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HomeMy WebLinkAbout2024-10-24 - Board of Directors Meeting Agenda Packet AGENDA YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS REGULAR MEETING Thursday, October 24, 2024, 8:30 AM 1717 E Miraloma Ave, Placentia CA 92870 1. PARTICIPATION INSTRUCTIONS This meeting will be held in person. For public convenience, the meeting can also be accessed via internet-based service or telephone as indicated below. For questions regarding participation, please call the Board Secretary at (714) 701-3020. Computer/Mobile Device: https://us06web.zoom.us/j/83910539282 Telephone: (669) 444-9171 or (669) 900-6833 Meeting ID: 839 1053 9282 2. CALL TO ORDER 3. PLEDGE OF ALLEGIANCE 4. ROLL CALL Trudi DesRoches, President Tom Lindsey, Vice President Brett R. Barbre, Director Phil Hawkins, Director Gene Hernandez, Director 5. ADDITIONS/DELETIONS TO THE AGENDA Items may be added to the agenda upon determination by a two-thirds vote of the Board, or a unanimous vote if only three Directors are present, that there is a need to take immediate action which came to the District's attention subsequent to the agenda being posted. (GC 54954.2(b)(2)) 6. AB2449 TELECONFERENCE REQUESTS Items may be added to the agenda upon determination by a two-thirds vote of the Board, or a unanimous vote if only three Directors are present, that there is a need to take immediate action which came to the District's attention subsequent to the agenda being posted. (GC 54954.2(b)(2)) 7. INTRODUCTIONS AND PRESENTATIONS 7.1. Introduction of New Hire 8. PUBLIC COMMENTS Any individual wishing to address the Board (or Committee) is requested to identify themselves and state the matter on which they wish to comment. If the matter is on the agenda, the Chair will recognize the individual for their comment when the item is considered. No action will be taken on matters not listed on the agenda. Comments are limited to three minutes and must be related to matters of public interest within the jurisdiction of the Water District. (GC 54954.3) 9. DISCUSSION ITEMS This portion of the agenda is for matters that cannot reasonably be expected to be concluded by action of the Board (or Committee) at the meeting, such as technical presentations, drafts of proposed policies, or similar items for which staff is seeking advice and counsel. Time permitting, it is generally in the District’s interest to discuss these more complex matters at one meeting and consider formal action at another meeting. This portion of the agenda may also include items for information only. 9.1. Financial Reserves Policy Workshop Page 1 of 8 10. CLOSED SESSION The Board may hold a closed session on items related to personnel, labor relations and/or litigation. The public is excused during these discussions. 10.1. Liability Claims Pursuant to Subsections 54956.9(d) and (e)(3) of the California Government Code Claimants: Pascal & Ludwig Constructors and Mike Bubalo Construction Agency Claimed Against: Yorba Linda Water District 10.2. Conference with Legal Counsel - Existing Litigation Pursuant to Paragraph (1) of Subdivision (d) of Section 54956.9 of the California Government Code Name of Case: Irvine Ranch Water District v. Orange County Water District, et al. (Los Angeles County Superior Court - Case No. BS168278) 10.3. Public Employee Performance Evaluation Pursuant to Section 54957 of the California Government Code Title: General Manager 11. ADJOURNMENT 11.1. The next regular Board meeting is scheduled Thursday, November 14, 2024 at 8:30 a.m. Items Distributed to the Board Less Than 72 Hours Prior to the Meeting Non-exempt materials related to open session agenda items that are distributed to a majority of the Board of Directors (or Committee Members) less than seventy-two (72) hours prior to the meeting will be available for public inspection in the lobby of the District’s Administrative building located at 1717 E Miraloma Ave, Placentia CA 92870 during regular business hours. When practical, these materials will also be posted on the District’s website at https://ylwd.com/. (GC 54957.5) Accommodations for the Disabled Requests for disability-related modifications or accommodations, including auxiliary aids or services, required for participation in the above-posted meeting should be directed to the Board Secretary at (714) 701-3020 at least 24 hours in advance. (GC 54954.2(a)) Page 2 of 8 ITEM NO. 9.1. AGENDA REPORT MEETING DATE: October 24, 2024 TO: Board of Directors FROM: Mark Toy, General Manager STAFF CONTACTS: Delia Lugo, Finance Manager Sophia Phuong, Accounting Supervisor Paige Appel, Budget Analyst SUBJECT: Financial Reserves Policy Workshop BACKGROUND: The Board of Directors have tasked staff to review the structure and language of the current Reserve Policy and to make a recommendation of any warranted structure or language updates. Staff has completed this task and will be presenting the due diligence review process and policy change recommendations. ATTACHMENTS: 1. 3010-005-POL - Financial Reserves Policy Page 3 of 8 YORBA LINDA WATER DISTRICT 3010-005-POL Page 1 of 5 FINANCIAL RESERVES Dept/Div: Finance Approved By: Resolution No. 2024-14 Effective Date: July 1, 2024 Applicability: District Wide Supersedes: Resolution No. 2023-14 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 select reserve funds, 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 Page 4 of 8 YORBA LINDA WATER DISTRICT 3010-005-POL Page 2 of 5 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 $11,258,299 $963,914 Maximum $22,516,599 $1,927,827 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% Page 5 of 8 YORBA LINDA WATER DISTRICT 3010-005-POL Page 3 of 5 Levels Water Sewer Minimum $6,435,482 $1,830,968 Maximum $12,870,965 $3,661,936 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 1.5 years of capital improvement projects and capital outlay plus current Fiscal Year depreciation. The maximum is 3 years of capital improvement projects and capital outlay plus 3 times the current year’s depreciation. The target levels in these reserve funds will fluctuate depending on the capital improvement plan and timing of the projects. Levels Water Sewer Minimum $10,367,911 $3,264,520 Maximum $29,435,433 $10,311,810 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. Page 6 of 8 YORBA LINDA WATER DISTRICT 3010-005-POL Page 4 of 5 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 $2,491,808 Maximum $9,967,233 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. 5.2 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 $73,801 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. The Board of Directors will draw down until there is a zero balance and remove the reserve category from the Reserve Policy. 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. Page 7 of 8 YORBA LINDA WATER DISTRICT 3010-005-POL Page 5 of 5 5.2.2.2 Funding Level – Funding for FY25 shall be established at a minimum target level of $686,081. Levels Water Sewer Target $641,635 $44,446 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. Page 8 of 8 BACKUP MATERIALS DISTRIBUTED LESS THAN 72 HOURS PRIOR TO THE MEETING FY25 Reserve Policy Workshop October 24, 2024 10/24/24 1 SUPPLEMENTAL MATERIAL ITEM NO. 9.1. Overview •GFOA Best Business Practices •GFOA Risk Assessment Results •District Insurance Program •Other Agencies’ Policies •Reserve Policy with Staff Recommendations 10/24/24 2 SUPPLEMENTAL MATERIAL ITEM NO. 9.1. GFOA Best Business Practices 10/24/24 3 SUPPLEMENTAL MATERIAL ITEM NO. 9.1. GFOA Best Business Practices 10/24/24 4 Best Practice Recommendations: •Establish a formal policy on the “unrestricted” reserve balance that should be maintained in the general/operating fund. •Guidelines should be set by the appropriate policy body and articulate the framework and process for how the governing body will decrease/increase the level of unrestricted reserve balance(s) over a specific period. •Provide broad guidance in the policy for how resources will be directed to replenish reserve balance(s) should the balance(s) fall below the level prescribed/target. •Be savvy in how excess reserve balance(s) are used. SUPPLEMENTAL MATERIAL ITEM NO. 9.1. GFOA Best Business Practices 10/24/24 5 1.Nonspendable: Resources that are not in a spendable form or are required to be maintained intact. (Example: Inventory, Prepaid Expenses) 2.Restricted: Amounts constrained for specific purposes by external parties, laws, or regulations. (Example: Grants from state or federal government, funds from bond issuance pledged by shareholders.) 3.Committed: Amounts that can only be used for specific purposes determined by a formal action of the government’s highest level of decision-making authority. (Example: Funds designated for capital projects, and reserve funds set aside for emergencies and rate stabilization.) 4.Assigned: Amounts intended for specific purposes but are not formally committed like Restricted or Committed (Example: Funds allocated to Operating Reserve Fund) 5.Unassigned: The residual classification for the general fund that includes all amounts not classified elsewhere. SUPPLEMENTAL MATERIAL ITEM NO. 9.1. GFOA Risk Assessment Results 10/24/24 6 SUPPLEMENTAL MATERIAL ITEM NO. 9.1. GFOA Risk Assessment Results GASB Statement 54 10/24/24 7 Risk Category High Risk Items Expenditure Volatility (Operating Fund) •Salary Negotiations (Class & Comp Study) •Ground Water Production Interruptions •Utility Rate Increases •Treatment and Import Water Costs Vulnerability to Extreme Events (Emergency Fund) •Natural Disaster (Earthquake, Fire, Drought, Climate Change) •Regulations Capital Projects (Capital Replacement Fund) •Completion of Scheduled CIP (AMP & WMP Recommended) •Increase in CIP Pay-Go Funding (Fire Protection & System, Water Storage/Capacity) •Unanticipated Asset Failures and Replacements Revenue Source Stability (Rate Stabilization Fund) •Water/Sewer Rates, Customer Service & Developer Fees and Charges All the current Reserve Fund Categories allow the District to mitigate the following high probability risks listed from the risk assessment. SUPPLEMENTAL MATERIAL ITEM NO. 9.1. District Insurance Program 10/24/24 8 SUPPLEMENTAL MATERIAL ITEM NO. 9.1. District Insurance Program 10/24/24 9 YLWD Coverage Structure Pooled/Self-Insured Programs Coverage through ACWA JPIA Memorandum of Coverage + purchase of excess coverage Coverage Type Coverage Layer/Limit District Retention (Deductible) Comments Liability General Auto Public Officials Errors & Omissions ACWA JPIA $5M Excess $55M ACWA JPIA Rate Stabilization Fund Sub-limits Terrorism $5M Communicable Disease $10M PFAS $10M Subsidence $45M Lead $45M Mold $45M Workers’ Compensation ACWA JPIA $2 Million Excess Statutory ACWA JPIA Rate Stabilization Fund Property ACWA JPIA $10M Excess $500M $10,000 – real/personal property Various deductibles based on type of property and/or loss Crime ACWA JPIA $100k $1,000 Group Purchased Insurance Insurance policies purchased through ACWA JPIA’s group purchase program Coverage Type Coverage Layer/Limit District Retention (Deductible) Comments Cyber Liability Lloyd’s of London $3M $100,000 Includes first and third-party coverage; network security, privacy liability, cyber extortion SUPPLEMENTAL MATERIAL ITEM NO. 9.1. Other Agencies’ Policies 10/24/24 10 SUPPLEMENTAL MATERIAL ITEM NO. 9.1. Other Agencies’ Policies 10/24/24 11 Agencies Surveyed: •Moulton Niguel Water District •Santa Margarita Water District •Mesa Water District •Irvine Ranch Water District •City of Yorba Linda Similarities: 1.Reserve Structure a.Operating Fund – based on operating budget i.Rate Stabilization Funds b.Capital Fund – based on 5 to 30 year plan c.Emergency Fund 2.Days in Cash – from 270 days to 600 days SUPPLEMENTAL MATERIAL ITEM NO. 9.1. Reserve Policy with Staff Recommendations 10/24/24 12 SUPPLEMENTAL MATERIAL ITEM NO. 9.1. 1310/24/24 Reserve Balances & Target Levels With Staff Recommendations Description: The following reflects the reserve target levels for FY25 utilizing the current policy to determine the min and max levels as compared to the proposed target structure. Staff recommendations: •Have a single target level. •Allocate between funds annually, as appropriately. •Unrestricted reserves minimum target total at least 365 and a desired goal of 460 days in cash at the end of the fiscal year to maintain bond rating. •Establish a priority funding allocation when operating reserves exceed its funding level. Reserve Fund Categories Current Policy Min Target Levels Current Policy Max Target Levels FY25 August Balance Target Level Per Staff Recommendation Operating Reserve 12,222,213$ 24,444,426$ 21,508,642$ 29,333,311$ Emergency Reserve 8,266,450 16,532,900 10,021,218 8,266,450 Capital Replacement Reserve 13,632,431 39,747,243 15,266,550 25,044,362 Rate Stabilization Reserve 2,491,808 9,967,233 4,580,758 4,983,617 Employee Liability Reserve (Restricted)686,081 686,081 732,190 686,081 Conservation Reserve (Restricted)- 73,801 82,089 - Total 37,298,983$ 91,451,684$ 52,191,446$ 68,313,820$ SUPPLEMENTAL MATERIAL ITEM NO. 9.1. 1410/24/24 Staff Recommendation: Unrestricted Reserves Current Policy: Minimum of 25%, $12,222,213 and a maximum of 50% of the annual operating budget, $24,444,426, including interest expense, for both the water and sewer funds. Staff Recommendation: Target level at 60% of the annual operating budget, $29,333,311. Operating Reserves: Current Policy: Minimum level equal to 5%, $8,266,450, and a maximum level equal to 10%, $16,532,901,of the net capital assets for both the District’s water and sewer funds. Staff Recommendation: Target level at 5%, $8,266,450 of the net capital assets for both the District’s water and sewer funds. Emergency Reserves: Current Policy: Minimum target levels increased to 1.5 years of CIP & Outlay (Pay-Go) plus current fiscal year depreciation, $13,632,431. Maximum target levels increased to 3 years of CIP & Outlay (Pay-Go) plus 3 times the current fiscal year’s depreciation, $37,559,743. Staff Recommendation: Target level at 2 years of CIP & Outlay (Pay-Go) plus 2 times the current budget fiscal year depreciation, $25,044,362. Capital Reserves: Current Policy: Minimum level of 5%, $2,491,808, and maximum level of 20%, $9,967,233, of budgeted water sales for the current fiscal year. Staff Recommendation: Target level at 10%, $4,983,617 of budgeted water sales for the current fiscal year. Rate Stabilization Reserves: SUPPLEMENTAL MATERIAL ITEM NO. 9.1. $82,089 $732,190 $4,580,758 $15,266,550 $10,021,218 $21,508,642 $0 $5 $10 $15 $20 $25 $30 $35 $40 Conservation (Restricted) Employee Liability (Restricted) Rate Stabilization Capital Replacement Emergency Operating Millions Reserve Target Levels As of August 2024 Max Target Min Target Current Level Reserve Target Level Analysis: The Reserve categories with the balances in a green box is meeting the minimum target level. The balances in a red box is not meeting the minimum target level. Reallocation of reserve balances has been done as shown in June balances. SUPPLEMENTAL MATERIAL ITEM NO. 9.1. Current Target Difference Total Reserves Levels 52,191,446$ 68,313,820$ (16,122,374)$ $82,089 $732,190 $4,580,758 $15,266,550 $10,021,218 $21,508,642 $0 $5 $10 $15 $20 $25 $30 $35 $40 Conservation (Restricted) Employee Liability (Restricted) Rate Stabilization Capital Replacement Emergency Operating Millions Reserve Target Levels As of August 2024 Target Current Level SUPPLEMENTAL MATERIAL ITEM NO. 9.1.