,388,812
Insurance Reserve 6,639,953 8,436,721
Total $58,874,488 $56,364,865
7)DEFINED BENEFIT PENSION PLAN
Plan Description
The District's defined plan,(the "Plan"),provides retirement and disability benefits,annual cost-of-living adjustments,and
death benefits to plan members and beneficiaries.The Plan is part of the Public Agency portion of the California Public
Employees'Retirement System (CaIPERS),an agent multiple-employer plan administered by CaIPERS,which acts as a
common investment and administrative agent for participating public employers within the State of California.A menu of
benefit provisions as well as other requirements is established by State statute within the Public Employees'Retirement Law.
The Plan selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits
through District resolution.CalPERS issues a separate Comprehensive Annual Financial Report.Copies of the CaIPERS'
annual financial report may be obtained from the CalPERS Executive Office,400 P Street,Sacramento,California 95814.
See independent auditors'report.26
~~~~TA~).NOTES To FINANCIAL STATEMENTS
~~.YEARS ENDED JUNE 30,2010 AND 2009
I
1)DEFINED BENEFIT PENSION PLAN -Continued
Funding Policy
Active members in the Plan are required to contribute 8%of their annual covered salary.The District has elected to
contribute 7%on behalfofits employees.The District is required to contribute the actuarially determined remaining amounts
necessary to fund the benefits for its members.The actuarial methods and assumptions used are those adopted by the
CalPERS Board of Administration.The required employer contribution rate for the fiscal year ended June 30,2010 was
19.815%.The conttibution requirements ofthe Plan members are established by State statute and the employer contribution
rate is established and may be amended by the CaIPERS.
Annual Pension Costs
For the fiscal year ended June 30,2010,the District's annual pension cost and actual contribution was $2,240,538.The
required contribution for the fiscal year ended June 30,2010 was determined as pati ofthe June 30,2007 actuarial valuation.
The following is a summary ofthe actuarial assumptions and methods:
Valuation Date
Actuarial Cost Method
Amortization Method
Average Remaining Period
Asset Valuation Method
Actuarial Assumptions:
Investment Rate ofReturn
Projected Salary Increase
Inflation
Payroll Growth
Individual Salary Growth
June 30,2007
Entry Age Actuarial Cost Method
Level Percent ofPayroll
20 Years as ofthe Valuation Date
15 Year Smoothed Market
7.75%(Net ofAdministrative Expenses)
3.25%to 14.45%Depending on Age,Service,and Type of Employment
3.00%
3.25%
A merit scale varying by duration ofemployment coupled with an assumed
annual inflation component of3.00%and an annual production growth ofO.25%.
Initial unfunded liabilities are amOliized over a closed period that depends on the Plan's date of entry Into CaIPERS.
Subsequent Plan amendments are amortized as a level percentage ofpay over a closed 20-year period.Gains and losses that
occur in the operation of the plan are amortized over a rolling period,which results in an amortization of 6%ofunamoliized
gains and losses each year.Ifthe plan's accrued liability exceeds the actuarial value ofthe plan assets,then the amortization
payment ofthe total unfunded liability may be lower than the payment calculated over a 30-year amortization period.
THREE-YEARTREND INFORMATION FOR PERS
Fiscal
Year
Annual Pension
Cost (APC)
Percentage of
APC Contributed
Net Pension
Obligation
6/30/10
6/30/09
6/30/08
Funded Status and Funding Progress
$
$
$
2,240,538
2,150,579
2,252,601
100%
100%
100%
$
$
$
o
oo
As ofJune 30,2008,the most recent actuarial valuation date,the plan was 75.8%funded.The actuarial accrued liability (AAL)
for benefits was $65,542,736,and the actuarial value of assets was $49,712,016,resulting in an unfunded actuarial accrued
liability (VAAL)of$15,830,720.The covered payroll (annual payroll ofactive employees covered by the plan)was $11,174,528,
and the ratio ofthe VAAL to the covered payroll was 141.7%.
The schedule of funding progress,presented as required supplementary information following the notes to the financial
statements,presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over
the time relative to the actuatial accrued liability for benefits.
See independent auditors'report.27
€~NOTES To FINANCIAL STATEMENTS
~I YEARS ENDED JUNE 30,2010 AND 2009
8)OTHER POST EMPLOYMENT BENEFITS
Plan Description
The District's defined benefit postemployment heaIthcare plan,(DPHP),provides medical benefits to eligible retired District
employees and beneficiaries.DPHP is part ofthe Public Agency p0l1ion ofthe California Employers'Retiree Benefit Trust
Fund (CERBT),an agent multiple-employer plan administered by California Public Employees'Retirement System
(CaIPERS),which acts as a common investment and administrative agent for participating public employers within the State
ofCalifornia.A menu of benefit provisions as well as other requirements is established by State statute within the Public
Employees'Retirement Law.DPHP selects optional benefit provisions from the benefit menu by contract with CalPERS and
adopts those benefits through District resolution.CalPERS issues a separate Comprehensive Annual Financial Report.
Copies of the CaIPERS'annual financial report may be obtained from the CalPERS Executive Office,400 P Street,
Sacramento,California 95814.
Funding Policy
The contribution requirements of plan members and the District are established and may be amended by the Board of
Directors.DPHP members receiving benefits contribute based on their selected plan options ofEPa,Silver or Gold and if
they are located outside the State of California.Contributions by plan members range from $0 to $95 per month for
coverage to age 65,and from $0 to $62 per month,respectively,thereafter.
Annual OPEB Cost and Net OPEB Obligation/Asset
The District's annual OPEB cost (expense)is calculated based on the annual required contribution ofthe employer (ARC),
an amount actuarially determined in accordance with the parameters ofGASB Statement 45.The ARC represents a level
offunding that,if paid on an ongoing basis is projected to cover the normal annual cost.Any unfunded actuarial liability
(or funding excess)is amortized over a period not to exceed thirty years.The current ARC rate is 2.9%of the annual
covered payroll.
The following table shows the components of the District's annual OPEB cost for the year,the amount actually
contributed to the plan,and changes in the District's net OPEB obligation/asset:
2010 2009
345,000 $873,000
(480,878)(437,798)
591,000 489,999
455,122 925,201
1,033,631 1,481,069
(578,509)(555,868)
(6,204,876)(5,649,008)
(6,783,385)$(6,204,876)
Annual Required Contribution (ARC)$
Interest on net OPES asset
Adjustment to Annual Required Contribution
(ARC)
Annual OPES cost
Contributions made
Increase in net OPES asset
Net OPES asset -beginning ofyear
Net OPES asset -end ofyear $===============
For 2010,in addition to the ARC,the District contributed an implied subsidy (healthcare premium payments for retirees to
Special District Risk Management Authority (SDRMA))in the amount of$597,631,which is included in the $1,033,631 of
contributions shown above.For 2009 this amount was $608,069,which is included in the $1,481,069 ofcontributions shown
above.
See independent auditors'report.28
;Gi'l NOTES To FINANCIAL STATEMENTS~~:';iJfi YEARS ENDED JUNE 30,2010 AND 2009
8)OTHER POST EMPLOYMENT BENEFITS -Continued
The District's annual OPEB cost,the percentage of annual OPEB cost contributed to the plan,and the net OPEB
obligation/asset for the fiscal years 2010,2009 and 2008 were as follows:
THREE-YEAR TREND INFORMATION FOR CERST
Fiscal Annual OPES Percentage of Net OPES
Year Cost (AOC)OPES Cost Contributed Asset
6/30/2010 $455,122 100%$(6,783,385)
6/30/2009 $925,201 100%$(6,204,876)
6/30/2008 $846,000 100%$(5,649,008)
Funded Status and Funding Progress
The funded status ofthe plan as ofJune 30,2009,the most recent actuarial valuation date,was as follows:
Actuarial Accrued Liability (AAL)
Actuarial Value ofPlan Assets
Unfunded Actuarial Accrued Liability (UAAL)
Funded Ratio (Actuarial Value of Plan Assets/AAL)
Covered Payroll (Active Plan Members)
UAAL as a Percentage ofCovered Payroll
$10,070,000
$6,273,000
$3,797,000
62.29%
$11,878,000
31.97%
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the
probability of occurrence ofevents far into the future.Examples include assumptions about future employment,mortality,
and the healthcare cost trend.Amounts determined regarding the funded status of the plan and the annual required
contributions ofthe employer are subject to continual revision as actual results are compared with past expectations and
new estimates are made about the future.The schedule of funding progress,presented as required supplementalY
information following the notes to the financial statements,presents multi-year trend information about whether the
actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the
benefits.
See independent auditors'report.29
I~~:NOTES To FINANCIAL STATEMENTS
~&'YEARS ENDED JUNE 30,2010 AND 2009
8)OTHER POST EMPLOYMENT BENEFITS -Continued
Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the
employer and the plan members)and include the types of benefits provided at the time ofeach valuation and the historical
pattern of sharing of benefit costs between employer and plan members to that point.The actuarial methods and
assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued
liabilities and the actuarial assets,consistent with the long-term perspective ofthe calculations.
The following is a summary ofthe actuarial assumptions and methods:
Valuation Date
Actuarial Cost Method
Amortization Method
Remaining Amortization Period
Asset Valuation Method
Actuarial Assumptions:
Investment Rate ofReturn
Projected Salary Increase
Inflation
Individual Salary Growth
9)WATER CONSERVATION AUTHORITY
June 30,2009
Entry Age Normal Cost Method
Level Percent of Payroll
28 Years as ofthe Valuation Date
15 Year Smoothed Market
7.75%(Net of Administrative Expenses)
3.25%
3.00%
CalPERS 1997-2002 Experience Study
In 1999 the District formed the Water Conservation Authority (the "Authority"),a Joint Powers Authority,with other local
entities to construct,maintain and operate a xeriscape demonstration garden in the furtherance of water conservation.The
authority is a non-profit public charity organization and is exempt from income taxes.During the years ended June 30,2010
and 2009,the District contributed $100,240 and $95,270,respectively,for the development,construction and operation costs
ofthe xeriscape demonstration garden.
A summary ofthe Authority's June 30,2009 audited financial statement is as follows (latest report available):
Assets
Liabilities
Revenues,Gains and Other Support
Changes in Net Assets
See independent auditors'report.
$2,388,402
52,488
719,224
(100,318)
30
~~.NOTES To FINANCIAL STATEMENTS~7 YEARS ENDED JUNE 30,2010 AND 2009
10)COMMITMENTS AND CONTINGENCIES
Construction Commitments
The District had committed to capital projects under construction with an estimated cost to complete of$1,049,789 at June 30,
2010.
Litigation
Certain claims,suits and complaints arising in the ordinary course of operation have been filed or are pending against the
District.In the opinion ofthe staff and counsel,all such matters are adequately covered by insurance,or ifnot so covered,are
without merit or are ofsuch kind,or involved such amounts,as would not have significant effect on the financial position or
results ofoperations ofthe District ifdisposed ofunfavorably.
Refundable Terminal Storage Fees
The District has entered into an agreement with several developers whereby the developers prepaid the terminal storage fee in
order to provide the Disttict with the funds necessary to build additional storage capacity.The agreement further allows the
developers to relinquish all or a portion ofsuch water storage capacity.If the District grants to another property owner the
relinquished storage capacity,the District shall refund to the applicable developer $746 per equivalent dwelling unit (EDU).
There were 17,867 EDUs that were subject to this agreement.At June 30,2009,1,750 EDUs had been relinquished and
refunded,14,662 EDUs had been connected,and 1,455 EDUs have neither been relinquished nor connected.At June 30,
2010,1,751 EDUs had been relinquished and refunded,14,663 EDUs had been connected,and 1,453 EDUs have neither
been relinquished nor connected.
Developer Agreements
The District has entered into various Developer Agreements with developers towards the expansion ofDistrict facilities.The
developers agree to make cet1ain improvements and after the completion ofthe projects the District agrees to reimburse such
improvements with a maximum reimbursement amount for each developer.Contractually,the District does not incur a
liability for the work until the work is accepted by the District.As of June 30,2010,none of the outstanding developer
agreements had been accepted,however it is anticipated that the District will be liable for an amount not to exceed $20,300 at
the point ofacceptance.Accordingly,the District did not accrue a liability as ofyear end.
11)RISK MANAGEMENT
General Liability
The District is exposed to various risks of loss related to torts,theft,damage and destruction of assets,errors and
omissions,and natural disasters.Beginning in July 2003,the District began participation in an insurance pool through the
Special District Risk Management Authority (SDRMA).SDRMA is a not-for-profit public agency formed under
California Government Code Sections 6500 et.Seq.SDRMA is governed by a board composed of members from
participating agencies.The mission of SDRMA is to provide renewable,efficiently priced risk financing and risk
management services through a financially sound pool.The District pays an annual premium for commercial insurance
covering general liability,excess liability,property,automobile,public employee dishonesty,and various other claims.
Coverage limits range up to $1 billion.Accordingly,the District retains no risk of loss.Separate financial statements of
SDRMA may be obtained at Special District Risk Management Authority,1112 "I"Street,Suite 300,Sacramento,CA
95814.
Workers'Compensation
Through SDRMA,the District is insured up to $200,000,000 for Statutory Workers'Compensation and $5,000,000 for
Employers'Liability coverage with no deductible.SDRMA currently has a pool of 348 agencies in the Workers'
Compensation Program.
See independent auditors'report.31
~1'NOTES To FINANCIAL STATEMENTS'~.YEARS ENDED JUNE 30,2010 AND 2009
11)RISKMANAGEMENT -Continued
Health Insurance
Beginning in January 2008,the District began providing health insurance through SDRMA covering all of its employees,
retirees,and other dependents.SDRMA is a self-funded,pooled medical program,administered in conjunction with the
California State Association ofCounties (CSAC).
Adequacy ofProtection
During the past three fiscal (claims)years none of the above programs of protection have had settlements or judgments
that exceeded pooled or insured coverage.There have been no significant reductions in pooled or insured liability
coverage from coverage in the prior year.
12)INTEREST EXPENSE
Interest expense for the years ended June 30,2010 and 2009,is as follows:
2010 2009
Amount Expensed $2,404,530 $1,340,110
Amount Capitalized as a Cost of
Construction Projects 510,115 1,353,153
Total Interest $2,914.645 $2.693.263
See independent auditors'report.32
r:::.~.NOTES To FINANCIAL STATEMENTS\~-:;;).YEARS ENDED JUNE 30,2010 AND 2009
13)SEGMENT INFORMATION
During the June 30,2010 fiscal year,the District issued Revenue Bonds to finance certain capital improvements.While water
and wastewater services are accounted for in a single fund in these financial statements,the investors in the Revenue Bonds
rely solely on the revenues ofthe water services for repayment.
Summary financial information for the water services is presented for June 30,2010.
Condensed Statement of Net Assets
June 30,2010
Water Services
ASSETS
Current Assets $126,774,856
Capital Assets 455,162,484
Other Assets 8,486,667
Total Assets 590,424,007
LIABILITIES
CUITent Liabilities 23,980,259
Long-Term Liabilities 118,389,772
Total Liabilities 142,370,031
NET ASSETS
Invested in capital assets,net ofrelated debt 362,311,370
Restricted for debt service 5,192,111
Unrestricted 80,550,495
Total Net Assets $448,053,976
See independent auditors'report.33
~~,NOTES To FINANCIAL STATEMENTS
'~.YEARS ENDED JUNE 30,2010 AND 2009
13)SEGMENT INFORMATION -Continued
Condensed Statement of Revenues,Expenses
and Changes in Net Assets
For The Year Ended June 30,2010
Operating Revenues
Water sales
Connection and other fees
Total Operating Revenues
Operating Expenses
Cost of Water Sales
Administrative and General
Depreciation
Total Operating Expenses
Operating Income (Loss)
Nonoperating Revenues (Expenses)
Investment income
Taxes and assessments
Availability charges
Gain (loss)on sale ofcapital assets
Miscellaneous revenues
Donations
Interest expense
Miscellaneous expenses
Total Nonoperating Revenues (Expenses)
Income (Loss)Before Capital Contributions
Capital Contributions
Changes in Net Assets
Total Net Assets,Beginning
Total Net Assets,Ending
See independent auditors'report.
Water Services
$56,210,109
1,907,797
58,117,906
39,338,495
17,750,713
12,495,217
69,584,425
(11,466,519)
1,323,844
3,613,901
618,806
(143,086)
2,921,016
(100,240)
(2,386,955)
(303,963)
5,543,323
(5,923,196)
8,948,920
3,025,724
445,028,252
$448,053,976
34
t::::~.NOTES To FINANCIAL STATEMENTS'~~.YEARS ENDED JUNE 30,2010 AND 2009
13)SEGMENT INFORMATION -Continued
Condensed Statement of Cash Flows
For The Year Ended June 30,2010
Water Services
Net Cash Provided by Operating Activities
Net Cash Provided by Noncapital and Related
Financing Activities
Net Cash Provided by Capital and Related
Financing Activities
Net Cash Used by Investing Activities
Net Increse in Cash and Cash Equivalents
Cash and cash equivalents,Beginning
Cash and cash equivalents,Ending
See independent auditors'report.
$
$
4,856,836
4,747,692
25,787,143
(26,663,096)
8,728,575
52,583,868
61,312,443
35
REQUIRED SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30,2010 AND 2009
~~~!§OTAV~1'REQUIRED SUPPLEMENTARY INFORMATION~ftY YEARS ENDED JUNE 30,2010 AND 2009
Schedule ofFunding Progress for PERS
Actuarial
Accrued UAALasa
Actuarial Actuarial Liability Unfunded Percentage of
Valuation Value of (AAL)Entry AAL Funded Covered Covered
Date Assets Age (UAAL)Ratio Payroll Payroll
(A)(B)(8 -A)(AlB)(C)[(B-A)/C]
6/30108
Miscellaneous $49,712,016 $65.542,736 $15,830,720 75.8%$11,174,528 141.7%
6/30107
Miscellaneous $44,910,326 $59,412,116 $14,501,790 75.6%$10,663,440 136.0%
6/30106
Miscellaneous $40,321,483 $54,228,041 $13,906,558 74.4%$10,470,766 132.8%
Schedule ofFunding Progress for DPHP
Actualial
Accrued UAALasa
Actuarial Actuarial Liability Unfunded Percentage of
Valuation Value of (AAL)Entry AAL Funded Covered Covered
Date Assets Age (UAAL)Ratio Payroll Payroll
(A)(B)(B -A)(AlB)(C)[(B-A)/C]
6/30109
Miscellaneous $6,273,000 $10,070,000 $3,797,000 62.29%$11,878,000 31.97%
6/30108
Miscellaneous $5,649,000 $11,581,000 $5,932,000 48.78%$11,307,000 52.5%
6/30107
Miscellaneous $o $11,408,000 $11,408,000 0%$10,951,000 104.20%
See independent auditors'report.36
~DIEHL,EVANS &.COMPANY,LLP~CERTIFIED PUBLIC ACCOUNTANTS &:CONSULTANTS
APARTNERSHIPINCUJDINGACCOUNTANCY CORPORATIONS
2965 ROOSEVELT STREET
CARLSBAD,CALIFORNIA 92008·2389
(760)729-2343.FAX (760)729-2234
www.diehlevans.com
October 12,2010
Board ofDirectors
Otay Water District
Spring Valley,California
Attachment C
'PHlLIPH.HOLTKAMP,CPA -
'THOMAS M.PERLOWSKI,CPA
'HARVEY J.SCHROEDER,CPA
KENNETHR.AMES,CPA
WlLLJAM C.PENTZ,CPA
MICHAELR.LUDlN,CPA
CRAIGW,SPRAKER,CPA
NITINP.PATEL,CPA
ROBERT1.CALLANAN.CPA
'APROl'ESSIONAL CORPORATION
In pIarming and performing our audit of the financial statements of the Otay Water District (the
District)as of and for the year ended June 30,2010,in accordance with auditing standards generally
accepted in the United States of America,we considered the District's internal control over fmancial
reporting (internal control)as a basis for designing our auditing procedures for the purpose of
expressing our opinion on the financial statements,but not for the purpose ofexpressing an opinion on
the effectiveness ofthe District's internal control.Accordingly,we do not express an opinion on the
effectiveness ofthe District's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees,in the normal course ofperforming their assigned functions,to prevent,or
detect and correct misstatements on a timely basis.A material weakness is a deficiency,or
combination ofdeficiencies in internal control,such that there is a reasonable possibility that a material
misstatement of the entity's financial statements will not be prevented,or detected and corrected on a
timely basis.
Our consideration of internal control was for the limited purpose described in the first paragraph and
was not designed to identify all deficiencies in internal control that might be significant deficiencies or
material weaknesses and,therefore,there can be no assurance that all such deficiencies have been
identified.We did not identify any deficiencies in internal control that we consider to be material
weaknesses,as defmed above.
This communication is intended solely for the infonnation and use of management,the Board of
Directors,and others within the District and is not intended to be and should not be used by anyone
other than these specified parties.
OTHER OFFICES AT:613 W.VALLEY PARKWAY.SUITE 330
ESCONDIDO.CALIFORNIA 92025-2598
(760)741.3141.FAX (760)741·9890
5CORPORATE PARKSUITE 100
IRVINE.CALIFORNIA92606-4906
(949)-399-0600.FAX (949)399-0610
Attachment D
~DIEHL,EVANS &COMPANY,LLP~CERTIFIED PUBLIC ACCOUNTANTS &:CONSULTANTS
APARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS
2965 ROOSEVELT STREET
CARLSBAD,CALIFORNIA 92008-2389
(760)729-2343 •FAX (760)729-2234
www.diehlevans.com
The Board ofDirectors and
Management ofthe Otay Water District
Spring Valley,California
October 12,2010
"PHILIPH.HOLTKAMP.CPA -
'mOMASM.PERLOWSKI,CPA
"HARVEYJ.SCHROEDER,CPA
KENNETH R.AMEs.CPA
WILUAMC.PENTZ,CPA
MICHAEL R.LUDIN,CPA
CRAIG W.SPRAKER,CPA
NITlNP.PA'IEL,CPA
ROBERT J.CALLANAN,CPA
" APROFESSrONALCORPORATION
In planning and performing our audit ofthe financial statements ofthe Otay Water District (District)as
of and for the year ended June 30,2010,in accordance with auditing standards generally accepted in
the United States of America,we considered the District's internal control over financial reporting
(internal control)as a basis for designing our auditing procedures for the purpose of expressing our
opinion on the financial statements,but not for the purpose of expressing an opinion on the
effectiveness of the District's internal control.Accordingly,we do not express an opinion on the
effectiveness of the District's internal control.
However,during our audit we became aware of a certain matter that we would like to bring to your
attention.This matter is set forth below,together with our recommendation.
Interest Capitalization
During our audit it was noted that the capitalization of interest on certain construction projects relating
to the 2010 Water Revenue Bonds was understated by $436,369.The District's interest capitalization
calculation for the 2010 Water Revenue Bonds was based on an interest capitalization accounting
principle (FASB 34)that was being properly applied to other District debt.The accounting principle
that applies to the 2010 Water Revenue Bonds (FASB 62)requires a different calculation of the amount
of interest to be capitalized.We recommend the District review any new interest capitalization with the
District's auditor during the year.
This communication is intended solely for the information and use ofmanagement,the Board of
Directors,and others within the District and is not intended to be,and should not be,used by anyone
other than these specified parties.
OTHER OFFICES AT:613 W.VALLEY PARKWAY,SUITE 330
ESCONDIDO,CALIFORNIA 92025-2598
(760)741-3141.FAX (760)741-9890
5CORPORATEPARKSUITE 100
IRVINE,CALIFORNIA 92606-4906
(949)-399-0600.FAX (949)399-0610
~DIEHL,EVANS &:COMPANY,LLP~CERTIFIED PUBLIC ACCOUNTANTS &:CONSULTANTS
APARTNBRSHil'INCLUDINGACCOUNTANCY CORPORATIONS
2965 ROOSEVELT STREET
CARLSBAD,CALIFORNIA 92008·2389
(760)729-2343 •FAX (760)729-2234
www.diehlevans.com
October 12,2010
Board ofDirectors
Audit Committee
Otay Water District
Spring Valley,California
Attachment E
"PHILIPH.HOLTKAMP,CPA -
"TIlOMASM.PERLOWSKJ,CPA
'HARVEYJ.SCHROEDER,CPA
KENNETHR AMES,CPA
WILLIAMC.PENTZ,CPA
MICHAELR LOOIN.CPA
CRAIGW.SPRAKER,CPA
NlTINP.PATEL,CPA
ROBERT 1.CALLA.'<AN,CPA
" APROFESSIONALCOllPOIL'\.TION
We have audited the financial statements ofthe Otay Water District for the year ended June 30,2010,
and have issued our report thereon dated October 12,2010.Professional standards require that we
provide you with the following information related to our audit.
Our Responsibility Under Auditing Standards Generally Accepted in the United States of
America:
As stated in our engagement letter dated February 5,2010,our responsibility,as described by
professional standards,is to express an opinion about whether the financial statements prepared by
management with your oversight are fairly presented,in all material respects,in conformity with
accounting principles generally accepted in the United States of America.Our audit of the fmancial
statements does not relieve you or management of your responsibilities.Our responsibility is to plan
and perform the audit to obtain reasonable,but not absolute,assurance that the fmanciaI statements are
free of material misstatement.As part of our audit,we considered the internal control of the Otay
Water District.Such considerations were solely for the purpose of determining our audit procedures
and not to provide any assurance concerning such internal control.We are responsible for
communicating significant matters related to the audit that are,in our professional judgment,relevant
to your responsibilities in overseeing the financial reporting process.However,we are not required to
design procedures specifically to identify such matters.
Planned Scope and Timing ofthe Audit:
We performed the audit according to the planned scope and timing previously communicated to you in
our meeting about planning matters on August 25,2010.
- 1-
OTHER OFFICES AT:613 W.VALLEY PARKWAY,SillTE330
ESCONDIDO.CALIFORNIA 9202S-2598
(760)741-3141.FAX (760)741-9890
5CORPORATEPARK,SUITE 100
IRVINE,CALIFORNIA 92606-5165
(949)-399-0600 •FAX (949)399-0610
Significant Audit Findings:
Qualitative Aspects ofAccounting Practices
Management is responsible for the selection and use of appropriate accounting policies.The
significant accounting policies used by the Otay Water District are described in Note 1 to the financial
statements.No new accounting policies were adopted and the application ofexisting policies was not
changed during the year ended June 30,2010.We noted no transactions entered into by the Otay Water
District during the year for which there is a lack of authoritative guidance or consensus.There are no
significant transactions that have been recognized in the financial statements in a different period than
when the transaction occurred.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's knowledge and experience about past and current events and assumptions
about future events.Certain accounting estimates are particularly sensitive because of their
significance to the financial statements and because ofthe possibility that future events affecting them
may differ significantly from those expected.The most sensitive estimates affecting the financial
statements were:
a.Management's estimate ofthe fair market value ofinvestments which is based on market
values by outside sources.
b.The estimated useful lives for capital assets which are based on industry standards.
c.The annual required contribution for the District's Other Post~Employment Benefits was
prepared by an outside consultant.
We evaluated the key factors and assumptions used to develop these estimates in determining that they
were reasonable in relation to the fmancial statements taken as a whole.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing
our audit.
Audit Adjustments
Professional standards require us to accumulate all known and likely adjustments identified during the
audit,other than those that are trivial,and communicate them to the appropriate level of management.
Management has made all such adjustments.The following adjustment detected as a result of audit
procedures was corrected by management:
a.Capitalized interest on infrastructure capital assets was increased by $436,369 due to the
adjustment.We detennined the proper amount to be capitalized through calculations of
capital assets constructed.
-2-
Significant Audit Findings (Continued):
Disagreements with Management
For the purposes of this letter,professional standards define a disagreement with management as a
financial accounting,reporting,or auditing matter,whether or not resolved to our satisfaction,that
could be significant to the financial statements ofthe auditors'report.We are pleased to report that no
such disagreements arose during the course ofour audit.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated October 12,2010.
Management Consultations with Other Independent Accountants
In some cases,management may decide to consult with other accountants about auditing and
accounting matters,similar to obtaining a "second opinion"on certain situations.If a consultation
involved application of an accounting principle to the Otay Water District's financial statements or a
detennination of the type of auditor's opinion that may be expressed on those statements,our
professional standards require the consulting accountant to check with us to determine that the
consultant has all the relevant facts.To our knowledge,there were no such consultations with other
accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters,including the application of accounting principles and
auditing standards,with management prior to retention as the Otay Water District's auditors.
However,these discussions occurred in the normal course of our professional relationship and our
responses were not a condition to our retention.
****
This information is intended solely for the use of the Board of Directors,Audit Committee and
management of the Otay Water District and is not intended to be and should not be used by anyone
other than these specified parties.
-3-
Attachment F
~DIEHL,EVANS &COMPANY,LLP[:!.J CERTIFIED PUBLIC ACCOUNTANTS &:CONSULTANTS
APARTNERSHIPINCLUDING ACCOUNTANCYCORPORATIONS
2965 ROOSEVELT STREET
CARLSBAD,CALIFORNIA 92008·2389
(760)729-2343 •FAX (760)729-2234
www.diehlevans.com
INDEPENDENT ACCOUNTANTS'REPORT
ON APPLYING AGREED-UPON PROCEDURES
October 13,2010
Mr.Joseph Beachem
ChiefFinancial Officer
Otay Water District
Spring Valley,CA
'PHILIP H.HOLTKAMP,CPA
'THOMAS M.PERLOWSKI,CPA
'HARVEY J.SCHROEDER,CPA
KENNETH R.AMES,CPA
WILLIAM C.PENTZ,CPA
MICHAEL R.LUDIN,CPA
CRAIG W.SPRAKER,CPA
NITIN P.PATEL,CPA
ROBERTJ.CALLANAN,CPA
We have perfonned the procedures enumerated below,which were agreed to by the Otay Water District
(the "District")solely to assist the District's senior management in evaluating the investments of the
District for the fiscal year ended June 30,2010.The District's management is responsible for the
evaluation ofthe investments ofthe District.This agreed-upon procedures engagement was conducted in
accordance with attestation standards established by the American Institute of Certified Public
Accountants.The sufficiency ofthese procedures is solely the responsibility ofthose parties specified in
the report.Consequently,we make no representation regarding the sufficiency of the procedures
described below either for the purpose for which this report has been requested or for any other purpose.
Our procedures and findings are as follows:
1.Obtain a copy of the District's investment policy and detennine that it is in effect for the time
period under review.
a.Findings:At June 30,2010,the current investment policy (Policy #27)is dated
September 6,2006.This policy was reviewed and approved for the 200912010 Fiscal
year as part of the consent calendar at the September 2,2009 Regular Board Meeting.
Therefore the investment policy is in effect for the time period under review..
2.Select 4 investments held at year end and detennine ifthey are allowable investments under the
District's Investment Policy.
a.Findings:Four investments chosen were FNMA -Maturity 10/5/2012;FHLB -Maturity
9/21/2012;FHLMC -Maturity 6/08/2012 and GE Electric Corporate Bond -Maturity
12/1/2010.All four investments are allowable and within maturity limits as stated in the
District's Investment Policy at June 30,2010.
OTIIER OFFICES AT:613 W.VALLEY PARKWAY,SUITE 330
ESCONDIDO,CALIFORNIA 92025·2598
(760)741-3141.FAX (760)741·9890
5 CORPORATE PARK,SUITE 100
IRVINE,CALIFORNIA 92606·5165
(949)-399-0600.FAX (949)399-0610
Mr.Joseph Beachem,CFO
Otay Water District
October 13,2010
Page 2
3.For the four investments selected in #2 above,determine if they are held by a third party
custodian designated by the District.
a.Findings:Per discussion with District management and evidenced by Union Bank of
California monthly statements,the four investments examined are held by a third party
custodian designated by the District in compliance with District Policy.
4.Confmn the par or original investment amount and market value for the four investments selected
above with the custodian or issuer ofthe investments.
a.Findings:Investment values confIrmed with Union Bank of California at June 30,2010
with no exceptions.
5.Select two investment earnings transactions that took place during the year and recompute the
earnings to determine ifthe proper amount was received.
a.Findings:Investment earnings recalculated with no exceptions for two transactions
selected.
6.Trace amounts received for transactions selected at #5 above into the District's bank accounts.
a.Transactions traced into District's Union Bank of California Money Market account with
no exceptions for the two transactions selected.
7.Select fIve investment transactions (buy,sell,trade or maturity)occurring during the year under
review and determine that the transactions are permissible under the District's investment policy.
a.Findings:Reviewed fIve investment transactions.All transactions were permissible
under the District's Investment Policy.
8.Review the supporting documents for the fIve investments selected at #7 above to determine if
the transactions were appropriately recorded in the District's general ledger.
a.Findings:Five investments selected at #7 above are appropriately recorded in the
District's General Ledger without exception.
We were not engaged to,and did not,conduct an audit,the objective ofwhich would be the expression of
an opinion on the investments of the District for the fIscal year ending June 30,2010.Accordingly,we
do not express such an opinion.Had we performed additional procedures,other matters might have come
to our attention that would have been reported to you.
This report is limited solely for the information and use ofthe Board and senior management of the Otay
Water District and is not intended to be and should not be used by anyone other than those specifIed
parties.
AGENDA ITEM 4
STAFF REPORT
TYPE MEETING:Regular Board November 3,2010
DIV.NO.All
MEETING DATE:
Rita ~nce Manager W.O.lG.F.NO:
Jose~-. B achem,Chief Financial Officer
German ~ssistant General Manager,Administration and
Finance
APPROVED BY:
(Ass!.GM):
SUBMITIED BY:
APPROVED BY:
(Chief)
SUBJECT:Adopt Resolution No.4162 of the District's Code of
Ordinances Amending Policy No.25,the Reserve Policy,Which
Includes the Updated Capacity Fees and Annexation Fees,and
the New Water Supply Fee
GENERAL MANAGER'S RECOMMENDATION:
That the Board adopt Resolution No.4162 of the District's Code
of Ordinances amending Policy No.25,the Reserve Policy,which
includes the updated capacity fees and annexation fees,and the
new water supply fee.
COMMITTEE ACTION:
Please see Attachment A.
PURPOSE:
That the Board adopt Resolution No.4162 of the District's Code
of Ordinances amending Policy No.25,the Reserve Policy,which
includes the updated capacity fees and annexation fees,and the
new water supply fee.
ANALYSIS:
In March 2006,the Reserve Policy was updated to reflect
industry best practices,clearly defining the sources and uses
of the District's funds and establishing the minimums,maximums,
and targets for each of the funds.In May 2010,the Board
adopted a new capacity fee and annexation fee methodology,as
well as a new water supply fee.As a result of these Board
approved changes,the new sources and uses of fees need to be
incorporated into the Reserve Policy.
The proposed policy is in alignment with the District's
financial plan and is an integral part of the annugl rate model
update which impacts the District's rates and fees.
---~
FISCAL IMPACT:~.=9==
/,/
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.4162
Exhibit 1 Strike-through Copy of Policy No.25
C)Proposed Copy of Policy No.25
ATTACHMENT A
Adopt Resolution No.4162 of the District's Code of
Ordinances Amending Policy No.25,the Reserve Policy,
Which Includes the Updated Capacity and Annexation Fees,
SUBJECT/PROJECT:and the New Water Supply Fee
COMMITTEE ACTION:
The Finance,Administration,and Communications Committee
recommend that the Board adopt Resolution No.4162 of the
District's Code of Ordinances amending Policy No.25,the
Reserve Policy,which includes the updated capacity and
annexation fees and the new water supply fee.
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.
F:\DianeA\Staff Rpts 2010\CommMtgReservePoll00610.doc
Attachment B
RESOLUTION NO.4162
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE
OTAY WATER DISTRICT AMENDING
RESERVE POLICY NO.25 OF THE
DISTRICT'S CODE OF ORDINANCES
WHEREAS,the Otay Water District Board of Directors have
been presented with an amended Reserve Policy No.25 of the
District's Code of Ordinances for the financial management of the
Otay Water 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 resolutionj 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 3rd day of
November 2010,by the following vote:
Ayes:
Noes:
Abstain:
Absent:
President
ATTEST:
District Secretary
Page 1 of 1
Exhibit 1
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted::RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
INTRODUCTION
1.0 The District
The Otay Water District is a publiely owned water and sewer service
agency,more specifically,a California special municipal water
district,authorized in 1956 by the State Legislature under the
provisions of the Municipal Water District Act of 1911.The District is
a "revenue neutral"public agencYTi..meaning each end user pays -i-t-s-
their fair share of the District's costs of water acquisition,
construction of infrastructureL and the operation and maintenance of
the public water facilities.
The District provides water service within its boundaries,and provides
sewer and recycled water service within certain portions of the
District.As such,
~!he District operates three distinct business segments:
•Potable water
•Recycled water
•Sewer
Each of these business segments has a distinct an identifiable customer
base.In addition,the developer community,large and small,makes up
a significant class of customer for each business segment.As a
result,the District has four distinct customer service types:
•Developers
•Potable water users
•Recycled water users
•Sewer users
The District has established practices and developed computer systems
that have enabled the District to maintain a clear separation between
these service costs relating to each of its four customer service
types.Regardless of customer class,financial principles regarding
cost allocation and fund accounting are fundamental to the District's
Reserve Policy.These principles are derived from the statements of the
Governmental Accounting Standards Board (GASB),and from oversight and
advisory bodies such as the California State Auditor,the Little Hoover
Commission,and the Government Finance Officers Association (GFOA).
These have significant impacts on how the finances of the District are
organized and how financial processes work within the organization.
Page 1 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted::RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
1.1 The District's Use of FundsFinancial Resources
All of the District's expenditures fall into two broad categories:
operating costs and capital expenditures.The Goperating costs include
costs relating to and Maintenanee (O&M)e][penditures generally support
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
service.The District uses various reserves funds to support the
operating and capital efforts.Operations and maintenance is financed
only by rates and charges,also called Capital infrastructure is funded
using tvvo methods:pay-as-you-go,while capital infrastructure is
financed using two financing methods:pay-as-you-go and er-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.
Both the capital and operating efforts within the District are
different for each of the four distinct customer types.
The District uses a set of establishes different funds to accumulate
and account for revenues allocated to different activities.Those funds
receive funding up to the levels defined in this policy.Each 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 or funding requirements and financial resources are then
evaluated to ensure that the existing fund levels balances and
additional revenues are sufficient within the current budget cycle and
for the next five years to maintain 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 three four cost
areastypes +-and corresponding fund categories:New Water Supply,
Expansion,ReplacementBetterment,and/or Replacement Betterment.The
funding allocation £Br-to these three four cost areas types is defined
in the District's Capital Improvement Program (CIP)and is determined
by an engineering analysis vvhich that identifies which type of
customer5 will benefit from tfie-each facility,planned or existing.
The costs of the capital improvements are borne by either existing
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users or by the developing areas,or by a combination of the two,as
applicable.EJcpansion is for nm,'customers,betterment is for existing
customers ;Jhere the facility is improved,and replacement is for
existing customers where the facility is replaced.If an expansion
capital project also results in betterment or replacement,the costs
are allocated to nmJ users (Expansion)and eEisting users (Betterment
and Replacement)so that the developers 'dill only pay the expansion
portions.
This Reserve pfolicy protects both the existing users and the
developing and established areas from incurring inappropriate
unwarranted costs.-Developing areas are not required to finance
facilities that are due for replacement or betterment;conversely,and
established areas are not required to replace facilities before they
are worn out simply because of new development.However,to ensure a
fair allocation of costs,B~ach facility has the potential to be
classified into any or all of the four cost types.three categories to
various degrees.In addition to these standard categories cost types,
there are occasional CIPs that may be billable to a third partYL -s-t:reh
as relocations.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.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 Fund
The portion of a CIP project that benefits new users is funded
financedby the developing areas through capacity fees from the
reserves in the Expansion Fund category.These reserves are
primarily derived from the proceeds of the "incrementalU portion
of the capacity fees collected within developing areas.This
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portion of the Future expansion costs are divided by all future
connections to calculate the capacity fcc.This capacity fee is
the primary funding source for m,pansion proj ects and is capacity
fees is accounted for separately and used solely for the planning,
design,and construction of expansion facilities.Additionally,
expansion may be financed by annexation fees or the "buy-inU
portion of the capacity fee.Both of these fees are restricted for
CIP purposes,but not specifically for expansion.The majority of
the funding sources are restricted in nature \lith the exception of
the general use funds placed into the Designated Expansion Fund.
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.
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-inU portion of
the capacity fees,general use reserves held in the Desginated
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.
db.Betterment Fund
The District may construct a project that results in a significant
benefit to existing users.Facilities that improve reliability.!-e-r
meet new regulations,or create increased levels standards 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-inU 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.In such a case,user rate charges and
betterment fees could be used as a funding source for that portion
of the project that results in a lowering of overall operation and
maintenance costs or an improvement to the eJdsting users.
Betterment may also be a result of increased standards or
regulations on water or smler systems.If the existing system
must be improved in order to meet the nm,'standards this cost is a
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betterment cost.The majority of the funding sources are
restricted in nature of their use and the geographic area of use,
',vith the e:iweption of the general use funds placed in the
Designated Betterment Fund.
c.Replacement Fund
Replacement of facilities is funded primarily by general user
rates.The portion of a proj ect that benefits existing users is
funded by the Replacement Fund.It is e:i{pected that the District
will debt finance a significant portion of the future replacement
facilities.The District has a Debt Policy (Policy No.45)that
guides the debt issuance process.The replacement reserve 'dill
serve as an immediate funding source for replacement projects and
Hill provide the necessary fle:idbility to begin proj ects ,;.hile the
appropriate debt financing is being obtained.
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1~21 Relocations
Occasionally,relocation of facilities a District facility is required
by a third party.',Jhen l.Lthe District has a superior easement-s-the
relocation cost will be paid by the third party,but only to the extent
that the District does not benefit from the relocation.for the pipe
location.When a project is relocated,the cost of the nevJ facility
shall be funded by the party vJithout an easement or if no parties have
easements then it is funded by the party causing the relocation.When
this occurs,When relocation is required,a CIP project may be created
which is wholly or partially funded financed by a third party~vJho must
reimburse the District for the cost of the relocation.On occasion,
the District will require that its own facilities be relocated.
Depending on the nature of the facilities,the funding financial source
resources for these projects could be from new water supply,
replacement,expansion,replacement,betterment or third party_funding
of projects at the Districtfinancing.Each project is individually
negotiated with the third party based on the facts and circumstances of
the relocation Occasionally,the District will improve the facilities
that are being relocated.When determining how to allocate costs to
various funds much this fund Hill pay for construction,the following
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 then funding is incremental,if there is less than
five years of useful life remaining~funds are contributed from the
Replacement Fund on a pro-rata_basiscost approach should be
considered.Also,the likelihood the District will benefit from an
asset's life extension should be evaluated prior to allocating costs.
1.22 Oversizing
In some cases,vJhere reasonable,the developer may be required by the
District to oversize nevJ facilities for future development in order to
obtain economies of scale.The developer will be reimbursed for
incremental over sizing costs as per Policy Ho.27.These
reimbursements are only for backbone facilities funded by capacity fees
not for the distribution system within a development
vJhich is an obligation of the developer separate from the capacity
fees.These smaller distribution pipes serving the individual homes
vJithin a development are often referred to as "in tractU pipelines.
If deemed reasonable by the District,in connection with the
construction of backbone facilities,a developer may be required to
oversize new facilities for future development.The developer is
reimbursed for incremental oversizing costs as per Policy No.26.
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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 considered assumed to have sufficient supply and
capacity to meet their current requirements as provided by the
developers.In addition,they are considered to have borne capital
financial costs that are at least proportionate to the benefits they
have received from capital facilities.Accordingly,no regional
capital financia±~costs are allocated to these areas so that they
will not incur any costs for newly developing areas~.In the ease of a
except for capital project~that produces ~~istrict-wide benefit or
cost savings,hOv~ever;the District may provide financial support to
nev,'facilities.
1.24 Improvement Districts (IDs)
Improvement Districts (IDs)are established in order to facilitate the
funding financing of a-particular improvement~by the specific
beneficiaries.The District has a number of ±~mprovement ~~istricts
that were established for General Obligation (GO)debt repayment.MaRy
of these Most GO issuances debt have has been paid off and,as outlined
in the Debt Policy,it is unlikely that the District will issue
additional GO debt.±B5-Improvement districts continue to be used for
other funding purposes7~First,ll-to distinguish sewer customers from
water customers on the county tax roll;second,~to place parcels on
the county tax roll for the collection of availability fees;or third,
11-for -t-he---charging e-f-special water rates;and fourth,to track ',,'hich
properties have paid annexation fees.
Over the years,the District has taken a moved to a district-wide
perspective ~~funding financing improvements.This philosophy is
evident by the district-wide capacity ~and annexation fee~.The
District also uses district-wide water rates.As time continues goes
on,it is expected that IDs will continue to outgrow their purpose7
So,vJhile many IDs remain and their use will diminish over time.
1.3 The Purpose of the Policy
Public entities accumulate and maintain reserves to ensure both
financial stability and the continuation of the ability to provide
continuous availability of services.Financial stability and the
increase in resulting improved credit quality that result from
stability allow the public entity to weather times of uncertainty and
the impacts of negative events,both major and minor.Funded r~eserves
allow for the continued ongoing maintenance of property and timely
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payment of expenses beyond the magnitude of the funds even when such
expenses exceed money available ±fi-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 Distrietpublic 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 funds money to protect creditors.
•Funds Money set aside to replace assets at the end of their useful
lives.
•Funds Money set aside to repair or replace assets damaged or
destroyed at unanticipated times~
It is important to note that 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.It is important to note that In
addition,the termT fund balance was recently replaced by net assets as
codified by the Governmental Accounting Standards Board (GASB).
In short,reserves are the liquid assets of the District,accumulated
and maintained for application to fund finance contingent future
activities,whether known or unanticipated,operating or capital in
nature.The District's Reserve Policy governs the management and use of
these fundsfinancial resources.Few policies have a more significant
impact on the financial health and stability of the District.This
policy explains several key financial concepts used by the District and
provides some background information to the overall strategies and
practices utilized.The District has a fiduciary obligation to its
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
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of funds.As a proactive response,the California Special Districts
Association (CSDA)prepared Reserve Guidelines for its members.The
Reserve Guidelines were significant in noting that reserve levels need
to be in context of the organization's overall business model and
capital improvement plan.
There are a number of potential events which the District should
consider in the development of reserves:
•Economic Uncertainty -performance of the regional economy and the
impact of that performance on demand for water.
•Weather -the amount of rainfall and the impact of weather on the
availability and the cost of water as well as the demand for
water.
•Government Mandates -the impact of federal and state regulation,
particularly environmental regulation.
•Tax Changes -limitations on the District's taxing and spending
powers through the passage of a voter referendum,the impound of
District property taxes or the removal of the District's power to
levy property taxes,further increases to Educational Revenue
Augmentation Fund (ERAFl contributions or changes in calculation
methodology.
•Operating Costs -increases in operating and maintenance costs
because of inflation,labor agreement or other modification
•Force Majeure -unanticipated expenditures resulting from natural
disasters or intentional acts.
•Emergency Maintenance -unanticipated expenditures resulting .from
unexpected failure of assets (e.g.,rupture in the primary
transmission system)
•Unexpected Variation in Cash Flow -the incidence of additional
costs or decreased revenues that requireB short-term borrowing in
the absence of sufficient funds 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.Each All of these recommendations haBve
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:
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•Distinguish between restricted and unrestricted reserves.
•Establish distinct purposes for all reserves.
•Set target levels,such as including minimums and maximums,for
the accumulation of reserves.
•Identify the events or conditions that prompt the use of reserves.
•Conform ',.'ith 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 reserve~.Specifically,the
Constitution states that "each entity of the government can establish
contingency,emergency,unemployment,reserve,sinking fund...or similar
funds as it shall deem5 reasonable and proper.2 "Similarly,the State's
Water Code does not impose any requirements as to specific or
recommended reserve fund levels.As a result,the public finance
community as a whole has yet to settle on any real objective standards
for the level of reserve funds appropriate for governmental
enterprises.This lack of consensus as to specific standards is
indicative of the wide variance of the financial and operations
context5 for different districts and different contingencies justifying
reserves of funds.
The Government Finance Officers Association (GFOA)in its
~Recommended Practice on Appropriate Level of Unreserved Fund
Balance in the General Fund"(2002)states+that ±in establishing
a policy governing the level of unreserved fund balance in the
general fund,a government should consider a variety of factorsT~
These includ~~:
•The predictability of its revenues and the volatility of its
expenditures (i.e.,higher levels of the unreserved fund
balance~may be needed if significant revenue sources are
subject to unpredictable fluctuations or if operating
expenditures are highly volatile).
I California State Auditor,Bureau ofState Audits,"California's Independent Water Districts:Reserve Amounts Are Not Always
Sufficiently Justified,and Some Expenses and Contract Decisions Are Ouestionable,"dated June 2004, 2003-137;p.8.
2 California Constitution,Article XIII B,Section 5.State Auditor,Bureau ofState 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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•The availability of resources in other funds as well as the
potential drain upon general fund resources from other funds
(i.e.,the availability of resources in other funds may
reduce the amount of the unreserved fund balance needed in
the general fund,just as deficits in other funds may require
that a higher level of unreserved fund balance be maintained
in the general fund).
•Liquidity (i.e.,a disparity between when financial resources
actually become available to make payments and the average
maturity of related liabilities may require that a higher
level of resources be maintained)
•Designations (i.e.,governments may wish to maintain higher
levels of unreserved fund balance to compensate for any
portion of unreserved fund balance already designated for a
specific purpose).
In the preparation of this policy,each of the CSDA guidelines and the
GFOA recommendations has been considered.In addition,all seven
objectives provided by the State Auditor are specifically addressed for
each reserve The District wholly supports the State Auditor's efforts
to bring a high-level of quality to reserve governance and establishing
a standard of performance~
The District recognizes that the customer pays for services provided
Quality management requires that periodic valuations be performed so
that fees and charges can be set at appropriate levels to recover the
cost of service The District's Reserve Policy has been drafted with
consideration of the GFOA,CSDA,and State Auditor general guidelines
as provided above.In addition,the District has adopted the following
principles in the management of its funds financial resources:
•Funds Reserves are held and used only for the purpose for which
they are collected.This is done to maintain equity bet~Jeen 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 etrM-operations and maintenance from capital
expenditures occurs within each of the service types This is
done because the funding financing of these expenditures is often
on different timelines or use different funding sourcesreserves.
•The District will hold its reserve at responsible and prudent
levels This policy sets minimum,maximum,and target levels for
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each of the various funds.This has been done so that the
District can maintain funds reserves to meet the purpose for which
the funds were established The levels are set by reference to
line items in the District's financial statements and approved
budgets.This allows reserve levels to adjust to the District's
changing financial circumstances.
•Debt financing of facilities provides intergenerational equity and
maintains rates at reasonable levels.This equity is accomplished
with tfie-long-term financing By-which spread~s the cost of
facilities over the life of the facilities.The burden to pay for
facilities is then paid by those who use them.Optionally,t!he
District could amass significant reserves by pre-collecting funds
financial resources in a Replacement Reserve Fund allowing the
District to cash fund finance all replacements.In order to
obtain those funds,However,this would require significant rate
increasesL would be required,burdening the current customers and
creating reserve levels difficult to defend to the ratepayers or
other oversight entities.
These concepts are fundamental to the way the District manages its
funds and have a direct impact on the way rates and charges are set.
The District performs annual budget evaluations and updates its rate
study model on at least an annual basis to monitor and adjust the
various funds and revenue sources.The separation,tracking,and
projecting of the various funds and expenditures create the essential
information necessary for the equitable rate structure maintained by
the District.The annual review preserves the balance between services
provided and the prices fees charged.This review also insures tnpt
funds reserves will bc available to continue to serve the District's
customers.
SOURCES OF FUNDS
Financial Sources
2.0 Developers
a. a.Meter Installation Charges (General Use)
Meter fees are charges collected for new water service
connections.Fees vary depending upon meter size and type of
service.The costs associated with meter installations are
included in the Operating Expenses section of the budget.These
charges are funded financed by developers.
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b.€.Developer Deposits (General Use)
These deposits are for the engineering and
provided to developers.They are tracked
developer and any excess amount is returned to
operations services
separately for each
the developer.
c.b.Annexation Fees (General UseRestricted)
Annexation F!ees1 are collected as a condition of annexing into are
outlined in Section 9 of the Code of Ordinances.This is the buy
in to the District's potable and recycled water facilities.Since
the existing facilities have been built and maintained by
developers or customers within the District,the annexation fee is
calculated based on the present value of all property taxes (1%
property tax and availability fees)-paid by the developer and
based on the encess capacity built by existing and prior
customers.users.This The annexation fee insures that future
users fund finance a portion of ~facilities that were sized~
aftd-built,and maintained for their both existing and future
users.by prior customers.The annenation fees are general use
funds and help to offset current customer costs.The calculation
of the fee uses a system ',Jide evaluation that combines the potable
and reclamation systems.This methodology is used because the t,JO
water systems work hand in hand,the recycled system brings a new
supply of water to the District reducing the need for potable
systems and the higher cost of obtaining new potable supplies.
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 a property is annexed
into an improvement district.This fee is calculated using the
"buy-inn 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.
3 Code ofOrdinances,Section 9.
4 Code ofOrdinances,Section 28
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Although the fees collected are not restricted separately,one
portion for potable and the other for recycled,they are tracked
separately.
-----------ed•.---Capacity Fees (Restricted)
The capacity fee is outlined in Section 28 of the Code of
Ordinances.Capacity fees4 -are based on the value of existing and
future facilities estimated construction cost of expansion divided
by the number of existing and future E~quivalent ~Qwelling B~nits.
This method of calculating capacity fees is called the combined
method,where the "buy-in"portion of !f!:.he capacity fee covers
costs to repay existing customers for the facilities that they
have built,and where the "incremental"portion of the capacity
fee covers the cost of future expansion facilities.The "buy-in"
portion of the capacity fee is restricted to pay for including,
but not limited to,planning,design,construction,and financing
associated with expansion,replacement or betterment facilities~
The "buy-in"portion may be shifted back and forth between
expansion,betterment or replacement as the financing needs
change.for the District's expansion needs.The "incremental"
portion of the capacity fee is limited to planning,design,
construction,and financing exclusively for expansion facilities
(excluding new water supply expansion).
Ultimate fIacility needs are based on projected land use planning.
Changes in anticipated future land use occur and can alter projected
facility requirements.Thus,both the anticipated facilities These
needs and ~their projected costs change over time as regulatory
agencies make changes to determining land use make changes.
Significant variations in future land use occur and can alter projected
facility requirements.As these changes oecur,t~he District
periodically ~Jill review~the capacity fee calculation to accommodate
such variations.These fees are paid by developers.
The District's construction of infrastructure occurs prior to the
addition of EDUs.This sequence serves two purposes:one it ensures
that the District can serve the pending construction as it is
completed;and two,it is more efficient to oversize many facilities at
the outset rather than build for the current need and then reconstruct
when the future need is realized As a result of this strategy,the
District has financed construction with bond financing as the existing
expansion funds reserves are depleted.
The capacity fee is calculated based on the e2cpansion costs of the
combined recycled and potable water systems needs.This methodology,
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just like the annexation fee 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.only for
e}[pansion needs.So,while capacity fees are not restricted
separately,one portion for by potable and the other portion for
recycled,they are tracked separately.
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Developer Sources
DE\'ELOPERSr1----
DIACR..~I 2.0:Flo"of Funds
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Diagram 2.0:Flow of Funds -Developer Sources
DEVELOPERS
••••M••,;;."..~.>7
Meter
Installation
Charges
Unrestricted and
Undesignated
(General Use)Funds
2.1 Customers/Users
Capacity
Fees
Restricted Funds
a Uniform Rates and Charges (General Use)
Charges to users for water,sewer,and recycled water are uniform
throughout the District for similar customer types.This policy
reduces possible misunderstanding that might occur among customers
if rates varied between geographical areas.It also provides for
an administratively straightforward billing process.
b.Monthly System Fees (General Use)
This is a fixed revenue source that is charged monthly.The
amount of the charge is based on the meter size
c.Energy Charges (General Use)
The energy pumping fee is $0.032 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)
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Penalties are added to the monthly water and sewer bills for late
charges,locks,etc.
e.Pass-through Fixed Charges (General Use)
A fixed monthly charge to the District's customers intended to
collect sufficient funds to pass-through the increased fixed costs
from the County Water Authority (CWA_)_-and the Metropolitan Water
District (MWD1.
f Special Rates and Charges (Restricted)
In addition to the uniform water charges,the District currently
has five special water rates and one sewer rate.The five water
rates are a±±-for construction,installation,and maintenance of
water storage reservoirs,pump stations,and water lines in the
respective areas.Each of these rates and charges must be used
within the respective areas is listed as follows:from which they
are collected.These special charges are listed below:
•North District water charge (e~ode section 25.03H~)
•ID 9 water charge (e~ode section 25.03~~)
•ID 3 water charge (e~ode section 25.03l~)
•ID 10 water charge (e~ode section 25.03~l)
•La Presa water charge (e~ode section 25.03~!)
•Russell Square sewer charge (e~ode section 53.04C)
When these rates were established they were for the specific
purpose of constructing,installing,and maintaining the water and
sewer systems in the areas in which the fees that they wet~
collected.Therefore,these are R£estricted Funds reserves by
geographic area as well as by purpose.These fees however,rates
and charges can also be used for maintenance,L unlike the
availability fees (discussed in 2.2 B.).These six special £ees
rates and charges along with availability fees are tracked
separately,by geographic area,so they can be separately
evaluated ~to maintain the targeted funding reserve levels
separately.To meet this need,each special rate and charge is
accounted for in a "sub-fund"of the ~Betterment ~Fund.
g.Temporary Meter Fees (General Use/Restricted)
Water charges,in lieu of capacity fees,are charged on temporary
meters.This is done because while temporary meters use system
capacity they are not charged a capacity fee.Temporary water use
is charged at two times the water rate with the added charge
placed in the Restricted Expansion Fund.The primary users of
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these temporary meters are developers;however,general customers
also use these for various purposes.
DIAGRM!2.1:Fl:ow of Funds
1 Designated Funds I
Customer Sources
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Diagram 2.1:Flow of Funds -Customer Sources
CUSTOMERS I USERS
Unrestricted and
Undesignated
(General Use)Funds
2.2 County-Collected Taxes and Fees
Restricted Funds
a.General Levy Property Tax Receipts (1%Property Tax)(General
a.Use)
In 1978,Proposition 13 limited general the levy of ad valorem
property taxes on real property rates for all taHing authorities
to a total rate of one percent of the assessed value of such
property.Subsequent legislation,AB 8,established that the
receipts from the one percent levy were to be distributed to
taxing agencies proportionate to each agency's general levy
receipts prior to Proposition 13.Funds Taxes received are for
general use.
b.Availability Charges (General Use/Restricted)
The District levies availability charges each year in developed
and undeveloped areas.Current legislation provides that any
amount up to $10 per parcel is general use and any amount over $10
per parcel is restricted to be expended in and for that the
±improvement ~~istrict (10)within which it is collected.±Bs
were formed to provide the lowest cost funding possible for the
development of water and sewer systems.Accordingly,the District
may use availability charges in excess of any amount over $10
toward costs of to develop water and sewer systems facilities
which are either,expansion,betterment,or replacement of
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facilities consistent with the purpose of the 10 in which they are
collected.-.--This portion of the proceeds of availability
charges is geographically restricted and restricted by purpose.As
costs are incurred on these projects the respective IDs are
charged,reducing the reserves.To the extent that availability
charges are not used for the purpose for which they are collected,
they must be returned to the property owners that paid them.The
District has historically used these reserves for betterment
capital facilities thus,~!he R~estricted Funds reserves are
accounted for in "sub-funds"of the Betterment Fund
(see 2.1 f.).
c.Availability fees ean be used for the development of
faeilities consistent with the purpose of the 10 which they are
collected in,while special rates and fees can also cover the
maintenance of those facilities.As charges are incurred on these
projects the respective IDs are charged reducing the betterment
fund.In the event that funds are not used,the Restricted Funds
must be returned to the property o~vners that paid them.Therefore,
the monies in this fund may only be used to finance the
construction,installation,and maintenance of the systems ~vithin
the geographic area of the specific IDs.The District has
historically used these funds for betterment capital facilities
however,they are available for any facility construction purpose
benefiting the 10 whether replacement,betterment,or expansion.
Each year the District sends notices to all new customers
informing them of the availability fees and their purpose.This
notice also informs the customers of the date and time of the
public hearing to receive public comment on this fee.The
availability fees are split between the Betterment Fund and the
General Fund.
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€7 State Loan Assessment (Restricted)
The District assesses a ~charge per unit of sewer service each
year on the sewer customers.This is collected via the G£ounty
~!ax R~oll and is specifically collected for the repayment of the
State Loan.When this loan is paid off the charge will be
removed.
d.Improvement District General Obligation (GO)Bond Assessments
(Restricted)
The District has historically occasionally issueB~GG-general
obligation debt and establishes an ~improvement B~istrict for the
repayment of that debt.When this financing method is used,the
G£ounty ~!ax R~oll can be used to collect funds special taxes or
assessments within the 10 afi6-to pay the debt obligation.The
proceeds of the debt are restricted for the purpose as defined in
the bond documents
DIAGRA}!2.2:FJ.ow of Funds County CoJ.J.ection Sources
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Diagram 2.2:Flow of Funds -County Collection Sources
COUNTY COLLECTED TAXES AND FEES
\\
Restricted Funds
Unrestricted and
Undesignated
(General Use)
Funds
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 ~!here is also a one-time fee charged with the setup of each
new lease.The District incurs expenses related to these rents
and leases.The one-time fees are calculated and this fee's
purpose is to recover the cost~to set-up the leases.
b.Sewer Billing Fees (General Use)
Sewer billing fees are general use revenues.The District
provides Fees received from the City of Chula Vista for processing
and billing services to the City of Chula Vista to bill and
collect from e-f-their se',wr customers for sewer service"dthin our
District.These fees are to recover the cost the District incurs
to provide this service.
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c.Interest Income or Expense Allocation (General Use,
Designated,and Restricted)
Interest income (expense)will be allocated each every month based
upon each fund's month-ending balance.In this way,each fund
receives 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.
DIAGRAM 2.3:Flow of Fl:1nds
,.,
, l I I,•,.I'~~,j.,,,
Uisccllaneous Income Sources
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Diagram 2.3:Flow of Funds -Miscellaneous Income Sources
Restricted FundsDesignatedFunds
Unrestricted and
Undesignated
(General Use)Funds
MISCELLANEOUS INCOME
"~---~~']-"-----_..'------."---
2.4 Debt Issuance
a.Loans (General/Restricted Use)
As the District determines that additional funding 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 especially to
satisfy short-term financing needs.These loans mayor may not be
contractually restricted for a particular purpose.
b.General Obligation (GO)Bonds (Restricted)
As the District becomes more developed it becomes less likely that
GG-general obligation debt will be used as it requires a vote of
the public to be approved.Bond proceeds are restricted for the
construction of those facilities identified in the GO bond
issuance.Occasionally,specific portions of bond proceeds may be
allocated for the repayment of the principal and interest,also
called debt service,on these bonds.As the District determines
that additional funding financing is required for a particular
purpose,the option of debt issuance is considered.The
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determination to issue debt is made as a part of the annual rate
model update and is evaluated in accordance with the Debt Policy
before it is recommended to the Board for action.
c.Certificates of Participation (COPs)(Restricted)
General revenues of the District are pledged as security for GGPs
Certificates of Participation (COPs)indebtedness Before issuing
COPs,!!-the District vJill determine~that additional funding
financing is required for a particular purpose,the option of debt
issuance is considered.The determination to issue debt is made
as a part of the annual rate study model update and is evaluated
in accordance with the Debt Policy before it is recommended to the
Board for action.This form of financing has become the
industry's preferred form of financing as it does not require a
vote of the general public.
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DIAGRN!2.4:Flow of Funds Debt Issuance Sources
••~".'·ft- •~-".L .~~.,
~;J r "I J _,...J 'J"~
, ,1-"',~_ •
I ,'.1'H',d:;.r I'JII
~.
Diagram 2.4:Flow of Funds -Debt Issuance Sources
DEBT PROCEEDS
Unrestricted and
Undesignated
(General Use)Funds
Restricted Funds
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2.5 Inter-fund Transfers
Each year in the budgeting process~future reserve fund levels are
projected over for the next six years.Based on these
projectionsT fund transfers are recommended.Bonies Reserves may
be transferred between Unrestricted or Designated Funds and the
General Fund (see 4.0 "Funding Levels"and 4.1 "Fund Transfers").
Funds Reserves may not be transferred to or from any of the
restricted funds unless it is between two restricted funds with a
shared purpose.
FUND TYPES
Fund Types and Categories
3.0 General Funds
a.Purpose
The General Fund is neither restricted nor designated.The
District maintains only one General Fund for each business segment
(water,sewer,and recycled)This fund holds the working capital
and emergency operating reserves.While the General Fund has a
short-term focus to finance the District's annual operations,it
is supported by the six-year rate model.This fund is primarily
used to finance the operations 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 afi6-avoid spikes
in the rates or significant and abrupt increases.It is an
industry practice to have a fund that can be used to stabilize
rates.This would only occur if there was a temporary need for
funds reserves that would smooth out a rate spike or to ramp up
what would otherwise be a dramatic rate increase.
This The General ~Fund also plays a role in the debt planning of
the District.It is an industry practice to have a fund that can
be used to stabilize rates.This fund is viewed by the debt
markets as a commitment by the District to ensure financial
stability of the rates and charges of the District.The District
is anticipated to issue need a number of debt issuances over the
years and this fund will help the District not only to stabilize
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rate fluctuations but also to access low cost financing for future
projects.
While the General Fund has a short term focus to fund the
District's annual operations,it is supported by the silt year rate
model.This fund is primarily used to fund the operations of the
District however;it can be used for any District purpose.
b.Sources
The potable and recycled general funds receive M~eter installation
charges,annel,ation fees,temporary meter fees,uniform rates and
charges,monthly system fees,energy charges,penalties,pass-
through fixed charges,general levy property tax receipts,
availability charges,miscellaneous rents and leases,sewer
billing fees,interest incomefi or expense allocation,loans,and a
portion of the temporary meter fees water sales.
The sewer general fund receives sewer charges,penalties,
availability charges,sewer annexation fees (calculated on the
"buy-in"basis),and interest income or expense allocation.
fr7c.Funding Levels
±I.Minimum Level -The minimum funding reserve level for
each business segment of the General Fund is three months of
operating budget expenses (evaluated separately for each
segment).
±±II.Maximum Level -The maximum funding reserve level
for the General Fund is nine months of operating budget
expenses.In the event that this fund exceeds the seven
month level,the excess will be evaluated or transferred to
one or more of the designated funds.
±±±III Target Level -The target level of funding reserves
is three months of operating budget expenses.In the event
that the fund drops below the target level,rate increases or
fund transfers would be considered.
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3.1 Designated Funds
a.Purpose
Designated cash funds are "general use"funds that have been set
apart by Board action for a specific purpose.These funds can
only be used for those purposes.Hmwver,these funds are at the
discretion of the Board and can be used for any District purpose
by an action of the Board.The District maintains designated cash
funds as follows:
•Other Post Employment Benefits Fund (OPEB)
•Designated ERpansion Fund
•Designated Betterment Fund
•Replacement Fund
Detailed descriptions of the funds are as follows:
3.1 Designated Other Post Employment Benefits Fund (OPEB)
Designated Other Post Employee Benefits ~lOPEBl ¥Hftd
reserves are "general use"reserves that have been set apart
by Board action is used to fund finance the medical benefits
of qualified retirees as outlined in the District's benefits
plan.This District fund holds only a portion of 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.It is fully funded by user
rates.Every two years the fund is evaluated by an actuary
to update for additional funding the annual financing
requirements.Changes in the actuarial valuation may result
from changes in benefit levels,employee population,costs of
health insurance costs,or general market conditions.
These funds reserves held by the District are currently
designated bBt-and may be placed into a trust the CalPERS
trust to legally restrict the funds,effectively removing the
District's day to day legal access to the fundsthese
reserves.This 'iJould allm,'the funds to offset the actuarial
liability of the District to fund OPEB.However,these funds
are currently designated and therefore,may be used at Board
direction for any purpose.
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a.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.
b.Funding Levels Other Post Employment Benefits Fund
A.
the
Minimum Leyel Fully funded as identified under
actuarial study of the District's OPEB liability.
B.MaximWft Level Fully funded as identified by an
actuarial study.In the event that the fund is over
funded,the District 'dill target for the full funding
'dithin five (5)years reducing the annual funding
levels.
C.Target Leyel Fully funded to meet the actuarially
defined valuation.In the event that the fund is not
fully funded,the District will target for full funding
within five (5)years by increasing funding levels.
This increased funding would be in the form of either
annual budget funding or fund transfers.
I.Minimum Leve1 -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 Leve1 -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.
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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
for by developers.When considering the reserve level of the New
Water Supply Fund,the New Water Supply Debt Fund,and the
Designated New Water Supply Fund work in concert and must be
considered jointly.
b.Sources
The New Water Supply Fund receives reserves only from the new
water supply fee.Other funds within the new water supply
category of funds receive debt proceeds and general use reserves
through a designation to this category.
c.Funding Levels
I.Minimum Level -As the District matures the eIP 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
un financed new water supply facilities as described in the
District's eIP 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.
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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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Diagram 3.2:New Water Supply Fund Category
Funding Source
Restricted Funds
Restricted Funds
Restricted Funds
Designated Funds
l-Unrestricted and
Undesignated Funding
_Sources
3.2 Restricted Funds
---
General Fund -Rates and Charges -
New Water
Supply Fund
Category
New Water
Supply
Debt Fund
Designated
NewWater:
Supply Fund
'------~..
a.Purpose
Restricted cash funds are those that are legally set aside for a
particular purpose and cannot be used for any other purpose.The
District maintains three Restricted Funds:
•Restricted EEpansion Fund
•Restricted Betterment Fund
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•Debt Reserve Fund
The definition and purpose of each of these funds is
described below:
3.3 Expansion Fund Category
a.Purpose ii.Designated Expansion Fund
The purpose of this fund Expansion Fund category is to supplement
~financ~~e£-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 Imporvement Fund,and the Designated Expansion Fund
Potable and recycled reserves are considered jointly while sewer
is evaluated separately.
Restricted Expansion Fund
The Restricted Expansion Fund ',wrks hand in hand "..ith
the Designated Expansion Fund.When evaluating the need
for additional funding,both the restricted and
designated funds must be considered as one fund.The
sole purpose of this fund is to construct potable,
recycled,and smi'Cr facilities to the eictent they serve
the expansion needs of the District.Recycled and
potable are jointly accounted for as these water systems
',Jerk in concert.The se',,'er expansion is accounted for
separately but is currently inactive as there is no
seHer eicpansion.
This fund is restricted by laH and therefore is a
Restricted Fund that can be used for no other purpose.
Government Code section 66001 requires that these funds
be accounted for separately and upon request that an
accounting be provided.In addition,five years after
the first deposit into the account or fund,the Code
requires the District make specific findings regarding
any uneEpended funds,',,'hether those funds are committed
to expenditure or not (Government Code section 66001).
The same findings must continue to be made once every
five years thereafter.If the findings are not made,the
statute requires the District refund the fees to the
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!I RESERVE
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current owner of the affected property.The manner of
the refund is at the District's discretion.
As charges arc incurred on a project,and the project
has been identified as an expansion project,the costs
are deducted from the Expansion Fund.This allocation
of funds is done on a monthly basis.In the event that
funds are not used for the expansion of District
facilities the funds must be returned to the developers
who paid them.In the case where a policy change
requires a betterment project that would have been an
expansion project at the time the capacity fee was
collected,reserves may be used for that betterment
project.The expansion reserves may also be used for
bond repayment,to the extent the debt was incurred to
fund expansion.
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.In the event the restricted expansion funds are not
sufficient to fund the eHpansion projects these funds may be used.
This fund must be evaluated in conjunction ~Jith the Restricted
E1cpansion Fund as they 'dork in concert.
1.
c.
Designated EHpansion Fund
Funding Levels
----~F.Ai~.I.Minimum Level -As the District matures
the CIP will move to purely replacement and
betterment projects.As the District moves through
4ts-this lifecycle the need for expansion funds
reserves will decrease and eventually may be
reduced to zero.When considering the funding of
eHpansion the Restricted Expansion Fund and the
Designated Expansion Fund ~JOrk in concert and must
be considered jointly.
B.II.Maximum Level -The maximum reserve level ~for
this the expansion category of fund~is limited to
five years of unfunded unfinanced expansion needs
facilities as described in the District's CIP
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Budget.To determine the unfunded unfinanced
amountL the total expansion financing costs needs
must be reduced by the projected restricted
expansion revenuesL "BQond financing,and any
restricted or general fund revenues allocated to
this fund category.is e:l[pected to fund a large
portion of expansion.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.
G7 III.Target Level -The target level is six months
of expansion expenditures.In order to facilitate
debt financing of e:l[pansion,ilt is important that
the expansion funds reserves retain a reserve
remain at a minimum of six months prior to any
attempt to obtain bond finaneing.Of expansion
expenditures.This reserve level allows the
District the time necessary to issue additional
debt without running out of depleting expansion
fundsreserves.If the combined expansion funds
reserves drop below six months of expenditures this
would trigger either a transfer of general use
funds reserves or a borrowing of funds with a bond
sale,an adjustment to the timing of expansion
projects,or a reallocation of restricted reserves.
Bond funds proceeds would be placed in the
Restricted Expansion Bond FundL '..'hile 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.I f the combined e)[pansion funds
exceeded target the District should considered the
need to reduce capacity fees or transferring
designated funds to meet another purpose.
b.Levels
i.Restricted Expansion Fund
A.Minimum Le·...el While there is no minimum
balance,an action is required when the balance of
the combined Restricted E)[pansion Fund and the
Designated Expansion Fund drops belo',,,six months of
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e:lcpenditures.This ',Jould trigger either a transfer
of funds from a non Restricted Fund or a borrowing
of funds with a bond sale.Bond funds would be
placed in the Restricted Expansion Fund ',Jhile
transfers would be placed in the Designated
Expansion Fund.
B.UaJ£imum LOTJol The Ifla:ldmum of this fund is limited
not by a particular dollar amount but by the
limited ability to collect funds for this purpose.
This limitation is mandated by Government Code
section 66001.Under the Code,the District must
identify the purpose of the fee and the use to
which it will be put,effectively establishing a
nexus between the development project or class of
project and the improvement being financed.The
District must further establish that the amount of
the funds being collected ',dll not exceed that
needed to pay for the improvement (Government Code
section 66005).
Under this mandate,also referred to as AB 1600,the
Mitigation Fee Act and Government Code sections
66000 et seq.,the District can only collect
capacity fees for expansion projects.To insure
compliance ',dth this,the District performs
periodic rate studies,a part of which is the
calculation of the legally defensible capacity fee.
Therefore,the District is limited in this fund by
the neHUS beb,leen the need for expansion
expenditures and the fee that is approved for its
collection.
With the lack of a dollar limitation for the maHimum,it
is incumbent on the District to maintain the
planned construction of capital infrastructure.
While building ahead of the need makes it unlikely
that the capacity fees will accumulate to any great
degree,significant delays in construction may
result in high levels of the Restricted EHpansion
Fund.This is one reason ToJhy the District reports
to the Board on a periodic basis the progress of
the CIP spending.Further,the annual update of
the rate model brings the Restricted and Designated
Expansion Fund balances to the Board's attention.
Page 38 of 61
GTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
SUbject Policy Date Date
Number Adopted--RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
~lso,the District provides annual Developer
meetings where the existing and projected reserve
levels are reviewed.
C.Target Le?el In order to facilitate debt
financing of e1epansion,it is important that the
e2epansion funds retain a reserve of si,e months
prior to any attempt to obtain bond financing.
This reserve allows the District the time necessary
to issue additional debt without running out of
eiCpansion funds.
Page 39 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
I RESERVE
Number Adopted::Revised
POLICY 25 2/10/93 3/13/06
11/3/10
l.=============D:;:ia::g=ra=m:::::-,~3:-.3""",:::::::E:::Xp::-:a:::n=S::iO=n==F=U::n=d=:C=a--:te:-:g=o=r:=Y::::=------::::::=:::::::;--__~_~__"._
Expansion
Debt Fund
Expansion
Fund
Expansion
Fund
Category
Expansion
Annexation Fund
Expansion Capital
Improvement
Fund
Bond
Debt
59.4%40.6%
Expansion
Fund
Funding Source
I
Restricted Funds
Restricted Funds
Restricted Funds
Restricted Funds
:
Designated Funds
,,'~-'·....1.._·-
-tUnrestricted and
Undesignated Funding
Sources
General Fund -Rates and Charges
Designated
Expansion
Fund
Page 40 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted.:-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
There is significant interdependency bet~Jeen the District's potable and
recycled water systems.For this reason,the two systems are supported
by one combined capacity fee.The same capacity fee is charge on all
water connection regardless of whether they are potable or recycled.
For this reason the Restricted and Designated E2Cpansion Funds for these
two business segments must be considered jointly when using the rate
model and setting fees.
The District currently has not sewer eJ[pansion and therefore has no
sewer capacity fees and no active sewer e2Cpansion funds.
This fund contains general use funds and at the direction of the Board
may be used for any District purpose.
3.4 Replacement Fund Category
~
a.The pPurpose
The Replacement Fund category is to finance replacement
projects.When considering the reserve levels of the
replacement category of funds,th 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 reseveres of this
fund is to pay for the replacement of capital infrastructure
and capital purchases.This is a Designated Fund and was
created to meet a portion of the District's replacement
needs.This fund is These reserves are not to be used for
the replacement of non-capital items.
Debt financing of replacement ~Jill be the primary source of
funds for replacement however;this reserve is established to
fund a portion of replacement and ensure that necessary
replacements will occur regardless of the immediate
availability of the debt markets.With the District's
development of its financial systems and the greater need and
ability to separate and track reservesfunds,the R!eplacement
Fund 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
Where When the cost is below $10,000L the costs are financed
annually as operational maintenance.As charges are incurred
Page 41 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
I RESERVE
Number Adopted::Revised
POLICY 25 2/10/93 3/13/06
11/3/10
on a-replacement project~the funds reserves are deducted
from the respective Replacement Fund~on a monthly basis.
This is a Designated Fund and may be redirected for any
purpose at Board direction.
b.Sources
eo The various funds in this category are financed by debt
proceeds,annexation fees,the "buy-ln"portion of the
capacity fee,and general fund designations.
The sources of funding for designated funds are limited to
interfund transfers from available unrestricted funds (see 3.0 b.)
and interest earnings on fund balances vJithin designated funds.
Unrestricted funds may come from other designated funds or from
the General Fund.The operating budget is another source of
designated general revenues.As a part of the normal budget
process the general revenues are sufficient to fund a significant
portion of the ongoing needs of the designated funds.
II.Replacement Fund
c.Funding Levels
hoI.Minimum Level -The minimum reserve level of
this category of funding funds is 3%of the historical
value of existing assets as identified in the District's
current financial statement.Potable,recycled,and
sewer replacement are evaluated separately.
B7II.Maximum Level -The maximum reserve level of
this category of funding funds is 6%of existing assets.
If the combined replacement reserves exceed target
levels,the District should consider transferring
annexation fees or the "buy-in"portion of the capacity
fee to meet other purposes.Another consideration would
be to shift the timing of replacement projects.In the
event the maximum level is exceeded
in any year,then the eEcess "'ill be transferred as per
the general transfer guidelines found in Section IV.
G7III.Target Level -The target reserve level of
this category of funding funds is 4%of existing assets.
In the event that the fund reserves falls below the
recommended target level,the District should consider
transfersring annexation fees or the "buy-in"portion of
the capacity fee.or operating revenues would be
shifted to support the Replacement Funds.The District
Page 42 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
I RESERVE
Number Adopted::Revised
POLICY 25 2/10/93 3/13/06
11/3/10
should also consider shifting the timing of replacement
projects or issuing debt to support the planned level of
facility replacement.The District will act based on
the annual five (5)six-year rate study model,to insure
that at the end of that planning horizon the ~
reserves exceeds the minimum level and is approaching
the target level.
Page 43 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted .-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
Diagram 3.4:Replacement Fund Category
Replacement
Capital
Improvement
Fund
Replacement
-Annexation
Fund
Replacement
Fund
Category I__----J
---~---~~--=-r--R-ep-.-ac.......e-m-e-n-t..,
DebtFund
Capacity
FeesF~nding Source
Restricted Funds
Restricted Funds
Restricted Funds
Restricted FundsI
Designated Funds Designated
Replacement
Fund
-t-Unrestricted and
Undesignated Funding
Sources
General Fund -Rates and Cha'les
Page 44 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted:.RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
3.5 Betterment Fund Category
---a.Purposeii.Restricted Betterment Fund
The Betterment Reserve Fund Category is to finance the
betterment portion of capital projects with a portion going
to the maintenance of covers the cost to construct,install,
and in some cases to maintain the potable,recycled,and
sewer systems.The District maintains three separate
designated b~etterment ~IundB categories,one for each
business segmentimprovement district.An improvement
district is a legally defined geographic area usually
established for the purpose of bond financing of facilities.
The betterment reserves within ~!hese funds are restricted by
law for use within the area improvement district in which the
fees are-were collected (Water Code 71631.6).However,the
legal restriction of this fund reserve depends upon the
particular revenue source.(see Section 2.1 f.for a review
of the special rates and availability fees).
When considering the reserve levels of the betterment
category of funds,the following funds work in concert and
must be considered jointly:the Betterment Fund,Annexation
Fund (potable and recycled only),Debt Fund,Capital
Improvement Fund,and Designated Betterment Fund.
iii.Designated Betterment Fund
The purpose of this fund is to supplement the Restricted
Betterment Fund for se',Jer,water,or recycled.The District
maintains three separate designated betterment funds,one for
each business segment.In the event a Restricted Betterment
Fund is not sufficient to fund betterment projects this fund
',<'ill be used.This fund must be evaluated in conj unction
with the Restricted Betterment Fund as they work in concert.
When considering the funding levels for betterment funds
there are multiple sub funds v<'ithin betterment that must be
individually considered (see 2.1 f.).This is a general use
fund and at the direction of the Board may be used for any
District purpose.
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
Page 45 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted::RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
fees,the "buy-in"portion of the capacity fee,as well as
the general fund through a designation of reserves.
Funding Levels
I.I Minimum Level -As the District matures the
CIP will move to purely replacement projects.As the
District moves through ~this lifecycle the need for
betterment funds reserves will decrease and eventually
may be reduced to zero.When considering the funding of
expansion the Restricted Betterment Fund and the
Designated Betterment fund Hork in concert and must be
considered jointly.
B.-II.Maximum Level -The maximum reserve level ~
this for the betterment category of fund~is limited to
five years of unfunded unfinanced betterment needs
facilities as described in the District's elP Budget.
To determine the unfunded un financed amountL the total
betterment financing costs need must be reduced by the
projected restricted betterment revenues_,_.--B~ond
financing_,_is expected to fund a large portion of
betterment.annexation,and general fund designations
If this maximum is exceeded,then the District should
evaluate reductions in the special water rates and
availability fees,transferring designated reserves to
meet other purposes,or shifting the timing of
betterment projects
~lIl.Target Level The target is six months of
betterment expenditures.In order to facilitate debt
financing of betterment,ilt is important that the
betterment funds reserves retain remain at a reserve
minimum of six months of betterment expenditures.
prior to any attempt to obtain bond financing.This
reserve level allows the District the time necessary to
issue additional debt without running out of depleting
betterment fundsreserves.When considering the funding
levels for betterment funds there are multiple sub funds
vJithin betterment that must be individually considered
(see 2.1 f.).If the combined betterment funds reserves
drop below six months of expenditures this would trigger
either a transfer of general use funds reserveseT-tt
borro',ling of funds ',Jith a bond sale,or an adj ustment to
the timing of betterment projects Bond funds proceeds
would be placed in the Restricted Betterment Bond Fund
Page 46 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adoptee!:RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
while transfers would be placed in the Designated
Betterment Fund.If this target is e'lweeded,then the
District should evaluate reductions in the special water
rates and availability fees and also consider transfers
to other funds.
ii.Restricted Betterment Fund
A.~!inimum Le':el While there is no minimum,
less than siJC months of available funds in the
combined Restricted Betterment and Designated
Betterment Funds would trigger either a transfer of
funds from a non Restricted Fund or a borrowing of
funds with a bond sale.Bond funds would be placed
in the Restricted Betterment Fund ,"hile transfers
would be placed in the Designated Betterment Fund.
B.MaJEimum Le':el The maJCimum to be retained in
this fund is five years of unfunded eIP betterment
expenditures as defined in the eIP budget forecast.
To determine the unfunded amount the total
betterment costs must be reduced by the projected
restricted betterment revenues.If this maximum is
eJCceeded,then the District should evaluate
reductions in the special water rates and
availability fees and also consider transfers to
other funds.
e.Target Level In order to facilitate debt
financing of betterment,it is important that the
betterment funds retain a reserve of si'l[months
prior to any attempt to obtain bond financing.
This reserve allO'iJS the District the time necessary
to issue additional debt without running out of
betterment funds.When considering the funding
levels for betterment funds there are multiple sub
funds within betterment that must be individually
considered (see 2.1 f.).
Page 47 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted.~-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
Diagram 3.5:Betterment Fund Category
Betterment
Fund
Betterment
Debt Fund
Betterment
Capital
Improvement
Fund
Betterment
~und
Category
Betterment
Annexation
Fund
General Fund -Rates and Charges
Betterment
Fund
Special Rates
and Availability
Charges
I
_+unrestricted and
Undesignated Funding
Sources
Desi~nated Funds
Rest~icted Funds
Restricted Funds
Restricted Funds
Restricted Funds
Restricted Funds
Page 48 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted:.-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
DIAGRm!3.0:Fund '1'argets
'PARGE'1'1
Sin months of Nenus of costcapitaltofee
expenditures
!AC'1'IONS '1'0
CONSIDER lEi
BELOW 'l'ARGE'l'j
Rate increase biJE months of 5 unfundedBondfinancingyr
capital needs
eupenditures
T\,'o semiIncreasetaROnesemiannualcollectiofipayments
Six months of 5 yr unfundedtransferscapitalneeds
C}{penditures
Si}f months of 5 yr unfundedFundtransferscapitalneeds
C}Ependiturcs
Fund transfers Full funding Full funding
Capacity fee
increase
Bond financing
OPEB Fund
Designated
Bette:anent
Fund **
Replacement
i!ene Fund transfers 4%of 6%of
Rate increase
Fund transfers
Three months
of operating
budget
e}{penses
Nine months
*Expansion needs must consider the Restricted and Designate4
EJEpansion Funds as 'dell as any available bond financing.
Page 49 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted.~·RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
**Betterment needs must consider the Restricted and Designated
Betterment Funds as 'dell as any available bond financing
Diagram 3.6:Fund Targets
Fund or Fund Actions to Consider if Target MaximumCategorybelowTarget
New supply fee
New Supply Fund increase,bond Total of all funds in fund
financing,or transfer to category =six months Nexus ofcost to feeCategorydesignationortoCIForofcapitalexpenditures
Annexation Fund
Capacity fee increase,
Expansion Fund bond financing,or Total of all funds in fund
transfer to designation category =six months Nexus of cost to feeCategoryortoCIForAnnexationofcapitalexpenditures
Fund
Bond financing,or Total of all funds in fundReplacementFundtransfertodesignationcategory=4%of Nexus of cost to feeCategoryortoCIForAnnexationinfrastructureFund
Bond financing,or Total ofall funds in fundBettermentFundtransfertodesignationcategory=six months 5 years unfunded needsCategoryortoCIForAnnexationofcapitalexpendituresFund
I Debt Reserve Fund Increase tax collection One semi-annual Two semi-annual
or rates payment payments
I OPEB Fund Fund transfers Full funding Full funding
Rate increase or fund Three months of Nine months of
General Fund operating budget operating budgettransfersexpensesexpenses
Note:The annexation fee for sewer is a general fund revenue.
Page 50 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted:.-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
Additional Restricted Funds
4.0 Capital Improvement Fund
a.Purpose
The "Capital Improvement Fund's sole purpose is to track the "buy-
inn portion of the capacity fee and to ensure these fees are
expended solely for the purpose for which they were collected,
which in this case 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-inn 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-inn 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
Page 51 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted:.·RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
needed to one of three capital improvement funds,one in each of
the Expansion,Replacement,and Better Fund categories.
b.Sources
Potable and recycled annexation fees collected after 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.
-i-:H--.-4.2 Debt Reserve Fund
The purpose of the Debt Reserve Fund is to pay periodic
principal and interest debt payments on the outstanding
debt.As these payments are made the funds are reduced.
As additional debt is incurred,ne',J property tax
assessments may be authorized funded from assessments on
the Property Tax Roll.1',nnually,the District sets the
ta}{rate at a level necessary to fund that year's debt
payments.These rates are applied to the assessed
valuation of the property.Changes in property values in
assessment areas result in inverse fluctuations in the
tax rate necessary to generate the required debt
payments.
In other cases,such as assessment districts,the debt
service is funded through an assessment being levied on
each parcel within the district.In assessment
districts,the amount of the levy ',vill vary by parcel
and is based on the amount of benefit that parcel
received from the improvement.
In addition,debt service may be funded through ',vater
rates.In the case of funding from '"tater rates,there
would not be a restriction on those debt reserve funds.
They may remain in the General Fund or be placed in a
Designated Fund if the Board were to take specific
action to designate rate funds for the purpose of debt
payments.
Page 52 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted:.·RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
These funds are legally restricted for the specific debt
issuance for ''''hich they are collected.These funds are
not available for any other purpose and may not be
designated for any other purpose.If these funds are not
used for the payment of the specific debt for 'dhich they
are collected they must be returned to the customers who
made the tax roll payments.The District must evaluate
the exact need of funds to avoid the costly
reimbursement process.
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,o~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.
a.Sources
Temporary meter fees and capacity fees fund expansion
while special rates and charges and availability charges
fund the betterment fund.The debt reserves are funded
by the State Loan Assessment,and GO bond assessments.
Each debt fund can also be funded 1;Jith the proceeds of
the debt.Lastly,each fund is allotted its share of
the interest income or expense.
b.Sources
Debt proceeds
iii.Debt Reserve Fund
A.J!!inimum Le"....el
made the funds may
other payments are
As debt service payments are
be completely depleted if no
required.
B.MaJEimum Le·....el Sufficient to pay the periodic
annual debt service payments.As levels approach
this maximum,the District must evaluate the rate
at which funds are being collected so as to not
over collect.Reductions in the tax rates have
Page 53 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
I RESERVE
Number Adopted.~-Revised
POLICY 25 2/10/93 3/13/06
11/3/10
of the rate of collection which will
required if funds eHeeed the maHimum
been common as property values have
the ma:2dmum is elweeded,no refunds
future debt payments are necessary.
balance down over time.
risen.Even if
',,'ould occur if
The action
is a reduction
bring the
C.Target Level The target level of funds for
the various debt issuances is siH months of debt
service.This target level will be reduced as the
term of the debt comes to a close.
c.Uses
There are no minimums,maximums,or target levels for this
fund on an individual basis.This fund is available on an as
needed basis to fund 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
FUND TRANSFERS
45.0 Funding Levels
As described in the preceding sections,the District maintains funds
for its operating and capital activities.These funds reserves ~
into can be of three accounting categories;types:1)unrestricted and
undesignatedT or general use fundsreserves,2)designated,and 3)
restricted for a specific purpose.The restricted reserves can be
restricted geographically and/or by purpose.The District maintains
various funds to track the various designations and restrictions.The
source of the money for each fund was discussed along with the purpose,
source of funds,and levels.Key determinants characteristics of these
funds are the target levels,minimums,and maximums.The funding
levels must be viewed in the context of the economic environment,
political environment,and must ah,'ays be vimJCd in light of a-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
Page 54 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted::RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
development rate,supply rate increases,the possibility of raising
rates,capital infrastructure spending,and strategic plan initiatives.
The fund balances may at times be over the target amount or under the
target amount.This is not only acceptable but expected.The rate
model provides an empirical estimate of the conformance between the
projected District's financial activities and the guidelines of this
policy.
Page 55 of 61
GTAY WATER DISTRiCT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted.~-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
45.1 Fund Transfers
A significant portion of the funding for Reserves within the District's
various designated funds comeB from interfund transfers from of ~
g~nrestrictcd er-Ggeneral use Fundsreserves.It is important to note
that the District has the ability to use Ggeneral use Funds reserves
for any business purpose.General Funds use reserves may be
transferred to and from any other unrestricted fund for any business
need.Designated funds reserves are Ggenera1 use Funds reserves which
have been set aside for a specific purpose by Board action.These
funds reserves can only be used for the purpose they were designated,
or with Board actionT they may be used for any other business purpose.
While Ggeneral Funds use reserves may also be used for any restricted
purpose but are they may not be transferred to Restricted Funds due to
the sensitivity of the tracking of Rrestricted Funds reserves.If
funds reserves are needed for a restricted purpose they are transferred
to a Designated Fund within the fund category with that particular
identified viith the restricted purpose.Reserves restricted to a fund
category may only be used within that category and may not be
transferred to another category.For example,the new water supply fee
and the "incrementalN portion of the capacity fee are restricted
reserves for a specific purpose,and may not be transferred to another
category as no other 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.
Restricted Funds may only be used for the purpose that they vJere
collected therefore no transfers are made to or from these funds.
In many situationsT reserve fund transfers are expected as some fundB
categories will exceed their maximum or drop below their minimumB.
Only funds that are below the stated target are eligible to receive
transferred funds.Only fund categories that are below the stated
target are eligible to receive transferred reserves.Fund5 categories
that exceed their maximumB are first to be considered for transfers
out,followed by funds that exceed their targets.Funds that exceed
their minimums are also available for fund reserve transfers out~but
only when other options are not available
The rationale for prioritizing fund reserve transfers is based on the
immediacy of the need and the availability of funds reserves from other
funding sources.For example,the General Fund is first to receive
funds reserves when it drops below its target or minimum levels This
Page 56 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted:.·RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
is because of the immediate and ongoing nature of the expenditures that
are served by this fund.The operation of the District is first and
foremost of the objectives of the District.On the other end of the
spectrum,the Replacement Fund has a long-term perspective and will be
used to partially fund finance replacement assets for many years to
come.Debt financing is available to respond to this long termT~
foreseeable,and planned cash flow.This fund is less likely to have
immediate needs and has other funding financing options
When making the determination of when transfers are necessary,all
funds work within a fund category work as a groupas independent funds.
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.exceptions
to this rule are the tHO expansion funds (one restricted and one
designated)and the t~vo betterment funds (one restricted and one
designated).Because the Capital Improvement Fund and Annexation Fund
may finance expansion,replacement or betterment reserves may be
transferred among these fund categories,but only back and forth within
its own type of restricted fund.Each of these t',l0 sets of funds ',wrk
as one but are kept separate due to the significant difference in the
fund types,one being restricted and one originating from General
Funds.It is unlikely to have high immediacy of need in these funds as
they,like the Replacement Fund,are long term in nature and have debt
financing as an alternative funding source.
As an example,if during the rate model update process it was
determined that the e~xpansion ~Iunds (designated and restricted)would
drop and stay below the minimum during the six-year planning horizon,
this would trigger a bond sale er-a transfer of unrestricted funds
general use reserves,and/or a transfer of restricted reserves.If in
the cash planning process,it was anticipated that the General Fund
would remain above target during the planning horizon of six (6)years
and that the trend did not present a problematic underfunded status,
then those funds General Fund reserves would be considered available
for transfer prior to making funds proceeds available from the sale of
a bond sales.Also,if during this period the Betterment Fund category
another Designated Fund was anticipated to exceed its maximum~then
reserves from either the Designated Betterment Fund,the Annexation
Fund,or the Capital Improvement Fund the excess would be transferred
to the corresponding Designated Expansion Fund prior to any other
transfers a bond sale.All ~funds are evaluated to determine which has
Page 57 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted::RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
the greatest need or availability of funds reserves before any ~
reserve transfer recommendation is presented to the Board
Page 58 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
IRESERVE
Number Adopted:..Revised
POLICY 25 2/10/93 3/13/06
11/3/10
GLOSSARY
The Reserve Policy contains terminology that is unique to public
finance and budgeting.The following glossary provides assistance in
understanding these terms.
Annexation Fees:Whenever utility When water service is requested for
land outside the boundaries of an improvement the eQistrict,the land
to be serviced must first be annexed For sewer service the land must
be annexed into an improvement district within the District ~
anneJwtion fee for 'dater ',Jas set on Harch 3,1997 at &;;1,000 per EDU.
The fee for sewer annexation was set at &;;3,819 on December 16,1998.
These base rates are adjusted quarterly according to a cost of living
index.
Assets:Resources owned or held by Otay Water District that has
monetary value.
Availability Fees:The District levies charges each year in developed
areas to be used for upgrades,betterment,or replacement and in
undeveloped areas to provide a source of funding for planning,mapping,
and preliminary design of facilities to meet future development.
Current legislation provides that any availability charge in excess of
$10.00 per acre shall be used only for the purpose of the improvement
district for which it was assessed.
Betterment Fees:In addition to other applicable water rates and
charges,water customers pay a fee based on water service zone or
Improvement District These fees are restricted for use in the area
where they are collected and may be used for the construction and
maintenance of facilities.
Bond:A written promise to pay a sum of money on a specific date at a
specified interest rate.The interest payments and the repayment of
the principal are authorized in a District bond resolution.The most
common types of bonds are General Obligation (GO)bonds and
Certificates of Participation (COPs).These are frequently used for
construction of large capital projects such as buildings,reservoirs,
pipelines and pump stations.
Capital Equipment:Fixed assets such as vehicles,marine equipment,
computers,furniture,technical instruments,etc.which have a life
expectancy of more than two years and a value over $10,000.
Page 59 of 61
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted.:-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
Capital Improvement Program:
construction,rehabilitation
and operated infrastructure.
A long-range plan of the District for the
and modernization of the District-owned
CWA:The County Water Authority was organized in 1944 under the State
County Water Authority Act for the primary purpose of importing
Colorado River water to augment the local water supplies of the
Authority's member agencies The Authority purchases water from the
Metropolitan Water Dlstrict of Southern California (MWD)which imports
water from the Colorado River and the State Water Project.
Debt Service:The District's obligation to pay the principal and
interest of bonds and other debt instruments according to a
predetermined payment schedule.
Expenditures/Expenses:These terms refer to the outflow of funds paid
or to be paid for an asset,goods,or services obtained regardless of
when actually paid for.(Note:An encumbrance is not an expenditure).
An encumbrance reserves funds to be expended in a future period.
Fund:An account used to track the collection and use of monies for a
specifically defined purpose.
Fund Balance:The current funds on hand resulting from the historical
collection and use of monies.The difference between assets and
liabilities reported in the District's Operating Fund plus residual
equities or balances and changes therein,from the results of
operations.
Interest Income:Earnings from the investment portfolio.Per District
Policy Number 25,interest income will be allocated to the various
funds each month based upon each fund's prior month-ending balance.
Late Charges/Penalties:Charges and penalties are imposed on customer
accounts for late payments,returned checks,and related telephone
contacts.
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.
Page 60 of 61
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BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted.:-RevisedIRESERVEPOLICY252/10/93 3/13/06
11/3/10
Operating Budget:The portion of the budget that pertains to daily
operations that provide basic governmental services.The operating
budget contains appropriations for such expenditures as personnel,
supplies,utilities,materials,travel and fuel,and does not include
purchases of major capital plant or equipment which is budgeted for
separately in the Capital Budget.The Operating Budget also identifies
planned non-operating revenues and expenses.
Revenue:Monies that the District receives as income It includes
such items as water sales and sewer fees.Estimated revenues are those
expected to be collected during the fiscal year.
System Fees.Each water service customer pays a monthly system charge
for water system replacement,maintenance,and operation expenses.The
charge is based on the size of the meter and class of service.
Taxes:California Water Code Section 72091 authorizes the District,as
a municipal water district,to levy ad valorem property taxes which are
equal to the amount required to make annual payments for principal and
interest on General Obligation bonds approved by the voters prior to
July 1,1978.
Water Rates:Rates vary among classes of service and are measured in
units.The water rates for residential customers are based on an
accelerated block structure.As more units are consumed,a higher unit
rate is charged.All non-residential customers are charged a flat rate
per unit.A unit of water is 100 cubic feet or 748 gallons of water.
Page 61 of 61
Attachment C
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
1.0 The District
The Otay Water District is a California municipal water district,
authorized in 1956 by the State Legislature under the provisions
of the Municipal Water District Act of 1911.The District is a
"revenue neutral"public agency;meaning each end user pays their
fair share of the District's costs of water acquisition,
construction of infrastructure,and the operation and maintenance
of the public water facilities.
The District provides water service within its boundaries,and
provides sewer and recycled water service within certain portions
of the District.As such,the District operates three distinct
business segments:
•Potable water
•Recycled water
•Sewer
Each of these business segments has an identifiable customer base.
In addition,the developer community,large and small,makes up a
significant class of customer for each business segment.As a
result,the District has four distinct customer service types:
•Developers
•Potable water users
•Recycled water users
•Sewer users
The District has established practices and developed computer
systems that have enabled the District to maintain a clear
separation between the service costs relating to each of its four
customer service types.Regardless of customer class,financial
principles regarding cost allocation and fund accounting are
fundamental to the District's Reserve Policy.These principles
are derived from the statements of the Governmental Accounting
Standards Board (GASB),and from oversight and advisory bodies
such as the California State Auditor,the Little Hoover
Commission,and the Government Finance Officers Association
(GFOA).These have significant impacts on how the finances of
the District are organized and how financial processes work within
the organization.
Page 1 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
1.1 The District's Use of Financial Resources
All of the District's expenditures fall into two broad categories:
operating costs and capital expenditures.The operating costs
include costs relating to the purchase and delivery of potable and
recycled water,and the transportation and treatment of sewage.
The capital expenditures support the construction of
infrastructure necessary to deliver services.The District uses
various funds to support the operating and capital efforts.
Operations and maintenance is financed only by rates and charges,
also called pay-as-you-go,while capital infrastructure is
financed using two financing methods:pay-as-you-go and debt
issuance (requiring annual debt service).The Capital Improvement
Program (CIP)and the two funding methods support the
construction,betterment,and replacement of infrastructure in all
three business areas:potable,recycled,and sewer.
The District establishes different funds to track revenues
allocated to different activities.Once established,each fund
receives financial resources up to the levels defined in this
policy.Every year,as a part of the annual budget process,the
District's rate model is updated for each fund with the current
fund balances and the estimated revenues and expenditures for the
next six years.The expenditure requirements and financial
resources are then evaluated to ensure that the existing fund
balances and additional revenues are sufficient within the current
budget cycle and for the next five years to maintain target fund
levels.If a deficit is identified,then options for transfers,
shifting CIP projects,debt,cost saving measures,and/or rate
increases are evaluated.
1.2 The District's Capital Improvement Program (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.
Page 2 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
This Reserve Policy protects both the existing users and the
developing areas from incurring unwarranted costs.Developing
areas are not required to finance facilities that are replacement
or betterment and established areas are not required to replace
facilities before they are worn out because of new development.
However,to ensure a fair allocation of costs,each facility has
the potential to be classified into any or all of the four cost
types.In addition to these cost types there are occasional CIPs
that may be billable to a third party,if for example a third
party requires a District facility be relocated.Paragraphs a
through d below,describe how the costs of capital facilities are
financed through various fees.
a.New Water Supply
The portion of a new supply project that benefits new users
is financed from the reserves in the New Water Supply Fund
category.These reserves are primarily derived from proceeds
of the new water supply fee.The New Water Supply Fund is
restricted,meaning the amounts credited to this fund are
accounted for separately and are used solely for the
planning,design,and construction of the new water supply
expansion facilities.Debt financing may also be a temporary
financial resource to finance new water supply projects.The
District has a Debt Policy (Policy No.45)that guides the
debt issuance process.Any debt proceeds used for this
purpose would be restricted in nature and tracked separately.
General use reserves may also be placed in the Designated New
Water Supply Fund and used for water supply projects.
b.Expansion
The portion of a CIP project that benefits new users is
financed from the reserves in the Expansion Fund category.
These reserves are primarily derived from proceeds of the
"incremental"portion of the capacity fees collected within
developing areas.Capacity fees are accounted for separately
and used for the planning,design,and construction of
expansion facilities.Additionally,expansion may be
financed by annexation fees or the "buy-in"portion of the
capacity fee.Both of these fees are restricted for CIP
purposes,but not specifically for expansion.Debt financing
may also be a temporary financial resource for expansion
projects.General use reserves may also be placed in the
Designated Expansion Fund and used for expansion projects.
Page 3 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adop~ed Revised
RESERVE POLICY 25 2/10/93 11/3/10
c.Replacement
The portion of a CIP project that benefits existing users by
replacing an existing facility is financed from the reserves
in the Replacement Fund category.Replacement of facilities
may be financed with proceeds of annexation fees,the "buy-
in"portion of the capacity fees,general use reserves held
in the Designated Replacement Fund and debt proceeds.The
various funding sources available for replacement projects is
anticipated to provide the necessary flexibility to begin
projects while any necessary debt financing is being
obtained.
d.Betterment
Facilities that improve reliability,meet new regulations,or
create increased levels of service are considered betterment
facilities that benefit existing users.The reserves in the
Better Fund category are used to finance these projects or
portions of projects.Certain user rates,charges,and
betterment fees are restricted geographically for betterment
of facilities,but may also be used for general maintenance
of facilities in that area.Proceeds of the annexation fee
and the "buy-in"portion of the capacity fees may also be
used to finance betterment projects.General use reserves
may be placed in the Designated Betterment Fund and used for
betterment projects.
1.21 Relocations
Occasionally,relocation of a District facility is required by a
third party.If the District has a superior easement the
relocation cost will be paid by the third party,but only to the
extent that the District does not benefit from the relocation.
When relocation is required,a CIP project may be created which is
wholly or partially financed by a third party.On occasion,the
District will require that its own facilities be relocated.
Depending on the nature of the facilities,the financial resources
for these projects could be from new water supply,expansion,
replacement,betterment or third party financing.Each project is
individually negotiated with the third party based on the facts
and circumstances of the relocation.Occasionally,the District
will improve the facilities that are being relocated.When
determining how to allocate costs to various funds the following
guideline is suggested:if a project has more than five years of
useful life remaining,an incremental cost view should be
Page 4 of 43
OTAYWATER DiSTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
considered;if the project has less than five years of useful life
remaining,a pro-rata cost approach should be considered.Also,
the likelihood the District will benefit from an asset's life
extension should be evaluated prior to allocating costs.
1.22 Oversizing
If deemed reasonable by the District,in connection with the
construction of backbone facilities,a developer may be required
to oversize new facilities for future development.The developer
is reimbursed for incremental oversizing costs as per Policy
No.26.These reimbursements are not available for the
distribution system within a development which is an obligation
of the developer.
1.23 Exclusion of Developed Areas from Expansion Costs
Developed areas are assumed to have sufficient supply and capacity
to meet their current requirements as provided by the developers.
In addition,they are considered to have borne capital financial
costs that are at least proportionate to the benefits they have
received from capital facilities.Accordingly,no regional
capital financing costs are allocated to these areas so that they
will not incur any costs for newly developing areas,except for
capital projects that produce district-wide benefit or cost
savings.
1.24 Improvement Districts (IDs)
Improvement Districts (IDs)are established to facilitate the
financing of particular improvements by the specific
beneficiaries.The District has a number of improvement districts
that were established for General Obligation (GO)debt repayment.
Most GO debt has been paid off and it is unlikely that the
District will issue additional GO debt.Improvement districts
continue to be used for other purposes:1)to distinguish sewer
customers from water customers on the county tax roll;2)to place
parcels on the county tax roll for the collection of availability
fees;or 3)for charging special water rates.
Over the years,the District moved to a district-wide perspective
of financing improvements.This philosophy is evident by the
district-wide capacity and annexation fees.The District also
uses district-wide water rates.As time goes on,it is expected
that IDs will continue to outgrow their purpose and their use will
diminish.
Page 5 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Ad0 pte_d Revised
RESERVE POLICY 25 2/10/93 11/3/10
1.3 The Purpose of the Policy
Public entities accumulate and maintain reserves to ensure both
financial stability and continuous availability of services.
Financial stability and the resulting improved credit quality
allow the public entity to weather times of uncertainty and the
impact of negative events,both major and minor.Reserves allow
for the ongoing maintenance of property and timely payment of
expenses even when such expenses exceed money available from a
single fiscal period.In the final analysis,the type and level
of reserves are driven by the type and magnitude of uncertainty
faced by the public entity.
A "reserve"has a number of meanings,as follows:
•Working capital is required to insure timely payment of
obligations.
• A buffer against volatility in revenues.
•Liquidity is required to obtain other goods and services
(e.g.,bank services).
•Designated money to protect creditors.
•Money set aside to replace assets at the end of their useful
lives.
•Money set aside to repair or replace assets damaged or
destroyed at unanticipated times.
It is important to note that reserves,fund balance,and net
assets are not the same.Fund balance and net assets are
accounting terms and may not always be in the form of cash or
liquid investments.Fund balances and net assets may not always
be reserves unless a designation of all or a portion of fund
balance is made.In addition,the term fund balance was replaced
by net assets as codified by the Governmental Accounting Standards
Board (GASB).
In short,reserves are the liquid assets of the District,
accumulated and maintained for application to finance contingent
future activities,whether known or unanticipated,operating or
capital in nature.The District's Reserve Policy governs the
management and use of these financial resources.Few policies
Page 6 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
have a more significant impact on the financial health and
stability of the District.This policy explains several key
financial concepts used by the District and provides some
background information to the overall strategies and practices
utilized.The District has a fiduciary obligation to its
customers,to manage and direct the use of public funds for the
purpose of providing water and sewer services in an efficient and
financially sound manner.
1.4 Policy Guidelines
In 2000,the Little Hoover Commission reviewed the levels of
reserve funds for special districts in California and prepared a
report reflecting that special districts were accumulating
unreasonable levels of funds.As a proactive response,the
California Special Districts Association (CSDA)prepared Reserve
Guidelines for its members.The Reserve Guidelines were
significant in noting that reserve levels need to be in context of
the organization's overall business model and capital improvement
plan.
There are a number of potential events which the District should
consider in the development of reserves:
•Economic Uncertainty -performance of the regional economy
and the impact of that performance on demand for water.
•Weather -the amount of rainfall and the impact of weather on
the availability and the cost of water as well as the demand
for water.
•Government Mandates -the impact of federal and state
regulation,particularly environmental regulation.
•Tax Changes -limitations on the District's taxing and
spending powers through the passage of a voter referendum,
the impound of District property taxes or the removal of the
District's power to levy property taxes,further increases to
Educational Revenue Augmentation Fund (ERAF)contributions or
changes in calculation methodology.
•Operating Costs -increases in operating and maintenance
costs because of inflation,labor agreement or other
modification.
Page 7 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10"/93 11/3/10
•Force Majeure -unanticipated expenditures resulting from
natural disasters or intentional acts.
•Emergency Maintenance -unanticipated expenditures resulting
from unexpected failure of assets (e.g.,rupture in the
primary transmission system).
•Unexpected Variation in Cash Flow -the incidence of
additional costs or decreased revenues that require short-
term borrowing in the absence of sufficient financial
resources.
The California State Auditor has,in its oversight role,offered a
number of quality recommendations for the development of reserve
policies as outlined in its report entitled,"California's
Independent Water Districts:Reserve Amounts Are Not Always
Sufficiently Justified,and Some Expenses and Contract Decisions
Are Questionable,"dated June 2004,Report No.2003-137.All of
these recommendations have been incorporated into this policy in
an effort to address key issues surrounding the management and use
of District reserves.The detailed objectives as identified by
the State Auditor are as follows:
•Distinguish between restricted and unrestricted reserves.
•Establish distinct purposes for all reserves.
•Set target levels,including minimums and maximums,for the
accumulation of reserves.
•Identify the events or conditions that prompt the use of
reserves.
•Conform to plans to acquire or build capital assets.
•Receive Board approval and that it is in writing.
•Require periodic review of reserve balances and rationale for
maintaining them.
Yet,the State Auditor's report acknowledges that the California
Constitution (Article XIII B,Section 5)is vague in its
provisions governing the accumulation and use of reserves.1
I California State Auditor,Bureau ofState Audits,"California's Independent Water Districts:Reserve Amounts Are
Not Always Sufficiently Justified,and Some Expenses and Contract Decisions Are Questionable,"dated June 2004,
2003-137;p.8.
Page 8 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
Specifically,the Constitution states that "each entity of the
government can establish contingency,emergency,unemployment,
reserve,sinking fund...or similar funds as it shall deem reasonable
and proper."2 Similarly,the State's Water Code does not impose
any requirements as to specific or recommended reserve fund
levels.As a result,the public finance community as a whole has
yet to settle on any real objective standards for the level of
reserve funds appropriate for governmental enterprises.This lack
of consensus as to specific standards is indicative of the wide
variance of the financial and operations context for different
districts and different contingencies justifying reserves.
The Government Finance Officers Association (GFOA)in its
"Recommended Practice on Appropriate Level of Unreserved Fund
Balance in the General Fund"(2002)states that in
establishing a policy governing the level of unreserved fund
balance in the general fund,a government should consider a
variety of factors.These include:
•The predictability of its revenues and the volatility of
its expenditures (i.e.,higher levels of the unreserved
fund balances may be needed if significant revenue
sources are subject to unpredictable fluctuations or if
operating expenditures are highly volatile).
•The availability of resources in other funds as well as
the potential drain upon general fund resources from
other funds (i.e.,the availability of resources in
other funds may reduce the amount of the unreserved fund
balance needed in the general fund,just as deficits in
other funds may require that a higher level of
unreserved fund balance be maintained in the general
fund).
•Liquidity (i.e.,a disparity between when financial
resources actually become available to make payments and
the average maturity of related liabilities may require
that a higher level of resources be maintained).
•Designations (i.e.,governments may wish to maintain
higher levels of the unreserved fund balance to
compensate for any portion of unreserved fund balance
already designated for a specific purpose).
2 California Constitution,Article XIII B,Section 5.
Page 9 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/1('i/93 11/3/10
In the preparation of this policy,each of the CSDA guidelines and
the GFOA recommendations has been considered.In addition,all
seven objectives provided by the State Auditor are specifically
addressed for each reserve.The District wholly supports the
State Auditor's efforts to bring a high-level of quality to
reserve governance and establishing a standard of performance.
The District recognizes that the customer pays for services
provided.Quality management requires that periodic valuations be
performed so that fees and charges can be set at appropriate
levels to recover the cost of service.The District's Reserve
Policy has been drafted with consideration of the GFOA,CSDA,and
state Auditor's general guidelines as provided above.In
addition,the District has adopted the following principles in the
management of its financial resources:
•Reserves are held and used only for the purpose for which
they are collected.This is done to maintain equity among
customers.
•Each of the service types is tracked separately so that
expenditures and revenues can be monitored and evaluated for
each customer type.This provides the District with the
necessary information to appropriately charge for each of the
services.
•Separation of operations and maintenance from capital
expenditures occurs within each of the service types.
is done because the financing of these expenditures is
on different timelines or use different reserves.
This
often
•The District will hold its reserve at responsible and prudent
levels.This policy sets minimum,maximum,and target levels
for each of the various funds.This has been done so that
the District can maintain reserves to meet the purpose for
which the funds were established.The levels are set by
reference to line items in the District's financial
statements and approved budgets.This allows reserve levels
to adjust to the District's changing financial circumstances.
•Debt financing of facilities provides intergenerational
equity and maintains rates at reasonable levels.This equity
is accomplished with long-term financing which spreads the
cost of facilities over the life of the facilities.The
burden to pay for facilities is then paid by those who use
Page 10 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
them.The District could amass significant reserves by pre-
collecting financial resources in a Replacement Reserve Fund
allowing the District to cash finance all replacements.
However,this would require significant rate increases
burdening the current customers and creating reserve levels
difficult to defend to the ratepayers or other oversight
entities.
These concepts are fundamental to the way the District manages its
funds and have a direct impact on the way rates and charges are
set.The District performs annual budget evaluations and updates
its rate model on an annual basis to monitor and adjust the
various funds and revenue sources.The separation,tracking,and
projecting of the various funds and expenditures create the
essential information necessary for the equitable rate structure
maintained by the District.The annual review preserves the
balance between services provided and the fees charged.This
review also insures that reserves will be available to continue to
serve the District's customers.
Financial Sources
2.0 Developers
a.Meter Installation Charges (General Use)
Meter fees are charges collected for new water service
connections.Fees vary depending upon meter size and type of
service.The costs associated with meter installations are
included in the Operating Expenses section of the budget.
These charges are financed by developers.
b.Developer Deposits (General Use)
These deposits are for the engineering and operations
services provided to developers.They are tracked separately
for each developer and any excess amount is returned to the
developer.
c.Annexation Fees (Restricted)
Annexation fees 3 are collected as a condition of annexing
into the District's potable and recycled water facilities.
Since the existing facilities have been built and maintained
by developers or customers within the District,the
3 Code ofOrdinances,Section 9.
Page 11 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10)93 11/3/10
annexation fee is calculated based on the present value of
all property taxes (1%property tax and availability fees)
paid by existing and prior customers.The annexation fee
insures that future users finance a portion of facilities
that were sized,built,and maintained for both existing and
future users.Proceeds of annexation fees are restricted and
can be used for expansion,replacement,or betterment
projects.These reserves may be shifted back and forth as
financing needs change.
d.Annexation Fees (Unrestricted)
A sewer annexation fee is collected when property is annexed
into an improvement district.This fee is calculated using
the "buy-in"basis and therefore is unrestricted.
e.New Water Supply Fee (Restricted)
New water supply 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 fees 4 are based on the value of existing and future
facilities divided by the number of existing and future
equivalent dwelling units.This method of calculating
capacity fees is called the combined method,where the "buy-
in"portion of the capacity fee covers costs to repay
existing customers for the facilities that they have built,
and where the "incremental"portion of the capacity fee
covers the cost of future expansion facilities.The "buy-in"
portion of the capacity fee is restricted to pay for
planning,design,construction,and financing associated with
expansion,replacement or betterment facilities.The "buy-
in"portion may be shifted back and forth between expansion,
betterment or replacement as the financing needs change.The
4 Code ofOrdinances,Section 28
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Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
"incrementaln 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 EDDs.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-inn and "incrementaln portions as
described above.So,while capacity fees are not restricted
separately by potable and recycled,they are tracked separately.
Page 13 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
Diagram 2.0:Flow of Funds -Developer Sources
DEVELOPERS
~~
Unrestricted and
Undesignated
(General Use)Funds
2.1 Customers/Users
Capacity
Fees
Restricted Funds
a.Uniform Rates and Charges (General Use)
Charges to users for water,sewer,and recycled water are
uniform throughout the District for similar customer types.
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
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OTAYWATER DISTRICT
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Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
fixed costs from the County Water Authority (CWA)and the
Metropolitan Water District (MWD).
f.Special Rates and Charges (Restricted)
In addition to the uniform water charges,the District
currently has five special water rates and one sewer rate.
The five water rates are for construction,installation,and
maintenance of water storage reservoirs,pump stations,and
water lines.Each of these rates and charges must be used
within the respective geographic areas from which they are
collected.These special charges are listed below:
•North District water charge (Code section 25.03G)
•10 9 water charge (Code section 25.03H)
•10 3 water charge (Code section 25.031)
•10 10 water charge (Code section 25.031)
•La Presa water charge (Code section 25.031)
•Russell Square sewer charge (Code section 53.04C)
When these rates were established they were for the specific
purpose of constructing,installing,and maintaining the
water and sewer systems in the areas in which the fees were
collected.Therefore,these are restricted reserves by
geographic area as well as by purpose.These rates and
charges can also be used for maintenance;unlike the
availability fees (discussed in 2.2 B.).These six special
rates and charges along with availability fees are tracked
separately,by geographic area,so they can be individually
evaluated to maintain the targeted reserve levels.To meet
this need,each special rate and charge is accounted for in a
"sub-fund"of the Betterment Fund.
g.Temporary Meter Fees (General Use/Restricted)
Water charges,in lieu of capacity fees,are charged on
temporary meters.This is done because temporary meters use
system capacity but they are not charged a capacity fee.
Temporary water use is charged at two times the water rate
with the added charge placed in the Restricted Expansion
Fund.The primary users of these temporary meters are
developers;however,general customers also use these for
various purposes.
Page 15 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
Diagram 2.1:Flow of Funds -Customer Sources
CUSTOMERS I USERS
--:--_..--:-----~------:----'-,------:-._---'-~
Unrestricted and
Undesignated
(General Use)Funds
2.2 County-Collected Taxes and Fees
Restricted Funds
a.General Levy Property Tax Receipts (1%Property Tax)
(General Use)
In 1978,Proposition 13 limited the levy of ad valorem
property taxes on real property to one percent of the
assessed value of such property.Subsequent legislation,
AB 8,established that the receipts from the one percent levy
were to be distributed to taxing agencles proportionate to
each agency's general levy receipts prior to Proposition 13.
Taxes received are for general use.
b.Availability Charges (General Use/Restricted)
the District levies availability charges each year in
developed and undeveloped areas.Current legislation
provides that any amount up to $10 per parcel is general use
and any amount over $10 per parcel is restricted to be
expended in and for the improvement district (ID)within
which it is collected Accordingly,the District may use
availability charges in excess of $10 toward costs of water
Page 16 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/1(}/93 11/3/10
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.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.
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
Diagram 2.2:Flow of Funds -County Collection Sources
Unrestricted and
Undesignated
(General Use)
Funds
2.3 Miscellaneous Income
Restricted Funds
a.Miscellaneous Rents and Leases (General Use)
Revenues received from the rental and lease of District
property are general use revenues.Not only are they
periodic revenues,but there is also a one-time fee charged
with the setup of each new lease.The District incurs
expenses related to these rents and leases.The one-time
fees are calculated to recover the costs to setup the leases.
b.Sewer Billing Fees (General Use)
Sewer billing fees are general use revenues.The District
provides processing and billing services to the City of Chula
Vista to bill and collect from their customers for sewer
service.These fees are to recover the cost the District
incurs to provide this service.
c.Interest Income or Expense Allocation (General Use,
Designated,and Restricted)
Interest income (expense)will be allocated every month based
upon each fund's month-ending balance.In this way,each
fund receives credit for interest earned by that fund and
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/16/93 11/3/10
each fund with a negative balance is charged for the use of
the other fund's reserves.
Diagram 2.3:Flow of Funds -Miscellaneous Income Sources
MISCELLANEOUS INCOME
--...----------....----.,--
Unrestricted and
Undesignated
(General Use)Funds
2 4 Debt Issuance
Designated Funds Restricted Funds
a.Loans (General/Restricted Use)
As the District determines that additional financing is
required for a particular purpose,the option of borrowing is
considered.The determination to borrow is made as a part of
the annual rate model update and is evaluated in accordance
with the Debt Policy before it is recommended to the Board
for action~As an option to bond indebtedness,loans are
available to satisfy short-term financing needs.These loans
mayor may not be contractually restricted for a particular
purpose.
b.General Obligation (GO)Bonds (Restricted)
As the District becomes more developed it becomes less likely
that general obligation debt will be used as it requires a
vote of the public to be approved.Bond proceeds are
restricted for the construction of those facilities
identified in the GO bond issuance.Occasionally,specific
portions of bond proceeds may be allocated for the repayment
Page 19 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
of the principal and interest,also called debt service,on
these bonds As the District determines that additional
financing is required for a particular purpose,the option of
debt issuance is considered The determination to issue debt
is made as a part of the annual rate model update and is
evaluated in accordance with the Debt Policy before it is
recommended to the Board for action
c.Certificates of Participation (COPs)(Restricted)
General revenues of the District are pledged as security for
Certificates of Participation (COPs)indebtedness.If the
District determines that additional financing is required for
a particular purpose,the option of debt issuance is
considered.The determination to issue debt is made as a
part of the annual rate model update and is evaluated in
accordance with the Debt Policy before it is recommended to
the Board for action.This form of financing has become the
industry's preferred form of financing as it does not require
a vote of the general public.
Diagram 2.4:Flow of Funds -Debt Issuance Sources
[DEBT PR0CEEDS
~-------:------:----'•
1
Unrestricted and
Undesignated
(General Use)Funds
Restricted Funds
Page 20 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
2.5 Inter-fund Transfers
Each year in the budgeting process,future fund levels are
projected for the next six years.Based on these projections
transfers are recommended.Reserves may be transferred
between Unrestricted or Designated Funds and the General Fund
(see 4.0 "Funding Levels"and 4.1 "Fund Transfers").
Reserves may not be transferred to or from any of the
restricted funds unless it is between two restricted funds
with a shared purpose.
Fund Types and Categories
3.0 General Funds
a.Purpose
The General Fund is neither restricted nor designated.The
District maintains one General Fund for each business segment
(water,sewer,and recycled).This fund holds the working
capital and emergency operating reserves.While the General
Fund has a short-term focus to finance the District's annual
operations,it is supported by the six-year rate model.This
fund is primarily used to finance the operations of the
District;however,it can be used for any District purpose.
This fund can be used to supplement the District's rates and
charges and be a temporary source of revenue to balance the
Operating Budget.This fund can also be used to avoid spikes
in the rates or significant and abrupt increases.It is an
industry practice to have a fund that can be used to
stabilize rates.This would only occur if there was a
temporary need for reserves that would smooth out a rate
spike or to ramp up what would otherwise be a dramatic rate
increase.
The General Fund also plays a role in the debt planning of
the District.This fund is viewed by the debt markets as a
commitment by the District to ensure financial stability of
the rates and charges of the District.The District is
anticipated to need a number of debt issuances over the years
and this fund will help the District not only to stabilize
rate fluctuations but also to access low cost financing for
future projects.
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b.Sources
Meter installation charges,temporary meter fees,uniform
rates and charges,monthly system fees,energy charges,
penalties,pass-through fixed charges,general levy property
tax receipts,availability charges,miscellaneous rents and
leases,sewer billing fees,interest income or expense
allocation,loans,and a portion of the temporary water
sales.
The sewer general fund receives sewer charges,penalties,
availability charges,sewer annexation fees (calculated on
the "buy-in"basis),and interest income or expense
allocation.
c.Funding Levels
I.Minimum Level -The minimum reserve level for each
business segment of the General Fund is three
months of operating budget expenses (evaluated
separately for each segment).
II.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
Page 22 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
reserve levels.Every two years,the fund is eVpluated by an
actuary to update the annual financing requirements.Changes
in the actuarial valuation may result from changes in benefit
levels,employee population,health insurance costs,or
general market conditions.The reserves held by the District
are currently designated and may be placed into the CalPERS
trust to legally restrict the funds,removing the District's
legal access to these reserves.
b.Sources
The OPEB liability may be financed by general use reserves
coming from user rates and charges,either from an operating
budget expenditure or from interfund transfers.Transfers of
unrestricted reserves may come from the various designated
funds or from the General Fund.As a part of the normal
budget process,annual operating revenues have been
sufficient to finance the ongoing needs of this designated
fund.While debt financing is also an option,the District
has only used user rates and charges to finance this fund.
c.Funding Levels
I.Minimum Level -The minimum reserve level for this
fund is equal to the District's OPEB liability as
determined by the actuarial study.When
considering the reserve level of this fund,both
the District held OPEB reserves and CalPERS held
OPEB reserves must be considered jointly.
II.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 levers as defined by the actuarial
study.
Page 23 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adop~~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
3.2 New Water Supply Fund Category
a.Purpose
The New Water Supply Fund category is to finance the
expansion portion of new water supply projects and is
therefore to be paid by developers.When considering the
reserve level of the New Water Supply category;the New Water
Supply Fund,the New Water Supply Debt Fund,and the
Designated New Water Supply Fund all work in concert and must
be considered jointly.
b.Sources
The New Water Supply Fund receives reserves only from the new
water supply fee.Other funds within the new water supply
category of funds receive debt proceeds and general use
reserves through a designation to this category.
c.Funding Levels
I.Minimum Level -As the District matures the CIP
will move to purely replacement projects.As the
District moves through its lifecycle the need for
new water supply reserves will decrease and may be
reduced to zero.
II.
III.
Maximum Level -The maximum reserve level for the
new water supply category of funds is limited to
five years of the unfinanced new water supply
facilities as described in the District's CIP
Budget.To determine the unfinanced amount,the
total new water supply financing needs must be
reduced by the projected new water supply revenues,
general fund designations,and bond financing.If
the combined new water supply reserves exceed the
target level,the District should consider
transferring designated reserves to meet other
purposes,reduce the new water supply fee,or
change the timing of the new water supply projects.
Target Level -In order to facilitate debt
financing of the new water supply,it is important
that the various new water supply funds retain an
overall reserve level of six months,prior to any
attempt to obtain debt financing.This reserve
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
level allows the District the time necessary to
issue additional debt without depleting new water
supply reserves.If the combined new water supply
reserve levels drop below six months of
expenditures,this would trigger a transfer of
general use reserves,a bond sale,or a change in
the timing of new water supply projects.Bond
proceeds would be placed in the Restricted New
Water Supply Debt Fund while transfers would be
placed in the Designated New Water Supply Fund.
Diagram 3.2:New Water Supply Fund Category
Designated
New Water
Supply Fund
New Water
Supply Fund
Category
New Water
Supply
Debt Fund
expansion
New Water
Supply Fund
New Water
Supply Fund
General Fund -Rates and Charges
Funding Source
Restricted Funds
Restricted Funds
Restricted Funds
Unrestricted and
t Undesignated FundingLSources
rIDesignated Funds
-~---
Page 25 of 43
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BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10)93 11/3/10
3.3 Expansion Fund Category
a.Purpose
The Expansion Fund category is to finance the expansion
portion of capital projects and therefore is to be paid for
by developers.When considering the reserve levels of the
expansion category,the following funds work in concert and
must be considered jointly:the Expansion Fund,Expansion
Debt Fund,Annexation Fund (potable and recycled only),
Capital Improvement Fund,and the Designated Expansion Fund.
Potable and recycled reserves are considered jointly while
sewer is evaluated separately.
b.Sources
The Expansion Fund is financed by water charges in lieu of
capacity fees (for temporary meters)and the "incremental"
portion of the capacity fee.The other funds in this
category may also be financed by debt proceeds,annexation
fees,the "buy-in"portion of the capacity fee,and the
general fund through a designation of reserves.
c.Funding Levels
I.Minimum Level -As the District matures the CIP
will move to purely replacement and betterment
projects.As the District moves through this
lifecycle the need for expansion reserves will
decrease and may be reduced to zero.
II.Maximum Level -The maximum reserve level for the
expansion category of funds is limited to five
years of unfinanced expansion facilities as
described in the District's CIP Budget.To
determine the unfinanced amount,the total
financing needs must be reduced by the projected
expansion revenues,bond financing,and any
restricted or general fund revenues allocated to
this fund category.If the combined expansion
reserves exceed target levels,the District should
consider reducing capacity fees,reallocating
restricted or designated funds to meet other
purposes,or shifting the timing of expansion
projects.
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Subject Policy Date Date
Number Adopted Revised
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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.
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GTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adoptf';ld Revised
RESERVE POLICY 25 2/10/93 11/3/10
Diagram 3.3:Expansion Fund Category
Funding Source
Restricted Funds
Restricted Funds
Restricted Funds
Restricted Funds
Restricted Funds
Designated Funds
Unrestricted and
Und~signatedFunding
Sources
General Fund -Rates and Charges
Expansion
Fund
Category
Expansion
Annexation Fund
Expansion Capital
Improvement
Fund
Expansion
Fund
Designated
Expansion
Fund
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10)93 11/3/10
3.4 Replacement Fund Category
a.Purpose
The Replacement Fund category is to finance replacement
projects.When considering the reserve levels of the
replacement category of funds,the following funds work
in concert and must be considered jointly:the
Annexation Fund,Debt Fund,Capital Improvement Fund,
and the Designated Replacement Fund.The purpose of
these reserves is to pay for the replacement of capital
infrastructure and capital purchases.These reserves
are not to be used for the replacement of non-capital
items.
With the District's development of its financial systems
and the greater need and ability to separate and track
reserves,the replacement reserves have been separated
into three funds:water,recycled,and sewer.
Projects undertaken solely for the purpose of replacing
major capital equipment or facilities,i.e.,where the
cost exceeds $10,000 for capital purchases or $20,000
for infrastructure items,generally these are not
considered normal maintenance.When the cost is below
$10,000,the costs are financed annually as operational
maintenance.As charges are incurred on replacement
projects the reserves are deducted from the respective
Replacement Funds on a monthly basis.
b.Sources
The various funds in this category are financed by debt
proceeds,annexation fees,the "buy-in"portion of the
capacity fee,and general fund designations.
c.Funding Levels
I.Minimum Level -The minimum reserve level of this
category of funds is 3%of the historical value of
existing assets as identified in the District's
current financial statements.Potable,recycled,
and sewer replacement are evaluated separately.
II.Maximum Level -The maximum reserve level of this
category of funds is 6%of existing assets.If the
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10)93 11/3/10
combined replacement reserves exceed target levels,
the District should consider transferring
annexation fees or the "buy-in"portion of the
capacity fee to meet other purposes.Another
consideration would be to shift the timing of
replacement projects.
III.Target Level -The target reserve level of this
category of funds is 4%of existing assets.In the
event that the reserves fall below the recommended
target level,the District should consider
transferring annexation fees or the "buy-in"
portion of the capacity fee.The District should
also consider shifting the timing of replacement
projects or issuing debt to support the planned
level of facility replacement.The District will
act based on the annual six-year rate model,to
insure that at the end of that planning horizon the
reserves exceed the minimum level and is
approaching the target level.
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10"/93 11/3/10
Diagram 3.4:Replacement Fund Category
--.---=1 59.4%
~=----:;....:.-:._-::--
Funding Source
Restricted Funds
Restricted Funds
Restricted Funds
Restricted Funds
'Capital
ImprovementFu...d
.Replacement
Fund I
Category j
Replacem~nt
Ii>.ebt Fund
Replacement
Annexation
Fund
Replacement
Capital
Improvement
FOnd
Designated Funds
Unrestricted and
Undes!gnated Funding
Sources
General Fund -Rates and Charges
Designated
Replacement
Fund
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Number Adopted Revised
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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 Better Fund
categories,one for each improvement district.An
improvement district is a legally defined geographic
area usually established for the purpose of bond
financing of facilities.The betterment reserves within
these funds are restricted by law for use within the
improvement district in which the fees were collected
(Water Code 71631.6).However,the legal restriction of
this reserve depends upon the particular revenue source.
(See Section 2.1 f.for a review of the special rates
and availability fees).
When considering the reserve levels of the betterment
category of funds,the following funds work in concert
and must be considered jointly:the Betterment Fund,
Annexation Fund,Debt Fund,Capital Improvement Fund,
and Designated Betterment Fund.
b.Sources
The Betterment Fund category receives restricted
revenues by improvement district via special water rates
and from availability fees collected through the county
tax roll.Betterment may also be financed by debt
proceeds,annexation fees,the "buy-in"portion of the
capacity fee,as well as the general fund through a
designation of reserves.
c.Funding Levels
I.Minimum Level -As the District matures the CIP
will move to purely replacement projects.As the
District moves through this lifecycle the need for
betterment reserves will decrease and may be
reduced to zero.
II.Maximum Level -The maximum reserve level for the
betterment category of funds is limited to five
years of unfinanced betterment facilities as
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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.
Page 33 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
Diagram 3.5:Betterment Fund Category
Betterment
Fund
Betterment
Capital
Improvement
Fund
Capital
Improvement
Fund
Betterment
Fund
Restricted Funds
Restricted Funds
Restricted Funds
Restricted Funds
Funding Source Special Rates
and Availability
Charges;J::=:==:-:::====:====J~=-=.":::_,,,,:=:.-==-::,,:.,,_.,~.J_,":"S_9_'_.~_~%-1
IRestricted Funds
Designated Funds
Unrestricted and
Undesignated Funding
Sources
General Fund -Rates and Charges
eesigmated
ettetment
Fund
Page 34 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
Diagram 3.6: Fund Targets
Fund or Fund Actions to Consider if Target MaximumCategory,below Tar;get
~
New supply fee
New Supply Fund increase,bond Total of all funds in fund
financing,or transfer to category =six months Nexus of cost to feeCategorydesignationortoCIForofcapitalexpenditures
Annexation Fund
Capacity fee increase,
Expansion Fund bond financing,or Total of all funds in fund
transfer to designation category =six months Nexus of cost to feeCategoryortoCIForAnnexationofcapitalexpenditures
Fund
"
Bond financing,or Total of all funds in fundReplacementFundItransfertodesignationcategory=4%of Nexus of cost to feeCategoryortoCIForAnnexationinfrastructureFund
Bond financing,or Total of all funds in fundBettermentFundtransfertodesignationcategory=six months 5 years unfunded needsCategoryortoCIForAnnexationofcapitalexpendituresFund
DetltReserve Fund Increase tax collection One semi-annual Two semi-annual
or rates payment payments
OPEB Fund Fund transfers Full funding Full funding
Rate increase or fund Three months of Nine months of
General Fund transfers operating budget operating budget
expenses expenses
Note:The annexation fee for sewer is a general fund revenue.
Additional Restricted Funds
4.0 Capital Improvement Fund
a.Purpose
The "Capital Improvement Fund's sole purpose is to track the
"buy-inU portion of the capacity fee and to ensure these fees
are expended solely for the purpose for which they were
Page 35 of 43
QTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
collected.In this case it is to pay for facilities that
were in existence at the time this fee was established.
These fees may be used for expansion,replacement,or
betterment projects or any debt related to these categories.
These fees may also be used for either the potable or the
recycled systems.As capacity fees are collected,the "buy-
in"portion of the fee is allocated as needed to one of three
capital improvement funds,one in each of the Expansion,
Replacement,and Betterment Fund categories.These reserves
are used to pay debt or offset any negative balance within
these three categories of funds.These fees may not be used
to finance the New Water Supply category,as there were no
new water supply facilities in existence at the time the new
methodology for capacity fees was established.
b.Sources
The "buy-in"portion of the capacity fee collected after
June 30,2010.
c.Funding Levels
There are no minimums,maximums,or target levels for these
reserves on an individual basis.The allocation of this fee
to the various capital improvement funds is dependent on the
overall reserve levels within each fund category.
4.1 Annexation Fund
a.Purpose
The Annexation Fund's sole purpose is to track the potable
and recycled annexation fees collected and to ensure these
fees are expended solely for the purpose for which they were
collected.The annexation fees may be used for expansion,
replacement,or betterment projects or any debt related to
these categories.These fees may be used for either the
potable or recycled systems.These reserves may not be used
to finance the New Water Supply category,as it was not in
existence at the time the fee was established.As these fees
are collected they are allocated as needed to one of three
capital improvement funds,one in each of the Expansion,
Replacement,and Better Fund categories.
b.Sources
Potable and recycled annexation fees collected after
June 30,2010.
Page 36 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
c.Uses
There are no minimums,maximums,or target levels for these
reserves on an individual basis.The allocation of this fee
to the various Annexation Funds is dependent on the overall
reserve levels within each fund category.
4.2 Debt Reserve Fund
a.Purpose
The Debt Reserve Fund is established to hold the proceeds
from the various debt issuances.There are two types of
debt,General Obligation bonds and Certificates of
Participation bonds.The proceeds are transferred to the New
Water Supply,Expansion,Replacement,or Betterment Debt
Funds as they are expended for various facilities within
those fund categories.As repayment of the debt occurs,the
balances within these individual funds are reduced so that
the financial impact of issuing debt is tracked within the
category for which the debt was issued.
b.Sources
Debt proceeds.
c.Uses
There are no minimums,maximums,or target levels for this
fund on an individual basis.This fund is available on an as
needed basis to fund CIP projects for new water supply,
expansion,replacement,or betterment.From a funding level
perspective,these reserves are evaluated in the context of
all the various funds within each fund category.
Fund Transfers
5.0 Funding Levels
As described in the preceding sections,the District maintains
reserves for its operating and capital activities.These reserves
can be of three types:1)undesignated or general use reserves,2)
designated,and 3)restricted for a specific purpose.The
restricted reserves can be restricted geographically and/or by
purpose.The District maintains various funds to track the
various designations and restrictions.The source of the money
for each fund was discussed along with the purpose,source of
Page 37 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10/93 11/3/10
funds,and levels.Key characteristics of these funds are the
target levels,minimums,and maximums.The funding levels must be
viewed in the context of the economic environment,political
environment,and in light of the District's rate model.The
District's six-year rate model not only shows the current balance
but also shows the trend of the fund balances.Often the trend of
the fund is a greater indicator of financial stability than is the
current balance.
The rate model is updated each year with the budget process and
evaluates each fund over the next six years.The rate model will
take into account the general economic environment,looking at the
development rate,supply rate increases,the possibility of
raising rates,capital infrastructure spending,and strategic plan
initiatives.The fund balances may at times be over or under the
target amount.This is not only acceptable but expected.The
rate model provides an empirical estimate of the conformance
between the projected District's financial activities and the
guidelines of this policy.
5.1 Fund Transfers
Reserves within the District's various designated funds 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
"buy-in"portion of the capacity fees and annexation fees are
Page 38 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10)93 11/3/10
restricted for purposes that are shared by more than one category
of funds and may therefore be transferred to a restricted fund
within another fund category as long as it shares the same
purpose.
In many situations reserve transfers are expected as some fund
categories will exceed their maximums or drop below their
minimums.Only fund categories that are below the stated target
are eligible to receive transferred reserves.Fund categories
that exceed their maximums are first to be considered for
transfers out,followed by funds that exceed their targets.Funds
that exceed their minimums are also available for reserve
transfers out,but only when other options are not available.
The rationale for prioritizing reserve transfers is based on the
immediacy of the need and the availability of reserves from other
funding sources.For example,the General Fund is first to
receive reserves when it drops below its target or minimum levels.
This is because of the immediate and ongoing nature of the
expenditures that are served by this fund.The operation of the
District is first and foremost of the objectives of the District.
On the other end of the spectrum,the Replacement Fund has a long-
term perspective and will be used to partially finance replacement
assets for many years to 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
horizon,this would trigger a bond sale,a transfer of general use
Page 39 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number AdoptE2d Revised
RESERVE POLICY 25 2/10)93 11/3/10
reserves,and/or a transfer of restricted reserves.If in the
cash planning process,it was anticipated that the General Fund
would remain above target during the planning horizon and that the
trend did not present a problematic underfunded status,then
General Fund reserves would be considered available for transfer
prior to making proceeds available from a bond sale.Also,if
during this period the Betterment Fund category was anticipated to
exceed its maximum,then reserves from either the Designated
Betterment Fund,the Annexation Fund,or the Capital Improvement
Fund would be transferred to the corresponding Expansion Fund
prior to a bond sale.All funds are evaluated to determine which
has the greatest need or availability of reserves before any
reserve transfer recommendation is presented to the Board.
Page 40 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
GLOSSARY
The Reserve Policy contains terminology that is unique to public
finance and budgeting.The following glossary provides assistance
in understanding these terms.
Annexation Fees:When water service is requested for land outside
the boundaries of the District,the land to be serviced must first
be annexed.For sewer service the land must be annexed into an
improvement district within the District.
Assets:Resources owned or held by Otay Water District that has
monetary value.
Availability Fees:The District levies charges each year in
developed areas to be used for upgrades,betterment,or
replacement and in undeveloped areas to provide a source of
funding for planning,mapping,and preliminary design of
facilities to meet future development.Current legislation
provides that any availability charge in excess of $10.00 per acre
shall be used only for the purpose of the improvement district for
which it was assessed.
Betterment Fees:In addition to other applicable water rates and
charges,water customers pay a fee based on water service zone or
Improvement District.These fees are restricted for use in the
area where they are collected and may be used for the construction
and maintenance of facilities.
Bond:A written promise to pay a sum of money on a specific date
at a specified interest rate.The interest payments and the
repayment of the principal are authorized in a District bond
resolution.The most common types of bonds are General Obligation
(GO)bonds and Certificates of Participation (COPs).These are
frequently used for construction of large capital projects such as
buildings,reservoirs,pipelines and pump stations.
Capital Equipment:Fixed assets such as vehicles,marine
equipment,computers,furniture,technical instruments,etc.which
have a life expectancy of more than two years and a value over
$10,000.
Page 41 of 43
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopt.~d Revised
RESERVE POLICY 25 2/10/93 11/3/10
Capital Improvement Program:A long-range plan of the District
for the construction,rehabilitation and modernization of the
District-owned and operated infrastructure.
CWA:The County Water Authority was organized in 1944 under the
State County Water Authority Act for the primary purpose of
importing Colorado River water to augment the local water supplies
of the Authority's member agencies.The Authority purchases water
from the Metropolitan Water District of Southern California (MWD)
which imports water from the Colorado River and the State Water
Project.
Debt Service:The District's obligation to pay the principal and
interest of bonds and other debt instruments according to a
predetermined payment schedule.
Expenditures/Expenses:These terms refer to the outflow of funds
paid or to be paid for an asset,goods,or services obtained
regardless of when actually paid for.(Note:An encumbrance is
not an expenditure).An encumbrance reserves funds to be expended
in a future period.
Fund:An account used to track the collection and use of monies
for a specifically defined purpose.
Fund Balance:The current funds on hand resulting from the
historical collection and use of monies.The difference between
assets and liabilities reported in the District's Operating Fund
plus residual equities or balances and changes therein,from the
results of operations.
Interest Income:Earnings from the investment portfolio.Per
District Policy Number 25,interest income will be allocated to
the various funds each month based upon each fund's prior month-
ending balance.
Late Charges/Penalties:Charges and penalties are imposed on
customer accounts for late payments,returned checks,and related
telephone contacts.
Page 42 of 43
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
RESERVE POLICY 25 2/10)93 11/3/10
1%Property Tax:In 1978,Proposition 13 limited general levy
property tax rates for all taxing authorities to a total rate of
1%of full cash value.Subsequent legislation,AB 8,established
that the receipts from the 1%levy were to be distributed to
taxing agencies according to approximately the same proportions
received prior to Proposition 13.Funds received are to be used
for facilities construction or debt service on bonds sold to build
facilities.
Operating Budget:The portion of the budget that pertains to
daily operations that provide basic governmental services.The
operating budget contains appropriations for such expenditures as
personnel,supplies,utilities,materials,travel and fuel,and
does not include purchases of major capital plant or equipment
which is budgeted for separately in the Capital Budget.The
Operating Budget also identifies planned non-operating revenues
and expenses.
Revenue:
includes
revenues
year.
Monies that the District receives as income.It
such items as water sales and sewer fees.Estimated
are those expected to be collected during the fiscal
System Fees:Each water service customer pays a monthly system
charge for water system replacement,maintenance,and operation
expenses.The charge is based on the size of the meter and class
of service.
Taxes:California Water Code Section 72091 authorizes the
District,as a municipal water district,to levy ad valorem
property taxes which are equal to the amount required to make
annual payments for principal and interest on General Obligation
bonds approved by the voters prior to July 1,1978.
Water Rates:Rates vary among classes of service and are measured
in units.The water rates for residential customers are based on
an accelerated block structure.As more units are consumed,a
higher unit rate is charged.All non-residential customers are
charged a flat rate per unit.A unit of water is 100 cubic feet
or 748 gallons of water.
Page 43 of 43
AGENDA ITEM 5
STAFF REPORT
November 3,2010
DIV.NO.All
MEETING DATE:
W.O.lG.F.NO:Manager
B a ern,Chief Financial Officer
German AI~~j1~~sistant General Manager,Finance andAdministr~APPROVED BY:
(Asst.8M):
TYPE MEETING:
SUBMITTED BY:
APPROVED BY:
(Chief)
SUBJECT:Rate Adjustment for Mexico Agreement to Transfer Water
GENERAL MANAGER'S RECOMMENDATION:
That the Board authorize the General Manager to adjust the
wheeling rate for the delivery of Treaty Water to the City of
Tijuana to $68.45 per acre-foot for Calendar Year 2011.
COMMITTEE ACTION:
See Attachment A.
BACKGROUND:
The District's contract to deliver water to Mexico is currently
in effect through November 9,2013.Under terms and conditions
of the contract,the District's pricing for energy and O&M costs
attributable to water delivered to Mexico is due no later than
45 days prior to the start of each calendar year (CY)and will
remain constant for the calendar year.To meet this required
timing and adjust the rate effective January 1,2011,the
Board's approval of the new rate is due to the United States
Commissioner no later than November 16,2010.
Deliveries of water to Mexico are based on a purchase schedule
provided by Mexico to the United States Commissioner on a
calendar year basis.In order to set CY-2010 pricing,the Board
requested District staff to perform a full review of prior
pricing vs.actual costs incurred,since each year's deliveries
are priced based on the most current prior year's costs.On
March 3,2010,staff presented the results of their review and
the Board approved a rate for the remainder of the year of
$65.41 per acre-foot.Although Mexico had initially requested
water deliveries totaling 2,563.6 acre-feet for CY-2010,
ultimately they requested all deliveries to be cancelled due to
sufficient rainfall.
ANALYSIS:
Water is pumped to the Mexico connection from the District's
870-1 Pump Station,which also pumps water to the District's
870-1 Reservoir in the Otay Mesa area.There are a total of 4
energy bills (SDG&E)attributable to the pump station and these
bills are used in the calculations for the energy portion of the
rate the District charges Mexico.The water volumes pumped to
both Mexico and the reservoir are added together,and the energy
costs for Mexico are allocated based on the respective
percentage of the total water volume.Similarly,maintenance
costs for the District's distribution infrastructure from CWA to
the Mexico border connection are computed based on Mexico's
percentage of the total water volume pumped through that portion
of the District's infrastructure.The energy costs are then
added to the maintenance and repair costs and expressed as an
overall rate per acre-foot.
Energy and operations and maintenance expenses have remained
relatively stable since the last pricing update.Based on the
methodology described above,staff has recalculated the "unit
payment due OWD for delivery charges and other expenses ($/acre-
foot)"to be used by the San Diegb County Water Authority (CWA)
on their monthly billing invoices to Mexico for water
deliveries.Effective January 1,2011,the proposed rate is
$68.45 per acre-foot which is an increase of 4.6%from calendar
year 2010 to 2011.~
FISCAL IMPACT:
/
None.This adjustment maintains the District in a projected
cost neutral position.
STRATEGIC OUTLOOK:
The District ensures its continued financial health through
long-term financial planning,formalized financial policies,
enhanced budget controls,fair pricing,debt planning,and
improved financial reporting.
LEGAL IMPACT:
None.
2
General Manager
Attachments:
A)Committee Action Form
B)Rate Calculation Sheet
3
ATTACHMENT A
SUBJECTIPROJECT:Rate Adjustment for Mexico Agreement to Transfer Water
COMMITTEE ACTION:
The Finance,Administration,and Communications Committee
recommend that the Board authorize the General Manager to adjust
the wheeling rate for the delivery of Treaty Water to the City
of Tijuana to $68.45 per acre-foot for Calendar Year 2011.
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.
F:\DianeA\staff Rpts 2010\CommMtgMexicowaterRatel10310.doc
Mexico Water:Energy /O&M Costs
870/571 Reservoirs /Pump Stations
Fiscal Years 2009 -2010
Calculation ofCosts,Based on Audited Fiscal Year Expenses
Costs O&M Energy Total
FY 2009 187,478.36 423,531.09 611,009.45
FY 2010 89,083.57 210,268.14 299,351.71
Totals $276,561.93 $633,799.23 $910,361.16
Consumption or Sales (In AF)PZ871 Mexico Total
FY 2009 3,631.02 5,710.20 9,341.22
FY 2010 3,168.47 1,204.80 4,373.27
Totals 6,799.49 6,915.00 13,714.49
Unit Cost (per AF)O&M Energy Total
FY 2009 20.07 45.34 65.41
FY 2010 20.37 48.08 68.45
Mexico Water Rates,on a Calendar Year Basis
ATTACHMENT B
CY Charges to Mexico O&M Energy
CY 2010 20.07 45.34
CY 2011 20.37 48.08
Total
65.41
68.45
AGENDA ITEM 6
TYPE MEETING:Regul ar Board
SUBMITTED BY:Geoff Stevens,
Chief Informat'
STAFF REPORT
MEETING DATE:
W.O.lG.F.NO:
November 3,2010
DIV.NO.
APPROVED BY:
(Ass!.GM):
SUBJECT:
German Alvarez,~~G-J~
Assistant General Ma~~~er,~~nance and Administration
REPLACEMENT OF PBX
GENERAL MANAGER'S RECOMMENDATION:
That the Board authorize the General Manager to negotiate and enter
into an agreement with:
1.Advanced Call Processing Corporation in an amount not to exceed
$400,000 for telecommunications equipment and services.
2.Fandel Enterprises for an amount not to exceed $40,000 for
telecommunication consulting and implementation services.
COMMITTEE ACTION:
See Attachment "AU.
PURPOSE:
To authorize
implementation
systems.
ANALYSIS:
the purchase of telecommunications equipment and
of services to replace the District's PBX and related
IT Staff has been analyzing the future requirements for District
telecommunications needs.To assist in that effort,the District
contracted a telecommunications consultant,Fandel Enterprises,to
assess the condition of the District's telecommunications systems and
to make recommendations to improve these services.
This effort consisted of:
•Condition and risk assessment of our current enviFonment.
•Review of industry technology trends and best practices to assess-
current and future requirements.
•Development of a "requirementsH document.
•Issuing a Request for Proposal (RFP)for communication system
upgrades and receiving quotes for services.
•Alternative analysis,including the potential to outsource certain
services and an assessment of the viability of moving to the
latest voice over internet protocol (VoIP)technology.
As a result of these efforts,the following major conclusions have
been reached:
•The District's PBX systems are near maximum capacity and at the
end of their product life.
•The Voice Over IP technology is mature and is now an industry
standard that is appropriate for Otay.
•Innovative phone software offers significant opportunities to
enhance customer service and reduce costs for customer
interaction.
The District last purchased an enterprise PBX system in January 2006
and chose to upgrade the NEC PBX originally purchased in 1993.While
we were exploring with moving to VOIP technology at that time,the
technology was not considered mature.Today VOIP is the standard,
and the choice is clear.With the conversion to VOIP technology,the
systems that meet the District's requirements are all complete
replacements and consequently,upgrading is not an option.
Outsourcing
The outsourcing option was investigated.The District requested a
bid from AT&T,(Cox does not provide an enterprise outsource
solution)but the initial cost was more than purchasing a new system
and the annual costs in the following year were much higher than
annual license fees.In addition,outsourcing would mean an
unacceptable loss of control over a critical District service with no
financial benefit.
Value Added Services
What is significant (in our extensive two year analysis)is that
current telecommunications technology is now digitally basedi
therefore the District can now move to voice over our data network
and eliminate the need to replace the separate telecommunications
wiring infrastructure.In addition,the processing of voice -be it
in-bound,out-bound,interactive voice response (IVR),or automated
call direction (ACD)-is now a software-based process as opposed to
a hardware-based switching technology.This change means that the
tools for managing these interactions can now be used to enhance the
value or efficiency of this type of communications.~The District can
now use this infrastructure to reach and respond to customers in new
and more efficient ways.It is expected that ratepayers will receive
excellent communication and customer service.
Consequently,this upgrade while completely necessary from a
lifecycle perspective of the existing equipment (no longer vendor
supported)-is also a good opportunity to upgrade our technologies'
ability to assist in providing better and more dynamic customer
service.
For example,staff interviewed several companies to understand how
they are using these new products.One manager described how he now
reacts to web traffic,establishes chat sessions,redirects calls,
and sends an outbound reminder on a routine basis to his customers.
Another stated that the advanced features have the capability to
alert all customer service representatives when a particular call or
wait time is exceeding specified limits.We anticipate the need to
simplify and enhance our customer service business processes using
this type of technology.
Purchasing Process
Staff issued a "Request For Information"(RFI),and based on the
information received,an RFP was developed and issued in accordance
with the District's purchasing process.The District received the
following responses meeting the RFP requirements:
Respondent
NEC Corp.of America (NEC)
Logicalis
Advanced Call Processing Inc./13 (ACP)
American TeleSource Inc.(ATI)
Price
$309,345
$336,035
$385,000
$329,439
All four respondents were invited to an interview process which
resulted in NEC,Logicalis,and ACP being invited to a final round of
interviews.The .interview panel members were Andrea Car$y,Customer
Service Supervisorj Alice Mendez-Schomer,Customer Service
Supervisorj Bruce Trites,Network Engineerj Cynthia Alcantara,
Business Analystj and Bill Jenkins,Manager IT Operations.Geoff
Stevens,CIOj and Steve Dobrawa,Purchasing and Facilities Manager
observed and provided advice during the evaluation process.
The team determined that the ACP /Interactive InteJligence product
was the best fit.While the cost ($385,000)was 20%higher than the
second place candidate (NEC),the team was in agreement that the ACP
product was superior in its ability to provide enhanced and flexible
customer service and was a large step above the second place product
in meeting the District's needs,particularly with regard to
maintenance and software controlled flexibility.
These findings were validated by panel members Geoff Stevens and
Andrea Carey who conducted detailed interviews with ACP clients.ACP
is the leading provider of software-based telecommunications
solutions and provides an unparalleled and flexible approach to call
processing.It is simply a much better product than the other four
we evaluated.The trend to software based control of
telecommunications processes is expected to increase and moving to
this approach supports the District's Strategic Plan to "Optimize use
of Voice Over Internet Protocol and unified messaging."
Project Timeline
The PBX and related services will be replaced prior to June 2011.
Consulting Assistance Required
The cost of implementation services are $40,000.
competitively bid and Fandel Enterprises was the
over 25%as presented in the following table.
These services were
lowest bidder,by
Consultant
Fandel Enterprises
Wallis Victory &Associates
Telytics,Inc.
Price
$40,000.00
$70,000.00
$80,000.00
The District has established an ongoing consulting
Fandel Enterprises and based on the positive past
is confident that Fandel Enterprises is more
providing the needed services.
FISCAL IMPACT:12Av~
relationship with
experience,staff
than capable of
This project will utilize funds from two CIPs.The hardware will use
CIP P2501 and will be purchased in FY2011.The services will utilize
CPI P2469 and will be purchased in FY2011.The total expenditures
requested are for a not-to-exceed amount of $440,000 with funds
budgeted from Capital Improvement Programs (CIP P2501 and CIP P2469).
These items are also specifically included in the existing FY2011
Capital Budget and recommended FY2011 Capital Budgets.
The approved FY2011 budget is $400,000 for CIP
(Telecommunications Equipment Upgrade).Expenditures to date
The total FY2011 budget for CIP P2469 is $300,000 with
expenditures of $55,724 leaving a balance of $344,726.The
Manager anticipates,based on financial analysis,that the
will be sufficient to support both projects.
P2501
are $0.
current
Project
budgets
Finance has determined that 100%of the funding for the hardware
component of this proj ect (P2501)is available from the "Replacement
Fund"and the services component of this project JP2469),which is
60%of the funding,is available from the "Replacement Fund"and 40%
from the "Expansion Fund."
STRATEGIC GOAL:
This proj ect will achieve in total or part the following goals and
objectives in the 2011 Strategic Plan.
3.2.3.2
1.1.2.1
LEGAL IMPACT:
None.
Optimize use of Voice Over Internet Protocol and
unified messaging.
Enhance communication with our customers by evaluating
and upgrading all aspects of the District's phone
system.
Jr&WiJ()
General Manager
Attachment A -Replacement of PBX
Attachment B -PBX Replacement PowerPoint
ATTACHMENT A
SUBJECT/PROJECT:REPLACEMENT OF PBX
COMMITTEE ACTION:
The Finance,
October 19,
presentation
Note:
Administration and Communications Committee met on
2010 to review this item.The Committee supports
to the full Board for their consideration.
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.
PBX Replacement
Finance and Administration Committee
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Background -PBX
~PBX (Private Branch Exchange)-the "Switch"
~NEC PBX first installed in 1993
~Upgraded twice in 2000 and 2006
~Current PBX is at the end of due to the lack of
vendor support
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.-.'..,.-,.-"~.,"......'-.~.--'".-.~..-"~:~.~"..:~..~,'
~PBX replacement identified in FY20 11
Strategic Plan
~The new industry standard is VolP
~Transition from hardware "Switch"to software
solution for management of calls
Selection Process
~Industry and Technology Review
~RFI issued to gather perspective
~RFP for specific requirements
~Panel interviewed all bidders
~Shortl isted to 3Fi nal i sts
~Top respondent selected and references
checked
~Develop recommendations for Board
Implementation Services
~Complex project requires Implementation
Services
o Highly detailed requirements
o Shift in technology
o Critical District system
~Solicited bids /received 3 responses
~Selected lowest bidder
o Excellent history with the District
o Performed similar projects /broad knowledge-
based
Summary
~Selected "Interactive Intelligence"
~Proven software-based solution
~Leverages VolP Technology
~Significantly better functionality and ease of use
/faster ROI
~Positions Otay for any future changes
~Customer Service runs the system and process
~IT provides support
~$400,000 hardware software /$40,000
Implementation
Schedule
~Installed by June 2011
~Extensive training
~But -it is new,different,and may take some
time getting comfortable with it
~"It was everything we hoped for and more"
(reference check interview)
Interactive Intelligence
Winner 201 0
North American Technology Company of
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'.,-~'..-.'-",~~.-~
~IIThere are fundamental differences between
communications-enabled business process
solutions and IPA,II Outlaw said.IIlnstead of merely
embedding communications functions into
applications,Interactive Intelligence has opted to
use its core communications platform as the basis
for automation.In this way,IPA gives customers
the ability to automate and track entire multi-step:
processes -including those that fall outside of
communications --thus providing significant and
.abl~.ROI.II
AGENDA ITEM 7
STAFF REPORT
AllDIV.NO.
November 3,2010MEETINGDATE:
Stephen Dobrawa,0/W.O.lG.F.NO:
Purchasing Manag~~\~
Rom Sarno,~~ef,A~strative servic~
Joseph Bea~~ef Financial Officer
German A1V~ssistant General Manager,Finance and
Administration
APPROVED BY:
(Asst.GM):
APPROVED BY:
(Chief)
TYPE MEETING:Regular Board
SUBMITTED BY:
SUBJECT:AMENDMENT OF THE DISTRICT'S PURCHASING MANUAL SECTION 7.2.8,
BOARD AUTHORIZED PURCHASES EXCEEDING THE GENERAL MANAGER'S
AUTHORITY
GENERAL MANAGER'S RECOMMENDATION:
That the Board amend the District's Purchasing Manual
7.2.8,Board Authorized Purchases Exceeding the
Manager's Authority,as identified in "Attachment B".
Section
General
COMMITTEE ACTION:
See "Attachment A".
PURPOSE:
To request that the Board amend the District's Purchasing Manual
as presented in "Attachment B".
ANALYSIS:
The Board of Directors establishes the operational guidelines
and procedures with respect to purchasing the materials,
equipment,and services necessary to conduct the District's
business.These procedures are defined and published in the
District's Purchasing Manual.
As a normal course of
time-to-time and changes
to improve the operation
Employee Benefits
business,the manual is reviewed from
to it are recommended that are intended
of the District.
The District provides benefits to its employees.These benefits
are generally defined and established through the negotiated
collective bargaining agreement or by direction of the Board.
In some instances,employee benefits are mandated through state
and Federal statute.In providing these benefits,the District
realizes direct and indirect costs that routinely exceed the
General Manager's signatory authority.In the past,it has been
the District's practice to present changes to benefit providers
to the Board for approval and to allow the General Manager to
utilize the approved providers as necessary without regard to
the General Manager's signatory authority.
It is recommended that the Board amend the Purchasing Manual to
provide authority to the General Manager to select and enter
into agreements with benefit providers and brokers as required
to meet the District's obligations related to employee benefits.
This action will make it clear that the General Manager has
authority to exceed his/her signatory authorization limit with
regard to providing employee benefits as established by the
Board.
Banking Services
Banking Services consists of numerous financial and operational
functions that are critical to the continuing daily operations
of the District.Included in this are the following:1)
multiple deposit accounts for operations,payroll,investments,
debt service,etc.;2)check payment processing;3)wire and ACH
services for automated payments and receipts;4)lockbox
processing for receipt of customer payments;5)links to third-
party vendors for receipt of customer credit card payments;and
6)other routine services required for District daily
operations.
Over 48,000 District customer payments interface with the
banking services on a monthly basis.Also,over $100 million of
District funds from all sources are handled through banking
services on an annual basis.Based on this volume of services,
and the criticality of the services to the District's smooth
running daily operations,it is important that the adverse
impact resulting from changes to banking services be considered,
and that changes to banking services providers be kept to a
minimum.In the past,it has been the District's practice to
present changes to banking services providers tg the Board for
approval and to allow the General Manager to utilize the
approved providers as necessary without regard to the General
Manager's signature authority.
It is recommended that the Board amend the Purchasing Manual to
provide authority to the General Manager to select and enter
into agreements with banking services providers as required to
meet the District's banking obligations on a continuous basis.
This action will make it clear that the General Manager has
authority to exceed his/her signatory authorization limit with
regard to providing banking services as required to operate the
District.
FISCAL IMPACT:
None.
STRATEGIC GOAL:
Ensure financial health through formalized policies,prudent
investing,and efficient operations.
LEGAL IMPACT:
None.
Attachment A -Committee Action
Attachment B -Amended Purchasing Manual,Section 7
ATTACHMENT A
AMENDMENT OF THE DISTRICT'S PURCHASING MANUAL SECTION
SUBJECT/PROJECT:7.2.8,BOARD AUTHORIZED PURCHASES EXCEEDING THE GENERAL
MANAGER'S AUTHORITY.
COMMITTEE ACTION:
The Finance,Administration and Communications
reviewed this item at a meeting held on October 19,
Committee supports presentation to the full Board
consideration.
NOTE:
Committee
2010.The
for their
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.
7.0 PURPOSE
ATTACHMENT B
Amended Purchasing Manual,-Section 7
To provide requirements,policies,and guidelines for the pricing/bidding of
purchases within the Otay Water District.
7.1 GENERAL
It is the District's policy to request competitive quotations from
responsible vendors for all purchase items priced at more than $5,000.
Pricing,although important,is not the only factor in determining the
overall cost and value of a product.Quality,service,and delivery are
factors that must also be considered when comparing quotations.It is by
weighing these factors that an intelligent decision can be made to purchase
the product with the greatest value for the least overall price.
7.2 REQUIREMENTS
7.2.1 Formal Advertising
Public work purchases,as defined in the State of California's Government and
Contract Codes,equal to or exceeding $35,000 must be formally advertised.
Solicitations shall be advertised in a newspaper of general circulation at
least one,a minimum of ten (10)calendar days prior to the date of the bid
opening.Solicitations must contain a brief description of the goods or
services required,state where prospective bidders may obtain plans and
specifications and make any required deposits,state the time and place of
the bid opening,and state that the District reserves the right to reject one
or all bids.
7.2.2 Quotations
For purchases greater than $5,000,excluding public work purchases exceeding
$35,000 that require formal advertising and bidding,a minimum of three
competitive quotations must be obtained.Quotations received may be in
written or oral form.Should oral quotations be received,written
documentation must be made identifying the bidder's name,contact name,
telephone number,the date of the quotation and the price bid.Should three
quotations not be obtainable,documentation in the form of a notation of
memorandum must be provided and attached to the purchase requisition.Where
only one price is obtainable,the actions taken to obtain competitive pricing
shall be documented and attached to the purchase requisition and the purchase
may be made and the requirements of this section shall be satisfied.
7.2.3 Public Work -Construction
Public work purchases equal to or exceeding $35,000 in value must be formally
advertised and sealed bids received.
The Purchasing and Facilities Manager or the General Manager's designee,in
conjunction with the project manager,and where appropriate,the District's
legal counsel,shall publicly open all sealed bids and tabulate the results.
The bid tabulation,along with a recommendation for award of contract or
possible rejection of bids,shall be forwarded to the District's General
Manager.
In the event that the value of the purchase exceeds the General Manager's
signatory authority,a summary of bids shall be presented together with
staff's recommendation for an award of contract or possible rejection of bids
to the Board of Directors of the District during a formal board meeting.The
Board of Directors will then authorize the execution of the contract on
behalf of the District.Award shall be made to the responsive and
responsible bidder who has submitted the lowest bid.After approval as to
form and legality of the contract documents by legal counsel,the successful
bidder and the appropriate District representative(s)shall execute the
contract.A copy of the executed contract shall be promptly provided to the
Finance Department for proper accounting review.
7.2.4 Request for Proposals
a.For the Solicitation of Professional Consulting:
The General Manager,or his/her designee,will establish a review panel to
evaluate and rank submittals (proposals)using criteria published in the
Request for Proposals package.Documents,invitations,and evaluation of
submittals for professional consulting services shall be made in compliance
with Government Code Section 4526-4529 and District Policy #21 -Policy for
Selection of Professional Consultants.
b.For the Solicitation of General Consulting and Services:
The General Manager,or his/her designee,shall determine the method for
soliciting and evaluating proposals for general consulting and services.The
request for proposal must be in written form and must provide sufficient
information to clearly identify the work required and provide respondents
with a clear understanding of the District's needs,work specifications,
expectations,and the criteria that will be used to evaluate submittals.
7.2.5 Two Step Bidding
Where it is considered impractical to initially prepare a purchase
description to support an award on price,a request for proposals may be
issued requesting the submission of not priced technical proposals.This
will be followed by an invitation for bids limited to those bidders whose
technical proposals meet the requirements set forth in the first invitation.
7.2.6 Purchases Exempt from Competitive Pricing
a.The following contract/purchases are exempt from competitive pricing (Ref:
California Contracting Code 10335-10381):
Contracts:
1.With Federal,State or Local Agencies,
2.For temporary labor contracts for time-limited employment needs,
3.For services that can only be performed by a public agency,
4.For the sole purpose of obtaining expert witness for litigation,and
5.That are for legal defense,legal advice,or legal services.
7.2.7 Emergency Purchases
During times when the General Manager has declared an emergency,where the
immediate acquisition of materials,goods,and services is required,the
purchase of needed materials,goods,and services shall be made in accordance
with California state statutes and per the District's Code oe:Ordinances.
7.2.8 Board Authorized Purchases Exceeding the General Manager's Authority
a.The General Manager or his/her Designee is authorized to exceed his/her
delegated purchasing authority and purchase the following goods and services
without regard to limits on the amount of delegated authority under Section 2
of the Code of Ordinance:
1.Gas and electric utility for the operation of the District.
2.Water.
3.Temporary labor services.
4.Chemicals and gasses for the treatment of potable and recycled
water.
5.Fuel,gasoline and diesel.
6.Employee medical,dental,vision,and/or fringe benefits as defined
in any District collective bargaining agreement,authorized by the
Board,or mandated by State or Federal statute,including through a
broker.
7.Banking services