HomeMy WebLinkAbout2008-03-11 - Finance-Accounting Committee Meeting Agenda PacketRL
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YORBA LINDA WATER DISTRICT
FINANCE - ACCOUNTING COMMITTEE MEETING
Tuesday, March 11, 8:30 a.m.
4622 Plumosa Drive, Yorba Linda - Tel: (714) 701-3020
AGENDA
COMMITTEE: STAFF:
Director William R. Mills, Chair Michael A. Payne, General Manager
Director Michael J. Beverage Diane Cyganik, Finance Director
Alternate: Director John W. Summerfield Sandi Van Etten, Sr. Accountant
INTRODUCTION OF VISITORS AND PUBLIC COMMENTS:
Any individual wishing to address the Committee is requested to identify themselves and state the matter
on which they wish to comment. If the matter is on this agenda, the Committee Chair will recognize the
individual for their comment when the item is considered. No action will be taken on matters not listed on
this agenda. Comments are limited to matters of public interest and matters within the jurisdiction of the
Water District. Comments are limited to five minutes.
ACTION ITEMS:
This portion of the agenda is for items where staff presentations and committee discussions are needed
prior to formal committee actions.
Selection of Independent Audit Firm for Fiscal Years ending June 30, 2008-2010.
Recommendation: That the Finance-Accounting Committee recommend to
the Board of Directors execution of a Professional Services Agreement,
subject to approval as to form by General Counsel, with Diehl, Evans &
Company, LLP to perform the Independent Audit Services for the fiscal years
ending June 30, 2008 through June 30, 2010.
2. Consider a Policy on the Disposition of Unexpected Refunds from Outside Agencies
- Continued from February 28, 2008 Board of Directors meeting.
Recommendation: That the Finance-Accounting Committee recommend to
the Board of Directors adoption of Resolution No. 08-01, Resolution of the
Board of Directors of the Yorba Linda Water District Adopting a Policy on the
Disposition of Unexpected Refunds from Outside Agencies..
-1-
DISCUSSION ITEMS:
This portion of the agenda is for matters such as technical presentations, drafts of proposed policies, or
similar items for which staff is seeking the advice and counsel of the Committee Members. This portion of
the agenda may also include items for information only.
3. Monthly status report on portfolio investments ending February 29, 2008. Report
by Keith Khorey of Wells Capital Management.
4. Investment Report for the month ending January 31, 2008.
5. MWD, MWDOC & OCWD Rate Projections.
6. District's share of the Property Tax revenue
ADJOURNMENT:
The next Finance-Accounting Committee meeting is scheduled for April 8, 2008 at 4:00
p.m.
Accommodations for the Disabled.
Any person may make a request for a disability-related modification or accommodation needed for that
person to be able to participate in the public meeting by telephoning Michael A. Payne, District
Secretary, at 714-701-3020, or writing to Yorba Linda Water District, P.O. Box 309, Yorba Linda, CA
92885-0309. Requests must specify the nature of the disability and the type of accommodation
requested. A telephone number or other contact information should be included so the District staff may
discuss appropriate arrangements. Persons requesting a disability-related accommodation should make
the request with adequate time before the meeting for the District to provide the requested
accommodation.
-2-
ITEM NO.
AGENDA REPORT
Committee Meeting Date: March 11, 2008
To: Finance-Accounting Committee
From: Michael A. Payne, General Manager
Staff Contact: Diane Cyganik, Finance Director
Reviewed by General Counsel: N/A Budgeted:
Funding Source:
CEQA Account No:
Compliance: N/A Estimated Costs:
Yes Dept: Bus
N/A
133780 Job No:
$ 59,960.00
1
Subject: Selection of an Independent Audit Firm for Fiscal Years ending June 30, 2008-2010
SUMMARY:
On February 12, 2008 staff solicited proposals from five (5) qualified firms of certified public
accountants to audit its financial statements for the fiscal years ending June 30, 2008, 2009,
and 2010 with the option of auditing its financial statements for two (2) subsequent fiscal years.
The Request for Proposals (RFP's) package was prepared in accordance with District
guidelines and the Government Finance Officers Association guidelines.
DISCUSSION:
The following report prepared by staff outlines information of the results from reviewing the
proposals. Out of the five proposals sent, the District received only two proposals for review.
Proposals were evaluated by a committee of four using three sets of criteria as addressed in the
attached report. Firms meeting the mandatory criteria had their proposals evaluated and scored
for both technical qualifications and price. However, the price factor was included in a sealed
cost bid and was not opened until the mandatory criteria and technical qualifications were
assessed.
Staff conducted interviews of both Diehl, Evans & Company and Moreland & Associates, Inc. to
determine the best fit for the District. Such interviews and presentations provided the firms with
an opportunity to answer any questions that the evaluation committee may have had on a firm's
proposal. The District selected a firm based upon the recommendation of the evaluation
committee as well as prior experience the District has had with the firms.
The annual cost for Audit services provided by Diehl, Evans & Company, LLP was at a price
not-to-exceed $19,400 for the year ending June 30, 2008, $19,980 for the year ending June 30,
2009, and $20,580 for the year ending June 30, 2010 totaling $59,960 for the three-year period.
Funds of $43,600 have been budgeted in the Two-Year Budget for fiscal years 2007-08 and
2008-09. Additional funds will be budgeted to cover the audit for the fiscal year ended June 30,
2010 in the next budget.
The annual costs for Audit services provided by Moreland & Associates, Inc. was $27,000 for
the year ending June 30, 2008, $28,000 for 2009 and $29,000 for 2010 totaling $84,000 for the
three-year period.
The selection was a difficult one because both firms met all the mandatory elements and were
rated within 2 points of each other in the technical qualifications, but when price was factored in,
Diehl, Evans & Company scored higher overall. The reason for making our selection of Diehl,
Evans & Company was two-fold: lower pricing and the fact that they have a full service tax
practice to assist the District in any tax issues that may arise.
PRIOR RELEVANT BOARD ACTION(S):
The Board of Director's has a policy that the District should enter into multi-year agreements of
no more than five years in duration when obtaining the services of independent auditors. The
District should also undertake a full-scale competitive process for the selection of independent
auditors at the end of the term of each audit contract, consistent with applicable legal
requirements. Ideally, auditor independence would be enhanced by a policy requiring that the
independent auditor be replaced at the end of the contract, as is often the case in the private
sector. The Board of Directors approved a multi-year contract with Charles Z. Fedak &
Company. However due to to the unsatisfaticy service provided to the District; after two-years
the contract was terminated.
STAFF RECOMMENDATION:
That the Finance-Accounting Committee recommend to the Board of Directors to execute a
Professional Services Agreement, subject to the approval as to form by General Counsel, with
Diehl, Evans & Company, LLP to perform the Independent Audit Services for the fiscal years
ending June 30, 2008 through June 30, 2010.
ITEM NO.
AGENDA REPORT
A"MOVED BY THE BOARD X DiRECTOR;i
Board Meeting Date: February 28, 2008 OF THE YORBALINDAWATER UISTRICT
To: Board of Directors
From: Michael A. Payne, General Manager
-l
Staff Contact: Diane Cyganik, Finance Director n ~C
f la
Reviewed by General Counsel: No Budgeted: N/A Tota9Budget: N/A
Funding Source: Water Operating Fund
CEQA Account No: Job No:
Compliance: N/A Estimated Costs: N/A Dept: Admin
Subject: Resolution No. 08-01
SUMMARY:
The purpose of this Resolution is to affirm the decision of the Board of Directors on December
13, 2007 regarding the disposition of unexpected refund checks.
DISCUSSION:
Attached for the Committee's consideration is Resolution No. 08-01. This resolution sets forth a
policy on refunding all future unexpected checks received from agencies such as the Municipal
Water District of Orange County (MWDOC) or the Metropolitan Water District of Southern
California (Met).
The Resolution describes the method of how the refunds will be made in Section No. 1. Section
2 is new to the Board of Directors. Staff recommends adding this section to address the issue
of the unexpected refund check not being large enough to offset the costs of staffs' time and
programming costs. Based on the number of connections used in the December 13, 2007
report of 23,387, staff recommends using $0.10 per connection as a base amount. This would
provide approximately $2,400 to cover staffs' time and outside programming expenses. These
funds would be deposited into the water operating fund, which would be used to offset operating
expenses.
PRIOR RELEVANT BOARD ACTION(S):
On December 13, 2007, the Board of Directors approved a one-time credit of $8.01 to all active
water accounts as of January 1, 2007, excluding the fire detector check accounts. This one
time credit was from an unexpected check from MWDOC in the amount of $187,344.83. The
Board has approved refunding similar credits in the past.
STAFF RECOMMENDATION:
That the Board of Directors adopt Resolution No. 08-01.
COMMITTEE RECOMMENDATION:
The Committee reviewed this report at their Committee meeting on February 12, 2008 and
recommends the Board of Directors approve the policy.
RESOLUTION NO. 08-01
RESOLUTION OF THE BOARD OF DIRECTORS
OF THE YORBA LINDA WATER DISTRICT
ADOPTING A POLICY ON THE DISPOSITION OF UNEXPECTED
REFUNDS FROM OUTSIDE AGENCIES
WHEREAS, the Board of Directors of the Yorba Linda Water District has, from time
to time, received unexpected refunds from water agencies such as the
Metropolitan Water District of Southern California and the Municipal
Water District of Orange County; and
WHEREAS, the Board of Directors of the Yorba Linda Water District has considered
many options on the disposition of the check(s) including: 1)an
immediate return to District customers in the form of a refund; 2) a one-
time refund to each currently active account; 3) a reduction in the water
rate for the next twelve months; 4) a reduction in the water rate for just
the summer months; 5) a return of the funds to the issuing agency with a
request that those funds be applied to offset future invoices; and 6)
deposit of the funds directly into the water operating fund account, and
WHEREAS, the Board of Directors has decided in the past that the fairest, quickest
and least expensive method was to issue a one-time refund credit to
each currently active account at the time of the refund, excluding fire
detector check accounts; and
WHEREAS, the Board of Directors has approved several refund credits in the past to
currently active accounts, excluding fire detector check accounts, with
the latest refund credit being approved on December 13, 2007; and
WHEREAS, the latest unexpected check was received from the Municipal Water
District of Orange County in an amount of $187,344.83; and
WHEREAS, On December 13, 2007, the Board of Directors approved and authorized
the General Manager to issue a one time refund credit of $8.01 to all
currently active accounts, excluding fire detector check accounts.
NOW THEREFORE BE IT RESOLVED by the Board of Directors of the Yorba Linda
Water District that the adoption of this Resolution hereby authorizes the General
Manager to process all future unexpected refund check(s) in the following prescribed
manner:
Section 1. By taking the total amount of the refund divided by the total number of
active water accounts, excluding the fire detector check accounts, on a
date specific selected by the General Manager.
Section 2. The refund shall be made as a one (1) time credit. The refunds will be
processed on the water billing cycle established by the District.
Section 3. If the water bill with the credit is returned by the U.S. Post Office for any
reason, those refund credits will be applied to the water operating
account.
Section 4. If the unexpected refund amounts to a credit of $0.10 or less on the
customers water bill, the General Manager shall deposit the entire check
into the water operating fund to offset the programming and administrative
costs.
Section 5. Resolution No. 08-01 becomes effective from this date forward.
PASSED AND ADOPTED this 28th day of February, 2008, by the following called vote:
AYES:
NOES:
ABSENT:
ABSTAIN
John Summerfield, President
ATTEST:
Michael A. Payne, Secretary
ITEM NO.
YORBA LINDA WATER DISTRICT
Statement of Cash Flows/Earnings for February 2008
I - Beginning Period Balances
As of 1/31/2008
Total Original Cost
18,433,787
+ Net Amort/Accr to Date
73,469
=Adjusted Book Value:
18,507,255
+ Accrued Interest Receivable
132,298
+ Unrealized Gain/(Loss)
4,869
= Total Market Value Plus Accrued Interest
18,644,422
II: Period Income Earned
+ Ending Accrual
37,162
- Begininning Accrual
(132,298)
+ Interest Received
144,831
- Interest Paid at Purchase
-
+ Interest Received at Sale
-
= Interest Earned in Period
49,6951
+ (Amort)/Accr This Period
9,666
= Monthly Portfolio Income
I $ 59,3611
+ Contributions
-
- Withdrawals
-
+ Realized Gain/(Loss)
-
- Fees Paid This Period
(3,193)
- Prior Period Unrealized Gain/Loss
4,869
+ End Of Period Unrealized Gain/Loss
(6,554)
+ Net Receipts/Deliveries in Kind
0.00
+ Adjustments
0.00
= Net Change to the Portfolio
(4,949) 1
=Total Market Value Plus Accrued
Interest
18,689,168
III: End of Period Balances
As of 2/29/2007
Total Original Cost
18,584,735
+ Net Amort/Accr to Date
73,825
= Adjusted Book Value
18,658,560
+ Accrued Interest Receivable
37,162
+ Unrealized Gain/(Loss)
(6,554)
= Total Market Value Plus Accrued
Interest
18,689,168
Reconciliation Difference:
-
Wells Capital Management
Holdings Report Yorba Linda Water District
Securities Held as of 2/29/08 on a Trade Date Basis 18611500
Identifier Credit Ratings Par Value Security Description Coupon Final Effective Days Duration Market Price Market Market Value Holdings as YTM at
Maturity Maturity to Eff Value +Accrued Percentage of Purchase
Maturity Interest Account or Reset
Moody's S &P Fitch
I. Cash & Cash Equivalents (Original maturity of 90 days or less)
Cash
U.S. DOLLARS (0) PENDING CASH (0) (0) 0.00% 0.00%
(0) 0 0.00 0 0 0.00% 0.00%
Money Mkt Securities
Agency Discount Note
Commercial Paper
Money Market Fund
VP7000038 11,934,998 WF ADV MONEY MKT TR #645
3.287
03/01/08
1
0.00
100.000
11,934,998
11,960,047
63.99%
3.29%
Cash & Cash Equivalents Total 11,934,998
1
0.00
11,934,998
11,960,047
44.80%
3.67%
II. Marketable Securities (Original maturity greater than 90 days)
11A: Short Term Securities (Remaining maturity of less than 365 days)
Corporate Securities
Corporate Obligation
073902HB7 A2 A A+ 400,000 BEAR STEARNS CO INC
3.456
04129/08
04129/08
60
0.17
99.691
398,765
399,994
2.14%
3.46%
38141EKG3 Aa3 AA- AA- 700,000 GOLDMAN SACHS GROUP INC
3.406
07/29/08
07/29/08
151
0.17
99.803
698,619
700,738
3.75%
3.41%
40429CCU4 Aa3 AA- AA- 400,000 HSBC FINANCE CORPORATION
5.824
09/15/08
09/15/08
199
0.04
99.268
397,072
401,926
2.13%
5.82%
52517PJ28 Al A+ AA- 400,000 LEHMAN BROTHERS HOLDINGS
3.115
05/29/08
05/29/08
90
0.00
99.647
398,587
398,621
2.14%
3.12%
59018YVZ1 Al A+ A+ 700,000 MERRILL LYNCH & CO
1168
08/22/08
08/22/08
175
0.20
99.206
694,441
694,933
3.72%
3.17%
617446A82 Aa3 AA- AA- 650,000 MORGAN STANLEY
3.151
11/21/08
11/21/08
266
0.06
99.259
645,184
645,696
3.46%
3.15%
7591EPAB6 Al A A+ 450,000 REGIONS FINANCIAL CORPORK
3.208
08/08/08
08/08/08
161
0.19
99.586
448,135
449,017
2.40%
3.21%
929903AQ5 Aa3 AA- AA- 700,000 WACHOVIA CORP
3.301
10/28/08
10/28/08
242
0.16
99.995
699,963
701,953
3.75%
330%
4,400,000
178
0.14
4,380,765
4,392,879
23.49%
3.49%
Govt Securities
Gov Agncy Obligation
4,400,000
178
0.14
4,380,765
4,392,879
23.49%
3.49%
Money Mkt Securities
Agency Discount Note
313588YRO AGY AGY AGY 1,450,000 FNMA
0.000
06127/08
06/27/08
119
0.32
99.220
1,438,690
1,438,690
7.71%
5.26%
Commercial Paper
50285LD43 P1 A -1 F -1 900,000 LAFAYETTE ASSET
0.000
04/04/08
04 /04/08
35
0.09
99.728
897,552
897,552
4.81%
5.43%
2,350,000
87
0.23
2,336,242
2,336,242
12.53%
5.33%
Short Terre Securities Total 6,750,000
146
0.18
6,717,007
6,729,121
36.01%
4.13%
119: Long -Tenn Securities (Remaining maturity greater than 365 days)
Corporate Securities
Corporate Obligation
The above information is an estimate of certain investment calculations and does not represent your audited statement of record.
Page: 1 of 2
Holdings Report
Securities Held as of: 2/29/08 on a Trade Date Basis
Identifier Credit Ratings Par Value
Moody's S&P Fitch
Long Term Securities Total 0
Marketable Securities Total 6,750,000
18,684,999
Security Description Coupon Final Effective Days
Maturity Maturity to Eff
Maturity
0
146
53
Yorba Linda Water District
18611500
Duration Market Price
Market
Market Value
Holdings as
YTM at
Value
+ Accrued
Percentage of
Purchase
Interest
Account
or Reset
0.00
0
0
0.00%
0.00%
0.18
6,717,007
6,729,121
36.01%
4.13%
0.06
18,652,006
18,689,168
100.00%
3.59%
The above information is an estimate of certain investment calculations and does not represent your audited statement of record. Page: 2 Of 2
Account Overview
Yorba Linda Water District
Funding Date: 10/25/2005
Portfolio Statistics as of: 2/29/2008
Account Characteristics:
Portfolio Yield to Maturity 3.59%
Total Unrealized Gains/(Losses) - Current: (6,554)
Total Net Realized Gains/(Losses) - Since Inception: 496
Total Long-Term Investments: -
Total Short Duration Investments/Money Market Secs: 18,652,006
Total Market Value: 18,652,006
Total Number of Issues in the Portfolio: 11
MARKET DATA
Overnight Fed Funds Rate: 3.00%
6-Month T-Bill Yield: 1.820/0
12-Month T-Note Yield: 1.57%
WELLS CAPITAL MANAGEMENT
Portfolio Summary Report Yorba Linda N ater District
For the period : 02/01/08 to 02/29/08 18611500
Portfolio Characteristics
Market Value:
18,652,005.94
Unrealized G /L:
(6,553.85)
Yield To Maturity:
3.59%
Portfolio Duration:
0.06 Years
Avg. Days to Maturity:
53
Avg. Portfolio Credit Quality:
Aa1
Market Data
02/29/08
01/31/08
Yields:
4.8%
0.60
6 Month Treasury Bill:
1.82%
2.06%
2 Year Treasury Note:
1.63%
2.17%
5 Year Treasury Note:
2.50%
2.82%
Fed Funds Target:
3.00%
3.00%
Portfolio Breakdown
Agency Discount Note
Commercial Paper
Corporate Obligation
Money Market Fund
Pending_Cash
Total
Credit Quality* Effective Maturity Distribution
Market Value % of Account
1,438,690.00 7.71%
897,552.00 4.81%
4,380,765.35 23.49%
11,934,998.48 63.99%
18, 652, 005.94 100.00%
l c a togs - e tary
o/n 2 to 90 91 to 180 181 to 1 year 1 to 2 years > 2 years
The above information is an estimate of certain investment calculations and does not represent your audited statement of record.
0.70
P1 /MIG1/VMIG1 /A -1
4.8%
0.60
Aaa /AAA
7.7%
Aa /AA
13.1%
0.50
A/A
10.4%
Baa /BBB
0.0%
0.40
Other
0.0%
Cash /Overnights
64.0%
030
Not Rated
0.0%
100.0%
0.20
Moody's Ratings - Primary
0.10
S &P Ratings - Secondary
Z;#,;, R t T rt
000
Market Value % of Account
1,438,690.00 7.71%
897,552.00 4.81%
4,380,765.35 23.49%
11,934,998.48 63.99%
18, 652, 005.94 100.00%
l c a togs - e tary
o/n 2 to 90 91 to 180 181 to 1 year 1 to 2 years > 2 years
The above information is an estimate of certain investment calculations and does not represent your audited statement of record.
ITEM NO. _3/_
AGENDA REPORT
Committee Meeting Date: Marchl1, 2008
To: Finance-Accounting Committee
From: Michael A. Payne, General Manager
Staff Contact: Diane Cyganik, Finance Director
Sandi Van Etten, Senior Accountant
Reviewed by General Counsel: N/A Budgeted:
Funding Source:
CEQA Account No:
Compliance: N/A Estimated Costs:
Subject: Investment Report for January 2008
N/A Total Budget: N/A
N/A
Job No:
N/A Dept:
SUMMARY:
Government Code Section 53607, et, seq., requires the person delegated to invest funds to
make a quarterly report of the investments to the legislative body.
DISCUSSION:
I am submitting the January 2008 monthly investment report for your information. I will submit a
formal report of the investments for Board action for the quarter ending March 31, 2008 upon
approval of the Investment Report.
Below is a chart summarizing the yields as well as terms and maturities for the month of
January 2008:
Avg.
Avg. Portfolio
Portfolio
# of
Avg. Term
Month Yield With Out
Yield With
Days to
of
Portfolio in
of 2008 Wells Capital
Wells Capital
Maturity
Days
January 3.69%
4.11%
78
45
Below is a chart comparing operating fund interest for current and prior fiscal years:
Actual Interest
Monthly, Operating Fund
Year-to-Date, Operating Fund
Budget
Interest Budget, Operating Fund
01 /31 /07 01/31/08
$ 14,784 $ 2,509
$125,407 $25,348
2006/2007 2007/2008
$333,470 $86,000
Interest earned on investments is recorded in the Fund that owns the investment.
Yorba Linda Water District
Investment Portfolio Report
January 31, 2008
Market
Value Cost
Certificates ofDenosit.
$ 100,000 100,000
$ 100,000 $ 100,000
Cash & Checking Accounts:
$ 163,602 $ 163,602
1,200 1,200
$ 164,802 $ 164,802
% Institution
Pacific Western
0.36% Total Certificates of Deposit
Wells Fargo Bank
Imprest Cash
0.59% Total
Monev Market Accounts:
$ 757,518 $ 757,518 Wells Fargo Money Market
317,914 317,914 Wells Fargo MM/Annexation
$ 1,075,432 $ 1,075,432 3.84% Total
$ 1,340,234 $ 1,340,234 4.79% Sub-total
Percent Investment Maturity
Yield Date Date
4.05% 02/04/05 02/04/08
4.05%
N/A
0.00%
1.89% N/A
1.89%
1.89%
1.82%
Ore Co Commingled Investment Pool:
$ 131,657 $ 131,657 0.47% Orange County Commingled Fund 4.97%
Cali or'j' Arbitrage Memt. Program:
,50 ,313 $ 6,501,313 23.24% California Arbitrage Mgmt. Program 4.50%
Monev Market Account:
$ 1,496,677 $ 1,496,677 5.35% US Bank/Revenue Bond
$ 9,469,881 $ 9,469,881 33.85% Sub Total Investments
Individual Management Account:
N/A
N/A
1.75% N/A
3.69%
$ 18,512,124
$ 18,507,255
66.15% Wells Capital Management
4.33% N/A
$ 27,982,005
$ 27,977,136
100% Total Investments
4.11%
Per Government Code requirements, the Investment Report is in compliance with the Yorba Water District's
Investment Policy and there are adequate funds available to meet budgeted and actual expenditures for the
six months.
V T-1/
Sandi Van Etten, Senior Accountant
1/31/08
Investment Summary Comparison
The distribution of investments in the portfolio both in dollars and as a percentage of the total
portfolio by funds is as follows:
Fund Description
01/31/08
Annexation Fees
$ 13,735,359
48.86%
Water Fund
-2,705,785
-9.62%
Bond Fund
1,496,677
5.32%
Sewer Fund
1,249,495
4.44%
Imp. Dist. No. 1
4,683,311
16.66%
Imp. Dist. No. 2
9.655.247
34.34%
$28.114.304
100.00%.
PRIOR RELEVANT BOARD ACTION(S):
These reports are presented to the Finance-Accounting Committee on a regular basis. Quarterly
Investment Reports are presented to the Board of Directors.
STAFF RECOMMENDATION:
That the Finance-Accounting Committee receive and file the report.
MUNICIPAL a
WATER
DISTRICT
OF
ORANGE
COUNTY
TO: Board of Directors
FROM: Kevin Hunt
General Manager
DISCUSSION ITEM
March 5, 2008
Staff Contact: Matt Stone
SUBJECT: MET 2008/09 WATER RATES
STAFF RECOMMENDATION
ITEM NO. 5
Staff recommends the Board of Directors to review and discuss this information.
SUMMARY
This report highlights key items on Metropolitan's proposed Fiscal Year 2008/09 Budget.
DETAILED REPORT
In January, Metropolitan staff presented three water rate options to the Board for
consideration. These ranged from a 9.8 % to 20% incre---_,
Rate
Current Rate
Option 1
Option 2
Option 3
Component
January 2008
January 2009
January 2009
January 2009
Tier 1
$73
$109
$134
$128
Tier 2
$171
$250
$250
$250
System Access
$143
$143
$143
$155
Stewardship
$25
$25
$25
$32
Power
$110
$110
$110
$116
Treatment
$157
$167
$167
$177
Treated Tier 1
$508
$554
$579
$608
Treated Tier 2
$606
$695
$695
$730
Budgeted (Y/N): I Budgeted amount:
Action item amount: Line item:
Fiscal Impact (explain if unbudgeted):
Discussion Item
The Metropolitan staff recommended Option 2 was a 14% increase and included the 9.8%
increase in Option 1 plus a $25 surcharge to deal with the supply cost impacts of the Delta
Smelt ruling. Option 3 would raise rates to a level that would fully recover Metropolitan's
cost of service.
Relationshio of Rates. PAYGO. and Reserve Fund Balances
In recent years, Metropolitan has deferred larger rate increases in favor of draws on the
water rate stabilization fund and/or reduced PAYGO funding. Metropolitan's January rate
letter included analysis of projected reserve levels for each rate option. [Note: the updated
March Board letter was not yet available when this item went to press. Specific reserve
level projections may vary slightly in the March letter.]
Under Option1, Metropolitan's Water Rate Stabilization Fund (WRSF) reserve balances
would drop well below the minimum target level of abut $200 million in 2009, 2010 and 2011
to as low as $45 million.
Under Option 2, the WRSF balance would drop as low as $81 million in 2009 and $96
million in 2010, assuming full PAYGO funding in 2009, 2010, and 2011.
In Option 3, the WRSF balance would dip to $104 million in 2009 and $166 million in 2006.
Metropolitan included analysis in its Budget workshop in February of a reduced PAYGO
scenario, that, when combined with Rate Option 2, would preserve higher WRSF balances
in 2009, 2010, and 2011. This would preserve additional cash reserves on hand to address
unexpected costs or to handle the impact of reduced sales due to wet weather or a
shortage. The trade off is that additional capital projects would be financed with debt at a
cost to future ratepayers.
Replenishment Rates
Proposed Replenishment Rates for each option are shown below:
i
Rate
Component
Untreated
Replenishment
Treated
Replenishment
Current Rate
January 2008
$258
$390
Option 1
January 2009
$294
$436
Option 2
January 2009
$319
$461
Option 3
January 2009
$338
$490
At the February water rate hearing at Metropolitan, two proposals were made by member
agencies regarding Replenishment Rates.
Page 2
Inland Empire Utilities Agency suggested that if Option 2 were selected by the Board, the
$25 surcharge not be applied to replenishment rates since it is meant to cover the costs of
replacing firm water. This would result in lower rates for Replenishment under Option 2.
Discussion Item
MWDOC and OCWD, along with support from members of AGWA, endorsed a change in
the calculation of the Replenishment Rate so that increases in the cost of Firm water are not
added on a dollar for dollar basis as they have been since 2003. Under this proposal, the
Replenishment rate would be set using the same relative proportion that Replenishment
had to Tier 1 in 2003 (about 70-71 This would result in lower rates than those proposed
above.
Neither proposal would have a revenue impact on Metropolitan in the near term, as
replenishment water is not expected to be available for sale in 2009. If conditions were to
be so favorable that Replenishment water became available, then Metropolitan should strive
to set prices that encourage maximum replenishment while water is available.
Readiness to Serve Charqe
Options 1 and 2 include a proposed increase in the Readiness to Serve Charge from $82
million to $92 million; Option 3 proposes an increase to $100 million. Under Option 2,
MWDOC's net RTS charge is expected to be $4.035 million, up somewhat from $3.691
million the prior year.
Capacity Charqe
Metropolitan's Capacity Charge would remain at $6200 per cubic foot per second of peak
day flow. MWDOC's Capacity Charge from Metropolitan would decrease to $3.152 million
(down from $3.507 million the prior year) due to reductions in our total peak flow. This is
the result of favorable conditions and improved system operations by many client agencies
as they have responded to Metropolitan's Capacity Charge.
Page 3
DRAFT-DRAFT-DRAFT-DRAFT
January 28, 2008
Proposed 2009 Water Rates and Charges
Metropolitan Water District
January 2008
Summary. Metropolitan has proposed changes to its rates and charges as shown in
the following table:
Effective on
Effective on
Rate Element
Januarv 1, 2008
Januarv 1. 2009
Change
% Change
Tier 1 Supply ($/ao
73
los
36
49.3%
Tier 2 Supply ($/ao
171
250
79
46.1%
Water Supply Surcharge ($/af)
25-
25
NA
System Access ($/af)
143
143
0.0%
Water Stewardship ($/af)
25
25
0.0%
System Power ($/af)
110
110
0.0%
Treatment ($/af)
157
167
10
6.3%
Capacity Charge ($/cfs)
6,800
6,800
0.0%
Readiness-to-Serve ($M)
82
92
10
12.2%
Trted Replenishment ($/af)
390
461 (1)
71
18.2%
Untrted Replenishment ($/af)
258
319(l)
61
23.6%
Treated IAWP ($/af)
394
465(l)
71
18.0%
Untreated IAWP ($/af)
261
322(l)
61
23.3%
Untreated Tier 1
351
412
61
17.3%
Untreated Tier 2
449
528
79
17.5%
Treated Tier 1 508 579 71 13.9%
Treated Tier 2 606 695 89 14.6%
(1) Replenishment and IAWP rates include the $25/af Water Supply Surcharge.
As shown above, Tier 1 Full Service Rates will be increasing by $61/af, while Treated Tier 1 Full Service
Rates will be increasing by $71/af. In addition, the current proposal will result in similar increases in the
replenishment and agricultural rates.
Revenue Impact. This proposed increase is expected to generate about $157 million in additional revenues
over calendar year 2009. This is based on water sales of 2.23 million acre-feet during the period.
Agenda Item #
AGENDA ITEM SUBMITTAL
Meeting Date: January 30, 2008 Budgeted: N/A
Budgeted Amount: N/A
To: Board of Directors Cost Estimate: N/A
Funding Source: N/A
Program/Line Item No: N/A
From: Mike Markus
Staff Contact: J. Kennedy/C. Miller
General Counsel Approval: N/A
Engineers/Feasibility Report: N/A
CEQA Compliance: N/A
Subject: BASIN PRODUCTION PERCENTAGE AND REPLENISHMENT
ASSESSMENT ESTIMATES FOR FISCAL YEAR 2008-09
SUMMARY
The Basin Production Percentage (BPP) setting methodology adopted in December 2007
calls for the District to provide an estimate of the BPP each January for the following fiscal
year to assist the Groundwater Producers in the preparation of their annual budgets.
Additionally the Producers request a Replenishment Assessment (RA) estimate.
Significant policy issues need to be decided by the OCWD Board over the next few months
which will have an impact on the setting of the FY 2008-09 RA and BPP. The estimated FY
2008-09 RA and BPP for two scenarios described in this report is provided in the following
table. The current RA is $237/af. The current BPP is 82%.
1 71% $235/af
2 66% $254/af
With Board approval, staff will provide these draft figures to the Groundwater Producers.
RECOMMENDATION
`1
Provide the FY 2008-09 Replenishment Assessment and Basin Production Percentage
estimates to the Groundwater Producers along with any additional Board comments.
BACKGROUND/ANALYSIS
A number of significant policy issues will impact the setting of the FY 2008-09 BPP and RA.
The District will need to make decisions on these issues within the next three months. They
include:
1. It is likely that MWD Replenishment water will not be available in FY 2008-09. In the
short term the District will need to determine how to operate the basin under this
condition. As discussed at the January 16, 2008 Board meeting, MWD expects the
District to generally drawdown the basin in FY 2008-09, to maintain a relatively high
BPP, and to keep demands off of the MWD system. This is the primary benefit
MWD receives in providing replenishment water and is how the District is operating
during the current FY 2007-08.
As shown on the following page with the adopted BPP equation, the value placed in
the "MWD Replenishment Water" box has a big impact on the resulting BPP. For
purposes of this report, staff has provided two scenarios or options
In the long term it appears that replenishment water may not be available for
extended periods due to recent events with the State's water supplies. MWD staff
has estimated that replenishment water may only be available 3 out of 10 years in
the future. This lack of replenishment water will likely create a need to reduce basin
pumping and the BPP. On average the BPP would need to decline by approximately
13%. If such occurs, it would be desirable to transition to this lower BPP over a few
years versus one year.
2. The District typically budgets to purchase 65,000 of of MWD replenishment water. If
the District decides to overdraft the groundwater basin in FY 2008-09, it would be
prudent to budget for replenishment water even though it will likely not be available
and to set aside the collected monies in the District's water fund to assist in refilling
the basin in the future. The District can expect to have approximately $23.8 million in
the water fund by the end of FY 2007-08. For the Scenario 1 and 2 FY 2008-09 RA
and BPP projections, the water budget was set so that by the end of the fiscal year,
the District's water fund balance would increase to approximately $31.1 million which
would provide for the purchase of an additional 65,000 of of MWD water at the
projected 2009 MWD in-lieu water rate.
The District should decide what is an appropriate maximum amount for the water
fund in the next few months. This amount could be set in relation to the basin's
accumulated overdraft which is projected to be around 293,000 of by the end of this
fiscal year. However other options are available.
3. It appears the State plans to take the District's Ad-valorem property tax revenues.
The District is working to prevent this from occurring. It would be very desirous to
know the outcome of this issue prior to establishing the RA in April 2008. Under
normal circumstances we would expect to receive approximately $18 million in FY
2008-09. If and how much may be taken is unknown at this time thus no property tax
loss was assumed for these estimates.
2
Although the previous passage of Proposition 1A in 2005 calls for the State to repay
this money within three years, it may be prudent to raise the RA to recover the lost
revenue in FY 2008-09 and then to give this money back in the form of lower rates in
the future if the State actually repays their taking. For planning purposes, the RA
needs to be increased approximately $3/af for each million dollars taken by the
State. In FY 2004-05 and FY 2005-06 the State took $7.4 million each year. The
District added a $24/af RA surcharge to recover the lost revenue for these two years.
BPP Fguation
As adopted in December 2007 the following equation is used to assist the District in
annually setting the BPP. Based upon historically water supply data through December
2007, staff has provided projections for the FY2008-09 BPP. In April staff will provide a
second BPP calculation for FY2008-09, which will be based upon historical data through
March 2007.
Adopted BPP Equation
Natural
SAR Storm Incidental
Flows using + Recharge using
Probability Probability + S Se Expected
Flows GWR System
(5-yr Avg) + Supplies
Other expected
supplies such as MWD
+ Alamitos Barrier and + Replenishment
Arlington Desalter Water
Total Water Demands
(5-yr Avg) -
Expected Planned
Wo Basin Refill
pumping (from table)
above BPP
= BPP
Expected Reclaimed & Local
Supplies
FY 2008-09 RA and BPP estimates have been provided for two scenarios:
Scenario 1 - Assumes the District will include 65,000 of of MWD replenishment water in the
BPP formula even though it is expected that very little to none of this water will actually be
available to purchase and recharge into the basin. Under this scenario the District would
completely satisfy the remaining expectations of the Metropolitan Water District (MWD) in
FY 2008-09 by further overdrafting the groundwater basin and keeping demands off of the
MWD system. The RA for this scenario actually declines for two reasons:
3
o The water budget has been greatly reduced to only fund the purchase
of 20,000 of of MWD replenishment water as previously mentioned;
and
o The BPP is still relatively high as the District is including 65,000 of of
MWD replenishment water in the BPP formula.
Scenario 2 - The District would include 40,000 of of Metropolitan replenishment water in
the BPP formula. This scenario assumes the District would satisfy the remaining
expectations of MWD over the next two fiscal years. In FY 2009-10 the District would
include 25,000 of of MWD replenishment water in the BPP formula. These amounts could
change for either year, but they need to add up to 65,000 af.
Five Year BPP Proiections
Five year BPP projections are provided for Scenarios 1 and 2. The scenarios assume
average local hydrology and MWD replenishment water will not be available. The District
has a financial model to make these future projections which has been updated with the
new BPP formula. The model can be run under different future hydrological scenarios such
as dry, wet or average conditions. The model assists staff in planning future rates and
managing the basin. These five year projections will be updated after the FY 2008-09 RA
and BPP have been established this spring and the budget process is completed.
Scenario 1 - Accumulated Overdraft, RA and BPP Projections
400
82% $288 $277 $287 $292
c 300 - - - 80%
_ 69%
Co
0 200
o $224 7100
60%
100
57% 60% 60% 0170 °
V 50%
Q
Cc
v 0 - - 40%
(100)
O -197 228 - - 30%
E (200) I -282 - 20%
o U -293 I -306
Q (300) -333 I 110%
.1111 T (400) 0%
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Accum. Overdraft (x 1,000) RA BPP
N
C
U
a~
a-
c
0
U
3
2
0-
C
.N
m
00
Note: For FY07-08 the base BPP was established at 74%. The BPP was subsequently raised to
82% under the MWD Supplemental (Super In-lieu) program requirements.
4
and OPP Projections
g0%
A Ulatied Q verdra ,
s2g2 00%
rn
,CUM $287
goenario 2 X279 70%
_-a2°lo 00% a
10
X00 6g% r g0% U
66°/o ° 60a/o 40%
2p0 $224 300 t]`.
00 -231 20%
-287 10%
(1 q0) _197 _308 _312 00/0
-293
(200 2012-13
i 2010.11 2011-12 ~ r
{00, 08-09 2009-10 P 1
20 - RA
(4001 47 2007-08 X
20p6'
Overdraft (
5
Take Action: ACWA State Budget Alert: LAO proposes new ERAF-like shift Pagel of 2
ITEM NO.
ACWA State Budget Alert:
LAO proposes new ERAF-
like shift
Friends of ACWA The state's Legislative Analysts' Office (LAO) released its annual
"Perspectives & Issues" report on the state budget yesterday and laid out a
series of alternatives to the Governor's January proposal. Unfortunately, the
LAO targeted water and wastewater special districts to shift property tax funds
to counties via a new ERAF-like fund called the Public Safety Realignment
Account (PSRA). The LAO is recommending $188 million be shifted each
year without an end to fund the transfer of responsibility of superivising
Take Action or
parolees from the state to the counties. LAO is also recommending that
Send this mess
within a couple of years the legislature should authorize county boards of
.
supervisors to decide whether the remaining 50% of water and wastewater
property tax revenues left after this $188 million shift should be reallocated to
e Your
other local government.
Assembl
Tell me more
you live
Californi
Talking Points
. Your Sta
(if you li
Californi
. According to the LAO estimate, the $188 million
represents 50% of the annual water and wastewater
Send This I
district property tax revenues.
. We are adamantly opposed to water districts being used as
If you are not r
an ATM for the state for a purpose that has absolutely no
Payne, click he
nexus with managing, conserving, recycling, storing or
Complete the f
delivering water in California.
send this mess
. The counties would receive $495 million from the newly
have participab
created PSRA from three sources: $188 million from
dust type in you
water and wastewater special district property taxes, $178
address then su
million from city Proposition 172 sales taxes, and $130
form.
million from vehicle license fees retained at the DMV
Email:*
. ACWA has met with Governor's staff, Dept. of Finance
mpayne@ylwd
staff and key budget and legislative staff since November
First Name:*
2007 to oppose potential Prop. 1A (2004) suspension
Michael
http://ga6.org/campaign/statebudgetalertlao/step 1 3/5/2008
ACWA State Budget Alert: LAO proposes new ERAF-like shift
Mike Payne
From: acwabox@acwa.com on behalf of ACWA [acwabox@acwa.com]
Sent: Friday, February 22, 2008 10:07 AM
To: Mike Payne
Subject: Dear Michael Payne,
Pagel of 3
ACWA State Budget Alert: LAO Take Action!
proposes new ERAF-like shift Instructions:
Click here to take action on this
Dear Michael Payne,
issue or choose the "Reply to
Sender" option on your email
The state's Legislative Analyst's Office (LAO) released
program.
its annual "Perspectives & Issues" report on the state
budget yesterday and laid out a series of alternatives
to the Governor's January proposal. The LAO
Tell-A-Friend:
targeted water and wastewater special districts to
Visit the web address below to
shift property tax funds to counties via a new ERAF-
tell your friends about this.
Friend
Tell a
!
-
like fund called the Public Safety Realignment
Account (PSRA). The LAO is recommending $188
million be shifted each year without end to fund the
transfer of responsibility of supervising parolees from
What's At Stake:
the state to the counties. LAO is also recommending
that within a couple of years the legislature should
a $188 million annually
authorize county boards of supervisors to decide
(50% of total water and
whether the remaining 50% of water and wastewater
wastewater property
property tax revenues left after this $188 million shift
tax revenues per year)
should be reallocated to other local governments.
• Another ill-advised
ERAF-like shift with no
end in sight
• This property tax hit
T
k
A
ti
combined with other
a
o
c
on
LAO proposed fee
increases along with
Send a letter to the following decision maker(s):
existing, ongoing ERAF
Your Assemblyperson (if you live in California)
shifts will gravely
Your State Senator (if you live in California)
impact water district's
financial stability
Below is the sample letter:
Subject: We oppose new ERAF-like PSRA Campaign Expiration Date:
March 16, 2008
Dear [decision maker name automatically inserted
here],
3/5/2008
ACWA State Budget Alert: LAO proposes new ERAF-like shift Page 2 of 3
Assemblymember or State Senator (write in their
name here)
State Capitol
Sacramento, CA 95814
Dear Honorable (write in their name here):
(Your agency's name here) is frankly outraged at the
recent Legislative Analyst's Office (LAO) proposal on
funding a criminal justice parole realignment plan on
the backs of water and wastewater districts and their
ratepayers throughout California to the tune of $188
million dollars annually.
Could the state be so desperate as to create another
ERAF scheme to take local government dollars away
from water districts to fund a parolee supervision plan
that has no nexus with the critical responsibility of
managing and delivering water to Californians?
Water districts have already paid millions of dollars
into the ERAF fund since the last recession of the
early 90s that they are still paying. Another additional
2-year ERAF shift just dumped approximately $600
million into ERAF since 2004. Does anyone oth er
than the LAO think it's a good idea to create a new
ERAF-like mechanism the Public Safety
Realignment Account, or PSRA to take more
revenues from special districts?
California is in the midst of a severe water crisis.
Slashing property tax funding to water and
wastewater districts throughout California would be
reckless and have severe impacts to residents
statewide. The LAO states that "this property tax
shift, in turn, would put pressure on districts to
increase service charges." Since water districts must
adhere to Proposition 218's strict rules raising
additional fees or taxes locally is extremely difficult at
a time when ratepayers already face rising costs for
energy and other essentials.
(Put concrete examples here of how your water
district was financially impacted in the latest ERAF
shift of 2004-05 and 2005-06 or the amount annually
that your district continues to transfer into the ERAF
fund. Include the actual projects that were delaye d
or shelved because of the ERAF shifts and how that
impacted your ratepayers. Detail any roadblocks
experienced with Prop. 218 to replace property tax
funds with fees)
(Your water district's name here) stands with ACWA
in opposing this LAO-proposed shift of $188 million in
property taxed from water and wastewater special
3/5/2008
ACWA State Budget Alert: LAO proposes new ERAF-like shift Page 3 of 3
disticts into the PSRA fund annually and without end.
We urge you to oppose this proposal when it is heard
and voted upon this spring.
Sincerely,
Michael Payne
4 Take won 1
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Leadership Advocacy Information
m%wanwaxom
Povsv rail by
GetActiv'e
3/5/2008
MC CORMICK, KIDMAN & BEHRENS, LLP
LAWYERS
650 TOWN CENTER DRIVE
SUITE 100
COSTA MESA, CALIFORNIA 92626
TELEPHONES (714) 755-3100
(800) 755-3100
FAX (714) 755-3110
www.mkblawvers.com
MEMORANDUM
TO: YORBA LINDA WATER DISTRICT
FROM: MCCORMICK, KIDMAN & BEI IRENS
DATE: JANUARY 23, 2008
RE: STATE BUDGET SITUATION AND POTENTIAL IMPACTS ON YOUR
REVENUES: PROCEDURES FOR DECLARING A FISCAL EMERGENCY AND
CONSEQUENCES UNDER PROPOSITIONS 1A AND 58
INTRODUCTION
This is to keep you informed of what we know regarding the recently proposed actions by
the Governor's office on the state budget, since those actions (and those of the Legislature in
response) may wind up affecting the revenues of local agencies.
SHORT ANSWER
The Governor is focusing on two angles in response to the reduced revenues the state has
experienced. First, he is attempting to reduce expenditures under the budget this year; second, he
is proposing a significantly reduced budget for the 2008-2009 Fiscal Year.' Local governments
were already concerned that the projected budget shortfall would involve another raid on local
revenue based on past history.
There are two Constitutional provisions previously passed by the voters that bear on in
this situation: Propositions 58 and IA. This memorandum will explain where we presently stand
with respect to both. Proposition 58 allows the Governor to take certain steps to deal with the
current budget (2007-2008). Proposition IA, if invoked, would apply to the 2008-2009 budget.
As discussed in this memo, Proposition 58's provisions were invoked by the Governor on
January 10 and, depending on the outcome of that process, could lead to a raid on local revenue
under Proposition 1A for 2008-2009.2
I California's Fiscal Year runs from July 1-June 30; thus, the present (2007-2008) Fiscal Year lasts until June 30,
2008 and the 2008-2009 Fiscal Year is from July 1, 2008-June 30, 2009.
2 Please note, Proposition 1A dealt with three types of local government revenues that had been
subjected to "shifts" before- ad valorem ("AV") Property Taxes, Vehicle License Fees, and
Memorandum on Local Government Budget Reallocation Concerns
For MKB Clients Receiving Ad Valorem Property Tax Revenue
January 23, 2008 - page 2
DISCUSSION AND RECOMMENDATION
1. The Governor has Invoked the Mid-Year Provisions of Prop. 58 to Resolve
the Present. Mid-Year 2007-2008 Budget Shortfall
While Proposition 58 (enacted by the voters in the March 2, 2004 election) has a
variety of elements,3 those at issue now are the "mid-year provisions" allowing the Governor to
declare a "fiscal emergency" if the state was facing shortfalls or spending deficiencies. The
Governor invoked these mid-year provisions on January 10, 2008. In doing so he issued a
proclamation declaring a fiscal emergency, as required, and then called for a Special Session.
Cal. Const., Art. IV, § 10(f)(1). The next step requires the proclamation to be "submitted by the
Governor to the Legislature, accompanied by proposed legislation" to address the fiscal
emergency. Cal. Const., Art. IV, § 10(f)(1). The Governor's websites talk about a proposal
known as the "Budget Stabilization Act," a constitutional amendment, in this regard but so far
does not include any actual proposed legislation. Once the second requirement is met, the
Legislature would be required to submit a bill to the Governor on the issue within 45 days or
cease all other business. Cal. Const., Art. IV, § 10(f)(2).
Summary. The invocation of Proposition 58 does not affect local governments immediately, but
once Proposition 58 is effectively invoked, then the Legislature has 45 days to submit a bill to
the Governor otherwise it must cease all other business. Cal. Const., Art. IV, § 10(f)(2). If the
Legislature and the Governor are unable to reach a compromise on budget cuts with respect to
the 2007-2008 budget, the temptation will increase for the Legislature and the Governor to seek
additional revenue from local government by suspending the protections that are contained in
Proposition IA for the 2008-2009 budget to help make up for problems in the 2007-2008 budget.
Sales Taxes. This memo focuses on the procedures and potential outcomes as they relate to AV
Property Taxes.
3 In addition to the mid-year provisions discussed herein, Proposition 58 included requirements for achieving and
maintaining a balanced budget and for a reserve "Budget Stabilization Account" within the State's General Fund to
make up for shortfalls, and prohibited future deficit borrowing.
Memorandum on Local Government Budget Reallocation Concerns
For MKB Clients Receiving Ad Valorem Property Tax Revenue
January 23, 2008 - page 3
II. In Negotiating over the FY 2008-2009 Budget, the Governor and the
Legislature Mav Resort to Borrowing from Local Government Property Tax
Revenues to Soften the Impact of the Governor's Proposed Cuts.
Proposition IA was enacted by the voters in 2004. Proposition IA was proposed as a
compromise between local government, the Legislature and the Governor after two prior revenue
shifts by the state. Proposition 1A thus provides certain protections against future revenue shifts.
For example, Proposition 1 A provided the general guarantee that AV Property Taxes would not
be reduced in any county below the percentage at which those taxes would have stood under
Constitution, Article XIIIA, § 1(a), and the statutes in effect on November 3, 2004. See Cal.
Const., Art. XIII, 25.5(a)(1)(A). That guarantee could be suspended, "[b]eginning with the
2008-2009 fiscal year," only if
• The Governor issues a proclamation declaring that "due to a severe state fiscal
hardship," the suspension of the guarantee was necessary, Cal. Const., Art. XIII §
25.5(a)(1)(B)(i),
• The Legislature enacts an urgency statute, on that subject only, on a rollcall vote
with 2/3 the membership of each house concurring, supporting the suspension,
Cal. Const. Art. XIII § 25.5(a)(1)(B)(ii),
• The Legislature enacts a statute, no later than the effective date of that urgency
statute, providing for "the full repayment to local agencies of the total amount of
revenue losses, including interest as provided by law," resulting from the urgency
statute, and
• That repayment was required to be made not later than the end of the third fiscal
year immediately following the fiscal year of the suspension. Cal. Const., Art.
XIII § 25.5(a)(1)(B)(iii).
Under the terms of Proposition IA, the Legislature cannot resort to a suspension more
than twice in a 10-year fiscal period or if the repayment from the prior suspension has not yet
been made. Cal. Const. Art XIII, 25.5(a)(1)(C)(i), (ii). Finally, Proposition IA limits the
amount of AV Property Taxes that may be borrowed to 8 % per county of the total AV Property
Taxes that were allocated among local agencies in that county in the year of suspension. Cal.
Const., Art. XIII § 25.5(a)(1)(C)(iv). Although the 8 % limitation and the invocation of property
tax revenue apportionment statutes in effect on November 3, 2004 should afford protection
against the property tax wipeouts experienced by some agencies in the last ERAF shift, the
allocation of another ERAF-type shift under Proposition IA is uncertain and will be of critical
importance.
Local governments have fears that such legislation would likely be resorted to by the
Legislature itself in compromise with the Governor' office on the upcoming budget, but it is our
present understanding that Prop. IA legislation has not yet been proposed by the Governor.
Memorandum on Local Government Budget Reallocation Concerns
For MKB Clients Receiving Ad Valorem Property Tax Revenue
January 23, 2008 - page 4
Summary. Proposition 1 A affords constitutional protection to local governments against
the types of AV Property Tax raids imposed by the state in prior fiscal years. So far, despite
local governments' fears, the Governor has not taken steps to suspend the protections of
Proposition IA. Nevertheless, in the coming annual budget negotiations, the Legislature may
seek to go that route rather than to make other tough state-level budget choices. In the "State of
the State" speech, the Governor did discuss a need for Constitutional budget reform. If
Proposition 1 A's protections are suspended, then any amounts taken from local government-
devoted property taxes would have to be repaid with interest within 3 years, and the maximum
amount taken from governments in any one county could not exceed 8 % of the AV Property
Taxes allocated to that county in the preceding fiscal year.
We will continue to monitor the situation to keep you up to date. In the meantime, we
propose that you submit letters to your legislators and lobbying representatives opposing any
takeaways from local government.