HomeMy WebLinkAbout2023-06-15 - Resolution No. 2023-14RESOLUTION NO. 2023-14
RESOLUTION OF THE BOARD OF DIRECTORS
OF THE YORBA LINDA WATER DISTRICT
ADOPTING THE FINANCIAL RESERVES POLICY FOR
FISCAL YEAR 2023-24 AND RESCINDING RESOLUTION NO. 2022-15
WHEREAS, the purpose of the Yorba Linda Water District's (YLWD) Financial
Reserves Policy is to ensure that the District continues to have
sufficient funding available to meet its operating, non-operating,
capital and debt service obligations; and
WHEREAS, adequate reserves and sound financial policies maintain YLWD's
bond ratings in the capital markets, provide financing flexibility and
sustain debt covenant compliance; and
WHEREAS, the District has completed a comprehensive Asset Management
Plan and has prepared a rate study and five-year financial plan; and
WHEREAS, the Financial Reserves Policy recommends establishing various
reserve categories, defines the purpose and use of these funds and
identifies target levels and priority funding of the reserves; and
WHEREAS, the Board of Directors desires to adopt a new Financial Reserves
Policy for Fiscal Year 2023-24.
NOW THEREFORE BE IT RESOLVED by the Board of Directors of the Yorba Linda
Water District as follows:
Section 1. That the Yorba Linda Water District Financial Reserves Policy (3010-
005-POL) as attached hereto is hereby adopted and deemed
effective July 1, 2023.
Resolution No. 2023-14 Adopting the Financial Reserves Policy for Fiscal Year 2023-24 1
Section 2. That Resolution No. 2022-15 is hereby rescinded effective July 1, 2023.
PASSED AND ADOPTED this 15th day of June 2023 by the following called vote:
AYES: Directors Barbre, Des Roches, Hawkins, Lindsey, and Miller
NOES: None
ABSTAIN: None
ABSENT: None
ATTEST:
Annie Alexander, Board Secretary
Yorba Linda Water District
Reviewed as to form by General Counsel:
Anefrew B. G en, Esq.
Kidman Ga en Law LLP
Brett R. Barbre, President
Yorba Linda Water District
Resolution No. 2023-14 Adopting the Financial Reserves Policy for Fiscal Year 2023-24 2
YORBA LINDA WATER DISTRICT 3010-005-POL
FINANCIAL RESERVES
Dept/Div: Finance Approved By: Resolution No. 2023-14
Effective Date: July 1, 2023 Applicability: District Wide
Supersedes: Resolution No. 2022-15 See Also: N/A
1.0 General Policy
Maintaining adequate reserves is an essential part of sound financial management. The Yorba
Linda Water District Board of Directors realizes the importance of reserves in providing reliable
service to its customers, well-maintained infrastructure for current and future customers,
financing capital projects as well as capital repair and replacement, and the ability to
respond to changing circumstances. Interest derived from reserve balances shall be credited
to the reserve account from which it was earned.
2.0 Categories
Yorba Linda Water District (YLWD or District) shall accumulate, maintain and segregate its
reserve funds into the following categories:
Board Designated Unrestricted Reserves; and
Board Designated Restricted Reserves.
3.0 Scope
This policy will assist the Board of Directors in establishing:
Minimum and Maximum Funding Levels, with target goals as a percentage of maximum
funding level for each reserve fund, unless otherwise noted;
Requirements for the use of reserve funds; and
Periodic review requirements for each reserve.
4.0 Periodic Review
Staff and the YLWD Board shall review the reserve balances and targets annually as a part of
the annual budget process. The Finance Staff will continue to review all reserve and
investment balances monthly, with a quarterly report going to the full Board. Any changes
must be approved by resolution of the District Board of Directors. Changes can include, but
are not limited to, establishment of additional reserve funds, changes in reserve target levels,
and changes in types of reserve categories.
5.0 Designated Unrestricted and Restricted Reserves
5.1 Board Designated Unrestricted Reserves
These are reserve funds earmarked for the purpose of funding such items as new capital
facilities, repair or replacement of existing facilities, and general operating reserves
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YORBA LINDA WATER DISTRICT 3010-005-POL
designated for a specific purpose and use by the Board of Directors. All reserves in this
category will be funded at least to the recommended minimum level. As a means for the
District to retain its AA+ ratings, the targeted total reserve balance is 365 days in cash at
the end of the fiscal year.
5.1.1 Operating Reserve.
5.1.1.1 Definition and Purpose – Established to cover temporary cash flow
deficiencies that occur as a result of timing differences between the
receipt of operating revenue and expenditure requirements and
unexpected expenditures occurring as a result of doing business.
5.1.1.2 Funding Level – The District’s current funding levels will be a minimum of
25% and a maximum of 50% of the annual operating budget, including
interest expense, for both the water and sewer funds. In the event this
fund falls below its minimum funding level, the Board will act to restore the
balance above the minimum funding level within twelve (12) months from
the date that the fund fell below the minimum level.
Levels Water Sewer
Minimum 25% 25%
Maximum 50% 50%
Levels Water Sewer
Minimum $10,020,705 $928,497
Maximum $20,041,411 $1,856,995
5.1.1.3 Events or Conditions Prompting the Use of the Operating Reserve – This
reserve may be utilized as needed to pay outstanding operating
expenditures prior to the receipt of anticipated operating revenues.
5.1.2 Emergency Reserve
5.1.2.1 Definition and Purpose – Established to provide protection recovery to the
District and its customers for losses arising from an unplanned event or
circumstance (i.e. fires, earthquakes or financial emergencies). The
reserve level combined with YLWD’s existing insurance policies should
adequately protect YLWD and its customers in the event of a loss.
5.1.2.2 Funding Level – Established at a minimum level equal to 5% and a
maximum level equal to 10% of the net capital assets for both the District’s
water and sewer funds. In the event this fund falls below its minimum
funding level, the Board will act to restore the balance above the
minimum funding level within twelve (12) months from the date that the
fund fell below the minimum level.
Levels Water Sewer
Minimum 5% 5%
Maximum 10% 10%
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YORBA LINDA WATER DISTRICT 3010-005-POL
Levels Water Sewer
Minimum $5,378,680 $1,883,232
Maximum $10,757,359 $3,766,463
5.1.2.3 Events or Conditions Prompting the Use of the Emergency Reserve – This
reserve shall be utilized to cover unexpected losses experienced by the
District as a result of a disaster or other unexpected loss. Any
reimbursement received by the District from insurance companies as a
result of a submitted claim shall be deposited back into the reserve as
replenishment for the loss.
5.1.3 Capital Replacement Reserve
5.1.3.1 Definition and Purpose – Established to provide funding for general use on
capital projects as well as capital repair and replacement funding as the
District’s infrastructure deteriorates over its expected useful life. In
addition, funding is to provide for non-scheduled capital asset repair and
replacement and other capital related expenses.
5.1.3.2 Funding Level – The minimum target level for each reserve fund is the
current Fiscal Year capital budget and the maximum is the current year
plus 100% of the subsequent Fiscal Year capital budget. The target levels
in these reserve funds will fluctuate depending on the capital
improvement plan and timing of the projects. Therefore, no target level
will be established. In the event these fund falls below the minimum
funding level, the Board will act to restore the balance above the
minimum funding level within twelve (12) months from the date that the
fund fell below the minimum level.
Levels Water Sewer
Minimum $12,944,595 $1,461,405
5.1.3.3 Events or Conditions Prompting the Use of the Capital Replacement
Reserve – Through the annual budget process, staff shall recommend
anticipated asset replacement and capital improvement projects. The
Board of Directors shall take action to approve recommended project
appropriations from the capital replacement reserve. Should unplanned
replacement be necessary during any fiscal year, the Board of Directors
may take action to amend the budget and appropriate needed funds
as required.
5.1.4 Rate Stabilization Reserve
5.1.4.1 Definition and Purpose – Established to assist in smoothing out water rate
increases. This reserve is governed by the District’s bond covenants and
funds deposited into this reserve are treated as operating revenues in the
fiscal year designated by the District and will be treated as such in fiscal
years of such designation for the purposes of computing the District's debt
service coverage ratio.
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YORBA LINDA WATER DISTRICT 3010-005-POL
5.1.4.2 Funding Level – Established at a minimum level of 5% and maximum level
of 20% of budgeted water sales for the current fiscal year. The Board of
Directors have the option of funding the Rate Stabilization Reserve at a
lower level.
Levels Water
Minimum 5%
Maximum 20%
Levels Water
Minimum $2,369,801
Maximum $9,479,204
5.1.4.3 Events or Conditions Prompting the Use of the Rate Stabilization Reserve –
The reserve can be used during any year where other revenues are not
sufficient to meet the required debt service coverage ratio or when the
maximum level in the reserve is reached.
5.1.5 Metropolitan Water District (“MWD”) Contingency Reserve
5.1.5.1 Definition and Purpose – Imported water purchased from MWD is
approximately double the cost of groundwater at current rates, and
MWD rates may fluctuate more in the future. While imported water is
always a part of the YLWD portfolio, YLWD budgets using groundwater for
approximately 75% or more of its supply and budgets using imported
water from MWD for approximately 25% or less of its supply. However, in
extreme circumstances, YLWD may be, and has been, forced to rely 100%
on MWD imported water at significant and unbudgeted additional
expense. The MWD Contingency Reserve is established as a means to
offset the additional cost of providing water to its customers in the event
the District is forced to rely on increased purchases of MWD imported
water due to an interruption in the groundwater supply. While identified
for this purpose, this reserve fund shall be unrestricted.
5.1.5.2 Funding Level – The MWD Contingency Reserve shall be funded in an
amount equal to the cost of purchasing MWD imported water to meet
100% of the demand required to serve YLWD customers for one full year.
This reserve fund shall be initially funded and accumulated over a period
of ten (10) years from adoption and shall be supplemented each year
thereafter to adjust for annual increases in MWD rates. The projected
amount (2024 dollars) of funding to establish this reserve fund over 10
years is approximately $20,000,000. It is anticipated that the annual
transfers to this reserve fund will adjust each fiscal year to account for
inflation and any increases in the MWD rates during this funding period.
Levels Water
Target $2,000,000
5.1.5.3 Events or Conditions Prompting the Use of the MWD Contingency Reserve
– While unrestricted, the reserve may be used during any fiscal year where
the District is forced to purchase imported water due to an interruption in
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YORBA LINDA WATER DISTRICT 3010-005-POL
the ground water supply or related circumstance necessitating increased
purchases of MWD imported water.
5.2 Board Designated Restricted Reserves
These are funds held to either satisfy limitations set by external requirements established
by creditors, grant agencies or law, or to only be used for a specific purpose. Examples
include stipulated bond covenants and reserves held with a fiscal agent.
5.2.1 Conservation Reserve
5.2.1.1 Definition and Purpose – Established to provide funding for District-wide
conservation efforts.
5.2.1.2 Funding Level – Funding shall be established as the net result of
administrative penalties assessed less allowed expenditures of each fiscal
year.
Levels Water
Minimum $0
Maximum $108,936
5.2.1.3 Events or Conditions Prompting the Use of the Conservation Reserve – This
reserve may be used to fund district-wide conservation efforts in relation
to, but not limited to, salary and related, maintenance, and material
expenses for leak detection, conservation efforts, and other allowable
expenses outside the normal cost of service for each fiscal year.
5.2.2 Employee Liability Reserve
5.2.2.1 Definition and Purpose – The purpose is to cover employees’ accrued
vacation and other compensatory time and to ensure the complete
funding associated with the liability incurred for employees whom have
met the requirements necessary for district paid health benefits at
retirement.
5.2.2.2 Funding Level – Funding for FY24 shall be established at a minimum target
level of $316,919.
Levels Water Sewer
Target $269,664 $47,255
5.2.2.3 Events or Conditions Prompting the Use of the Employee Liabilities Reserve
– This reserve may be used in the event that operating funds are not
adequate to meet vacation, compensatory and sick time paid out or
retiree medical cost obligations within the current year.
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