HomeMy WebLinkAbout12-21-06 F&A Committee Packet
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OTAY WATER DISTRICT
FINANCE AND ADMINISTRATION
COMMITTEE MEETING
and
SPECIAL MEETING OF THE BOARD OF DIRECTORS
2554 SWEETWATER SPRINGS BOULEVARD
SPRING VALLEY, CALIFORNIA
BOARDROOM
THURSDAY
December 21, 2006
12:00 P.M.
This is a District Committee meeting. This meeting is being posted as a special meeting
in order to comply with the Brown Act (Government Code Section §54954.2) in the event that
a quorum of the Board is present. Items will be deliberated, however, no formal board actions
will be taken at this meeting. The committee makes recommendations
to the full board for its consideration and formal action.
AGENDA
1. ROLL CALL
2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC
TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE
BOARD'S JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
DISCUSSION ITEMS
3. ADOPT RESOLUTION NO. 4092 AMENDING THE DEBT POLICY, BOARD OF
DIRECTORS POLICY NO. 45 (BEACHEM) [10 minutes]
4. RECEIVE THE FINANCING PLAN FISCAL YEAR 2006 UPDATE (BEACHEM)
[20 minutes]
5. APPROVE THE IMPLEMENTATION OF THE RATE INCREASE AS PRO-
POSED BY THE FISCAL YEAR 2006-2007 OPERATING AND CAPITAL
BUDGET (BEACHEM) [10 minutes]
6. ADJOURNMENT
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.
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 Posti ng
I certify that on December 18,2006 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 December 18,2006.
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AGENDA ITEM 3
STAFF REPORT
DIV.NO.All
January 3,2007TYPEMEETING:
SUBMITTED BY:
APPROVED BY:
(Chief)
APPROVED BY:
(Ass!.GM):
SUBJECT:
Regula.r Board ._/~&..,MEETING DATE:
James CUdl~~~ager W.O.lG.F.NO:
Joseph R.~~~~~.Chief Financial Officer
Germa~ez,Assistant General Manager
Adopt Resolution No.4092 Amending the Debt Policy (Policy
No.45)
GENERAL MANAGER'S RECOMMENDATION:
That the Board adopts Resolution No.4092 amending the Debt
Policy (Policy No.45)
COMMITTEE ACTION:
See Attachment A.
PURPOSE:
The Debt Policy is being updated in an effort to strengthen our
upcoming presentation to the national bond rating agencies,
prior to the issuance of new debt by the District,so as to
obtain the highest practical credit rating and reduce the cost
of debt issuance.
ANALYSIS:
The proposed Debt Policy (Attachment C)revises and expands upon
the existing Policy (Attachment D)that was previously approved
by the Board on April 13,2004.
As a part of the review of the existing Debt Policy,we compared
our policy to a recommended format that is considered "best
practice"by several national accounting and finance
organizations.While our current policy already went beyond the
minimum requirements mandated by Generally Accepted Accounting
Principles (GAAP),the proposed changes have been added to
further clarify guidance in the following areas:
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•Legal and Regulatory Requirements:Specifies that the CFO
will coordinate activities with legal counsel.
•Alternative Funding Sources:Adds State and Federal grants.
•Competitive and Negotiated Sale Criteria:Calculating true
interest costs (TIC),and the payment of management fees.
•Continuing Disclosure:Posting copies of financial reports
on the internet.
•Investment &Arbitrage Compliance:Investing bond proceeds
in accordance with the District's Investment Policy.
•Rating Agency Applications:Obtaining a bond credit rating
from more than one rating agency.
•Glossary:Provides additional financial definitions.
To assure the Board that that the currently proposed policy
meets best practice standards,it was submitted to the
Association of Public Treasurers of the United States &Canada
(APT US&C)for review and certification.We recently received
notification that this policy was approved in all of the areas
addressed,and a copy of APT US&C's congratulatory letter on
obtaining the Debt Policy Certificate of Excellence Award is
included (Attachment E)to this staff report.
The policy is consistent with the current law and the overall
objectives of the policy are being met.
FISCAL IMPACT:~
Adoption of this policy will strengthen the District's
application to Standard &Poor's for a credit rating higher than
that currently issued (A+).Any higher rating (AA-or above)
would substantially reduce the costs of issuing new debt.
STRATEGIC GOAL:
Demonstrate financial health through formalized policies,
prudent investing,and efficient operations.
LEGAL IMPACT:
None.
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~~
General Manager ~
Attachments:
A)Committee Action Form
B)Resolution No.4092
C)Proposed Debt Policy #45
D)Strike-thru Debt Policy
E)APT US&C Debt Policy Certification
F)Copy of Debt Policy Presentation
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ATTACHMENT A
Adopt Resolution No.4092 Amending the Debt Policy (Policy
SUBJECT/PROJECT:No.45)
COMMITTEE ACTION:
The Finance and Administration Committee recommends that the
Board adopt Resolution No.4092 amending the Debt Policy (Policy
No.45).
NOTE:
The "Committee Action"is written in anticipation of the
Committee moving the item forward for board approval.This
report will be sent to the Board as a committee approved item,
or modified to reflect any discussion or changes as directed
from the committee prior to presentation to the full board.
ATTACHMENT B
RESOLUTION NO.4092
A RESOLUTION OF THE BOARD OF DIRECTORS OF
OTAY WATER DISTRICT AMENDING THE DEBT POLICY
(BOARD OF DIRECTORS POLICY NO.45)
WHEREAS,the Otay Water District Board of Directors have
been presented with an amended Debt Policy (Board of Directors
Policy No.45);and
WHEREAS,the amended Debt Policy has been reviewed and
considered by the Board,and it is in the interest of the
District to adopt the amended Debt Policy;and
NOW,THEREFORE,BE IT RESOLVED,DETERMINED AND ORDERED by
the Board of Directors of the Otay Water District that the Debt
Policy,incorporated herein by reference,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
January 2007,by the following vote:
Ayes:
Noes:
Abstain:
Absent:
President
ATTEST:
District Secretary
.i:i
I
I ATTACHMENT C I
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
1.0:POLICY
It is the policy of the Otay Water District to finance the acquisition
of high value assets that have an extended useful life through a
combination of current revenues and debt financing.Regularly updated
debt policies and procedures are an important tool to insure the use
of the District's resources to meet its commitments,to provide the
highest quality of service to the District's customers,and to
maintain sound financial management practices.These guidelines are
for general use and allow for exceptions as circumstances dictate.
2.0:SCOPE
This policy is enacted in an effort to standardize the issuance and
management of debt by the Otay Water District.The primary objective
is to establish conditions for the use of debt,to minimize the
District's debt service requirements and cost of issuance,to retain
the highest practical credit rating,maintain full and complete
financial disclosure and reporting,and to maintain financial
flexibility for the District.This policy applies to all debt issued
by the District including general obligation bonds,revenue bonds,
capital leases and special assessment debt.
3 .0:LEGAL ®ULATORY REQUIREMENTS
The Chief Financial Officer (CFO)and the District's Legal Counsel
will coordinate their activities to ensure that all securities are
issued in full compliance with Federal and state law.
4.0:CAPITAL FACILITIES FUNDING
Financial Planning
The District maintains a six-year financial projection that identifies
operating requirements and public facility and equipment requirements,
and has developed a Rate Model for funding the District's 6-Year
Capital Improvement Program (CIP).The District's CIP Budget places
the capital requirements in order of priority and schedules them for
funding and implementation.It identifies a full range of capital
needs,provides for the ranking of the importance of such needs,and
identifies all the funding sources that are available to cover the
costs of the projects.In cases where the program identifies project
funding through the use of debt financing,the budget should provide
information needed to determine debt capacity.The Rate Model and the
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
CIP Budget give the Board part of the data needed to make informed
judgments concerning the possibility of issuing debt.
Funding Criteria
The Chief Financial Officer (CFO)will evaluate all capital project
requests and develop a proposed funding plan.Priority may be given
to those projects that can be funded with current resources (annual
cash flow,fund balances or reserves).Those projects that cannot be
funded with current resources may be deferred or the CFO may recoIT@end
that they be funded with debt financing.However,debt financing will
not be considered appropriate for any recurring purpose such as
current operating and maintenance expenditures.The issuance of
short-term cash-flow instruments is excluded from this limitation.
The General Manager will recommend the funding plan to the Board.The
General Manager may deem it necessary or desirable in certain
circumstances to convene a Finance Committee meeting to evaluate
funding options presented by the Chief Financial Officer.
Funding Sources
The District's capital improvements can be classified in three
categories:those related to an expansion of the system
("expansion"),those related to upgrading the existing system
("betterment")and those related to repairing or replacing existing
infrastructure ("replacement").In general,capital improvements for
betterment or replacement are financed primarily through user charges,
availability charges,and betterment charges.Capital improvements
for expansion are financed through capacity fees.Accordingly,these
fees are reviewed periodically and set at levels sufficient to ensure
that new development pays its fair share of the costs of constructing
necessary infrastructure.Additionally,the District will seek State
and Federal grants and other forms of intergovernmental aid wherever
possible.
Pay-As-You-Go Projects
The District's capacity fees are the major funding source in financing
additions to the water system and the recycled water system.Over
time,the fees collected and the cost to construct the capital
projects should balance.However,collection of these fees is subject
to significant fluctuation based on the rate of new development.
Accordingly,the Chief Financial Officer,in developing the funding
plan for the CIP,will determine that current revenues and adequate
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
fund balances are available so project phasing can be accomplished.
If this is not the case,the Chief Financial Officer may recommend
that:
1.The project be deferred until funds are available,or
2.Based on the priority of the project,long-term debt is issued to
finance the project.
Debt Financed Projects
If a project or projects are to be financed with long-term debt,the
District should use the following criteria to evaluate the suitability
of the financing for the particular project or projects:
1.The life of the project or asset to be financed is 10 years or
longer and its useful life is expected to exceed the term of the
financing.
2.Revenues available for debt service are deemed to be sufficient
and reliable so that long-term financing can be marketed without
jeopardizing the credit rating of the District.
3.Market conditions present favorable interest rates and demand for
District financing.
4.The project is mandated by State and/or Federal requirements and
current resources are insufficient or unavailable.
5.The project is immediately required to meet or relieve capacity
needs and current resources are insufficient or unavailable.
5.0:DEBT STRUCTURE
General
The District will normally issue debt with a maturity of not more than
30 years.The structure should approximate level debt service for the
term where it is practical or desirable.There will be no debt
structures that include increasing debt service levels in subsequent
years,with the first and second year of a debt payoff schedule the
exception and related to projected additional income to be generated
by the project to be funded.There will be no "balloon"debt
repayment schedules that consist of low annual payments and one large
payment of the balance due at the end of the term.There will always
be at least interest paid in the first fiscal year after debt issuance
and principal starting no later than the first fiscal year after the
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
date the facility or equipment is expected to be placed in service.
Capitalized interest will not be for a period of more than necessary
to provide adequate security for the financing.
Limitations on the Issuance of Variable Rate Debt
The District will normally issue debt with a fixed rate of interest.
The District may issue variable rate for the purpose of managing its
interest costs.At the same time,the District should protect itself
from too much exposure to interest rate fluctuations.In determining
that it is in the District's best interest to issue certain debt at
variable rates instead of fixed rates,at the time of issuing any
variable rate debt,there should be at least a 10%estimated reduction
in annual debt costs by issuing variable rate debt when compared to a
similar issuance of fixed rate debt.If the estimated overall cost
savings from issuing variable rate debt is not at least 10%at the
time of issuance,relatively small fluctuations in rates could
actually increase the District's financing costs over the life of the
bonds compared to a similar fixed rate financing.By using this 10%
factor at the time of issuance,the District can be relatively assured
that its variable rate financing will be cost-effective over the term
of the bonds.
The comparison will be based on the following criteria:
1.The interest rate used to estimate interest costs will be the 10
year average for weekly variable rates.
2.The variable rate debt costs will include an estimate for annual
costs such as letter of credit fees,liquidity fees,remarketing
fees,monthly draw fees and annual rating fees applicable to the
letter of credit.
3.Any potential reserve fund earnings will reduce the fixed rate
debt service or variable rate debt service as applicable.
Periodically,using the criteria described above,the Chief Financial
Officer will compare the estimated annual debt service costs to
maturity of any variable rate debt with estimated debt service if the
debt was converted to fixed rates.If this analysis produces a break
even in total payments over the life of the issue,the Chief Financial
Officer will recommend converting such variable rate debt to fixed
rate.
Variable rate debt should not represent more than 25%of the
District's total debt portfolio.This level of exposure to interest
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OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
rate fluctuations is considered to be manageable in an environment of
increasing interest rates.At a higher ratio than this,the District
might be faced with an unplanned water rate increase to meet its Rate
Covenants.Rating agencies use this ratio in their analysis of the
District's overall credit rating.
Further,Rate Covenants applicable to variable rate debt shall not
compromise the issuance of additional debt planned by the District and
variable rate debt should always contain a provision to allow
conversion to a fixed rate at the District's option.
6.0:CREDIT OBJECTIVES
The Otay Water District seeks to maintain the highest possible credit
ratings for all categories of long-term debt that can be achieved
without compromising delivery of basic services and achievement of
District policy objectives.
Factors taken into account in determining the credit rating for a
financing include:
1.Diversity of the District's customer base.
2.Proven track record of completing capital projects on time and
within budget.
3.Strong,professional management.
4.Adequate levels of staffing for services provided.
5.Reserves.
6.Ability to consistently meet or exceed Rate Covenants.
The District recognizes that external economici,natural,or other
events may from time to time affect the creditworthiness of its debt.
Nevertheless,the District is committed to ensuring that .actions
within its control are prudent and well planned.
7.0:COMPETITIVE AND NEGOTIATED SALE CRITERIA
Competitive Sal.e
The District will use a competitive bidding process in the sale of
debt unless the nature of the issue or specific circumstances warrants
a negotiated sale.The CFO will determine the best bid in a
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
competitive sale by calculating the true interest cost (TIC)of each
bid.
Negotiated Sale
Types of debt that would typically lend themselves to the negotiated
sale format are variable rate debt and unrated debt.Circumstances
that might warrant a negotiated sale may occur when the issue is of a
limited size that would not attract wide-spread investor interest,
during periods of high levels of issuance by other entities in the
State,or during periods of market volatility.In the event the
District decides to use a negotiated sale,it will pay management fees
only to those firms that place orders for bonds.
If the size of the District's proposed issue is not cost effective,
the District may also consider issuing its debt though the California
Statewide Communities Development Authority,which provides a
mechanism for pooling financings with similar issuers to obtain
economies of scale.
8.0:REFUNDING DEBT
Purpose
Periodic reviews
Chief Financial
opportunities.
of all outstanding debt will be undertaken by
Officer to determine refunding (refinancing)
The purpose of the refinancing may be to:
the
1.Lower annual debt service by taking advantage of lower current
interest rates.
2.Update or revise covenants on outstanding debt issue if a Rate
Covenant appears to be too high,has precluded the District from
implementing its financing plan,or has caused the District to
increase rates to customers.
3.Restructure debt service associated with an issue to facilitate
the issuance of additional debt,usually in order to smooth out
peaks in total debt service which can occur frequently as one
debt issue is layered on top of existing debt issues.
4.Alter bond characteristics such as call provisions or payment
dates.
5.Pay for conversion costs such as funding a reserve fund or paying
for credit enhancement when converting variable rate debt to
fixed rate debt.
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OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
Restrictions on Refunding
Tax-exempt bonds typically have provisions that preclude early
redemption of the bonds for a period of years after issuance.The
number of times a tax-exempt bond can be refinanced prior to its
Optional Redemption date (known as Advance Refunding)is limited by
the IRS.For debt issued after 1986,issuers may only provide for
Advance Refunding of obligations in advance of the Optional Redemption
date one time.There is no limit by the IRS on the ability of issuers
to redeem bonds early once the Optional Redemption date has been
reached.
Savings Criteria
In cases where an Advance Refunding is intended to provide debt
service savings,the District may commence the refinancing process if
a minimum five percent (5%)present value savings net of issuance
costs and any cash contributions can be demonstrated.Since interest
rates may fluctuate between the time when a refinancing is authorized
and when the debt is issued,beginning the process with at least a 5%
savings should provide the District with some level of protection that
it can achieve a minimum of three percent (3%)net present value
savings of the refunding bonds when and if the debt is issued.These
minimum standards are intended to protect the District staff from
spending time on refinancings that become marginally cost-effective
after the entire issuance process is complete.
The savings target may be waived,however,if sufficient justification
for lowering the savings target can be provided by meeting one or more
of the other refunding objectives described above.
9.0:SUBORDINATE LIEN DEBT
The District will issue subordinate lien debt only if it is
financially beneficial to the District or consistent with
creditworthiness objectives.Subordinate lien debt is structured to be
payable second in priority to the District's other outstanding debt.
Typically,subordinate lien debt might be issued if the District
desired a more flexible Rate Covenant with respect to its new
obligations and did not want to refinance all of its existing debt to
obtain that less restrictive Rate Covenant.
10.0:DERIVATIVES
The District may consider the use of derivative products on a case-by-
case basis,consistent with State statute and financial prudence.The
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
most common derivatives include transactions known as "swaps,"in
which the District,by contract with an investment bank (known as a
"provider"),swaps its fixed rate debt payments for variable rate debt
payments or vice versa,and "forwards,"in which the District enters
into a purchase contract with an underwriter to purchase refunding
bonds at a future date at interest rates locked in today (not at
today's rates,but at rates locked in today).Derivative products
introduce an additional risk factor into a financing,called "third-
party risk."Once a derivative product is entered into,the District
must rely upon the financial stability of the provider to perform
under the contract.Because the nature of derivatives is speculative,
that is,the District is assuming that rates will either go up or down
over the period of the contract and therefore expects to lock in a
financial benefit today based on that assumption,the financial
benefits actually obtained from any derivative contract need to be
monitored periodically to determine if it is in the District's
interest to terminate the contract and what the penalty might be for
early termination.This requires a certain level of vigilance,and
impartial advice in this area is actually difficult to obtain since
the derivative market is not particularly liquid or price-transparent
and is currently made up of a small handful of reputable providers.
There must be an overwhelming demonstrable financial benefit to the
District based on reasonable assumptions concerning future interest
rates in order for the District to use derivative products.
11.0:FINANCING PARTICIPANTS
The District's purchasing guidelines provide the process for securing
professional services related to individual debt issues.The
solicitation and selection process include encouraging participation
from qualified service providers,both local and national,and
securing services at competitive prices.
Financia2 Advisor:The use of a Financial Advisor is necessary for
the sale of debt by a competitive bid process and is desirable when
issuing debt through a negotiated sale.The Financial Advisor has a
fiduciary duty to the District and will seek to structure the
District's debt in the manner that is saleable,yet meets the
District's objectives for the financing.The Financial Advisor will
advise the District on alternative structures for its debt,the cost
of different debt structures and potential pricing mechanisms that can
be expected from underwriters (such as call features,term bonds and
premium and discount bond pricing)and,at the District's direction,
will write the offering document (preliminary official statement).
Page 8 of 22
OTAYWATER DISTRICT
BOARD OF DIRECTORS POLICY
SUbject Policy Date Date
Number Adopted Revised
DEBT POLICY
4S 4/13/04 1/3/07
With respect to competitive sales,the Financial Advisor will arrange
for distributing the preliminary official statement,accepting bids
via the internet,verifying the lowest bid and provide detailed
instructions for the flow of funds at closing to the winning
Underwriter,the Trustee and the District.In a negotiated sale,the
Financial Advisor will provide independent confirmation on the
Underwriter's proposed pricing to ensure that interest rates and
Underwriter's compensation are appropriate for the credit quality of
the issue and competitive in the overall public finance market in
California.
Underwriter:The Underwriter markets the bonds for sale to investors.
While the District's preference is to select the Underwriter for the
debt via sale of the debt at competitive bid,there are circumstances
when a negotiated issue is in the best interests of the District.
Negotiated sales are preferable if the security features are
particularly complex or market conditions are volatile.The Chief
Financial Officer will recommend whether the method of sale is
competitive or negotiated based on the type of issue and other market
conditions.In the case of negotiated sales,the Underwriter will be
required to demonstrate sufficient capitalization and sufficient
experience related to the specific type of debt issuance.
The Underwriter will work in connection with the District's Financial
Advisor on structuring the issue and offering different pricing ideas.
Bond Counse~:The District's Bond Counsel provides the primary legal
documents that detail the security for the bonds and the authority
under which bonds are issued.The Bond Counsel also provides an
opinion to bond holders that the bonds are tax-exempt under both State
and Federal law.All closing documents in connection with an issue
are also prepared by Bond Counsel.
Disc~osure Counse~:The District's Disclosure Counsel provides legal
advice to the District regarding the adequacy of the District's
disclosure of financial information or risks of investing in the
District's debt issue to the investing public.The Disclosure Counsel
can prepare the official statement or review the official statement
and gives the District an opinion that there is no information missing
from the official statement of a material nature that would be
necessary for an investor to make an informed decision about investing
in the District's bonds.
Page 9 of 22
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 113107
Trustee:The Trustee is a financial institution selected by the
District to administer the collection of revenues pledged to repay the
bonds and to distribute those funds to bondholders.
Letter or Credit Bank:The Letter of Credit Bank is a U.S.or foreign
bank that has issued a letter of credit providing both credit
enhancement (the Letter of Credit Bank will pay the debt in the event
that the District defaults on the payment)and liquidity for a
variable rate bond issue.These banks have their own short-term credit
rating,which is generally higher than the District's short-term
credit rating.Liquidity is needed because variable rate bondholders
are allowed to "putH their bonds back to the District if they do not
like the interest rate currently being offered.The District's
Remarketing Agent then finds a new buyer for those bonds,but in the
event that no buyer is found,a draw is made under the letter of
credit to purchase the bonds that have been "put.H As soon as the
bonds are remarketed to another buyer,the letter of credit is repaid.
The letter of credit fees are paid annually.Letter of credits are
typically issued for 5-7 years and must be renewed during the life of
the bonds.Credit enhancement is discussed further under the heading
"CREDIT ENHANCEMENT.H
Municipa2 Bond Insurer:The Municipal Bond Insurer can be one of
several insurance companies that provide municipal bond insurance
policies securing payment of the District's debt.These policies
provide that the Municipal Bond Insurer will pay the District's debt
in the event that the District defaults on its payments.Debt which
is insured carries the Municipal Bond Insurer's credit rating,in most
cases,AAA.The insurance premium for the bond insurance policy is
paid one time at the issuance of the debt and is non-cancelable for
the term of the debt.Unlike a letter of credit,bond insurance
policies do not provide liquidity and are most typically purchased for
fixed rate debt.
Remarketing Agent:The Remarketing Agent is an investment bank that,
each week,determines the interest rate for the District's variable
rate obligations.The rate is set at the rate at which the
obligations could be sold on the open market at 100%of their face
value.The Remarketing Agent also finds new buyers for any of the
obligations that are "putH back to the District.
Rating Agencies:Currently,there are three rating agencies that rate
municipal debt in the United States:Standard &Poor's,Moody's
Investors Service,and Fitch Investors Service.Rating agencies
establish objective criteria under which each type of financing
Page 10 of 22
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4113/04 1/3/07
undertaken by the District is to be analyzed.Upon request,a rating
agency will rate the underlying strength of the District's financings,
without regard to the purchase of any credit enhancement.The rating
is released to the general public and thereafter,the rating agency
will periodically update its analysis of a particular issue,and may
raise or lower the rating if circumstances warrant.Investment~grade
ratings range from "AAA"to "BBB."A rating below "BBB"is not
investment grade.Many mutual funds cannot buy bonds that do not
carry an investment grade.
Verification Agent:In a refunding,the District will deposit funds
with an escrow agent (usually the trustee)in an amount sufficient,
together with earnings thereon,to pay the debt service and redemption
price of the debt being refunded through and including the call date.
The Verification Agent verifies the mathematical accuracy of
calculation of the amount to be deposited in escrow and the bond
counsel relies on this verification in giving their opinion that the
debt is defeased within the meaning of the indenture and that the lien
of the debt on the revenues pledged to the debt being refunded is
released.
12.0:CONFLICT OF INTEREST AND STANDARDS OF CONDUCT
Members of the District,the Board of Directors and its consultants,
service providers and underwriters shall adhere to standards of
conduct and conflict of interest rules as stipulated by the California
Political Reform Act or the Municipal Securities Rulemaking Board
(MSRB),as applicable.All debt financing participants shall maintain
the highest standards of professional conduct at all times,in
accordance with MSRB Rules,including Rule G-37.There shall be no
conflict of interest with the District with any debt financing
participant.
13.0:CONTINUING DISCLOSURE
The District acknowledges the responsibilities of the underwriting
community and pledges to make all reasonable efforts to assist
underwriters in their efforts to comply with SEC Rule l5c2-l2 and MSRB
Rule G-36.The District will file its official statements with the
MSRB and the nationally recognized municipal securities information
repositories.The District will also post copies of its comprehensive
financial reports on the Internet and provide hard copies of these
documents to interested parties upon request,and will disseminate
other information that it deems pertinent to the market in a timely
manner.While initial bond disclosure requirements pertain to
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 113107
underwriters,the District will provide financial information and
notices of material events on an ongoing basis throughout the life of
the issue.Material events are defined as those events which are
considered to likely reflect on the credit supporting the securities.
The events considered material according to the SEC are:
1.Rating changes.
2.Non-payment related defaults.
3.Adverse tax opinions or events affecting the tax exempt status.
4.Unscheduled draws on debt service reserves or credit enhancements
reflecting financial difficulties.
5.Modifications to the rights of securities holders.
6.Defeasance.
7.Bond calls.
8.Release,substitution,or sale of property securing repayment of
the securities.
9.Substitution of credit or liquidity providers,or their failure
to perform.
10.Principal and interest payment delinquencies.
14:0 INVESTMENT &ARBITRAGE COMPLIANCE
Tax-exempt bonds are required to meet certain provisions of the
federal tax code in order to maintain their tax-exempt status.In
order to prevent municipal issuers from borrowing money at tax-exempt
rates solely for the purpose of investing the proceeds in higher
yielding investments and making a profit ("arbitrage"),the federal
tax code contains a provision that requires issuers to compare the
interest earned on any bond funds held (such as a reserve fund)with
interest that would theoretically be earned if the funds were invested
at the yield of the bonds,and to "rebate"to the federal government
any interest earned in excess of the theoretical earnings limit.
The Chief Financial Officer shall invest the bond proceeds subject to
the District's Investment Policy in a timely manner,to ensure the
availability of funds to meet operational requirements.In doing so,
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
the CFO will maintain a system of record keeping and reporting to meet
the arbitrage rebate compliance requirements of the federal tax code.
15.0:TYPES OF DEBT FINANCING
General Obligation Bonds
General obligation bonds are secured by a pledge of the ad-valorem
taxing power of the issuer and are also known as a full faith and
credit obligations.Bonds of this nature must serve a public purpose
to be considered lawful taxation of the property owners within the
District and require a two third's majority vote in a general
election.The benefit of the improvements or assets constructed and
acquired as a result of this type of bond must be generally available
to all property owners.
The District can issue general obligation bonds up to but not in
excess of 15%of the assessed valuation under Article XVI,Section 18
of the State constitution.An annual amount of the levy necessary to
meet debt service requirements is calculated and placed on the tax
roll through the County of San Diego.The District also has a policy
that the ad-valorem tax to be used to pay debt service on general
obligation bonds will not exceed $.10 per $100 of assessed value.
Voters within Improvement District No.27 of the District authorized
$100 million general obligation bonds in 1989.The District issued
$11,500,000 general obligation bonds in 1992 and refinanced the bonds
in 1998.The District also has approximately $29 million in general
obligation bonds authorized between 1960 and 1978 for various
Improvement Districts throughout the District,but unissued.General
obligation bonds can only be issued under these existing
authorizations to the extent necessary to fund the improvements
specified by each ballot measure.
General obligation bonds generally are regarded as the broadest and
soundest security among tax-secured debt instruments.An unlimited-
tax pledge would enable a trustee to invoke mandamus to force the
District to raise the tax rate as much as necessary to payoff the
bonds.General obligation bonds have other credit strengths as well:
the property tax tends to be a,steady and predictable revenue source,
and when a vote is required to issue them,bondholders have some
indication of taxpayers'willingness to pay,General obligation bonds
carry the highest credit rating that a public agency can achieve and
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
therefore,the lowest interest cost.General obligation bonds
typically are issued to finance capital facilities and not for ongoing
operational or maintenance costs.
The District will use an objective analytical approach to determine
whether it can afford to assume new general obligation debt for the
improvement districts,or in the case of projects not approved by the
original 10 27 vote,prior to any submission of a general obligation
bond ballot measure to voters.This process will compare generally
accepted standards of affordability to the current values for the
District.These standards will include debt per capita,debt as a
percent of taxable value,debt service payments as a percent of
current revenues and current expenditures,and the level of
overlapping net debt of all local taxing jurisdictions.The process
will also examine the direct costs and benefits of the proposed
expenditures.The decision on whether or not to assume new debt will
be based on these costs and benefits,the current conditions of the
municipal bond market,and the District's ability to "afford"new debt
as determined by the aforementioned standards.
Revenue Bonds
Revenue bonds are limited-liability obligations that pledge net
revenues of the District to debt service.The net revenue pledge is
after payment of all operating costs.Though revenue bonds are not
generally secured by the full faith and credit of the District,the
financial markets require coverage ratios of the pledged revenue
stream and a covenant to levy rates and charges sufficient to produce
net income at some level in excess of debt service (a Rate Covenant).
Also there may be a test required to demonstrate that future revenues
will be sufficient to maintain debt service coverage levels after any
proposed additional bonds are issued.The District will strive to
meet industry and financial market standards with such ratios.Annual
adjustments to the District's rate structure may be necessary to
maintain these coverage ratios.
The underlying credit of revenue bonds is judged on the ability of the
District's existing rates to provide sufficient net income to pay debt
service and the perceived willingness of the District to raise rates
and charges in accordance with its Rate Covenant.Actual past
performance also plays a role in evaluating the credit quality of
revenue bonds,as well as the diversity of the customer base.Revenue
bonds generally carry a credit rating one or two investment grades
below a general obligation bond rating.
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
The District may use a debt structure called "Certificates of
Participation"to finance capital facilities.However,if the
certificates contain a pledge of net revenues and a Rate Covenant,
they are treated as essentially the same as a revenue bond.
Lease/Purchase Agreements
Over the lifetime of a lease,the total cost to the District will
generally be higher than purchasing the asset outright.As a result,
the use of lease/purchase agreements in the acquisition of vehicles,
equipment and other capital assets will generally be avoided,
particularly if smaller quantities of the capital asset(s)can be
purchased on a "pay-as-you-go"basis.
The District may utilize lease-purchase agreements to acquire needed
equipment and facilities.Criteria for such agreements should be that
the asset life is three years or more,the minimum value of the
agreement is $50,000 and interest costs must not exceed the interest
rate earned by the District's portfolio for the average of the past 6
months.Lease payments of this type are considered operating expenses
and would reduce net operating income available to pay any District
revenue bonds.There are no coverage requirements or rate covenants
associated with lease/purchase agreements.
State Water Loans
The State Water Resources Control Board makes certain funds available
to water districts throughout the State.These loans typically carry
a below-market rate of interest and are short term in nature.While
State loans should be incorporated into the District's debt portfolio
for the financing of capital improvements,the payment of the loan
should not compromise the District's ability to issue other planned
debt or cause the District to violate its rate covenants or make it
necessary for the District to increase rates to maintain existing rate
covenants.
Land Based Financing
The District may consider developer or property owner initiated
applications requesting the formation of community facilities or
assessment districts and the issuance of bonds to finance eligible
District facilities necessary to serve newly developing commercial,
industrial and/or residential projects.Facilities will be financed
in accordance with the provisions of the Municipal Improvement Act of
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aTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
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1913 and the Improvement Bond Act of 1915,or the Mello-Roos Community
Facilities Act of 1982.
Typically,the bonds issued would be used to prepay,in a lump-sum,
the District's capacity fees with respect to a large tract of land
under development,or to finance in-tract infrastructure that will
eventually be dedicated to the District.The bonds are secured by a
special tax or assessment to be levied on property within the
boundaries established for the community facilities district
(sometimes known as a "Mello-Roos"district)or the assessment
district.If the District becomes the sponsoring public agency for
such financing district and the issuance of debt,the District will be
required to enter into a Funding,Construction and Acquisition
agreement for any of the facilities to be dedicated to the District
upon completion.This agreement governs the type of facilities to be
constructed with bond proceeds and how the facilities will be accepted
by the District.
In some cases,the District may not be asked to be the sponsoring
agency for the formation of a financing district,rather,the
developer or property owner may approach a school district or a city
to be the sponsoring agency.Nonetheless,the property owner may want
to include lump-sum payment of District fees in the financing or
construction of certain facilities to be dedicated to the District
upon completion.In this case,if the District desired to
participate,the District would enter into a Joint Financing Agreement
with the sponsoring agency,again governing the type of facilities to
be constructed with bond proceeds and how the facilities will be
accepted by the District.
On a case-by-case basis,the Board shall make the determination as to
whether a proposed district will proceed under the provisions of the
Assessment Acts or the Mello-Roos Community Facilities Act.The Board
may confer with other consultants and the applicant to learn of any
unique district requirements,such as long-term development phasing,
prior to making any final determination.
All District and District consultant costs incurred in the evaluation
of new development,district applications and the establishment of
districts will be paid by the applicant(s)by advance deposits in
those instances where a party or parties other than the District have
initiated a proposed district.Expenses not legally reimbursable by
the financing district will be borne by the applicant.The District
may incur expenses for analyzing proposed assessment or community
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GTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
facilities districts where the District is the principal proponent of
the formation or financing of the district.
Prior to the issuance of any land secured financing and in accordance
with State law,the Board will adopt policies and procedures with
criteria to be met before any special tax bonds or assessment district
bonds may be issued.These criteria include the qualifications of the
appraiser,the minimum value to lien ratio to be achieved prior to
issuing the land secured debt and the maximum tax to be levied on
different categories of property.
16.0:RATING AGENCY APPLICATIONS
The District may seek a rating on all new issues that are being sold
in the public market.To ensure a fair rating,more than one rating
agency shall be considered to rate the District's issues.These
rating agencies include,but are not limited to,Fitch Investors
Service,Moody's Investors Service,and Standard and Poor's.When
applying for a rating on an issue over $1 million or more,the
District shall make a formal presentation of the finances and positive
developments within the District to the rating agencies.The District
will report all financial information to the rating agencies as they
are published and upon request.This information shall include,but
shall not be limited to,the District's Comprehensive Annual Financial
Report (CAFR),and the Adopted Operating and Capital Budget.
17.0:USE OF CREDIT ENHANCEMENT
Credit enhancement is a generic term that means any third-party
guarantee of debt service.Credit enhancement providers include
municipal bond insurance companies or financial institutions.The
purchase of credit enhancement allows the District's bond issue to
carry the same credit rating as the credit provider.The District will
seek to use credit enhancement when such credit enhancement proves
cost-effective.Selection of credit enhancement providers will be
subject to a competitive bid process using the Dist~ict's purchasing
guidelines.
Fixed Rate Bonds
Credit enhancement for fixed rate bonds is obtained by the purchase of
bond insurance.With few exceptions,bond insurance companies are
rated AAA.If a commitment for bond insurance is obtained for a
particular issue,the District will estimate the annual debt service
for the issue based on current AAA-rated bond interest rates with the
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
cost of issuance including the payment of the bond insurance premium.
If the estimated debt service on this basis is less than or equal to
estimated debt service for the issue based on interest rates for bonds
with the District's underlying or stand-alone credit rating,the
District will purchase the bond insurance.Any intention of the
District to prepay the debt ahead of its scheduled maturity will be
taken into account in the analysis.Credit enhancement may be used to
improve or establish a credit rating on a District debt obligation
even if such credit enhancement is not cost effective if,in the
opinion of the Chief Financial Officer,the use of such credit
enhancement meets the District's debt financing goals and objectives.
Variable Rate Bonds
Credit enhancement for variable rate bonds is comprised of two
components:credit support and liquidity.The interest on variable
rate bonds is based on a 7-day investment rate.Any investor can
tender their bonds back to the District to be repurchased on 7 days'
notice.Because of the short-term nature of the investment,the
securities that the District is "competing"with for investors are
AAA-rated or AA-rated mutual funds.Therefore,variable debt needs to
have credit enhancement to achieve a comparable AAA or AA rating,as
well as liquidity support to provide the District with a mechanism to
purchase any bonds that are tendered before they can be remarketed to
new investors.A limited number of financial institutions offer
letters of credit that combine both credit support and liquidity for
one fee.An alternative is to purchase bond insurance to provide
credit support and enter into a separate purchase agreement with a
financial institution to provide liquidity.The difference in cost
between the two structures will be analyzed before either alternative
is selected for variable rate debt.
18.0:GLOSSARY
Ad Valorem Tax:A tax calculated "according to the value"of
property.Such a tax is based on the assessed valuation of tangible
personal property.In most jurisdictions,the tax is a lien on the
property enforceable by seizure and sale of the property.General
restrictions,such as overall restrictions on rates,or the percent of
charge allowed,sometimes apply.As a result,ad valorem taxes often
function as the balancing element in local budgets.
Advance Refunding:A procedure whereby outstanding bonds are
refinanced by the proceeds of a new bond issue prior to the date on
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
which outstanding bonds become due or are callable.Typically an
advance refunding is performed to take advantage of interest rates
that are significantly lower than those associated with the original
bond issue.At times,however,an advance refunding is performed to
remove restrictive language or debt service reserve requirements
required by the original issue.
Amortization:The planned reduction of a debt obligation according to
a stated maturity or redemption schedule.
Arbitrage:The gain that may be obtained by borrowing funds at a
lower (often tax-exempt)rate and investing the proceeds at higher
(often taxable)rates.The ability to earn arbitrage by issuing tax-
exempt securities has been severely curtailed by the Tax Reform Act of
1986,as amended.
Assessed Valuation:The appraised worth of property as set by a
taxing authority through assessments for purposes of ad valorem
taxation.
Basis Point:One one-hundredth of one percent.
Bond:A security that represents an obligation to pay a specified
amount of money on a specific date in the future,typically with
periodic interest payments.
Bond Counsel:An attorney (or firm of attorneys)retained by the
issuer to give a legal opinion concerning the validity of the
securities.The bond counsel's opinion usually addresses the subject
of tax exemption.Bond counsel may prepare,or review and advise the
issuer regarding authorizing resolutions or ordinances,trust
indentures,official statements,validation proceedings and
litigation.
Bond Insurance:A type of credit enhancement whereby a monocline
insurance company indemnifies an investor against a default by the
issuer.In the event of a failure by the issuer to pay principal and
interest in-full and on-time,investors may call upon the insurance
company to do so.Once assigned,the municipal bond insurance policy
generally is irrevocable.The insurance company receives an up-front
fee,or premium,when the policy is issued.
Call Option:A contract through which the owner is given the right
but is not obligated to purchase the underlying security or commodity
at a fixed price within a limited time frame.
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BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
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Cap:A ceiling on the interest rate that would be paid.
Capital Lease:The acquisition of a capital asset over time rather
than merely paying rent for temporary use.A lease-purchase
agreement,in which provision is made for transfer of ownership of the
property for a nominal price at the scheduled termination of the
lease,is referred to as a capital lease.
Certificate of Participation:A financial instrument representing a
proportionate interest in payments such as lease payments by one party
(such as the District acting as a lessee)to another party (often a
trustee).
ClP:Capital Improvement Program.
Competitive Sale:The sale of securities in which the securities are
awarded to the bidder who offers to purchase the issue at the best
price or lowest cost.
Continuing Disclosure:The requirement by the Securities and Exchange
Commission for most issuers of municipal debt to provide current
financial information to the informational repositories for access by
the general marketplace.
Debt Service:The amount necessary to pay principal and interest
requirements on outstanding bonds for a given year or series of years.
Defeasance:Providing for payment of principal of premium,if any,
and interest on debt through the first call date or scheduled
principal maturity in accordance with the terms and requirements of
the instrument pursuant to which the debt was issued.A legal
defeasance usually involves establishing an irrevocable escrow funded
with only cash and U.S.Government obligations.
Derivative:A financial product that is based upon another product.
Generally,derivatives are risk mitigation tools.
Discount:The difference between a bond's par value and the price for
which it is sold when the latter is less than par.
Financial Advisor:
pertinent to a debt
marketing,pricing,
A consultant who advises an issuer on matters
issue,such as structure,sizing,timing,
terms and bond ratings.
General Obligation Bonds:Debt that
valorem taxing power of the issuer.
credit obligation.
is secured by a pledge of the ad
Also known as a full faith and
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
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Municipal Securities Rulemaking Board (MSRB):The MSRB,comprised of
representatives from investment banking firms,dealer bank
representatives,and public representatives,is entrusted with the
responsibility of writing rules of conduct for the municipal
securities market.
Negotiated Sale:A sale of securities in which the terms of sale are
determined through negotiation between the issuer and the purchaser,
typically an underwriter,without competitive bidding.
Official Statement:A document published by the issuer that discloses
material information on a new issue of municipal securities including
the purposes of the issue,how the securities will be repaid,and the
financial,economic and social characteristics of the issuing
government.Investors may use this information to evaluate the credit
quality of the securities.
Option:A derivative contract.There are two primary types of
options (see Put Option and Call Option).An option is considered a
wasting asset because it has a stipulated life to expiration and may
expire worthless.Hence,the premium could be wasted.
Optional Redemption:The redemption of an obligation prior to its
stated maturity,which can only occur on dates specified in the bond
indenture.
Overlapping Debt:The legal boundaries of local governments often
overlap.In some cases,one unit of government is located entirely
within the boundaries of another.Overlapping debt represents the
proportionate share of debt that must be borne by one unit of
government because another government with overlapping or underlying
taxing authority issued its own bonds.
Par Value:The face value or principal amount of a security.
Pay-as-you-go:To pay for capital improvements from current resources
and fund balances rather than from debt proceeds.
Put Option:A contract that grants to the purchaser the right but not
the obligation to exercise.
Rate Covenant:A covenant between the District and bondholders,under
which the District agrees to maintain a certain level of net income
compared to its debt payments,and covenants to increase rates if net
income is not sufficient to meet such level.
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
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Refunding:A procedure whereby an issuer refinances an outstanding
bond issue by issuing new bonds.
Revenue Bonds:A bond which is payable from a specific source of
revenue and to which the full faith and credit of an issuer with
taxing power is not pledged.Revenue bonds are payable from
identified sources of revenue,and do not permit the bondholders to
compel a jurisdiction to pay debt service from any other source.
Pledged revenues often are derived from the operation of an
enterprise.Generally,no voter approval is required prior to
issuance.
Special Assessments:A charge imposed against property or parcel of
land that receives a special benefit by virtue of some public
improvement that is not,or cannot be enjoyed by the public at large.
Special assessment debt issues are those that finance such
improvements and are repaid by the assessments charged to the
benefiting property owners.
Swap:A customized financial transaction between two or more
counterparties who agree to make periodic payments to one another.
Swaps cover interest rate,equity,commodity and currency products.
They can be simple floating for fixed exchanges or complex hybrid
products with multiple option features.
True Interest Cost (TIC):A method of calculating the overall cost of
a financing that takes into account the time value of money.The TIC
is the rate of interest that will discount all future payments so that
the sum of their present value equals the issue proceeds.
Underwriter:The term used broadly in the municipal market,to refer
to the firm that purchases a securities offering from a governmental
issuer.
Yield Curve:Refers to the graphical or tabular representation of
interest rates across different maturities.The presentation often
starts with the shortest-term rates and extends towards longer
maturities.It reflects the market's views about implied
inflation/deflation,liquidity,economic and financial activity,and
other market forces.
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I ATTACHM-ENT D I
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 ]/3/07
Introduction
The following policies and procedures are enacted in an effort to
standardize the issuance and management of debt by the Otay Water
District.Their primary objective is to establish conditions for the
use of debt,to minimize the District's debt service requirements and
cost of issuance,to retain the highest practical credit rating,
maintain full and complcte financial disclosure and reporting and to
maintain financial flexibility for the District.The policies apply
to all debt issued by the District including general obligation bonds,
revenue bonds,capital leases and special assessment debt.
Regularly updated debt policies and procedures are an important tool
to insure the use of the District's resources to meet its commitments,
to provide the highest quality of service to the District's customers
and to maintain sound financial management practices.These
guidelines are for general use and allow for el[ceptions as
circumstances dictate.
1.0,POLICY
It is the policy of the Otay Water District to finance the acquisition
of high value assets that have an extended useful life through a
combination of current revenues and debt financing.Regularly updated
debt policies and procedures are an important tool to insure the use
of the District's resources to meet its commitments,to provide the
highest quality of service to the District's customers,and to
maintain sound financial management practices.These guidelines are
for general use and allow for exceptions as circumstances dictate.
2.0:SCOPE
This policy is enacted in an effort to standardize the issuance and
management of debt by the Otay Water District.The primary objective
is to establish conditions for the use of debt,to minimize the
District's debt service requirements and cost of issuance,to retain
the highest practical credit rating,maintain full and complete
financial disclosure and reporting,and to maintain financial
flexibility for the District.This policy applies to all debt issued
by the District including general obligation bonds,revenue bonds,
capital leases and special assessment debt.
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3.0:LEGAL ®ULATORY REQUIREMENTS
The Chief Financial Officer (CFO)and the District's Legal Counsel
will coordinate their activities to ensure that all securities are
issued in full compliance with Federal and State law.
Definitions
The following terms are used in this document:
"Advance Refunding"means to provide for the refinaneing of debt prior
to its Optional Redemption date by setting aside funds in trust to pay
debt service on the debt until the Optional Redemption date is reached
and the debt can be paid if full.
"GIP"means Gapital Improvement Program.
"Optional Redemption"means the redemption of an obligation prior to
its stated maturity,~Jhich can only occur on dates speeified in the
bond indenture.
"Pay as you go"means to pay for capital improvements from current
resources and fund balances rather than from debt proceeds.
"Rate Covenant"means a covenant bet\Jeqn the District and bondholders,
under ~Jhich the District agrees to maintain a certain level of net
income compared to its debt payments,and covenants to increase rates
if net income is not sufficient to meet such level.
4.0:CAPITAL FACILITIES FUNDING
Financial Planning
The District maintains a multisix-year financial projection that
identifies operating requirements and public facility and equipment
requirements,and ±has developed~a Financial Plan Rate Model for
funding the District's ~6-Year Capital Improvement Program (CIP).+the
"Financial Plan").The Financial Plan District's CIP Budget places the
capital requirements in order of priority and schedules them for
funding and implementation.It identifies a full range of capital
needs,provides for the ranking of the importance of such needs,and
identifies all the funding sources that are available to cover the
costs of the projects In cases where the Financial Plan program
identifies project funding through the use of debt financing,the
Financial Plan budget should provide information needed to determine
debt capacity.The Financial Plan Rate Model and the CIP Budget giveo
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
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the Board part of the data needed to make informed judgments
concerning the possibility of issuing debt.
Funding Criteria
The Chief Financial Officer (CFO)will evaluate all capital project
requests and develop a proposed funding plan.Priority may be given
to those projects that can be funded with current resources (annual
cash flow,fund balances or reserves).Those projects that cannot be
funded with current resources may be deferred or the Chief Financial
Officer CFO may recommend that they be funded with debt financing.
However,debt financing will not be considered appropriate for any
recurring purpose such as current operating and maintenance
expenditures.The issuance of short-term cash-flow instruments is
excluded from this limitation.
The General Manager will recommend the funding plan to the Board.The
General Manager may deem it necessary or desirable in certain
circumstances to convene a Finance SttBeCommittee meeting of the Board
to evaluate funding options presented by the Chief Financial Officer.
Funding Sources
The District's capital improvements can be classified in three
categories:those related to an expansion of the system
("expansion"),those related to upgrading the existing system
("betterment")and those related to repairing or replacing existing
infrastructure ("replacement").In general,capital improvements for
betterment or replacement are financed primarily through user charges,
availability charges,and betterment charges.Capital improvements
for expansion are financed through capacity fees.and capacity
surcharge fees.Accordingly,these fees are reviewed periodically and
set user charges and capacity fees should be implemented at levels
sufficient to ensure that new development pays its fair share of the
costs of constructing necessary infrastructure.Additionally,the
District will seek State and Federal grants and other forms of
intergovernmental aid wherever possible.
Pay-As-You-Go Projects
The District's capacity fees are the major funding source in financing
additions to the water system and the recycled water system.Over
time,the fees collected and the cost to construct the capital
projects should balance.However,collection of these fees are-is
subject to significant fluctuation based on the rate of new
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OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
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development.Accordingly,the Chief Financial Officer,in developing
the funding plan for the CIP,will determine that current revenues and
adequate fund balances are available so project phasing can be
accomplished.If this is not the case,the Chief Financial Officer
may recommend th.at:
1.The project be deferred until funds are available,or
2.Based on the priority of the project,long-term debt ee-is issued
to finance the project.
Debt Financed Projects
If a project or projects are to be financed with long-term debt,the
District should use the following criteria to evaluate the suitability
of the financing for the particular project or projects
1.The life of the project or asset to be financed is 10 years or
longer and its useful life is expected to exceed the term of the
financing.
2.Revenues available for debt service are deemed to be sufficient
and reliable so that long-term financing can be marketed without
jeopardizing the credit rating of the District.
3 Market conditions present favorable interest rates and demand for
District financing.
4.The project is mandated by State and/or Federal requirements and
current resources are insufficient or unavailable.
5.The project is immediately required to meet or relieve capacity
needs and current resources are insufficient or unavailable.
5.0:DEBT STRUCTURE
General
The District will normally issue debt with a maturity of not more than
30 years.The structure should approximate level debt service for the
term where it is practical or desirable.There will be no debt
structures that include increasing debt service levels in subsequent
years,with the first and second year of a debt payoff schedule the
exception and related to projected additional income to be generated
by the project to be funded.There will be no "balloon"debt
repayment schedules that consist of low annual payments and one large
payment of the balance due at the end of the term.There will always
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be at least interest paid in the first fiscal year after debt issuance
and principal starting no later than the first fiscal year after the
date the facility or equipment is expected to be placed in service.
Capitalized interest will not be for a period of more than necessary
to provide adequate security for the financing.
Limitations on the Issuance of Variable Rate Debt
The District will normally issue debt with a fixed rate of interest.
The District may issue variable rate for the purpose of managing its
interest costs.At the same time,the District should protect itself
from too much exposure to interest rate fluctuations.In determining
that it is in the District's best interest to issue certain debt at
variable rates instead of fixed rates,at the time of issuing any
variable rate debt,there should be at least a 10%estimated reduction
in annual debt costs by issuing variable rate debt when compared to a
similar issuance of fixed rate debt.If the estimated overall cost
savings from issuing variable rate debt is not at least 10%at the
time of issuance,relatively small fluctuations in rates could
actually increase the District's financing costs over the life of the
bonds compared to a similar fixed rate financing.By using this 10%
factor at the time of issuance,the District can be relatively assured
that its variable rate financing will be cost-effective over the term
of the bonds.
The comparison will be based on the following criteria:
1.The interest rate used to estimate interest costs will be the 10
year average for weekly variable rates.
2.The variable rate debt costs will include an estimate for annual
costs such as letter of credit fees,liquidity fees,remarketing
fees,monthly draw fees and annual rating fees applicable to the
letter of credit.
3.Any potential reserve fund earnings will reduce the fixed rate
debt service or variable rate debt service as applicable.
Periodically,using the criteria described above,the Chief Financial
Officer will compare the estimated annual debt service costs to
maturity of any variable rate debt with estimated debt service if the
debt was converted to fixed rates.If this analysis produces a break
even in total payments over the life of the issue,the Chief Financial
Officer will recommend converting such variable rate debt to fixed
rate.
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Variable rate debt should not represent more than 25%of the
District's total debt portfolio.This level of exposure to interest
rate fluctuations is considered to be manageable in an environment of
increasing interest rates.At a higher ratio than this,the District
might be faced with an unplanned water rate increase to meet its Rate
Covenants.Rating agencies use this ratio in their analysis of the
District's overall credit rating.
Further,Rate Covenants applicable to variable rate debt shall not
compromise the issuance of additional debt planned by the District and
variable rate debt should always contain a provision to allow
conversion to a fixed rate at the District's option.
6.0:CREDIT OBJECTIVES
The Otay Water District seeks to maintain the highest possible credit
ratings for all categories of long-term debt that can be achieved
without compromising delivery of basic services and achievement of
District policy objectives.
Factors taken into account in determining the credit rating for a
financing include:
1.Diversity of the District's customer base-j-_
2.Proven track record of completing capital projects on time and
within budgetT-o
3.Strong,professional managementT-o
4.Adequate levels of staffing for services provided-j-o
5 Reserves-j-0 -a-ftEl,
6.Ability to consistently meet or exceed Rate Covenants.
The District recognizes that external economic,natural,or other
events may from time to time affect the creditworthiness of its debt.
Nevertheless,the District is committed to ensuring that actions
within its control are prudent and well planned.
7.0:COMPETITIVE AND NEGOTIATED SALE CRITERIA
Competitive Sale
The District will use a competitive bidding process in the sale of
debt unless the nature of the issue or specific circumstances warrants
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a negotiated sale.The CFO will determine the best bid in a
competitive sale by calculating the true interest cost (TIC)of each
bid.
Negotiated Sale
Types of debt that would typically lend themselves to the negotiated
sale format are variable rate debt and unrated debt.Circumstances
that might warrant a negotiated sale may occur when the issue is of a
limited size that would not attract wide-spread investor interest,
during periods of high levels of issuance by other entities in the
State,or during periods of market volatility.In the event the
District decides to use a negotiated sale,it will pay management fees
only to those firms that place orders for bonds.
If the size of the District's proposed issue is not cost effective,
the District may also consider issuing its debt though the California
Statewide Communities Development Authority,which provides a
mechanism for pooling financings with similar issuers to obtain
economies of scale.
8.0:REFUNDING DEBT
Purpose
Periodic reviews
Chief Financial
opportunities.
of all outstanding debt will be undertaken by
Officer to determine refunding (refinancing)
The purpose of the refinancing may be to:
the
1.Lower annual debt service by taking advantage of lower current
interest rates.
2.Update or revise covenants on outstanding debt issue if a Rate
Covenant appears to be too high,has precluded the District from
implementing its financing plan,or has caused the District to
increase rates to customers.
3.Restructure debt service associated with an issue to facilitate
the issuance of additional debt,usually in order to smooth out
peaks in total debt service,which can occur frequently as one
debt issue is layered on top of existing debt issues.
4.Alter bond characteristics such as call provisions or payment
dates.
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5.Pay for conversion costs such as funding a reserve fund or paying
for credit enhancement when converting variable rate debt to
fixed rate debt.
Restrictions on Refundinga
Tax-exempt bonds typically have provisions that preclude early
redemption of the bonds for a period of years after issuance.The
number of times a tax-exempt bond can be refinanced prior to its
Optional Redemption date (known as Advance Refunding)is limited by
the IRS.For debt issued after 1986,issuers may only provide for
Advance Refunding of obligations in advance of the Optional Redemption
date one time.There is no limit by the IRS on the ability of issuers
to redeem bonds early once the Optional Redemption date has been
reached.
Savings Criteria
In cases where an Advance Refunding is intended to provide debt
service savings,the District may commence the refinancing process if
a minimum five percent (5%)present value savings net of issuance
costs and any cash contributions can be demonstrated.Since interest
rates may fluctuate between the time when a refinancing is authorized
and when the debt is issued,beginning the process with at least a 5%
savings should provide the District with some level of protection that
it can achieve a minimum of three percent (3%)net present value
savings of the refunding bonds when and if the debt is issued.These
minimum standards are intended to protect the District staff from
spending time on refinancings that become marginally cost-effective
after the entire issuance process is complete.
The savings target may be waived,however,if sufficient justification
for ,lowering the savings target can be provided by meeting one or more
of the other refunding objectives described above.
9.0:SUBORDINATE LIEN DEBT
The District will issue subordinate lien debt only if it is
financially beneficial to the District or consistent with
creditworthiness objectives.Subordinate lien debt is structured to be
payable second in priority to the District's other outstanding debt.
Typically,subordinate lien debt might be issued if the District
desired a more flexible Rate Covenant with respect to its new
obligations and did not want to refinance all of its existing debt to
obtain that less restrictive Rate Covenant
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10 0:DERIVATIVES
The District may consider the use of derivative products on a case-by-
case basis,consistent with State statute and financial prudence.The
most common derivatives include transactions known as "swaps,"in
which the District,by contract with an investment bank (known as a
"provider"),swaps its fixed rate debt payments for variable rate debt
payments or vice versa,and "forwards,"in which the District enters
into a purchase contract with an underwriter to purchase refunding
bonds at a future date at interest rates locked in today (not at
today's rates,but at rates locked in today)-Derivative products
introduce an additional risk factor into a financing,called "third-
party risk."Once a derivative product is entered into,the District
must rely upon the financial stability of the provider to perform
under the contract.Because the nature of derivatives is speculative,
that is,the District is assuming that rates will either go up or down
over the period of the contract and therefore expects to lock in a
financial benefit today based on that assumption,the financial
benefits actually obtained from any derivative contract need to be
monitored periodically to determine if it is in the District's
interest to terminate the contract and what the penalty might be for
early termination.This requires a certain level of vigilance,and
impartial advice in this area is actually difficult to obtain,since
the derivative market is not particularly liquid or price-transparent
and is currently made up of a small handful of reputable providers.
There must be an overwhelming demonstrable financial benefit to the
District based on reasonable assumptions concerning future interest
rates in order for the District to use derivative products.
11.0:FINANCING PARTICIPANTS
The District's purchasing guidelines provide the process for securing
professional services related to individual debt issues.The
solicitation and selection process include encouraging participation
from qualified service providers,both local and national,and
securing services at competitive prices.
Financial Advisor.:The use of a Financial Advisor is necessary for
the sale of debt by a competitive bid process and is desirable when
issuing debt through a negotiated sale.The Financial Advisor has a
fiduciary duty to the District and will seek to structure the
District's debt in the manner that is saleable,yet meets the
District's objectives for the financing.The Financial Advisor will
advise the District on alternative structures for its debt,the cost
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of different debt structures and potential pricing mechanisms that can
be expected from underwriters (such as call features,term bonds and
premium and discount bond pricing)and,at the District's direction,
will write the offering document (preliminary official statement).
With respect to competitive sales,the Financial Advisor will arrange
for distributing the preliminary official statement,accepting bids
via the internet,verifying the lowest bid and provide detailed
instructions for the flow of funds at closing to the winning
Underwriter,the Trustee and the District.In a negotiated sale,the
Financial Advisor will provide independent confirmation on the
Underwriter's proposed pricing to ensure that interest rates and
Underwriter's compensation are appropriate for the credit quality of
the issue and competitive in the overall public finance market in
California.
Underwriter~:The Underwriter markets the bonds for sale to
investors.While the District's preference is to select the
Underwriter for the debt via sale of the debt at competitive bid,
there are circumstances when a negotiated issue is in the best
interests of the District.Negotiated sales are preferable if the
security features are particularly complex or market conditions are
volatile.The Chief Financial Officer will recommend whether the
method of sale is competitive or negotiated based on the type of issue
and other market conditions.In the case of negotiated sales,the
Underwriter will be required to demonstrate sufficient capitalization
and sufficient experience related to the specific type of debt
issuance.
The Underwriter will work in connection with the District's Financial
Advisor on structuring the issue and offering different pricing ideas.
Bond Counse~~:The District's Bond Counsel provides the primary legal
documents that detail the security for the bonds and the authority
under which bonds are issued.The Bond Counsel also provides an
opinion to bond holders that the bonds are tax-exempt under both State
and ~Federal law.All closing documents in connection with an issue
are also prepared by Bond Counsel.
Disc~osure Counse~~:The District's Disclosure Counsel provides legal
advice to the District regarding the adequacy of the District's
disclosure of financial information or risks of investing in the
District's debt issue to the investing public.The Disclosure Counsel
can prepare the official statement or review the official statement
and gives the District an opinion that there is no information missing
from the official statement of a material nature that would be
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necessary for an investor to make an informed decision about investing
in the District's bonds.
Truste~:The Trustee is a financial institution selected by the
District to administer the collection of revenues pledged to repay the
bonds and to distribute those funds to bondholders.
Letter or Credit Bank~:The Letter of Credit Bank is a U.S.aR6-or
foreign bank that has issued a letter of credit providing both credit
enhancement (the Letter of Credit Bank will pay the debt in the event
that the District defaults on the payment)and liquidity for a
variable rate bond issue.These banks have their own short-term credit
rating,which is generally higher than the District's short-term
credit rating.Liquidity is needed because variable rate bondholders
are allowed to "put"their bonds back to the District if they do not
like the interest rate currently being offered.The District's
Remarketing Agent then finds a new buyer for t00se bonds,but in the
event that no buyer is found,a draw is made under the letter of
credit to purchase the bonds that have been "put."As soon as the
bonds are remarketed to another buyer,the letter of credit is repaid.
The letter of credit fees are paid annually.Letter of credits are
typically issued for 5-7 years and must be renewed during the life of
the bonds.Credit enhancement is discussed further under the heading
"CREDIT ENHANCEMENT."
MUnicipal Bond Insurer~:The Municipal Bond Insurer can be one of
several insurance companies that provide municipal bond insurance
policies securing payment of the District's debt.These policies
provide that the Municipal Bond Insurer will pay the District's debt
in the event that the District defaults on its payments.Debt which
is insured carries the Municipal Bond Insurer's credit rating,in most
cases,AAA.The insurance premium for the bond insurance policy is
paid one time at the issuance of the debt a~d is non-cancelable for
the term of the debt.Unlike a letter of credit,bond insurance
policies do not provide liquidity and are most typically purchased for
fixed rate debt.
Remarketing Agent~:The Remarketing Agent is an investment bank that,
each week,determines the interest rate for the District's variable
rate obligations.The rate is set at the rate at which the
obligations could be sold on the open market at 100%of their face
value.The Remarketing Agent also finds new buyers for any of the
obligations that are "put"back to the District.
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Rating Agencies~:Currently,there are three rating agencies that
rate municipal debt in the United States:Standard &Poor's,Moody's
Investors Service,and Fitch Investors Service Rating agencies
establish objective criteria under which each type of financing
undertaken by the District is to be analyzed.Upon request,a rating
agency will rate the underlying strength of the District's financings,
without regard to the purchase of any credit enhancement.The rating
is released to the general public and thereafter,the rating agency
will periodically update its analysis of a particular issue,and may
raise or lower the rating if circumstances warrant.Investment-grade
ratings range from "AAA"to "BBB."A rating below "BBB"is not
investment grade.Many mutual funds cannot buy bonds that do not
carry an investment grade.
Verification Agent.:In a refunding,the District will deposit funds
with an escrow agent (usually the trustee)in an amount sufficient,
together with earnings thereon,to pay the debt service and redemption
price of the debt being refunded through and including the call date.
The Verification Agent verifies the mathematical accuracy of
calculation of the amount to be deposited in escrow and the bond
counsel relies on this verification in giving their opinion that the
debt is defeased within the meaning of the indenture and that the lien
of the debt on the revenues pledged to the debt being refunded is
released.
12 O.CONFLICT OF INTEREST AND STANDARDS OF CONDUCT
Members of the District,the Board of Directors and its consultants,
service providers and underwriters shall adhere to standards of
conduct and conflict of interest rules as stipulated by the California
Political Reform Act or the Municipal Securities Rulemaking Board
(MSRB),as applicable.All debt financing participants shall maintain
the highest standards of professional conduct at all times,in
accordance with MSRB Rules,including Rule G-37.There shall be no
conflict of interest with the District with any debt financing
participant.
13.0:CONTINUING DISCLOSURE
The District acknowledges the responsibilities of the underwriting
community and pledges to make all reasonable efforts to assist
underwriters in their efforts to comply with SEC Rule 15c2-12 and MSRB
Rule G-36.The District will file its official statements with the
MSRB and the nationally recognized municipal securities information
repositories.The District will also provide a copy post copies of
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its comprehensive financial reports on the Internet and provide hard
copies of these documents to interested parties upon request,and will
disseminate other information that it deems pertinent to the market in
a timely manner While initial bond disclosure requirements pertain to
underwriters,the District will provide financial information and
notices of material events on an ongoing basis throughout the life of
the issue.Material events are defined as those events which are
considered to likely reflect on the credit supporting the securities.
The events considered material according to the SEC are:
1.Rating changes.
2.Non-payment related defaults.
3 Adverse tax opinions or events affecting the tax exempt status.
4.Unscheduled draws on debt service reserves or credit enhancements
reflecting financial difficulties.
5.Modifications to the rights of securities holders.
6.Defeasance.
7.Bond calls.
8.Release,substitution,or sale of property securing repayment of
the securities
9.Substitution of credit or liquidity providers,or their failure
to perform.
10.Principal and interest payment delinquencies.
14:0 INVESTMENT &ARBITRAGE COMPLIANCE
Tax-exempt bonds are required to meet certain provisions of the
federal tax code in order to maintain their tax-exempt status.In
order to prevent municipal issuers from borrowing money at tax-exempt
rates solely for the purpose of investing the proceeds in higher
yielding investments and making a profit ("arbitrageH ),the federal
tax code contains a provision that requires issuers to compare the
interest earned on any bond funds held (such as a reserve fund)with
interest that would theoretically be earned if the funds were invested
at the yield of the bonds,and to "rebateH to the federal government
any interest earned in excess of the theoretical earnings limit.
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The Chief Financial Officer shall invest the bond proceeds subject to
the District's Investment Policy in a timely manner,to ensure the
availability of funds to meet operational requirements.In doing so,
~the Chief Financial Officer CFO will maintain a system of record
keeping and reporting to meet the arbitrage rebate compliance
requirements of the federal tax code.
15.0:TYPES OF DEBT FINANCING
General Obligation Bonds
General obligation bonds are secured by a pledge of the ad-valorem
taxing power of the issuer and are also known as a full faith and
credit obligations.Bonds of this nature must serve a public purpose
to be considered lawful taxation of the property owners within the
District and require a two third's majority vote in a general
election.The benefit of the improvements or assets constructed and
acquired as a result of this type of bond must be generally available
to all property owners.
The District can issue general obligation bonds up to but not in
excess of 15%of the assessed valuation under Article XVI,Section 18
of the sState constitution.An annual amount of the levy necessary to
meet debt service requirements is calculated and placed on the tax
roll through the County of San Diego.The District also has a policy
that the ad-valorem tax to be used to pay debt service on general
obligation bonds will not exceed $.10 per $100 of assessed value.
Voters within Improvement District No.27 of the District authorized
$100 million general obligation bonds in 1989.The District issued
$11,500,000 general obligation bonds in 1992 and refinanced the bonds
in 1998.The District also has approximately $29 million in general
obligation bonds authorized between 1960 and 1978 for various
Improvement Districts throughout the District,but unissued.General
obligation bonds can only be issued under these existing
authorizations to the extent necessary to fund the improvements
specified by each ballot measure.
General obligation bonds generally are regarded as the broadest and
soundest security among tax-secured debt instruments.An unlimited-
tax pledge would enable a trustee to invoke mandamus to force the
District to raise the tax rate as much as necessary to payoff the
bonds.General obligation bonds have other credit strengths as well:
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the property tax tends to be a steady and predictable revenue source,
and when a vote is required to issue them,bondholders have some
indication of taxpayers'willingness to pay.General obligation bonds
carry the highest credit rating that a public agency can achieve and
therefore,the lowest interest cost.General obligation bonds
typically are issued to finance capital facilities and not for ongoing
operational or maintenance costs.
The District will use an objective analytical approach to determine
whether it can afford to assume new general obligation debt for the
improvement districts,or in the case of projects not approved by the
original 10 27 vote,prior to any submission of a general obligation
bond ballot measure to voters.This process will compare generally
accepted standards of affordability to the current values for the
District.These standards will include debt per capita,debt as a
percent of taxable value,debt service payments as a percent of
current revenues and current expenditures,and the level of
overlapping net debt of all local taxing jurisdictions.The process
will also examine the direct costs and benefits of the proposed
expenditures.The decision on whether or not to assume new debt will
be based on these costs and benefits,the current conditions of the
municipal bond market,and the District's ability to "afford"new debt
as determined by the aforementioned standards.
Revenue Bonds
Revenue bonds are limited-liability obligations that pledge net
revenues of the District to debt service.The net revenue pledge is
after payment of all operating costs.Though revenue bonds are not
generally secured by the full faith and credit of the District,the
financial markets require coverage ratios of the pledged revenue
stream and a covenant to levy rates and charges sufficient to produce
net income at some level in excess of debt service (a Rate Covenant).
Also there may be a test required to demonstrate that future revenues
will be sufficient to maintain debt service coverage levels after any
proposed additional bonds are issued.The District will strive to
meet industry and financial market standards with such ratios.Annual
adjustments to the District's rate structure may be necessary to
maintain these coverage ratios.
The underlying credit of revenue bonds is judged on the ability of the
District's existing rates to provide sufficient net income to pay debt
service and the perceived willingness of the District to raise rates
and charges in accordance with its Rate Covenant.Actual past
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performance also plays a role in evaluating the credit quality of
revenue bonds,as well as the diversity of the customer base.Revenue
bonds generally carry a credit rating one or two investment grades
below a general obligation bond rating.
The District may use a debt structure called "Certificates of
Participation"to finance capital facilities.However,if the
certificates of participation contain a pledge of net revenues and a
Rate Covenant,they are treated as essentially the same as a revenue
bond.
Lease/Purchase Agreements
Over the lifetime of a lease,the total cost to the District will
generally be higher than purchasing the asset outright.As a result,
the use of lease/purchase agreements in the acquisition of vehicles,
equipment and other capital assets will generally be avoided,
particularly if smaller quantities of the capital asset(s)can be
purchased on a "pay-as-you-go"basis.
The District may utilize lease-purchase agreements to acquire needed
equipment and facilities.Criteria for such agreements should be that
the asset life is three years or more,the minimum value of the
agreement is $50,000 and interest costs must not exceed the interest
rate earned by the District's portfolio for the average of the past 6
months.Lease payments of this type are considered operating expenses
and would reduce net operating income available to pay any District
revenue bonds.There are no coverage requirements or rate covenants
associated with lease/purchase agreements.
State Water Loans
The State Water Resources Control Board makes certain funds available
to water districts throughout the State.These loans typically carry
a below-market rate of interest and are short term in nature.While
State loans should be incorporated into the District's debt portfolio
for the financing of capital improvements,the payment of the loan
should not compromise the District's ability to issue other planned
debt or cause the District to violate its rate covenants or make it
necessary for the District to increase rates to maintain existing rate
covenants.
Land Based Financing
The District may consider developer or property owner initiated
applications requesting the formation of community facilities or
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assessment districts and the issuance of bonds to finance eligible
District facilities necessary to serve newly developing commercial,
industrial and/or residential projects.Facilities will be financed
in accordance with the provisions of the Municipal Improvement Act of
1913 and the Improvement Bond Act of 1915,or the Mello-Roos Community
Facilities Act of 1982.
Typically,the bonds issued would be used to prepay,in a lump-sum,
the District's capacity fees with respect to a large tract of land
under development,or to finance in-tract infrastructure that will
eventually be dedicated to the District.The bonds are secured by a
special tax or assessment to be levied on property within the
boundaries established for the community facilities district
(sometimes known as a "Mello-Roosu district)or the assessment
district.If the District becomes the sponsoring public agency for
such financing district and the issuance of debt,the District will be
required to enter into a Funding,Construction and Acquisition
agreement for any of the facilities to be dedicated to the District
upon completion.This agreement governs the type of facilities to be
constructed with bond proceeds and how the facilities will be accepted
by the District.
In some cases,the District may not be asked to be the sponsoring
agency for the formation of a financing district,rather,the
developer or property owner may approach a school district or a city
to be the sponsoring agency.Nonetheless,the property owner may want
to include lump-sum payment of District fees in the financing or
construction of certain facilities to be dedicated to the District
upon completion.In this case,if the District desired to
participate,the District would enter into a Joint Financing Agreement
with the sponsoring agency,again governing the type of facilities to
be constructed with bond proceeds and how the facilities will be
accepted by the District.
On a case-by-case basis,the Board shall make the determination as to
whether a proposed district will proceed under the provisions of the
Assessment Acts or the Mello-Roos Community Facilities Act The Board
may confer with other consultants and the applicant to learn of any
unique district requirements,such as long-term development phasing,
prior to making any final determination.
All District and District consultant costs incurred in the evaluation
of new development,district applications and the establishment of
districts will be paid by the applicant(s)by advance deposits in
those instances where a party or parties other than the District have
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initiated a proposed district.Expenses not legally reimbursable by
the financing district will be borne by the applicant.The District
may incur expenses for analyzing proposed assessment or community
facilities districts where the District is the principal proponent of
the formation or financing of the district.
Prior to the issuance of any land secured financing and in accordance
with State law,the Board will adopt policies and procedures with
criteria to be met before any special tax bonds or assessment district
bonds may be issued.These criteria include the qualifications of the
appraiser,the minimum value to lien ratio to be achieved prior to
issuing the land secured debt and the maximum tax to be levied on
different categories of property.
16.0:RATING AGENCY APPLICATIONS
The District may seek a rating on all new issues that are being sold
in the public market.To ensure a fair rating,more than one rating
agency shall be considered to rate the District's issues.These
rating agencies include,but are not limited to,Fitch Investors
Service,Moody's Investors Service,and Standard and Poor's.When
applying for a rating on an issue over $1 million or more,the
District shall make a formal presentation of the finances and positive
developments within the District to the rating agencies.The District
will report all financial information to the rating agencies as they
are published and upon request.This information shall include,but
shall not be limited to,the District's Comprehensive Annual Financial
Report (CAFR),and the Adopted Operating and Capital Budget.
17.0:USE OF CREDIT ENHANCEMENT
Credit enhancement is a generic term that means any third-party
guarantee of debt service.Credit enhancement providers include
municipal bond insurance companies or financial institutions.The
purchase of credit enhancement allows the District's bond issue to
carry the same credit rating as the credit provider.The District will
seek to use credit enhancement when such credit enhancement proves
cost-effective.Selection of credit enhancement providers will be
subject to a competitive bid process using the District's purchasing
guidelines.
Fixed Rate Bonds
Credit enhancement for fixed rate bonds is obtained by the purchase of
bond insurance.With few exceptions,bond insurance companies are
Page 18 of 23~
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 113107
rated AAA.If a commitment for bond insurance is obtained for a
particular issue,the District will estimate the annual debt service
for the issue based on current AAA-rated bond interest rates with the
cost of issuance including the payment of the bond insurance premium.
If the estimated debt service on this basis is less than or equal to
estimated debt service for the issue based on interest rates for bonds
with the District's underlying or stand-alone credit rating,the
District will purchase the bond insurance.Any intention of the
District to prepay the debt ahead of its scheduled maturity will be
taken into account in the analysis.Credit enhancement may be used to
improve or establish a credit rating on a District debt obligation
even if such credit enhancement is not cost effective if,in the
opinion of the Chief Financial Officer,the use of such credit
enhancement meets the District's debt financing goals and objectives
Variable Rate Bonds
Credit enhancement for variable rate bonds is comprised of two
components,_credit support and liquidity.The interest on variable
rate bonds is based on a 7-day investment rate.Any investor can
tender their bonds back to the District to be repurchased on 7 days'
notice.Because of the short-term nature of the investment,the
securities that the District is "competing"with for investors are
AAA-rated or AA-rated mutual funds.Therefore,variable debt needs to
have credit enhancement to achieve a comparable AAA or AA rating,as
well as liquidity support to provide the District with a mechanism to
purchase any bonds that are tendered before they can be remarketed to
new investors.A limited number of financial institutions offer
letters of credit that combine both credit support and liquidity for
one fee.An alternative is to purchase bond insurance to provide
credit support and enter into a separate purchase agreement with a
financial institution to provide liquidity.The difference in cost
between the two structures will be analyzed before either alternative
is selected for variable rate debt.
18.0:GLOSSARY
Ad Valorem Tax:A tax calculated "according to the value"of
property.Such a tax is based on the assessed valuation of tangible
personal property.In most jurisdictions,the tax is a lien on the
property enforceable by seizure and sale of the property.General
restrictions,such as overall restrictions on rates,or the percent of
charge allowed,sometimes apply.As a result,ad valorem taxes often
function as the balancing element in local budgets.
Page 19 of 23ti}
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
Advance Refunding:A procedure whereby outstanding bonds are
refinanced by the proceeds of a new bond issue prior to the date on
which outstanding bonds become due or are callable.Typically an
advance refunding is performed to take advantage of interest rates
that are significantly lower than those associated with the original
bond issue.At times,however,an advance refunding is performed to
remove restrictive language or debt service reserve requirements
required by the original issue.
Amortization:The planned reduction of a debt obligation according to
a stated maturity or redemption schedule.
Arbitrage:The gain that may be obtained by borrowing funds at a
lower (often tax-exempt)rate and investing the proceeds at higher
(often taxable)rates.The ability to earn arbitrage by issuing tax-
exempt securities has been severely curtailed by the Tax Reform Act of
1986,as amended.
Assessed Valuation:The appraised worth of property as set by a
taxing authority through assessments for purposes of ad valorem
taxation
Basis Point One one-hundredth of one percent.
Bond:A security that represents an obligation to pay a specified
amount of money on a specific date in the future,typically with
periodic interest payments.
Bond Counsel-An attorney (or firm of attorneys)retained by the
issuer to give a legal opinion concerning the validity of the
securities p The bond counsel's opinion usually addresses the subject
of tax exemption.Bond counsel may prepare,or review and advise the
issuer regarding authorizing resolutions or ordinances,trust
indentures,official statements,validation proceedings and
litigation.
Bond Insurance:A type of credit enhancement whereby a monocline
insurance company indemnifies an investor against a default by the
issuer.In the event of a failure by the issuer to pay principal and
interest in-full and on-time,investors may call upon the insurance
company to do so.Once assigned,the municipal bond insurance policy
generally is irrevocable.The insurance company receives an up-front
fee,or premium,when the policy is issued.
Page 20 of 23~
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
Call Option:A contract through which the owner is given the right
but is not obligated to purchase the underlying security or commodity
at a fixed price within a limited time frame.
Cap:A ceiling on the interest rate that would be paid.
Capital Lease:The acquisition of a capital asset over time rather
than merely paying rent for temporary use.A lease-purchase
agreement,in which provision is made for transfer of ownership of the
property for a nominal price at the scheduled termination of the
lease,is referred to as a capital lease.
Certificate of Participation:A financial instrument representing a
proportionate interest in payments such as lease payments by one party
(such as the District acting as a lessee)to another party (often a
trustee).
Clp·Capital Improvement Program.
Competitive Sale:The sale of securities in which the securities are
awarded to the bidder who offers to purchase the issue at the best
price or lowest cost.
Continuing Disclosure:The requirement by the Securities and Exchange
Commission for most issuers of municipal debt to provide current
financial information to the informational repositories for access by
the general marketplace.
Debt Service:The amount necessary to pay principal and interest
requirements on outstanding bonds for a given year or series of years.
Defeasance:Providing for payment of principal of premium,if any,
and interest on debt through the first call date or scheduled
principal maturity in accordance with the terms and requirements of
the instrument pursuant to which the debt was issued.A legal
defeasance usually involves establishing an irrevocable escrow funded
with only cash and U.S.Government obligations.
Derivative A financial product that is based upon another product.
Generally,derivatives are risk mitigation tools.
Discount:The difference between a bond's par value and the price for
which it is sold when the latter is less than par
Financial Advisor:
pertinent to a debt
marketing,pricing,
A consultant who advises an issuer on matters
issue,such as structure,sizing,timing,
terms and bond ratings.
Page 21 of 23U
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
General Obligation Bonds:Debt that
valorem taxing power of the issuer.
credit obligation.
is secured by a pledge of the ad
Also known as a full faith and
Municipal Securities Rulemaking Board (MSRB):The MSRB,comprised of
representatives from investment banking firms,dealer bank
representatives,and public representatives,is entrusted with the
responsibility of writing rules of conduct for the municipal
securities market.
Negotiated Sale:A sale of securities in which the terms of sale are
determined through negotiation between the issuer and the purchaser,
typically an underwriter,without competitive bidding.
Official Statement:A document published by the issuer that discloses
material information on a new issue of municipal securities including
the purposes of the issue,how the securities will be repaid,and the
financial,economic and social characteristics of the issuing
government.Investors may use this information to evaluate the credit
quality of the securities.
Option:A derivative contract.There are two primary types of
options (see Put Option and Call Option).An option is considered a
wasting asset because it has a stipulated life to expiration and may
expire worthless.Hence,the premium could be wasted.
Optional Redemption:The redemption of an obligation prior to its
stated maturity,which can only occur on dates specified in the bond
indenture.
Overlapping Debt.The legal boundaries of local governments often
overlap In some cases,one unit of government is located entirely
within the boundaries of another.Overlapping debt represents the
proportionate share of debt that must be borne by one unit of
government because another government with overlapping or underlying
taxing authority issued its own bonds.
Par Value:The face value or principal amount of a security.
Pay-as-you-go:To pay for capital improvements from current resources
and fund balances rather than from debt proceeds.
Put Option:A contract that grants to the purchaser the right but not
the obligation to exercise
Page 22 of 232-J
OTAY WATER DISTRICT
BOARD OF DIRECTORS POLICY
Subject Policy Date Date
Number Adopted Revised
DEBT POLICY
45 4/13/04 1/3/07
Rate Covenant:A covenant between the District and bondholders,under
which the District agrees to maintain a certain level of net income
compared to its debt payments,and covenants to increase rates if net
income is not sufficient to meet such level.
Refunding:A procedure whereby an issuer refinances an outstanding
bond issue by issuing new bonds.
Revenue Bonds:A bond which is payable from a specific source of
revenue and to which the full faith and credit of an issuer with
taxing power is not pledged.Revenue bonds are payable from
identified sources of revenue,and do not permit the bondholders to
compel a jurisdiction to pay debt service from any other source.
Pledged revenues often are derived from the operation of an
enterprise.Generally,no voter approval is required prior to
issuance.
Special Assessments:A charge imposed against property or parcel of
land that receives a special benefit by virtue of some public
improvement that is not,or cannot be enjoyed by the public at large
Special assessment debt issues are those that finance such
improvements and are repaid by the assessments charged to the
benefiting property owners
Swap:A customized financial transaction between two or more
counterparties who agree to make periodic payments to one another.
Swaps cover interest rate,equity,commodity and currency products.
They can be simple floating for fixed exchanges or complex hybrid
products with multiple option features
True Interest Cost (TIC):A method of calculating the overall cost of
a financing that takes into account the time value of money.The TIC
is the rate of interest that will discount all future payments so that
the sum of their present value equals the issue proceeds
Underwriter:The term used broadly in the municipal market,to refer
to the firm that purchases a securities offering from a governmental
issuer.
Yield Curve:Refers to the graphical or tabular representation of
interest rates across different maturities.The presentation often
starts with the shortest-term rates and extends towards longer
maturities.It reflects the market's views about implied
inflation/deflation,liquidity,economic and financial activity,and
other market forces.
Page 23 of 23;!.J
~00
ASSOCIATION OF PUBLIC TREASURERS
UNITED STATES &CANADA
962 Wayne Avenue'Suite 910 •Silver Spring,MD 20910
Telephone:301-495-5560'Fax:301-495-5561
www.aptusc.org
December 11,2006
Joseph R.Beachem
ChiefFinancial Officer
Otay Water District
2554 Sweetwater Springs,Blvd.
Spring Valley,CA 91978-2004
Dear Mr.Beachem:
ATTACHMENT E
The Association ofPublic Treasurers ofthe United States and Canada is pleased to present the Otay Water
District ofCalifornia with the Association's Debt Policy Certification.Members ofthe Association's Debt
Management Committee congratulate your government for its success in developing a comprehensive
written debt policy that meets the criteria set forth by the Association's Debt Management Committee.
Our review ofyour debt policy is limited to the documentation submitted.This Certification recognizes that
the recipient currently has policies in place that are consistent with sound debt issuance and management
practices.However,the existence ofsuch policies does not fully insulate the recipient from changing
economic circumstances,volatile market conditions,or human behavior.The Certification is not a
guarantee that investors in the recipient's debt instruments will receive full and timely payment.
Governments are welcome to submit their debt policies for review on an annual basis.However,the Debt
Management Committee recommends that a certified government submit its debt policy once everythree
years or sooner ifmajor revisions are made to the existing policy.
As the Association's Debt Management Committee Chairman,I will be presenting the Debt Policy
Certification Award to all recipients at the Association's 2007 Annual Conference,August 11-15,
in San Diego,California.Your District will be recognized during the Awards Luncheon at this conference.
As a treasury/financial officer from a government whose debt policy has been certified by the Association,
you are eligible to apply to become a reviewer for the Debt Management Committee.Please contact the
Association's headquarters at (301)495-5560 ifyou are interested.
The Otay Water District is to be commended for this meaningful enhancement ofits financial management
program.
Kent PFA
Chairman,Debt Management Committee
Attachment F
DISTRICT DEBT POLICY
Policy No.45
January 3,2007
------------
POLICY REVIEW GOALS
•To Improve Financial Policies,
Procedures,and Reports
•To Obtain the Highest Practical
Debt Credit Rating
•To Reduce the Cost of Debt
Issuance
INVESTMENT POLICY GUIDELINES
Professional Finance Organizations:
~Government Finance Officers Association
(GFOA)
~Association of Public Treasurers of the
United States &Canada (APT US&C)
~California Municipal Treasurers Association
(CMTA)
~California Society of Municipal Finance
Officers (CSMFO)
INVESTMENT CODE CHANGES
~3.0:Legal and Regulatory Requirements
~4.0:Alternative Funding Sources
~7.0:Competitive &Negotiated Sale Criteria
~13.0:Continuing Disclosure
~14.0:Investment &Arbitrage Compliance
~16.0:Rating Agency Applications
~18.0:Glossary
DEBT POLICY CERTIFICATION
Association of Public Treasurers
of the United States &Canada
.:.Certificate of Excellence
REQUESTED BOARD ACTION
The Finance and Administration
Committee reviewed the updated
Debt Policy (Board of Directors Policy
No.45)and recommends adoption of
Resolution 4092 amending the policy
as presented.
STAFF REPORT
AGENDA ITEM 4
TYPE MEETING:
SUBMITTED BY:
Regular"Board Mee~n~
Joseph R.Beachem~/'
Chief Financial Officer
MEETING DATE:
W.O.lG.F.NO:
January 3,2007
DIV.NO.All
APPROVED BY:
(Chief)
APPROVED BY:
(Asst.GM):
SUBJECT:
Germa~z,Assistant General Manager
Presentation of the Financing Plan (2006 Update)
G~NERAL MANAGER'S RECOMMENDA~ION:
That the Board receive the Financing Plan (2006 Update),an
independent review of the District's plan to finance the pending
infrastructure.
COMMITTEE ACTION:
PURPOSE:
The Financing Plan is a third party review of the District's
financial direction and status.Its primary purpose is to:
1.Update the Board on the preferred means of financing the
District's Capital Improvement Program (CIP).
2.Evaluate the appropriateness of the pending and future debt
issuances.
3.Evaluate increased debt financing due to the higher level
of CIP accomplishment.
4.Insure that the plan maintains the District's financial
strength.
.ANALYSIS:
At the December Board meeting,the Board was presented with an
overview of the Bond Sale Process that included the following:
-Financing participants and the roles of each party
-Estimated costs and selection process of each party
-The tentative timeline of the bond sale
At that same Board meeting,the Board approved the selection of
the Bond Co-Counsels,Bond Disclosure Counsel,and the Trustee.
This completed the financing team needed to prepare for the bond
sale.
The Financial Advisor (FA)plays a key role in the financing
team.In the October Board meeting the Board approved Harrell &
Company as the FA for the pending debt issuance.A part of this
engagement is to prepare an update to the District's Financing
Plan.This plan reviews a number of issues surrounding the
pending and future debt.The "Financing Plan Update"
(Attachment B)details the Financial Advisor's findings.The
findings are largely consistent with prior staff
recommendations.The presentation of this plan is also attached
(Attachment C)for the Board's review.
The following summary points provide the highlights of the
Financing Plan.
ABILITY TO FUND THE CIP -That the District is financially
capable of funding the CIP through a combination of debt
issuances,funding from reserves,grants,and water revenues.
MAINTAINING FINANCIAL STRENGTH -The District can maintain
adequate debt coverage ratios and reserve balances by continued
implementation of rate increases projected in the Rate Model.
FUNDING PREFERENCE -The issuance of $42 million in debt is
financially preferable over the drawing down of reserves.
Drawing down of reserves would put significant pressure on rate
increases limiting the District's short-term financial
flexibility.
CHANGE IN BOND TERM -For the 2007 debt issuance a 30-year term
is recommended instead of 20 years.This reduces the annual
debt payments in the short-term reducing pressure to raise
rates.While this is a change from staff's prior
recommendations,staff supports this change as the debt coverage
ratio rebounds more quickly without a significant decrease in
future flexibility.
MONITOR EXISTING DEBT -In the past,the conversion of the
variable rate COPs to a fixed rate has not been recommended.
Currently,this position has softened somewhat as the two
options are becoming more financially comparable when
considering the risk avoidance provided by a fixed rate.
This third-party review of the plan to finance the District's
CIP validates the planned direction of the District's Rate
Model.The financing team is scheduled to present the financing
document to the Board on February 7,2007,authorizing the bond
sale.
FISCAL IMPACT :~
There is no direc~ancial impact resulting from this document
as it is a planning tool.
STRATEGIC GOAL:
The strategic goal is to accomplish sound financing of
infrastructure.This will help the District meet the overall
strategy to ensure financial health through formalized policies,
prudent investing,and efficient operations.
LEGAL IMPACT:
None.
~~I-_---
Attachments:
A)Committee Action Form
B)Financing Plan (2006 Update)
C)Financing Plan (2006 Update)Presentation
ATTACHMENT A
SUBJECT/PROJECT:Prpqpn-r rition of the Financing Plan (2006 Update)
COMMITTEE ACTION:
The Finance and Administration Committee recommends that the
Board receive the Financing Plan (2006 Update),an independent
review of the District's plan to finance the pending
infrastructure.
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 2006\CommMtgFinancingPlanOl0307.doc
O..T:AY WA.TEIR
D,IS.T'RICIT
ATTACHMENT B
n·'e",:c'·e···m'::ht e···F'·'~O',0::6P
'-__;_.~./,~/...'/._.'..:..."_.'.~.-'~_.'~i'__/'_",!._/
December 21,2006
Otay Water District
2554 Sweetwater Springs Boulevard
Spring Valley,California 91978
EXECUTIVE SUMMARY
The District adopted a Financing Plan in 2004 in anticipation of significant capital investment
needs between 2004 and 2008.The 2004 Financing Plan demonstrated that the District could,
using a combination of net operating income and existing reserves,fund planned capital
projects from these sources through fiscal year 2006.The 2004 Financing Plan concluded that
$27.5 million bond financing would be required in 2007 to timely implement the District's
capital improvement plan,while maintaining sufficient operating and capital reserves.Further,
the 2004 Financing Plan concluded that the implementation of a series of rate increases would
be necessary to provide sufficient income to issue the debt in 2007.These rate increases were
estimated using the District's Rate Model program.The projected rate increases have been
implemented.
The purpose of this Financing Plan Update ("Update")is to again summarize the funding of
the capital improvement program from among available resources,with a time horizon of the
six year period from fiscal year 2007 through 2012.This is consistent with the District's
current 2007-2012 Capital Improvement Program (CIP)Budget.The District's CIP is
somewhat accelerated from the projected CIP in 2004.Many of the projects are regional in
nature and ahead of schedule,putting additional short-term demands on District cashflow.As
a result,the debt financing recommended in 2007 included in this Update has increased to $42
million.The increased fmancing is recommended in lieu of drawing down the District
reserves.
This Update will demonstrate that,after meeting the debt service requirements for current and
anticipated long-term debt,sufficient cashflow remains to pay for pay-as-you-go CIP,ongoing
operations and to maintain the targeted reserve levels specified in the District's Reserve Policy
adopted in March 2006.The Reserve Policy outlines best-practices reserve levels for
operations and maintenance and the District's expansion,betterment and replacement capital
project funds.
Specifically,the goals ofthis Update are:
•Fund the District's immediate capital financing needs,as well the overall Six-Year
Capital Improvement Program for each ofWater System,Recycled Water System
and Sewer System:
Expansion
Betterment
Replacement
$162,674,000
26,605,000
29,859,000
$219,138,000
Page 1
This Update provides for funding ofcapital improvements at 100%of the estimated
budget for 2007 and 2008,and 80%thereafter.
•Provide for the required debt service on outstanding and anticipated debt payable
from Net Operating Revenues of the Water and Recycled Water Systems and
analyze the impact of rate increases projected in the Rate Model on the District's
ability to continue to meet its rate covenants.
•Provide $26 million in the Replacement Reserve,$1.8 million in the Betterment
Reserve and $10 million in the Expansion Reserve required by the District's
Reserve Policy by the end ofthe six year period.
ill Maintain an operating cash reserve equal to 90 days of expenses for each of the
three operational components required by the District's Reserve Policy.
•Analyze the economics of converting the District's existing variable rate 1996
Certificates of Participation to a fixed rate of interest in accordance with the
District's Debt Policy (adopted in 2004 and updated in September 2006).
Recommendation
Debt Financing.This Update recommends the District issue approximately $42 million in
fixed rate debt to be used toward the District's overall CIP Budget in the next 24 months.
Further series of debt issuance are recommended in 2009 ($20.2 million)and 2011 ($12.1
million).
The proposed term of the 2007 debt is 30 years.Future debt is expected to have a term of 20
years.This Update recommends a longer term for this first series ofdebt in order to allow the
District flexibility to meet certain coverage ratios in anticipation of the debt to be issued over
the next four years.The term for subsequent issues can be shortened or lengthened depending
on the actual versus projected results of operations going forward.A conversion of the 1996
Certificates of Participation to a fixed rate is not recommended at this time,however,
monitoring of the economics ofconversion should continue on a regular basis.
Reserves.This Update recommends that the District target the reserve levels outlined in its
Reserve Policy rather than draw down reserves to finance a greater portion of the CIP Budget
at this time.Since Reserves would typically be replenished over a shorter time frame than the
20 to 30 years of debt repayment,significant additional rate increases would be needed over
and above those contained in the Rate Model to accomplish this by the end ofthe six year CIP
Program currently being funded.Further,ifrates were increased to replenish the Reserves,and
the District had some unforeseen expenditures,additional rate increases to pay for such costs
could drive rate increases (as a percentage)extremely high.Financing the additional CIP costs
through debt provides some future rate setting flexibility.
Rate Increases.This Update is based on the rate increases calculated in the District's Rate
Model.The Rate Model was recently updated to reflect the actual results ofthe first quarter of
2006/07 and the best estimate ofCIP expenditures for the next 24 months.As was the case in
2004,continued implementation of these rate increases is crucial to the District's ability to
Page 2
fund the ClP over the next six years without compromising its reserve levels.The first planned
5.4%rate increase is scheduled for public hearing on January 3,2007.The recommended rate
increases are 5.4%for the next two years,followed by 5.1%for three years,and 3.9%
thereafter.
PURPOSE OF THE FINANCING PLAN UPDATE
This Update summarizes the timing and method of funding capital improvements over the next
five years based on the current ClP and the current Rate Model.The ClP is separated into
improvement categories -Expansion,Betterment and Replacement.Each improvement
category contains the combined ClP for each operational area -Water,Recycled Water,and (if
applicable)Sewer.Each category of improvements is designed to be funded with operational
net cashflow,bond proceeds,transfers within operational areas,other capital related charges or
a combination ofthese sources.
PROPOSED FUNDING SOURCES
The proposed funding for each improvement category is shown below.Transfers from the
operating funds are discussed later in the Update.The ending balance shown at the end ofthe
six year period is not less than the minimum requirements ofthe Reserve Policy.
Page 3
Expansion CIP
.._.2007 .."nno .')ClClO'-2010··'--.-.""...;;;~4_.
Beginning Fund Balance $2,398.0 $18,112.0 $10,433.6 $20,870.0 $16,462.0 $5,972.0
Capacity Fees &
Surcharges 7,331.4 8,173.8 11,922.0 10,694.5 10,873.5 20,083.7
Grants 4,240.0 1,616.0 3,592.0 3,592.0 2,080.0 1,520.0
General Fund Transfers 4,350.0 6,900.0 4,550.0 6,450.0 8,450.0
Temporary Meter
Revenues 799.8 803.8 811.8 819.9 828.1 836.4
Interest 407.1 708.4 821.1 1,012.5 646.3 486.1
Betterment Fund
Transfers 320.9 619.4 511.0 610.1 331.6 257.4
Bond Financing 30,550.0 12,950.0 8.150.0
Total Annual Sources 43,649.2 16,271.4 37,507.9 21,279.0 29,359.5 31,633.6
Expansion Projectsl/)24,066.3 19,300.9 21,334.0 19,885.4 33,343.1 20,869.6
Debt Service (2)2,868.7 3,643.7 4,722.2 4,776.1 5,470.7 5,474.4
Developer Services 1,000.2 1,005.2 1,015.3 1,025.5 1,035.8 1,046.2
Total Uses 27,935.2 23,949.8 27,071.5 25,687.0 39,849.6 27,390.2
Ending FundBalance $18.112.0 $10.433.6 $20.870.0 $16.462.0 $5~972.0$10.215.3
(1)Beginning in 2009,the District expects that 80%ofthe projected CIP costs will be expended in thefiscal
year budgeted.
(2)Debt Service is secured by Net Operating Income,Property Taxes and Capacity Fees.
Grants from the Bureau of Reclamation represent a significant source of funding for the
Expansion CIP relating to the Recycled System.The District will need to monitor the grant
program closely in order to achieve the funding plan for this system component.
Page 4
Betterment CIP
Beginning Fund Balance $(3,414.2)$5,444.0 $4,243.3 $3,686.8 $1,824.9 $2,483.7
Availability 546.3 561.5 584.4 605.3 625.4 652.7
Betterment Charges 948.9 1,017.2 1,054.3 1,092.9 1,132.9 1,174.2
General Fund Transfers 2,650.0 6,539.0 (1,295.2)2,117.0 1,543.0 1,187.0
Interest 39.8 236.3 204.7 147.5 121.5 125.5
Bond Financing 8,500.0 6,800.0
Total Annual Sources 12,685.0 8,354.0 7,348.1 3,962.7 3,422.8 3,139.4
Betterment Projects 2,905.9 8,029.6 5,769.8 3,757.2 948.5 2,073.2
Exp/Rep Projects 356.3 704.8 536.9 674.1 422.9 334.5
Debt Service (2)564.6 820.3 1,597.9 1,393.3 1,392.5 1,392.3
Total Uses 3,826.8 9,554.7 7,904.6 5,824.6 2,763.9 3,800.0
(1)Beginning in 2009,the District expects that 80%ofthe projected CIP costs will be expended in the fiscal
year budgeted.
(2)Debt Service is secured by Net Operating Income andProperty Taxes.
Replacement CIP
jU$Xb.9t1S3UdS
Beginning Fund Balance $22,249.9 $28,037.2 $26,220.8 $25,980.6 $25,804.8 $29,939.3
General Fund Transfers 9,850.0 2,740.0 1,370.0 1,470.0 1,570.0 1,600.0
Interest 986.0 1,323.3 1,347.6 1,385.9 1,571.0 1,637.6
Betterment Fund
Transfers 35.4 85.4 25.9 64.0 91.3 77.1
Bond Financing 2,950.0 450.0 3,900.0
Total Annual Sources 13,821.4 4,148.7 3,193.5 2,919.9 7,132.3 3,314.7
Replacement Projects 7,561.6 5,405.5 2,833.8 2,483.0 2,185.2 6,018.0
Debt Service(2)472.5 559.6 599.9 612.7 812.6 948.9
Total Uses 8,034.1 5,965.1 3,433.7 3,095.7 2,997.8 6,966.9
(I)Beginning in 2009,the District expects that 80%ofthe projected CIP costs will be expended in thefiscal
year budgeted.
(2)Debt Service is secured by Net Operating Income andProperty Taxes.
Page 5
FINANCING THE CIP
The primary sources of funding the CIP are net operating revenues,capacity fees,betterment
fees and spending down certain replacement reserves.The first two sources provide security
for the District's bonded debt,as well as providing direct cashflow to the capital funds.
Bonding capacity is achieved by capitalizing the cashflow from the Water and Recycled Water
Systems over a period of time,in the case of the 2007 debt,30 years,which provides the
funding that the District needs to complete the proposed CIP in conjunction with the other
sources of funds.The Sewer System operations are not included in the pledge to debt
financing.
The charts in "Proposed Funding Sources"above show that the District will need to issue debt
in 2007 to fund approximately $42,000,000 (including issuance costs)in capital projects,
allocated as follows:
•$30,550,000 in Expansion Projects
•$17,500,000 in Betterment Projects
•$2,950,000 in Replacement Projects
Additional financing projected in 2009 would provide a total of $20,200,000 for the CIP and
financing projected in 2011 would provide a total of $12,050,000 for the CIP.The
combination of the three financings fund $74,500,000 of the total anticipated $219,000,000
CIP budget,or 34%oftotal expected costs.
General Financing Considerations
To determine the optimum debt issuance for the District,several factors are analyzed.The
type of debt issued the District may vary depending on circumstances and the following
factors.
•Rate Covenants
Legal provisions contained in the bond indenture make clear the District's
responsibilities and the bondholder's recourse in the event of the District's non-
compliance.Legal provisions generally refer to the District's "rate covenant."A
rate covenant is the District's pledge to bondholders that it will increase service
charges sufficient to provide an adequate "coverage ratio"for the debt service.In
most cases,this will result in the District pledging to generate net income of at least
120%of debt service through a combination of operations and other pledged
revenue such as capacity fees,and often may require the District to demonstrate a
higher actual ratio,125%when issuing additional debt.
The rate covenant is analyzed in conjunction with an assessment the District's
customer base,rate competitiveness,operational flexibility,management,financial
strength and regulatory pressures.When these assessments indicate that the
District's expected ongoing performance will be well in excess of the minimum
Page 6
levels guaranteed by the rate covenant,the degree of strength granted by the rate
covenant becomes much less relevant to the District's credit rating.In contrast,
when future performance is expected to be closer to levels guaranteed by the rate
covenant,the rate covenant itself becomes important to the assumptions of
continued stability at that level.In such cases,the rate covenant can play an
important role in the rating.
Based on the current Rate Model projections of revenues,operating expenses and
capacity and annexation fees ("Pledged Net Revenues"),Pledged Net Revenues
available for debt service are expected to exceed 3 times the debt service obligation.
However,in the short term,debt service will not be completely covered in full
using only pledged operating income (this excludes non-operating income and one-
time sources such as capacity fees).This can be expected to playa role in
determining the District's credit rating,since future rate increases are needed to
replace the ultimate loss over time of one-time capacity fee revenues.Continuing
to increase rates will be crucial to maintaining the rate covenants in the future as the
one-time revenues decline over time.This is detailed in the section "Rate
Covenant"below.
•Maturity
The District has two outstanding issues payable from the Pledged Net Revenues.
The 2004 COPs mature in 2023 and the 1996 COPs mature in 2026.Both of these
issues have approximately level debt service each year.When the two issues are
combined,the combined debt service is approximately equal for all years until 2023
and then drops offin 2024 after the final maturity ofthe 2004 COPs.The District's
objective for structuring future debt should be to maintain approximately level debt
service on an aggregate basis as much as possible,while still amortizing a sufficient
amount of the principal of the new debt.This provides the District with level
expenditures and more stability in the rate setting.
..Interest Rate Risk
Variable rate debt still may look attractive in the current interest rate environment.
An objective analysis should be made using reasonable assumptions as to future
interest rates and the other costs associated with variable rate debt --discussed
below under "Credit Risk"-when analyzing whether or not to issue variable rate
debt.The District's Debt Policy requires a comparison of debt service based on
variable rates with a comparable fixed rate issue and a minimum 10%estimated
reduction in the anticipated costs offinancing before deciding to issue variable rate
debt.This criteria is intended to offset future interest rate risk by making sure there
are enough debt service savings in the early years to minimize rises in future
interest rates.
Page 7
•Credit Risk
Variable rate bonds require both credit support and a liquidity facility.The interest
on variable rate bonds is based on a 7-day investment rate for the reason that any
investor can tender their bonds back to the District to be repurchased on 7 days'
notice.Because of the short-term nature of the investment,the securities that the
District is "competing"with for investors are AAA-rated or AA-rated mutual funds.
Therefore,variable debt needs to have credit enhancement to achieve a comparable
AAA or AA rating,as well as liquidity support to provide the District with a
mechanism to purchase any bonds that are tendered before they can be remarketed
to new investors.
Typically credit support and liquidity can be obtained in one instrument - a letter of
credit.Letters of credit normally expire in five years and must be renewed several
times throughout the term of the debt.This exposes the District to three different
risks.First,the bank's own credit rating can be downgraded,and correspondingly,
the District's bond rating will be lowered.This generally will increase the interest
rate associated with a variable rate issue.Second,at the time ofrenewal,the letter
ofcredit bank can renegotiate its fees.This exposes the District to the possibility of
increased annual credit fees.In either of these situations,the District has the option
of changing banks.However,there are a limited number of banks in this market,
and the District may not be able to find a replacement letter ofcredit at the same fee
it was charged in the past.Therefore,so-called "credit risk"is an important
component ofany analysis offixed versus variable rate debt.The annual credit fees
for the District's 1996 Variable Rate Certificates of Participation increased from
.25%to .30%ofthe outstanding debt at the first renewal,to .40%ofthe outstanding
debt at the second renewal and to .50%of the outstanding debt at the third renewal.
•Sale Method
The Debt Policy states that the District will use a competitive bidding process in the
sale of debt unless the nature of the issue or specific circumstances warrants a
negotiated sale.Types of debt that would typically lend themselves to the
negotiated sale format are variable rate debt and unrated debt.Circumstances that
might warrant a negotiated sale may occur when the issue is of a limited size that
would not attract wide-spread investor interest,during periods of high levels of
issuance by other entities in the State or during periods ofmarket volatility.None
of the factors that would warrant a negotiated sale are present for the purpose of this
Update,and the recommendation is to sell the debt outlined in this Update on a
competitive basis.
Page 8
Existing Debt
The District currently has three outstanding debt issues.The terms of the issues are
summarized in the table below.The Rate Covenant applicable to the 1996 COPs and the 2004
COPs must be complied with before issuing any additional debt secured by the Pledged Net
Revenues.The Rate Covenant is detailed in the section "Rate Covenant"below.
August 4.10%2023 9/1/14 District-wide
2004 Net Income
1996 Variable Rate June Variable -2026 Any Date District-wide
Demand Certificates 1996 Currently 3.38%Net Income
ofParticipation
General Obligation June 4.8%2022 9/1/2008 ID 27 Ad
Refunding Bonds,1998 Valorem
Series 1998 Taxes
The District has also entered into a loan with the State Water Board.The loan matures in 2010
and bears interest at 3.5%.
Voters within Improvement District No.27 of the District authorized $100 million general
obligation bonds in 1989.The District issued $11,500,000 general obligation bonds in 1992
and refinanced the bonds in 1998.The District also has approximately $29 million in general
obligation bonds authorized between 1960 and 1978 for various Improvement Districts
throughout the District,but unissued.General obligation bonds can only be issued under these
existing authorizations to the extent necessary to fund the improvements specified by each
ballot measure.
The General Obligation Bonds are secured by ad valorem taxes levied in ID 27.These taxes
are only available to pay the General Obligation Bonds and not for any other operational
purpose.As such,the taxes and debt service on these bonds have been excluded from Rate
Covenant.It is also not proposed that the District use any of its existing General Obligation
Bond authority to fund the current 6 year CIP.
Conversion of the 1996 COPs to Fixed Rate
The District's Debt Policy outlines a formula for determining if it is in the District's best
interest to issue certain debt at variable rates instead offixed rates,by requiring that at the time
of issuing any variable rate debt,there should be at least a 10%estimated reduction in annual
debt costs by issuing variable rate debt when compared to a similar issuance offixed rate debt.
Page 9
Using this 10%factor at the time ofissuance will allow the District to be relatively assured that
its variable rate financing will be cost-effective over the term ofthe bonds.
Since the 1996 COPs already bear interest at a variable,periodic assessments should be made
to determine ifor when to convert the 1996 COPs to a fixed rate.Since the District has already
reaped the benefits of extremely low interest rates over the last three years,it is not necessary
to demonstrate the same level of savings (10%)for the remaining term of the financing.
Instead,at this point,the District should focus on the risk ofrates increasing in the future and
should be able to demonstrate that the variable rate 1996 COPs are at least as cost-effective as
a comparable fixed rate issue going forward.
The following chart compares the estimated debt service and additional costs associated with
the 1996 COPs with a fixed rate issue based on today's rates.Variable rate bonds require some
form of credit enhancement to be marketable.Credit enhancement is comprised of two
components,credit support and liquidity.The cost of credit enhancement is paid annually.
Other annual costs associated with variable rate issues include the fees ofa remarketing agent
as well as rating fees.All of these annual costs are added to the estimated principal and
interest to determine the total annual debt service requirements.Pursuant to the Debt Policy,
the interest rate used to calculate the debt service is the average interest rate for the last 10
years.However,since it is unlikely that this rate will be reached in the next three years,a
lower rate was used initially increases progressively until the average rate is reached.The rates
used are shown below:
Through 9/1/2007
Next 12 months
Thereafter
3.50%
3.60%
3.75%
The annual credit enhancement costs are assumed to be the same as the existing fee,.50%of
the outstanding principal.The remarketing fees are based on .125%of the outstanding
principal and the rating fees are estimated to be $3,000 annually.The analysis for the fixed
rate bonds assumes that the District purchases bond insurance.
This analysis was last completed in June 2006 and showed that there were $220,000 cost
savings to leaving the 1996 COPs in their variable rate mode.This represented about a 2%
savings in overall costs by leaving the debt in a variable rate mode.Recently,however,short-
term interest rates have continued to rise (affecting the variable rates),while long term fixed
rates have held steady and in some cases,declined.Due to this anomaly in the yield curve,the
chart on the following page demonstrates that a conversion of the 1996 COPs to fixed rate is
much closer to a break even at this time continued monitoring of the economics of converting
should occur regularly.Since short term variable rates plateau at today's level (3.4%)and
letter ofcredit fees do not increase,the cost to the District would be $625,000 from conversion
today.
Complete cashflow schedules relating to the conversion of the 1996 COPs can be found in
Appendix B.
Page 10
9/1/2008 850,000 87,925 937,925 1,005,000 (67,075)
9/1/2009 853,750 80,425 934,175 1,005,000 (70,825)
9/1/2010 838,750 77,925 916,675 1,005,000 (88,325)
9/1/2011 823,750 75,425 899,175 1,005,000 (105,825)
9/1/2012 908,750 72,925 981,675 1,005,000 (23,325)
9/1/2013 890,000 69,800 959,800 1,005,000 (45,200)
9/1/2014 871,250 66,675 937,925 1,005,000 (67,075)
9/1/2015 952,500 63,550 1,016,050 1,005,000 11,050
9/1/2016 930,000 59,800 989,800 1,005,000 (15,200)
9/1/2017 907,500 56,050 963,550 1,005,000 (41,450)
9/1/2018 985,000 52,300 1,037,300 1,005,000 32,300
9/1/2019 958,750 47,925 1,006,675 1,005,000 1,675
9/1/2020 932,500 43,550 976,050 1,005,000 (28,950)
9/1/2021 1,006,250 39,175 1,045,425 1,005,000 40,425
9/1/2022 976,250 34,175 1,010,425 1,005,000 5,425
9/1/2023 1,046,250 29,175 1,075,425 1,005,000 70,425
9/1/2024 1,012,500 23,550 1,036,050 1,005,000 31,050
9/1/2025 1,078,750 17,925 1,096,675 1,005,000 91,675
9/1/2026 1,141,250 4,800 1,146,050 1,005,000 141,050
$17,963,750 $1,003,075 $18,966,825 $19,095,000 $(128,175)
This chart demonstrates that a conversion of the 1996 COPs to fixed rate is very close to a
break even at this time and a conversion to fixed rates should be monitored regularly.
Complete cashflow schedules relating to the conversion of the 1996 COPs can be found in
Appendix B.
Rate Covenant
Assuming that the 1996 COPs are converted to fixed rates as part of the 2007 COPs,the Rate
Covenant applicable to the 2004 COPs must be complied with when issuing the 2007
Certificates of Participation and all future debt.The Rate Covenant requires Pledged Net
Revenues (which includes the 1%Property Tax)be at least equal to 125%of Debt Service.
The following definitions are also used in the Rate Covenant:
Net Revenues equal Gross Revenues less O&M Expenses
Gross Revenues are defined as:
(i)All water availability charges not exceeding $10 per acre per year
Page 11
(ii)All income,rents,rates,fees,charges and other money derived by the District from the
ownership or operation ofthe Water System,including,without limitation:
(a)Income,rents,rates,fees,charges and other money derived from the sale,
furnishing and supplying of water and other services,facilities and commodities
sold,furnished or supplied through the facilities of the Water System,including
connection fees;
(b)The earnings on and income from investment of such income,rents,rates,fees,
charges and other money;and
(c)The proceeds derived by the District directly or indirectly from the sale,lease or
disposition of a part of the Water System
Water System is defined as all properties and assets,real and personal,tangible and
intangible,of the District now or hereafter existing,used or pertaining to the production,
treatment,transmission,distribution and sale of water,including all additions,extensions,
expansions,improvements and betterments thereto,and equipping thereof.
Debt Service payment for variable rate debt (if the 1996 COPs are not converted,or additional
variable rate debt is issued in the future)are calculated using the 25 Year Revenue Bond Index
as the interest rate to compute annual debt service.Currently the 25 Yr RBI Index is 4.55%.
The table on the following page demonstrates the calculation ofPledged Net Revenues and the
compliance with the Rate Covenant for the 2007 COPS and the future financings in 2009 and
2011.First, an analysis of coverage solely from operations (which excludes non-operating
income such as rental income)is provided to give the District a sense of the coverage from
rates and charges.A further analysis is done combining the operating income with one-time
pledged revenues such as capacity fees and annexation fees.This combined coverage ratio
demonstrates the District's legal compliance with the Rate Covenant.However,the ability to
demonstrate coverage from operations only will playa role in the rating process and is shown
to highlight again how crucial it is for the District to continue to implement planned rate
increases to provide the ability for future series offinancing.
Page 12
Calculation of Net Pledged Revenue and Rate Covenant Compliance
Pledged Operating Revenue
Potable Sales -Existing Rates $40,512,879 $42,161,400 $43,131,200 $44,597,700 $45,935,600 $47,194300 $48,940,500
Recycled Sales -Existing Rates 3.242.731 3.776.000 3.970.100 4.147.600 4.272.000 4,429,100 4.666,800
43,755,610 45,937,400 47,101,300 48,745,300 50,207,600 51,623,400 53,607,300
Potable Sales·Rate Increases 1,024,500 3,433,800 6,150,500 9,085,100 12,217,000 15,811,000
Recycled Sales -Rate Increases 85,600 309,300 564.600 837,200 1.I38,300 1.498,500
Total Revenue from Sales 43,755,610 47,047,500 50,844,400 55,460,400 60,129,900 64,978,700 70,916,800
I%Property Taxes 1,420,049 2,802,700 2,852,700 2,902,700 2,952,700 3,002,700 3,052,700
Portion ofConstruction Revenue 1,089,700 799,800 803.800 811.800 819,900 828,100 836,400
Availability Fees 609,099 574,800 590,800 614,900 636,800 658,000 686,700
Portion ofCapacity Fees (I)1,222,200 1,000,200 1,005,200 1,015,300 1,025,500 1,035,800 1,046,200
Meter Fees 428,900 278,500 286,200 293,300 293,500 306,400 328,000
MWD/CWA Rebate (Recycled)372,172 633,000 1,794,800 1,785,200 1,758,800 1,772,200 1,80/,000
Investment Earnings 3.173,752 2.705,900 3,515,400 3,564,000 3,842,200 3.762.700 3,776,600
Total Operating Revenue and Taxes 52,071,482 55,842,400 61,693,300 66,447,600 71,459,300 76,344,600 82,444,400
Total Operational and Maintenanee Costs (47,520,682)(51,872.400)/54.764,200)/58,289,500)/62,044,100)/65,985,200)170,566,000)
Net OperatingIneome 4,550,800 3,970,000 6,929,100 8,158,100 9,415,200 10,359,400 11,878,400
Maximum Annual Debt Service:
1996 COP 1.112,000 1,112,000 1,112,000 1,112,000 1,112,000 1,112,000 1,112,000
2004 COP 944,000 944,000 944,000 944,000 944,000 944,000 944,000
2007 COP 925,000 2,625,000 2,625,000 2,625,000 2,625,000 2,625,000
2009 and 20II COP 600,000 1,565,000 1,965.000 2.890,000
Total Debt Service 2,056,000 2,981,000 4,681,000 5,281,000 6,246,000 6,646,000 7,171,000
Net Revenues 4,550,800 3,970,000 6,929,100 8,158,100 9,415,200 10,359,400 11,878,400
Annexation Fees 1,262,146 1,216,900 1,305,900 1,416,500 1,530,400 1,650,400 1,795,300
Capacity Fees 6,983.579 6330,800 7.168.000 10,976.700 9,669,500 9,838,200 19,037.800
Total Pledged Revenue $12,796,525 $11,517,700 $15,403,800 $20,551,300 $20,615,100 $21,848,000 $32,711,500
(I)Aportion o.FCapacity Fees allocable to CIFProject Costs includedin O&M.
Page 13
CONCLUSION
Implementation of the financing recommended in this Update will allow the District to meet its
current six-year strategy to complete needed infrastructure,to maintain appropriate reserves for
future CIP,to meet emergencies and to provide predicable rate increases.If the District
continues to implement the rate increases project in the Rate Model,it will position itself
favorably for the issuance ofthe additional debt described herein that is anticipated in 2009 and
2011 in accordance with Rate Covenants and other requirement for issuance of such debt.The
balancing debt financing,maintenance of reserves and meeting targeted debt coverage levels
serves to keep the District on sound financial footing as it moves forward in its capital
budgeting for future periods,while maintaining flexibility to the greatest extent possible with
respect to its rates and charges and to meet any unforeseen challenge.
Page 14
APPENDIX A
2007 CERTIFICATES OF PARTICIPATION
SOURCES AND USES OF FUNDS
Otay Water District
2007 Certificates ofParticipation
APPENDIX A
Sources:
Bond Proceeds:
Par Amount
Net Premium
Uses:
Delivery Date Expenses:
Cost ofIssuance
Underwriter's Discount
Bond Insurance
Reserve Fund Surety Bond
Other Uses ofFunds:
Water CIP
Note:AAA Rates as ofDecember 8,2006 Plus 10 BP
Dec 14,2006 9:01 am Prepared by Harrell &Company Advisors
42,000,000.00
384,409.95
42,384,409.95
215,000.00
462,000.00
194,000.00
64,000.00
935,000.00
41,449,409.95
42,384,409.95
BOND PRICING
Otay Water District
2007 CertificatesofParticipation
APPENDIXA
Maturity Call Call Premium
Bond Component Date Amount Rate Yield Price Date Price (-Discount)
Serial Bonds:
0910112008 1,390,000 4.100%3.520%100.840 11,676.00
09/0112009 1,445,000 4.100%3.550%101.304 18,842.80
09/01/2010 1,505,000 4.100%3.570%101.729 26,021.45
09/0112011 1,570,000 4.100%3.600%102.060 32,342.00
09/01/2012 1,635,000 4.100%3.620%102.374 38,814.90
09/0112013 1,700,000 4.100%3.640%102.641 44,897.00
09/0112014 1,770,000 4.100%3.670%102.797 49,506.90
09/01/2015 1,840,000 4,100%3.700%102.894 53,249.60
09/0112016 1,915,000 4.100%3.750%102.775 53,141.25
09/0112017 1,995,000 4.100%3.830%102.316 46,204.20
09/0112018 2,075,000 4,100%3.950%101.375 28,531.25
09/01/2019 2,165,000 4.100% 4.080%100.194 4,200.10
0910112020 2,250,000 4.100%4.200%98.977 -23,017.50
09/0112021 2,345,000 4,250%4.250%100.000
09/01/2022 2,445,000 4.300%4.300%100.000
09/0112023 2,550,000 4.550%4.550%100.000
09/0112024 2,665,000 4.550% 4.550%100.000
09/01/2025 2,785,000 4.550%4.550%100.000
09/01/2026 2,910,000 4.550%4.550%100.000
09/01/2027 3,045,000 4.550%4.550%100.000
42,000,000 384,409.95
Term Bond:
09101/2036 4.600%4.550%100.314 C 09/01/2014 100.000
42,000,000 384,409.95
Dec 14,2006 9:01 am Prepared by Harrell &Company Advisors
Dated Date
Delivery Date
First Coupon
ParAmount
Premium
Production
Underwriter's Discount
Purchase Price
Accrued Interest
Net Proceeds
Note:AAA Rates as ofDecember 8,2006 Plus 10 BP
Dec 14,2006 9:01 am Prepared by Harrell &Company Advisors
BOND PRICING
Otay Water District
2007 Certificates ofParticipation
APPENDIX A
03/0112007
03/0112007
09/0112007
42,000,000.00
384,409.95
42,384,409.95
·462,000.00
41,922,409.95
41,922,409.95
100.9\5262%
-1.100000%
99.815262%
BOND SUMMARY STATISTICS
Otay Water District
2007 Certificates ofParticipation
APPENDIX A
Dated Date
Delivery Date
Last Maturity
ArbitrageYield
True Interest Cost (TIC)
Net Interest Cost (NIC)
All-In TIC
Average Coupon
Average Life (years)
Duration ofIssue (years)
Par Amount
Bond Proceeds
Total Interest
Net Interest
Total Debt Service
Maximum Annual Debt Service
Average Annual Debt Service
Underwriter's Fees (per $1000)
Average Takedown
Other Fee
Total Underwriter's Discount
Bid Price
03/0112007
03/0112007
09/0112027
4.283228%
4.353198%
4.364434%
4.478276%
4.349477%
12.351
9.293
42,000,000.00
42,384,409.95
22,562,040.00
22,639,630.05
64,562,040.00
3,185,895.00
3,149,367.80
11.000000
11.000000
99.815262
Bond Component
Serial Bonds
Par
Value
42,000,000.00
42,000,000.00
Price
100.915
Average
Coupon
4.349%
Average
Life
12.351
12.351
Par Value
+Accrued Interest
+Premium (Discount)
-Underwriter's Discount
-Cost ofIssuance Expense
-Other Amounts
Target Value
Target Date
Yield
Note:AAA Rates as ofDecember 8,2006 Plus 10 BP
TIC
42,000,000.00
384,409.95
-462,000.00
41,922,409.95
03/0112007
4.353198%
All-In Arbitrage
TIC Yield
42,000,000.00 42,000,000.00
384,409.95 384,409.95
-462,000.00
-215,000.00
-258,000.00 -194,000.00
41,449,409.95 42,190,409.95
03/01/2007 03/01/2007
4.478276%4.283228%
Dec 14,2006 9:01 am Prepared by Harrell &Company Advisors
BOND DEBT SERVICE
Otay Water District
2007 Certificates ofParticipation
APPENDIX A
Period
Ending Principal Coupon Interest Debt Service
09/01/2007 896,602.50 896,602.50
09/0112008 1,390,000 4.100%1,793,205.00 3,183,205.00
09/0112009 1,445,000 4.100%1,736,215.00 3,181,215.00
0910112010 1,505,000 4.\00%1,676,970.00 3,181,970.00
0910112011 1,570,000 4.100%1,615,265.00 3,185,265.00
09/0112012 1,635,000 4.100%1,550,895.00 3,185,895.00
0910112013 1,700,000 4.100%1,483,860.00 3,183,860.00
09/01/2014 1,770,000 4.100%1,414,160.00 3,184,160.00
09/0112015 1,840,000 4.100%1,341,590.00 3,181,590.00
0910112016 1,915,000 4.100%1,266,150.00 3,181,150.00
09/01/2017 1,995,000 4.100%1,187,635.00 3,182,635.00
0910112018 2,075,000 4.100%1,105,840.00 3,180,840.00
09/0112019 2,165,000 4.100%1,020,765.00 3,185,765.00
09/01/2020 2,250,000 4.100%932,000.00 3,182,000.00
091011202\2,345,000 4.250%839,750.00 3,184,750.00
09/01/2022 2,445,000 4.300%740,087.50 3,185,087.50
09/01/2023 2,550,000 4.550%634,952.50 3,184,952.50
09/0112024 2,665,000 4.550%518,927.50 3,J83,927.50
09/01/2025 2,785,000 4.550%397,670.00 3,182,670.00
0910112026 2,910,000 4.550%270,952.50 3,180,952.50
09/0112027 3,045,000 4.550%138,547.50 3,183,547.50
42,000,000 22,562,040.00 64,562,040.00
Note:AAA Rates as ofDecember 8,2006 Plus 10 BP
Dec 14,2006 9:01 am Prepared by Harrell &Company Advisors
APPENDIXB
1996 VARIABLE RATE DEMAND
CERTIFICATES OF PARTICIPATION
DETAILED BOND DEBT SERVICE
Otay Water District
1996 Certificates ofParticipation
APPENDIXB
Left in Variable Rate Mode
Based on Estimated Future Variable Rates
Tenn Bond
Period
Ending
09/0112008
09/0112009
09/01/201 0
09/01/2011
09/0112012
09/0112013
09/0112014
09/0112015
09/0112016
09/01/2017
09/01/2018
09/0112019
09/0112020
09/01/2021
09/01/2022
09/01/2023
09/01/2024
09/01/2025
09/0112026
Debt
Principal Interest Service
400,000 450,000 850,000
400,000 453,750 853,750
400,000 438,750 838,750
400,000 423,750 823,750
500,000 408,750 908,750
500,000 390,000 890,000
500,000 371,250 87t,250
600,000 352,500 952,500
600,000 330,000 930,000
600,000 307,500 907,500
700,000 285,000 985,000
700,000 258,750 958,750
700,000 232,500 932,500
800,000 206,250 1,006,250
800,000 176,250 976,250
900,000 146,250 1,046,250
900,000 112,500 1,012,500
1,000,000 78,750 1,078,750
1,100,000 41,250 1,141,250
12,500,000 5,463,750 17,963,750
Bond Variable Rate Table
Begin End Interest
Date Date Rate
09/0112006 09/0112007 3.500%
09/0112007 09/0112008 3.600%
09/0112008 09/01/2009 3.750%
09/01/2009 09/01/2026 3.750%
Dec 14,2006 9:34 am Prepared by Harrell &Company Advisors
NET DEBT SERVICE
Otay Water District
1996 Certificates ofParticipation
APPENDIXB
Left in Variable Rate Mode
Based on Estimated Future Variable Rates
Period Total Letter of Remarketing Net
Ending Debt Service Credit Fees Fees Rating Fees Draw Fees Debt Service
09/0112008 850,000 62,500 15,625 6,000 3,600 937,725
09/0112009 853,750 60,500 15,125 3,000 1,800 934,175
09/0112010 838,750 58,500 14,625 3,000 1,800 916,675
09/0112011 823,750 56,500 14,125 3,000 1,800 899,175
09/0112012 908,750 54,500 13,625 3,000 1,800 981,675
09/0112013 890,000 52,000 13,000 3,000 1,800 959,800
09/01/2014 871,250 49,500 12,375 3,000 1,800 937,925
09/01/2015 952,500 47,000 11,750 3,000 1,800 1,016,050
09/01/2016 930,000 44,000 11,000 3,000 1,800 989,800
09/0112017 907,500 41,000 10,250 3,000 1,800 963,550
09/0112018 985,000 38,000 9,500 3,000 1,800 1,037,300
09/0112019 958,750 34,500 8,625 3,000 1,800 1,006,675
09/01/2020 932,500 31,000 7,750 3,000 1,800 976,050
09/01/2021 1,006,250 27,500 6,875 3,000 1,800 1,045,425
09/0112022 976,250 23,500 5,875 3,000 1,800 1,010,425
09/01/2023 1,046,250 19,500 4,875 3,000 1,800 1,075,425
09/0112024 1,012,500 15,000 3,750 3,000 1,800 1,036,050
09/0112025 1,078,750 10,500 2,625 3,000 1,800 1,096,675
09/01/2026 1,141,250 3,000 1,800 1,146,050
17,963,750 725,500 181,375 60,000 36,000 18,966,625
Dec 14,2006 9:34 am Prepared by Harrell &Company Advisors
SOURCES AND USES OF FUNDS
Otay Water District
Certificates ofParticipation -Convert 1996 COPS
APPENDIX B
Variable Rate Conversion to Fixed Rate on Sept 1,2007
Sources:
Bond Proceeds:
Par Amount
Net Premium
Uses:
Delivery Date Expenses:
Cost ofIssuance
Underwriter's Discount
Bond Insurance
Reserve Fund Surety Bond
Other Uses ofFunds:
Repay 1996 COPs on 9/1/07
Rounding
Note:AAA Rates as ofDecember 8,2006 Plus 10 BP
Dec 14,2006 9:10 am Prepared by Harrell &Company Advisors
12,820,000.00
116,413.45
12,936,413.45
215,000.00
141,020.00
57,000.00
20,000.00
433,020.00
12,500,000.00
3,393.45
12,503,393.45
12,936,413.45
BOND DEBT SERVICE
Otay Water District
Certificates ofParticipation -Convert 1996 COPS
APPENDIX B
Variable Rate Conversion to Fixed Rate on Sept I,2007
Period
Ending Principal Coupon Interest Debt Service
0910112008 460,000 4.100%544,540.00 1,004,540.00
0910112009 475,000 4.100%525,680.00 1,000,680.00
0910112010 495,000 4.100%506,205.00 1,001,205.00
0910112011 515,000 4.100%485,910.00 1,000,910.00
09101/2012 540,000 4.100%464,795.00 1,004,795.00
0910112013 560,000 4.100%442,655.00 1,002,655.00
0910112014 585,000 4.100%419,695.00 1,004,695.00
0910112015 605,000 4.100%395,710.00 1,000,710.00
09101/2016 630,000 4.100%370,905.00 1,000,905.00
09101/2017 655,000 4.100%345,075.00 1,000,075.00
0910112018 685,000 4.100%318,220.00 1,003,220.00
09101/2019 710,000 4.100%290,135.00 1,000,135.00
0910112020 740,000 4.100%261,025.00 1,001,025.00
0910112021 770,000 4.250%230,685.00 1,000,685.00
0910112022 805,000 4.300%197,960.00 1,002,960.00
0910112023 840,000 4.550%163,345.00 1,003,345.00
0910112024 875,000 4.550%125,125.00 1,000,125.00
0910112025 915,000 4.550%85,312.50 1,000,312.50
0910112026 960,000 4.550%43,680.00 1,003,680.00
12,820,000 6,216,657.50 19,036,657.50
Note:AAA Rates as ofDecember 8,2006 Plus 10 BP
Dec 14,2006 9:10 am Prepared by Harrell &Company Advisors
BOND PRICING
Otay Water District
Certificates ofParticipation -Convert 1996 COPS
APPENDlXB
Variable Rate Conversion to Fixed Rate on Sept 1,2007
Maturity
Bond Component Date Amount Rate Yield Price
Serial Bonds:
0910112008 460,000 4.100%3.520%100.565
09101/2009 475,000 4.100%3.550%101.052
09101/2010 495,000 4.100%3.570%101.495
09101/2011 515,000 4.100%3.600%101.847
0910112012 540,000 4.100%3.620%102.177
09101/2013 560,000 4.100%3.640%102.459
0910112014 585,000 4.100%3.670%102.633
09101/2015 605,000 4.100%3.700%102.748
0910112016 630,000 4.100%3.750%102.652
0910112017 655,000 4.100%3.830%102.225
09101/2018 685,000 4.100%3.950%101.327
09101/2019 710,000 4.100%4.080%100.188
0910112020 740,000 4.100%4.200%99.006
0910\/202 I 770,000 4.250%4.250%100.000
0910112022 805,000 4.300%4.300%\00.000
0910112023 840,000 4.550% 4.550%100.000
0910112024 875,000 4.550%4.550%100.000
09101/2025 915,000 4.550%4.550%100.000
0910112026 960,000 4.550%4.550%100.000
12,820,000
Dated Date 0910112007
Delivery Date 0910112007
First Coupon 0910112008
Par Amount 12,820,000.00
Premium 116,413.45
Production 12,936,413.45 100.908061%
Underwriter's Discount -141,020.00 -1.100000%
Purchase Price 12,795,393.45 99.808061%
Accrued Interest
Net Proceeds 12,795,393.45
Note:AAA Rates as ofDecember 8,2006 Plus 10 BP
Dec \4,2006 9:10 am Prepared by Harrell &Company Advisors
Premium
(-Discount)
2,599.00
4,997.00
7,400.25
9,512.05
11,755.80
13,770.40
15,403.05
16,625.40
16,707.60
14,573.75
9,089.95
1,334.80
-7,355.60
116,413.45
ATTACHMENT C
DIST CT
FINANe LAN
UPD TE
2007 Certificates of Participation
December 2006
Financing Plan Update
•Update of 2004 Financing Plan
•Purpose is to Demonstrate Capacity to
Fund the Next 6 Year CIP Budget
-Demonstrate Adequate Coverage Ratio from
Operations and Capacity Fees
-Maintain Targeted Reserve Levels
-Provide Sound Financial Foundation for
Future CIP
inancing P an Update
•First Financing Plan Completed in 2004
-Recommended Implementation of a Series of
Rate Increases in Anticipation of Future
Financing of a Portion of the CIP
-Anticipated $27.5 Million COPs to be
Issued in 2007
-Based on Rate Model Developed in 2003
Current CIP Requirement
•Current CIP Underway are Large-
Scale,Regional Projects
•Construction on Budget or Ahead
of Schedule
•Creates Additional Short-Term
Cashflow Demands
-Result is to Increase Recommended Amount of
Financing in 2007 to $42 Million
Future Requirements
Future Financing in 2009 ($20 Million)
and 2011 ($12 Million)
will Result in Approximately 34%of
2007-2012 CIP Budget
Funded with Debt Financing
aintenance of Reserves
•Maintaining Reserves at Policy Target
is an Important Component of District
Long-Term Financial Strength
•Recommend Increasing the 2007
Financing from Earlier Estimates
Rather Than Draw Upon Reserves
Maintenance of Reserves
•Softens Impact on Near-Term Rates
-Increase Rates Slowly over Time,
Rather than Try to Replenish Reserves
during the 6 Year CIP Budget Period
-More Flexibility if Future Rate Setting
-Provides Cushion for Rate Increases for
Unforeseen Expenditures if Needed
-------------
Rate Covenants
•Credit Strength Also Based on Ability of the
District to Implement Rates to Maintain
Adequate Ratio of Revenues to Debt Service
-Rates Should Produce a Minimum Ratio of
Operating Net Revenues to Debt Service
should be 100%
-Rates and Capacity Fees Should Produce a
Minimum Ratio of 120%
-Higher Coverage (125 %)Needs to Be
Demonstrated to Issue Additional Debt
Anticipated Rate Increases
•Rate Model Estimates Future Increases Based
on Analysis of Operations,Reserves,Rate
Covenants and CIP
2007
2008
2009
5.4%
5.40/0
5.4%
2010
2011
2012
5.1 %
5.1 0/0
5.1 %
Anticipated Coverage Ratios
500%;---~-----------------------;
600%.---1__-------------------------,
400%+------~--------==-----------~~---;
300°,'0 -l----------------------------;
200%+----------------------------;
100%+---------.------,.----.------r-----,.----.------;A---.---.---.---.---.---.
2006 2007 2008 2009 2010 2011 2012
~From Combined Revenues .....-Minumum Requirement from Combined
Anticipated Coverage Ratios
200%.,.-----------------------------------,
175%+----~---------------------------I
150%L ----..:~__--_A::~-===::::::It:::===_==::::::::===:-~
125%-----------.--.-----
100%+----------------------------1
75%+--------,------.-------,-----.,.--------,-----.-------1
2006 2007 2008 2009 2010 2011 2012
......From Operations .....Policy Target from Operations
Recommendation
•2007 Financing in the Amount of
$42 Million
-30 Year Maturity To Provide More
Flexibility For Rate Setting
•Continued Implementation of Rate
Increases Projected in Rate Model
•Maintenance of Targeted
Reserve Levels
AGENDA ITEM 5
January 3,2007
DIV.NO.All
TYPE MEETING:
SUBMITTED BY:
APPROVED BY:
(Chief)
'APPROVED BY:
(Asst.GM):
SUBJECT:
5TAFF REPORT
Regular Board MEETING DATE:
_A W.O.lG.F.NO:
Joseph R.B~m~Chief Financial Officer
German~ez,Assistant General Manager
Approve the Implementation of the Rate Increase as Proposed
by the FY 2006-2007 Operating and Capital Budget
GENERAL MANAGER'S RECOMMENDATION:
That the Board approve the implementation of the rate increase
as proposed by the FY 2006-2007 Operating and Capital Budget.
COMMITTEE ACTION:
Please see Attachment A.
PURPOSE:
To present for the Board's consideration the implementation of
the rate increase as proposed by the FY 2006-2007 Operating and
Capital Budget.
ANALYSIS:
Approval of the rate changes will increase potable and reclaimed
water rates by 5.4%.Staff is recommending a combination of
fixed and variable rate changes to accomplish this overall 5.4%
rate increase.
The changes would include an increase in the variable water rate
to all classes of potable customers of approximately 2.9%.
Staff is also recommending an increase in the variable water
rate to all classes of recycled customer's of 4.85%.The system
fees have not been increased since 1993.This fixed fee
component of the District's revenues is important to maintain
revenue stability.The system fee for both potable and recycled
customers is recommended to increase by 10%from $10.25 to
$11.30 for a single-family residence.
Finally,the District also has a fixed fee to potable customers
that cover the County Water Authority (CWA)and Metropolitan
Water District (MWD)Fixed Charges.CWA and MWD have increased
these charges by $715,000.The individual increases are
identified below:
Customer Service Charge $101,400
Emergency Storage Charge $272,100
Infrastructure Access Charge $231,200
Capacity Reservation Charge $12,500
Readiness-to-Serve Charge $97,800
This change in costs is passed-through directly to the potable
customers via a fixed fee called CWA and MWD Fixed Charges.The
fee change needed to cover this increase is 24%,from $2.85 to
$3.55 for a single-family residence.
The Board's approval will also implement a 5.8%increase for
sewer which includes cost and rate increases from Metro and
Spring Valley sewer,new regulations,and operating cost
increases.
Staff has prepared a Water/Sewer Rate Fact Sheet (Attachment
This fact sheet has been prepared to provide a summary of
pertinent information that can be shared with customers and
other interested parties.
C)•
This action item is scheduled following the Prop.218 public
hearing which is set to receive protests from the public
regarding the rate changes.Notices of the hearing were sent
least 45 days prior to the hearing and were sent to all
customers and property owners affected by the rate changes.
With the completion of the hearing the Board will be able to
consider all customer input and move forward as they deem
appropriate.
FISCAL IMPACT:
at
The rate changes will support the District's operations,
strategic plan initiates,and the District's capital improvement
plan.With these changes,the District will be able to maintain
reserve level targets and retain its financial strength.
STRATEGIC GOAL:
Through well-established financial policies and wise management
of funds,the District will continue to guarantee fiscal
responsibility to its ratepayers and community at large.
LEGAL IMPACT:
Non~JJGe~ager~
Attachments:
A)Committee Action Form
B)Public Hearing Notice Re:Proposed Rate Increases
C)Water/Sewer Rate Increase Fact Sheet
D)Customer Letters
ATTACHMENT A
Approve the Implementation of the Rate Increase as Proposed
SUBJECTIPROJECT:by the FY 2006-2007 Operating and Capital Budget
COMMITTEE ACTION:
The Finance and Administration Committee recommends that the
Board approve the implementation of the rate increase as
proposed by the FY 2006-2007 Operating and Capital Budget.
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.
ATIACHMENTB
Please be advised there will be a Public Hearing regarding
proposed water and sewer rates:
Wednesday,January 3,2007
3:30 p.m.in the Board Meeting Room
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Purpose and Summary ofRates:The purpose ofthe new rate structure is to make it possible for the
OtayWater District to maintain the level ofservice to its customers and a balanced budget.The new
rates were determined after performing a detailed six-year analysis of all costs and revenues.This
analysis shows a significant portionofthe required rate increases are directly related to higher costs for
energy and water supply.The proposed rate increases are set forth in the enclosed tables.
Pursuant to currently applicable law,owners ofrecord may respond to proposed rate increases.If you
desire to object to the proposed rate increases,you may file a written protest with the Secretary ofthe
Gtay Water District at or prior to the time and date set for the public hearing.Under applicable law,
protests must be received in writing prior to the close of the public hearing to be considered.A valid
protest must contain a description of the real property sufficient to identify the parcel you own within
the boundaries of the District (address and or assessor parcel number),the owner(s)name(s),and
signature of the owner(s).If the current owner is not shown on the last equalized assessment roll of
the County ofSan Diego,written evidence must be submitted that the person signing the protest is the
owner(s).Protests can be mailed or physically delivered to:Board Secretary,OtayWater District,at
the address above.DO NOT SEND PROTESTS VIA EMAIL
If a majority of the affected property owners file written protests,the proposed water or sewer rate
charges will not be implemented.If you have questions regarding this notice,please visit our Web site
at www.otaywater.gov or speak with a Customer Representative at (619)670-2227 between 8:00 a.m.
and 5:00 p.m.Monday through Friday.
Este informe contiene informacion muy importante sobre su tarifa de agua.Porfavor llame servicio al
cliente (619-670-2227)se tiene preguntas.
Monthly Charges
Customet Class:Domestic Service
MWD&MWD&
System System CWAFixed CWA Fixed
Chatge Chatge Chatge Chatge
Meter (11uongh (Proposed (111rough (Ptoposed
Size 12-31-06)1-1-07)12-31-06)1-1-07)
3/4"10.25 11.30 2.85 3.55
1"16.50 18.15 4.55 5.65
1-112"32.50 35.75 8.55 10.65
2"54.20 58.60 14.80 18.45
Cusromer Classes:Multi Residential,Business,Combined
Domestic!Agricultute,Publicly-owned,Commercial Agricultural,
Non Agricultural Irrigation,Reclaimed,Irrigation using Non-
potable and Reclaimed
Water Unit Charges
Impl'Ovement DisrrictAdditional Water Cbatges
Rate per Rate per
HCF.HCF.
Service (Through (Proposed
Atea 12-31-06)1-1-07)
ID3 0.14 0.15
1D 10 0.22 0.23
Customer Class:DOincstic Service
Number of
Rate pet Rate per
HCF.H.CF.
HCF (Through (Proposed
Furnished 12-31-06)1-1-07)
*1-5 1.05 1.08
6-10 1.73 1.78
11-35 1.88 1.94
CustomerClass:Multi Residential and Residential Attached
MWD&MWD&
System System CWAFixed CWA Fixed
Charge Charge Charge*Cbarge*
Meter (Through (Prop';sed (Through (Proposed
Size 12·31-06)1-1-07)12-31-06)1-1-07)
Over 36 2.75
'k Applies if10 uni[s or less llsed
2.83
3/4"20.00 22.00 2.85 3.55
1"30.80 33.90 4.55 5.65
1-1/2"43.30 47.65 8.55 10.65
2"54.20 59.60 14.80 18.45
3"87.20 95.90 27.35 34.05
4"99.80 109.80 46.75 58.20
6"199.50 219.45 85.50 106.45
10"380.80 418.90 222.30 276.75
*Notcharged to Non Agricultural Irrigation and Reclaimed
Rate per Rate per
Number of H.CF.l-I.c.F.
HCF (Through (Proposed
Furnished 12-31.06)1·1·07)
0-4 1.73 1.78
Over4-15 1.88 1.94
Over 15 2.75 2.83
Customer Classes: Business,Combined
Domestic!Agriculture,Publicly Owned,
Commercial,Agriculrural,Non Agricultural
Irrigarion,Special Agreement
CustomerClass:Reclaimed,Irrigation using
Non potable and Reclaimed
Fire Service SystemCharges.From$21.20 to$23.30
Customer Class:Multi Residential Mulriple Unit Charge per
meterfrom $3.21 to $3.53
Customers paying two times the warer rate (TankTrucks,Temporary
Construcrion Meters and service ourside the OtayWater Districr or
an Improvement Districr)are impactedby tbe changes in their
base rates.
Sewer Cbarge per ASU -From $30.90 ro $32.70
ASU -Assigned Service Unit
Rate per
HCF.(Through
12-31-06)
1.85
Rate per
H.CF.(Through
12-31-06)
1.57
Rate per
HCF.(Proposed
1-1-07)
1.91
Rate per
H.CF.(Proposed
1-1-07)
1.65
ATTACHMENT C
Water/Sewer Rate Increase Fact Sheet
•The Otay Water District will be holding a public hearing on January 3,2007,to consider a
5.4%rate increase that,ifapproved,would take effect in January 2007.
•Ifapproved,the average customer would see then rates increase by $2.50 per month.
•The increase is mostly a pass-through to our water wholesalers,the San Diego County Water
Authority (CWA)and the Metropolitan Water District ofSouthern California (MWD).
•CWA and MWD will use the funds to pay for higher system costs such as higher energy and
water costs,but also to fund system wide facility upgrades such as the Emergency Water
Storage Program to improve long-term reliability programs including developing desalination
and recycled water projects.
•Approximately 54%ofthe proposed increase is passed-through to our water wholesalers,the
CWA and the MWD.
•The remaining 46%percent (or $1.15)is to cover increased district costs for programs and
services such as:
o To meet new regulatory standards (Health Department's requirements for Air Vac
relocations,reservoir covers,and the EPA's new valve exercising program).
o Higher energy costs to operate district facilities,pump stations,and fleet vehicles.
o Higher costs for supplies such as pipe,concrete,asphalt,and steel.
o Programs to reduce future operating expenditures (Automated Meter Reading).
o Fully funding ongoing maintenance.
•Despite the increase,the Otay Water District's rates are the seventh lowest in San Diego
County (based on an average water use of 15 units per month).
WaterRate Comparison (Projected)
15Units
70.00
60.00
50.00
40.00
30.00
20.00
10.00
£~~1!iJ -
48.80 -
-fro-,;--
-
I-
~:~I'.~I'
•The modest rate increase would also be a part of our long-term rate model that helps the district
maintain a balanced budget,meet reserve target levels,ensure financial stability,meet the debt
coverage ratio targets,while funding district operations to meet strategic plan objectives.
•Ifapproved,sewer customers would also see an increase of5.8%or $1.80 per month.
•The increase is primarily a pass-through to cover higher costs from the Metropolitan
Wastewater Joint Powers Authority (82%)and the Spring Valley Sanitation District (6%).
•The remaining 12%percent or .22 cents is to cover increased district costs for energy,
materials,maintenance,as well as labor costs.
THIS IS REPRESENTATIVE OF THE LETTERS
FORWARDED TO CONSTITUENTS WHO
WROTE TO THE DISTRICT
OPPOSING THE RATE INCREASE
<Date>
Customer Name
Address
City,State Zip Code
Dear <Title Mr.lMs..><Last Name>:
This is to confirm receipt ofyour letter ofopposition with regard to the District's
proposed water rate increase.We appreciate your taking a moment to share with us your
thoughts.Your comments will be included as part ofthe hearing record.
Again,thank you for your letter as your comments are valuable to the District.
Sincerely,
Susan Cruz,
Board Secretary
December11-2006
Otay Water Distrit
To whom it my concern.
To respond at letter for the increase water fees.I have read the proposal for the year
2007 and I NOT AGREE WITH THIS PROPOSAL .This purpose is wrong because all
of us live in tight budgets and we can't afford it.
I live in 1721 melrose ave #16 Chula Vista Ca.91911
Account no.208-7015-66
Meter nno.481255
;zor7J7f-opimon
Ramon Dela Tova
1721 melrose ave #16
Chula vista ca.91911
6195851378
December 12,2006
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
To Whom It May Concern:
I think we pay more than enough for the water at the current rates.Please do not raise the
price of the water.Perhaps you should hire an efficacy expert to help you find better
ways of running the business.
Sincerely,
~~
Kay Cole
1362 Darby Street·
Spring Valley,CA 91977
ATTACHMENT D,
•.?
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-.....~:,'_.....
.;
1-
October 30,2006
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Subject:Rate Increase
Dear Otay Water District Board Members,
While we are fully in support ofthe own being fiscally sound,we must object to the rate increase at this
time.We may ultimately support it once we understand it and believe that certain deficiencies within the
process are corrected.We have several significant concerns with the own notification letter which leads
me to this position.
First and foremost,the letter notifying rate payers ofthe increase is not clear and does not seem to have
the intent to truly inform the average rate payer.In essence,there is an abundance ofinformation
provided,but provides too much information for the average rate payer to understand and interpret as to
how they will actually be affected.There is a very detailed breakdown ofthe different areas measured
and the corresponding rate increases.However,it is not clear how much our monthly bill will increase.
In most other instances we've seen ofrate increase notifications by other utilities,there is a clear
indication ofthe actual monthly increase or with a min/max range and an average increase.
A second concern is that only owners ofrecord may respond.This seems quite unrealistic and unjust to
the people really paying the bill.While many owners live in their properties,many also rent their
property to tenants and either have the renter directly contract and pay for service themselves or the land
owner may pay the bill and pass the costs on to the renter.In either case,the resident is the one who
ultimately pays for the water.The persons eligible to comment should be the ratepayer ofrecord.In the
event that the rate payer is a land lord,notice should be sent to the land lord (at the address he/she
receives the bill)and to the resident (at the address to which service is provided).The rate paying
landlord's comment should be accepted,but the resident should also be allowed an advisory comment.
Finally,the notification letter does not allow e-mail correspondence on the rate increase to be accepted by
the own.In this internet age,this is completely unreasonable.As a Planning Commissioner for Chula
Vista,we regularly take e-mail comment on projects and it is included in the public record.Citizens are
also invited and encouraged to electronically provide their thoughts andopinions to the Mayor,City
Council and Staff.E-mail correspondence should be as readily accepted by the own as any hard copy e-
mail sent through the postal service.
We sincerely hope that the OWD Board Members will seriously consider these points.We think the
process for the proposed rate increase is archaic and does not take into account the realities of the world
today with respect making the process well communicated and easy to understand,-being rate-payer
friendly,being just to those really paying the water bill,and in taking advantage of modern
communication technology.
Sincerely,
;\'
::'
Bryan Felber
14S5 AppaJachlan PL
Chula VIsta,CA 91915-1558
onr;LJ!f'f157L ')i )'rdZ1 (;'r
:)r:;t)'f '5".;er;f1.JJt1fYL Sf/2t..J05 GLI//)
sf£l~G ~~lrtl~1 tA 1111<6'
IIII••,.,,II "llI11.11"I".I,III•••"•••III'",.IIII••I.i.1II
3
November 21,2006
TO:BOARD SECRETARY,OTAY WATER DISTRICT
RE:PROPOSED WATER &SEWER RATE INCREASES
FROM:EDWARD &M.CRISTINA del TORO
1312 CORONADO AVENUE
SPRING VALLEY CA 91977
ASSESSOR PARCEL #579 400 15 00
Please be advised that this is a written protest against the proposed rate increases that the
Otay Water District would like to implement that would affect my residence.I consider
myselfand my household to be conservative water users.My water charge for usage is
quite low compared to the water system fee that is charged every month by Otay.This
month my water charge is $6.95 and the water system fee is $10.25.
You should reconsider just passing on those rate increases to residents who use excessive
amounts ofwater in proportion to the number ofpeople in their household and their
personal needs,e.g.having a pool,sizeable acreage,etc.Conservative water users like
myself should be rewarded and not charged the rate increases as an incentive for
continuing to be frugal water users.
Thank you.
Sincerely,
Edward &M.Cristina del Toro
/z -&-or;
3
\\AI l'\~lfJ\e \S E'l\e,,-k,Gm:Jez....
5 10 on:)a.dv\~~~.
~f-r~~I C-it.'1 \'171
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October 26,2006
Board Secretary
Otay Water District
2554 Sweetwater Springs Boulevard
Spring Valley,CA 91978
Re:Proposed Water and Sewer Rate Increase
To Whom It May Concern:
I hereby officially lodge my objection regarding Otay Water District's
proposed water and sewer rate increase.
Residence address:1001 Calma Drive
Chula Vista,CA 91910
Parcel No.#640-162-39-00
Sincerely,
o·i a.:Du.,~
Patricia Pestka
Owner
Board Secretary,
Otay Water District
Tuesday,October 31,2006
Re:Protest against proposed
water and/or sewer rate charges
Account 255-1467-14
I desire to object to the proposed rate increases.Please file this as a written protest with
the Secretary ofthe Otay Water District against the proposed water or sewer·rate charges.
Below please find property address and my information.
)(C3..Thank y u ~
~/'i'~
Jorge Cortez
1473 Old Janal Ranch Road,
Chula Vista,CA 91915
December 1,2006
Board Secretary
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley CA 91978
To Whom It May Concern:
This is a response to the announcement on the public hearing regarding the proposed
water and sewer rates increase to be heard on January 3,2007.We,Jeffrey C.Chua and
Jennifer J.Chua,married joint owners ofassessor parcel number 5944303400 also known
as 548 Almonte Place Chula Vista CA 91910,hereby protest against said proposed water
and sewer rates increase.The amount we are currently paying for our water supply and
sewerage system is already a great burden on our fInances and this proposal to increase
the rates will not help us in any way.We hope you will be considerate regarding this
matter.
Thank you.
Sincerely,
,~/)/;/~/J~O---~:JetTreY c.Chua
J
Lisa Piancone
605 San Pablo Place
Chula Vista,CA 91914
November 1,2006
Board Secretary
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
RE:Protest ofProposed Increase ofWater and Sewer Rates
Dear Board Secretary,
I wish to file a written protest that I,Lisa Piancone,owner of605 San Pablo Place,Chula
Vista,CA 91914,am protesting the proposed increase ofwater and se\ver rates.
Thank you.
Sincerely,
2:~'----~----Lisa Piancone
Owner
605 San Pablo Place
Chula Vista,CA 91914
Assessor Parcel Number 595-530-25-00
J
October 28,2006
Dear Sir,
I object to the proposed water and sewer rate increase.My address is 2209 Rolling Ridge
Road,Chula Vista,California 91914.My name is Jo Ann Greenhouse.
Q;L(jo-Ann Greenhouse
November 6,2006
OTAY WATER DISTRICT
2554 SWEETWATERSPRINGS BL
SPRING VALLEY,CALIFORNIA 91978
ATIN:Board Secretary
Dear Secretary ofWater District,
I am the owner of2149 Hamden Dr.in the city of Chula Vista.Every month that I look
at my water bill,I am applauded at how high it is.I wanted to let the Board know that I
pay more for sewer charges than I do for the actual cost of water.I am opposed to any
type ofproposed rate structure increase to the water or sewer.
Sincerely,
Michael Cohen
November 9,2006
Board Secretary
Otay Water District
2554 Sweetwater Springs Blvd
Spring Valley,CA 91978
To whom it may Concern:
I am writing to protest the proposed rate increases.I am a senior citizen living on a
meager fixed-income and I cannot afford any more increases in my utilities.I do not see
any better service coming my way and feel that the cost ofdoing business should be
borne by the company selling the product.Ifmy rates keep increasing,I shall not beable
to afford to live here and I cannot afford to go anywhere else ether.
Sincerely,
Charlotte Marshall-Potts,consumer
__,.-('~•••~~•,t.J:oo•••_......."".....~~.."•.r.:-_,"0 ~_.__•••I.~-..,...~.,.f..-.
.!,~
CHARLonE pons
8338 $TANSBURY ST
SPRING VALLEY,CA
91977
stl;;N DIEGO CA.921
10 NOV 2.006 Pfvl 8 T
Board Secretary
Otay Water District
2554 Sweetwater Springs Blvd
Spring Valley,CA 91978
O()C(r J OR-cv-e..fer-!
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December 4,2006
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
I am sending this letter so that it can be recorded that we:
OBJECT TO THE PROPOSED RATE INCREASES!
Our rates and cost have increased way to much over the past five years.Ifour systems
need to be updated then this cost should be paid by permits for new construction!
Between mello roos,taxes sur charges etc.we pay more than our share already!
We have an acre ofproperty and ifrates go up again we will have to stop watering this
area.Is their any current provisions for credits or rate deductions for undeveloped land?
Ifso pleas let us know.
Sincerely,
Vincent P Matyas
308 Crestview Drive
Bonita,ca 91902
~r
Board 5ccre-+ctv7o~It 'I W"l -Ie r b f5+r,c+
;})sL(Sw-,:cAw"t-\c.'"5!rir1j5 8/;),
5 f {irtf!VrAJ (&'11 (if 9/'17<1
\;u e..)t VI -<-kJc (ow 0 uHl-e 6 ().f '7 f-q k)/tOf!erlvJ
oloj e c-\--tv ~frO(Oij-eJ lU"'Z.fer i Servev
(C/k,'l V\cr c0'il -e'S '
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Of 00 -{t9tM ;no Dc I >0/
C01/tlq \;l~+cr({'If-CJI"l/tJ
To whom it may concern,
This letter is to inform you that as a property owner in the Otay Water District I oppose
the increase to our water and sewer rates.
Sincerely,
~/£tp)
1706 Bridgehampton PI.
EI Cajon,CA 92019
(619)444-5415
Brian J.Rogers
1706 Bridgehampton PI.
EI Cajon.CA 92019
;..
SAN DIEGO C~4.921·
1.5 NOV 2006 PM 10 T
Otay Water District
25~4 Sweetwater Springs Blvd.
Spring Valley,CA 91978
."'"J".•
ll1I4/06
Parcel #519-250-12-00
To the Board Secretary ofthe Otay Water District:
I object to the proposed rate increases for water and sewer.
Larry W Brown
5
,OrderNo.
Escrow 1'10,
Loan No.
RECOROING REQUESTEr)BY
WHEN RECORDED MAIL TO:f{t>
Larry Brown f
13130 Rio Brava Court ?
1,,,,,1,CA 91935 \U
f>a.,f'ce\=#:51'1-d.5"0-1;).-00
DOC #2006-0777004
/111111111111111111111111111111111111111111111111111111111111111111111
NOV 01,2006 .9:46 AM
OFFICIAL RECORDS
SAN DIEGO COUNTY RECORDER'S OFFICE
GREGORY J.SMITH.COUNTY RECORDER
FEES:14.00
OC:OC
PAGES:2.
II11II1 011111111 01111111111111111111111111111 Dill UIII 1111I 1111I 011I11111111
'0
o
o
DOCUMENTARY TRANSFER TAX $0.00 spouse transfer ..
.....Computed on the consideration or value of property conveyed;
.....Computed on the consideration or value less liens or encumbrances remaining at time of sale;OR
'"..Exempt from imposition ofthe Documentary Transfer Tax pursuant to Revenue and Taxation Code §11927(a),on transferring
community,quasi-community,or quasi-marital property assets between spouses,pursuant to ajudgment,an order,or a written
agreement between spouses in contemplation of any such judgment or order,
grantor or grantee
INTERSPOUSAL TRANSFER GRANT DEED
(Excluded from reappraisal under California Constitution Article 13A §1 et seq.)
This is an Interspousal Transfer and not a change in ownership under §63 of the Revenue and Taxation Code and
Grantor(s)has(have)checked the applicable exclusion from reappraisal:
o A transfer to a trustee for the beneficial use of a spouse,or the surviving spouse of a deceased transferor,or by atrusteeofsuchatrusttothespouseofthetrustor;
A transfer.to a spouse or form~r spouse in connection with a property settlement agreement or decree of dissolutionofamarriageorlegalseparation;
A creation,transfer,or termination,solely between spouses,of any co-owner's interest;
The distribution of a le.,gal entity's property to a spouse or former spouse in exchange for the interest of suchspou~e in the le.,gal entity in connection With a property settlement agreement or a aecree of dissolution of amarriageorlegafseparation;
Other:
Check when creating separate property interest in ~tee spouse:It is the express intent of the gr;mtor,being the spouse of the gI1lIltee,to convey all nidIt,title and interest of the grantor,community or
otherwise,in and to the herein described property tolhe grantee as his/her sole and separate property.
FOR A VALUABLE CONSIDERATION,receipt of which is hereby acknO\yledged,
SAL;LIE K.BROWN,SPOUSE OF GRANTEE (who acquired title as Sallie Kay Cottrell trustee of Sallie Kay CottrellFamilyTrust"
hereby GRANT(S)to
Larry Brown,a married man as his sale and separate property
MAIL TAX STATEMENTS TO:
Same as above
(continued on next page)
...
the real property in the City of Jamul County of San Diego,State of California,described as
Lot 19 of Rancho San Miguel,In the county of San Diego,State of California,according to map thereof no.7937,filed in the office of
the county recorder of San Diego County,May 16,1974.
Parcel 2:
An easement 8.00 feet wide for ingress and egress over that portion of Lot 20 of Rancho San Miguel,in the county of San Diego State
of California,according to map thereof no.7937,fIled in ilie office of the county recorder of San Diego county,May 16,1974'8.00
Feet in width,the southeasterly and easterly line of which is described as follows:'
Beginning at the most southerly corner of said lot 20;thence north 49 57'33"east,173.02 feet oian angle point in the boundary of
said lot;thence continuing along said boundary,north 00 07'42"west,82 Feet.
Dated@
SALLIE K.BROWN
(This area for official notarial seal)
f .~~~~:e ....;;F72J:2;EAL "'1
_l \REZA M.KAGHAZCHI:o
.;,.,,;NOTARY PUBLlC·CALIFORNIA ~
a:••COMM.NO.1497282 -l SAN DIEGO COUNTY ~•~Y C~MM,;XP;JUN;,26,2008
me,
}
}ss.
}
WITNESS my hand '::'AOff~~"""I r.
Signature £'l.....:~...../.....~=~~_
a notary pu Ie,persona y a peare '""C__•_B CO k.L n .:!!:I ,,•,
STATE OF CALIFORNhCOUNTYOFSaQ ;t9 D
On ·c 1
(..I co ~t
..1004 (1/94)
Page 2 of2
Basil Younan
2450 Sawgrass Street
EI Cajon,CA 92019
Parcel No.518-222-30-00
Noveinber 28,2006
Board Secretary
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Dear Sir or Madam
Subject:Rate Increase Proposal
I am writing to you to express my objection to the proposed water and sewer rate
increase.My name,address and parcel number are listed above.Thank you.
3Ct~(j;u1W t..-
Basil Younan
Property Owner
5
Maher Younan
923 Avenida Del Oceano
El Cajon,CA 92019
Parcel No.514-470-15-00
November 28,2006
Board Secretary
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Dear Sir or Madam
Subject:Rate Increase Proposal
I am writing to you to protest the proposed water and sewer rate increase.My name,
address and parcel number are listed above.Thank you.
~f\),1(jI'V~
Maher Younan
Property Owner
Riyadh Makani
11602 Avenida Anacapa
El Cajon,CA 92019
Parcel No.502-272-75-00
November 28,2006
Board Secretary
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Dear Sir or Madam
Subject:Rate Increase Proposal
I am writing to you to express my objection to the proposed water and sewer rate
increase.My name,address and parcel number are listed above.Thank you.
.7j.)1]MJH~
Riyldh Makani
Property Owner
ELVIA RUCKER
3236 Ma Lou Drive
Jamul,California 91935
('19)"9-4917
December 4,2006
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
To whom it may concern:
We are vehemently opposed to the rate increase proposed by the Otay Water District.
Our water rate is already exorbitant and outpaces other water districts in San Diego
County.Our family has taken positive steps in reviewing and curtailing our water usage.
We propose that the water district likewise review and curtail its expenditures.
~~
Elvia Rucker
~(/~
Harold Rucker
November 30,2006
2590 Indigo Drive
EI Cajon,CA 92019
Otay Water District
Sweetwater Springs Blvd.
Spring Valley,CA 91978
Attention:Mark Watton
General Manager
Dear Mr.Watton:
I am appalled at the rate increase you are proposing for the Otay Water District
customers.I note in your article that you picked a low paying customer to use for your
example showing the amount ofincrease.
I am living in a gated community where we are required to keep our lawns
presentable.My water bills this year have been $86.77 last January,$91.33 in February,
$58.57 in March,April $50.09,May $84.51,in June $91.31,July,$127.09,August
$123.95,September $118.54,October $139.6 4,and $123.95 again in November.I don't
know what the bill will be in December.Hardly the $46.60 you used in your example.
While I am writing,I also think it is "highway robbery"to add the sewer charge
on 100 %ofthis water bill as most ofit never sees the sewer.
I'm certain that none ofthis means anything to you but to me,a retiree living on a
set budget,it can be devastating.
Sincerely,
()d~~,~
Audrey J.Kenney
IIhi1ii
I:.
s
November 17,2006
Baord Secretary
Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Gentlemen:
Regarding your proposed rate hike:
Yes,I protest.We are already paying the highest rates in the area due to Board
squabbling and subsequent legal fees.I suggest you reduce the per diems you pay your
Board members and cut other wasteful administrative expenses and NOT raise your rates.
Very truly yours,
Acct #231-6630-22
./
To:Secretary ofthe Otay Water District:
RE:Pr",posed rate increases
I would like to object to the proposed rate increases.The address of the real property is,
2420 Starlight Court
Chula Vista,Ca 91915
Owners:Ruben &Heather Martin
~~~&
Ruben Martin
Please be advised there will be a Public Hearing regarding
proposed water and sewer rates:
Wednesday,January 3,2007
3:30 p.m.in the Board Meeting Room
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Purpose and Summary of Rates:The purpose of the new rate structure is to make it possible for the
Gtay Water District to maintain the level ofservice to its customers and a balanced budget.The new
rates were determined after performing a detailed six-year analysis of all costs and revenues.This
analysis shows a significant portion ofthe required rate increases are directly related to higher costs for
energy and water supply.The proposed rate increases are set forth in the enclosed tables.
Pursuant to currently applicable law,owners ofrecord may respond to proposed rate increases.If you
desire to object to the proposed rate increases,you may file a written protest with the Secretary ofthe
Gtay Water District at or prior to the time and date set for the public hearing.Under applicable law,
protests must be received in writing prior to the close ofthe public hearing to be considered.A valid
protest must contain a description of the real property sufficient to identify the parcel you own within
the boundaries of the District (address and or assessor parcel number),the owner(s) name(s),and
signature of the owner(s).If the curren~owner is not shown on the last equalized assessment roll of
the County ofSan Diego,written evidence must be submitted that the person signing the protest is the
owner(s).Protests can be mailed or physically delivered to:Board Secretary,OtayWater District,at
the address above.DO NOT SEND PROTESTS VIA EMAIL.
If a majority of the affected property owners file written protests,the proposed water or sewer rate
charges will not be implemented.Ifyou have questions regarding this notice,please visit our Web site
at www.otaywater.gov or speak with a Customer Representative at (619)670-2227 between 8:00 a.m.
and 5:00 p.m.Monday through Friday.
Este informe contiene informacion mtly importantc sobre Stl tarija .-Ie agtl<l.Porfavor llame servicio at
diente (619-670.2227)se tiene preguntas.
···
December 5,2006
Otay Water District
2554 Sweetwater Spring Blvd.
Spring Valley,Ca 91978
Dear Sir or Madam:
Wanda Kinermon
1517 Apache Dr.,Unit C
Chula Vista,Ca.91910
This letter is in protest ofthe January 3,2007,increase of5.4%water charges.The economy being
as it is,this would be a burden for the working class citizen.Ifthis increase is due to the water
energy cost,please explain to me why the Chula Vista is continuing to build more and more homes in
south east Chula Vista.My paycheck will not be increased by 5.4%,not even 1%.This 5.4%
increase is more than inflation.Please reconsider that ifyou must increase the water cost,please
reduce it by a percentage that's feasible for all.
Thank you for any consideration you might give this letter.
............................
To:Board Secretary,
Otay Water District
Nov.29,2006
Fr:Evangeline and Farolito Montenegro
10421 Lake Breeze Dr.
Spring Valley,Ca 91977
Parcel#505-741-03-00
To whom it may concern:
Please let it be known that we would like to PROTEST/OBJECT to the proposed water
rate increase.
R~Setfull~/,1
E GEt E MONTENEGRO
~Ji--k ;.~
VFAROLITO MONTENEGR~
Scott Montgomery
2717 Isham Springs Ct
Spring Valley,CA 91977
(619)549-5780 Cell
(619)670-6932 Home
December 10,2006
Otay Water District
Subject:Proposed Water and Sewer Rates
Reference:Notice ofPublic Hearing
Dear Otay Water District,
I protest the proposed increase in water and sewer rates.
The average person is paying about 50%oftheir income in taxes and various fees.There
has to be a limit to everything and stopping this increase would be a place to start!
Most Sincerely,
A~M~~r:1
Scott Montgomery V V
Attention!!!!!!
The Otay Water District will be increasing your water and sewage rates.There will be a
public hearing:
When:Wednesday,January 3,2007
Where:2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Time:3:30 p.m.in the board meeting room
Owners of property (homes)may protest these proposed rate hikes.The protest must
be in writing to the Secretary ofthe Otay Water District at or prior to the date set for the
public hearing.------------------------------,--------------
I am protesting the proposed rate increases
Please fill in the necessary information,(note!parcel number is optional),required
information flagged with *and send to:
Board Secretary,Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Can't send protest via E mail,must be sent by mail only
*Owners name:6M64t!--tJ:kOU/!H?D S
Not required
My parcel number is (located on your property tax bill (PARCELIBILL NO.XXX-
XXX-XX-XX)
My parcel number is _
*Signature ofowner ofReal Property ~E~~
Send your written protest to:
Board Secretary,Otay Water District
2554 Sweetwater Springs Blvd.
Spring Valley,CA 91978
Very Important:
Ifa majority of the affected property owners file written protests,the
proposed water and sewage rate increases will not be implemented.If
you have any questions or concerns.see .."or call (619)670-2227
between 8:00a.m.and 5p.rn.
Thank you for your participation,please attend the public hearing.
~(619)531·6056
trIiEE WWW.SDTREASTAX.COM
For Fiscal Year Beginning July 1.2006 and Ending June 30,2007
o PROPERTY ADDRESS·DESCRIPTION·SUBDIVISION
01300 RAVEN AVE
CURRENT
OWNER GERBER GEORGE R dR
1300 RAVEN AVE
CHULA VISTA CA 91911
LOT 1
ZENITH I I
9 MAP NO.'?E]ii3di;i[·)~·ri9li!i)ii~I*i3.\~i;i[.]~g
166464
171666
338130
$LAND
IMPROVEMENTS
TOTAL L&I
PERSONAL PROPERTY
EXEMPTIONS
HOMEOWNERS $
OTHER
---NET nix/iS-Ce:'VALUE"--'-'3~S 13~
486232
008331SPECIAL
MESSAGES
GERBER GEORGE R JR
OWNER
MESSAGES •'...
.......,
I ."'I.
-------------'Z91911 007836 20624 1/1 RETAIN THIS PORTION FOR YOUR RECORDS
0104~
12 ,"•13 I.
1884.00 +
14
1884.00
15 •••
3768.00
~YOUR TAX DISTRIBUTION
AGENCY BASE RATE TAX AMOUNT',
CD ',YOUR TAX DISTRIBUTION
AGENCY BASE RATE TAXAMOUNT
Cow.&:WTR'AVAI:I.:ABI.LI TYTOTALAMOUNT '
.,',-',',::.".'.:;:'".."'.'.,>'-"f~"'TAXON NETV'~LIJE 1 .00000 3381';30c:"VOTER"APPROVED'8DNDS·:
r-i;:L;EMENTARYSCHOOl.NET,0,0261)2 90,0f:a "H;liGH';SCHOOL ,NET 0.020'16 68\16~COMMUNH,Y,CDLLEGE NET 0.01405 47.50
"-J ME:JRO:WA'J'ER DlS!RIGT NI:T 0.00470 15;89~'TOTA[:ON,NET VALUE ,L06553 3602;86 '
FIXED CHARGE ASSMTS:PHONEH.~~~~~~n:~niEL~,::ifii~ReiMWDWTRSTANDB,U4 1;;;"TA
858-522.--6'900
BILL
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