Loading...
HomeMy WebLinkAbout2016-06-23 - Resolution No. 16-08 RESOLUTION NO. 16-08 RESOLUTION OF THE BOARD OF DIRECTORS OF THE YORBA LINDA WATER DISTRICT ADOPTING THE FINANCIAL RESERVES POLICY AND RESCINDING RESOLUTION NO. 15-14 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 current policy is being revised as changes have been made to the existing Financial Reserves Policy. NOW THEREFORE, the Board of Directors of the Yorba Linda Water District does find, determine, and resolve: Section 1. The financial reserves policy is attached hereto as Exhibit "A". Resolution No. 16-08 Adopting the Financial Reserves Policy 1 Section 2. This Financial Reserves Policy adopted herein takes effect on July 1, 2016 and Resolution No. 15-14 is hereby rescinded on July 1, 2016. PASSED AND ADOPTED this 23rd day of June 2016 by the following called vote: AYES: Director Beverage, Collett, Hawkins, Kiley and Melton NOES: None ABSTAIN: None ABSENT: None - Ric Collett, President Yorba Linda Water District ATTEST: Marc Marcantonio, Secretary Yorba Linda Water District Reviewed as to form by General Counsel: . Arthur 0. Kid ma sq. Kidman Law LLP Resolution No. 16-08 Adopting the Financial Reserves Policy 2 RESOLUTION NO. 16-08 EXHIBIT A FINANCIAL RESERVES POLICY A. 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, financing of long-term capital projects and funding availability for emergencies should the need arise. Interest derived from reserve balances shall be credited to the reserve account from which it was earned. B. CATEGORIES: YLWD shall accumulate, maintain and segregate its reserve funds into the following categories: Restricted and Designated Reserves 1 . Board Designated Reserves; and 2. Contractually Restricted Reserves. C. SCOPE: This policy will assist the Board of Directors in establishing: 1 . Target levels for reserve funds; 2. Requirements for the use of reserve funds; and 3. Periodic review requirements for each reserve. D. 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. E. RESTRICTED AND DESIGNATED RESERVES: 1 . Board Designated 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 designated for a specific purpose and use by the Board of Directors. Adopted June 23,2016 Page 1 of 4 1.0 Operating Reserve A. 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. B. Target Level — The Government Finance Officers Association (GFOA) recommends that funding should be no less than one to two months (or 8% - 17%) of the District's annual operating budget. The District's current target will be a minimum of 8% and a maximum of 17% of the annual operating budget for both the water and sewer funds. C. 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. 1.1 Emergency Reserve A. Definition and Purpose — Established to provide protection recovery to the District and its customers for losses arising from an unplanned event or circumstance. The reserve level combined with YLWD's existing insurance policies should adequately protect YLWD and its customers in the event of a loss. B. Target Level — Established at a minimum level equal to $1,000,000 for the water fund and shall accumulate interest and annual contributions as determined by the District's annual operation to a maximum level of $4,000,000. The target for sewer will be a minimum of $250,000 and a maximum of$1,000,000. C. 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. 1.2 Capital Replacement Reserve A. Definition and Purpose— Established to provide capital repair and replacement funding as the District's infrastructure deteriorates over its expected useful life. B. Target Level — The Board-approved 2010 Asset Management Plan recommended that the annual contribution to this reserve be at a minimum level of$1,820,000 for the water fund and $345,000 for the sewer fund, less money Adopted June 23,2016 Page 2 of 4 set aside for the Maintenance Reserve. Funding with available funds based on the District's operations shall be allocated quarterly. C. Events or Conditions Prompting the Use of the Capital Replacement Reserve Through the annual budget process, staff shall recommend anticipated asset replacement 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. 1.3 Maintenance Reserve A. Definition and Purpose — Established to provide funding for non-scheduled capital asset repair and replacement. B. Target Level — $200,000 subject to an annual review. C. Events or Conditions Prompting the Use of the Maintenance Replacement Reserve — Unplanned failure of assets including but not limited to pumps, motors and major facility repairs. 1.4 Debt Service Reserve A. Definition and Purpose — Established to provide funding for semi-annually scheduled debt service payments. B. Target Level — The District's highest annual debt service payment — currently $2,723,509. C. Events or Conditions Prompting the Use of the Debt Service Reserve — Semi- annual debt service payments will be made out of this fund, with funding on the water rate replenishing the fund annually. 1.5 Employee Liabilities Reserve A. 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. B. Target Level —The annual contribution will be $100,000 ($93,000 for water and $7,000 for sewer) to be evaluated and/or adjusted annually thereafter based on an analysis of current employees' vacation and sick time accrued and actuarial determinations of future retiree costs. As of July 1 , 2015, an actuary determined that the District's Other Post Employment Benefit (OPEB) liability Adopted June 23,2016 Page 3 of 4 was $2,136,644. When combined with a liability on the District's books for vacation, compensatory and sick time of $1 ,204,595 at June 30, 2015, the target is projected to be approximately $3,341,239 for the combined water and sewer enterprises. C. 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. 1.6 Conservation Reserve A. Definition and Purpose — Established to provide funding for district-wide conservation efforts. B. Target Level — Funding shall be established as the net result of administrative penalties assessed less allowed expenditures of each fiscal year. C. 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. 2. Contractually Restricted Reserves: These are funds held to satisfy limitations set by external requirements established by creditors, grant agencies or law. Examples include stipulated bond covenants and reserves held with a fiscal agent. 2.0 US Bank 2008 COP Reserve A. Definition and Purpose — Established to cover reserve requirements held with a designated fiscal agent (US Bank) for the 2008 Certificates of Participation. B. Target Level — Funding shall be held in an amount equal to $2,147,096. C. Events or Conditions Prompting the Use of the Contractually Restricted Reserve — This reserve may be utilized as needed by the fiscal agent to pay any outstanding debt service payments not covered by the District within the specified billing and due dates. End of Policy Document Adopted June 23,2016 Page 4 of 4