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2017-09-26 - Board of Directors Meeting Agenda Packet (B)
AGENDA YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS REGULAR MEETING Tuesday, September 26, 2017, 6:30 PM 1717 E Miraloma Ave, Placentia CA 92870 1. CALL TO ORDER 2. PLEDGE OF ALLEGIANCE 3. ROLL CALL J. Wayne Miller, President Al Nederhood, Vice President Andrew J. Hall, Director Phil Hawkins, Director Brooke Jones, Director 4. ADDITIONS/DELETIONS TO THE AGENDA 5. INTRODUCTIONS AND PRESENTATIONS 5.1. Elected Official Liaison Reports 6. PUBLIC COMMENTS Any individual wishing to address the Board is requested to identify themselves and state the matter on which they wish to comment. If the matter is on the agenda, the Board 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 matters of public interest and matters within the jurisdiction of the Water District. Comments are limited to three minutes. 7. CONSENT CALENDAR All items listed on the consent calendar are considered to be routine matters, status reports, or documents covering previous Board instructions. The items listed on the consent calendar may be enacted by one motion. There will be no discussion on the items unless a member of the Board, staff, or public requests further consideration. 7.1. Minutes of the Board of Directors Regular Meeting Held July 25, 2017 Recommendation: That the Board of Directors approve the minutes as presented. 7.2. Payments of Bills, Refunds, and Wire Transfers Recommendation: That the Board of Directors ratify and authorize disbursements in the amount of $1,673,851.15. 7.3. Claim for Damages Filed by Wailea Property Partners, LLC. Recommendation: That the Board of Directors reject the claim filed by Wailea Property Partners, LLC and refer it to ACWA/JPIA for further handling. 7.4. Reschedule Regular Board Meeting in December Recommendation: That the Board of Directors reschedule the regular meeting on Tuesday, December 26, 2017 to Wednesday, December 27, 2017 at 8:30 am. 8. ACTION CALENDAR This portion of the agenda is for items where staff presentations and Board discussions are needed prior to formal Board action. 8.1. Approval of Change Order Number 1 for the Fairmont Booster Pump Station Upgrade Project Recommendation: That the Board of Directors approve Change Order No. 1 for $220,647.28 and 40 additional calendar days to Pacific Hydrotech Corporation for construction of the Fairmont Booster Pump Station Upgrade Project, Job No. 2010- 11B. 8.2. Financial Reserves Policy for the Remainder of Fiscal Year 2018 Recommendation: That the Board of Directors approve Resolution No. 17-31 adopting a Financial Reserves Policy for the remainder of Fiscal Year 2018 and rescinding Resolution No. 17-18. 8.3. Management of District's Other Postemployment Benefit (OPEB) Liabilities Recommendation: That the Board of Directors direct staff to pay down the District's OPEB liability in the amount of $557,515.30 per year for a period of three years. 8.4. Management of District's Pension Liabilities Recommendation: That the Board of Directors: (1) implement a 10-year pay down strategy for eliminating the PERS Pension Liability, starting with an initial payment of $1,105,248 in July 2018; (2) direct staff to open a PRSP account with PARS; and (3) include in future budgets the required deposit to be made in July of each year for a period of 10 years until the District attains the 90% funded status. 8.5. Disposition of Positive Net Position as of June 30, 2017 Recommendation: That the Board of Directors consider the disposition of the District's positive net position as of June 30, 2017 and provide direction to staff. 8.6. ACWA Region 10 Election of Officers and Board Members for 2018-2019 Term Recommendation: That the Board of Directors consider voting for the Nominating Committee's recommended slate or individual candidates in the ACWA Region 10 Board Election. 9. DISCUSSION ITEMS This portion of the agenda is for matters that cannot reasonably be expected to be concluded by action of the Board of Directors at the meeting, such as technical presentations, drafts of proposed policies, or similar items for which staff is seeking the advice and counsel of the Board of Directors. 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. Budget to Actual Reports for the Month Ending August 31, 2017 9.2. Cash and Investment Report for Period Ending August 31, 2017 10. REPORTS, INFORMATION ITEMS, AND COMMENTS 10.1. Directors' Reports 10.2. General Manager's Report 10.3. General Counsel's Report 10.4. Future Agenda Items and Staff Tasks 11. COMMITTEE REPORTS 11.1. Interagency Committee with MWDOC and OCWD (Miller/Nederhood) · Next meeting scheduled September 28, 2017 at 4:00 p.m. 11.2. Joint Agency Committee with City of Yorba Linda (Miller/Hawkins) · Minutes of the meeting held September 18, 2017 at 4:00 p.m. (To be provided when available.) · Next meeting scheduled December 18, 2017 at 4:00 p.m. at YL City Hall. 11.3. Joint Agency Committee with City of Placentia (Miller/Nederhood) · Next meeting yet to be scheduled. 12. INTERGOVERNMENTAL MEETINGS 12.1. YL Planning Commission - September 13, 2017 (Hawkins - As Needed) 12.2. YL Mayor's Prayer Breakfast - September 14, 2017 (Jones/Miller/Nederhood) 12.3. ACWA Region 5 Tour - September 17, 2017 (Jones) 12.4. YL City Council - September 19, 2017 (Hall) 12.5. MWDOC - September 20, 2017 (Nederhood) 12.6. SDLA Governance Foundations Workshop - September 25, 2017 (Hall) 13. BOARD OF DIRECTORS ACTIVITY CALENDAR 13.1. Meetings from September 27 - November 30, 2017 14. ADJOURNMENT 14.1. The next Regular Board of Directors Meeting will be held Tuesday, October 10, 2017. Closed Session (if necessary) will begin at 5:30 p.m. and regular business at 6:30 p.m. Items Distributed to the Board Less Than 72 Hours Prior to the Meeting Pursuant to Government Code section 54957.5, non-exempt public records that relate to open session agenda items and are distributed to a majority of the Board less than seventy-two (72) hours prior to the meeting will be available for public inspection in the lobby of the District’s business office located at 1717 E. Miraloma Avenue, Placentia, CA 92870, during regular business hours. When practical, these public records will also be made available on the District’s internet website accessible at http://www.ylwd.com/. 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 the Executive 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. ITEM NO. 7.1 AGENDA REPORT Meeting Date: September 26, 2017 Subject:Minutes of the Board of Directors Regular Meeting Held July 25, 2017 STAFF RECOMMENDATION: That the Board of Directors approve the minutes as presented. ATTACHMENTS: Name:Description:Type: 2017-07-25_-_Minutes_-_BOD.doc Minutes Minutes Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 1 2017-XXX MINUTES OF THE YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS REGULAR MEETING Tuesday, July 25, 2017, 6:30 p.m. 1717 E Miraloma Ave, Placentia CA 92870 1. CALL TO ORDER The meeting was called to order at 6:30 p.m. 2. PLEDGE OF ALLEGIANCE 3. ROLL CALL DIRECTORS PRESENT STAFF PRESENT J. Wayne Miller, President Marc Marcantonio, General Manager Al Nederhood, Vice President Steve Conklin, Engineering Manager Andrew J. Hall, Director John DeCriscio, Operations Manager Phil Hawkins, Director Delia Lugo, Finance Manager Brooke Jones, Director Annie Alexander, Executive Assistant Vivian Lim, Human Resources Analyst Kelly McCann, Senior Accountant Rick Walkemeyer, IS Administrator ALSO PRESENT Art Kidman, Partner, Kidman Law LLP (Departed at 7:15 p.m.) Andrew Gagen, Partner, Kidman Law LLP (Arrived at 7:15 p.m.) Brett Barbre, Director, MWDSC and MWDOC Beth Haney, Councilmember, City of Yorba Linda 4. ADDITIONS/DELETIONS TO THE AGENDA None. 5. INTRODUCTIONS AND PRESENTATIONS 5.1. Elected Official Liaison Reports Director Brett Barbre reported on topics discussed during a MWDSC meeting he’d attended earlier in the day and commented on the financial impact of the California WaterFix. Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 2 6. PUBLIC COMMENTS Mr. Dave Ramocinski (resident) commented on the City of Anaheim’s water rates as compared to the District’s. Staff was tasked with providing a report regarding this matter at a future Board meeting. 7. CONSENT CALENDAR Director Hall stated that he would need to abstain from voting on Item Nos. 7.2. and 7.3. as he wasn’t present at the meeting. Director Jones requested to remove Item No. 7.5. from the Consent Calendar for separate discussion. Vice President Nederhood stated that he had questions related to Item No. 7.4. Director Hawkins made a motion, seconded by Director Jones, to approve Item Nos. 7.1., 7.2., and 7.3. on the Consent Calendar. Motion carried 5-0 with Director Hall abstaining from voting on Item Nos. 7.2. and 7.3. 7.1. Minutes of the Board of Directors Regular Meeting Held May 9, 2017 Recommendation: That the Board of Directors approve the minutes as presented. 7.2. Minutes of the Board of Directors Workshop Meeting Held May 23, 2017 Recommendation: That the Board of Directors approve the minutes as presented. 7.3. Minutes of the Board of Directors Regular Meeting Held May 23, 2017 Recommendation: That the Board of Directors approve the minutes as presented. ITEMS REMOVED FROM THE CONSENT CALENDAR FOR SEPARATE ACTION 7.4. Payments of Bills, Refunds, and Wire Transfers Staff responded to questions regarding a few items on the check register. Director Hawkins made a motion, seconded by Director Jones, to ratify and authorize disbursements in the amount of $4,472,758.00. Motion carried 5-0. Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 3 7.5. Claim for Damages Filed by Joseph Goudlock for Kennedy Wilson Properties, Ltd. Staff provided an overview of the District’s process for responding to service calls after hours and answered questions specific to the claim. Director Jones made a motion, seconded by Director Miller, to reject and deny the claim filed by Joseph Goudlock for Kennedy Wilson Properties, Ltd. in the amount of $1,585.00. Motion carried 5-0. 8. ACTION CALENDAR 8.1. Sewer Charges Collected on Tax Roll for Fiscal Year 2018 Staff reviewed the process for collecting sewer maintenance charges from customers connected to the District’s sewer system who either receive water service from another purveyor or don’t receive a monthly bill. Director Hall made a motion, seconded by Director Jones, to adopt Resolution No. 17-26 Electing to Have Certain Sewer Maintenance Charges Collected on the Fiscal Year 2018 Tax Roll and Superseding Resolution No. 16-13. Motion carried 5-0 on a Roll Call vote. 8.2. Mitigated Negative Declaration for the Well 22 Project Staff reviewed the purpose of and legal requirements for conduct of the study. It was determined that the proposed project could be implemented without causing significant adverse environmental impacts with the incorporation of identified mitigation measures. Comments received during the public review period are included and addressed in the document. Ms. Pat Nelson (resident) inquired as to the location of the project. Director Hawkins made a motion, seconded by Director Hall, to: (1) adopt the proposed Mitigated Negative Declaration and make a finding on the basis of the whole record (including the Initial Study and comments received) that there is no substantial evidence that the project will have a significant effect on the environment and that the Mitigated Negative Declaration reflects the Board of Directors' independent judgment and analysis; (2) approve the proposed project, adopt the Mitigation Monitoring and Reporting Program, and authorize staff to file a Notice of Determination for the Project; and (3) determine that the Board Secretary is the custodian of the documents and materials which constitute the record of proceedings upon which the Board's decision is based and such documents and materials will be at the District's headquarters. Motion carried 5-0. Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 4 8.3. Administrative Penalty Conservation Credit (Nederhood) Staff reviewed the purpose of the proposed conservation credit, methodology for calculating the amount, and how the funds suggested to be retained from the Conservation Reserve would be utilized. Staff explained that should the Board desire customer notification of the credit utilizing special bill envelopes and electronic media, the total amount proposed to be retained from the Conservation Reserve would need to be increased approximately $2,182. The remaining funds would then be credited in an equal amount to active customer connections for water service which would liquidate the Conservation Reserve. Bill Lawrence (resident) asked about the pending refund to the Placentia- Yorba Linda Unified School District (PYLUSD) as a result of the agency’s appeal of certain penalties. Terry Harris (resident) spoke in favor of using the remaining funds in the Conservation Reserve to implement a water use efficiency program and in favor of exploring budget based rate structures. Julia Schultz (resident) spoke in favor of utilizing the remaining Conservation Reserve funds to implement a water use efficiency program and against the issuance of a conservation credit and budget based rate structures. Pat Nelson (resident) spoke in favor of utilizing the remaining Conservation Reserve funds to implement a customer rebate program for the purchase of water efficient devices and against budget based rate structures. Jeff Decker (resident) spoke in favor of issuing a conservation credit from the remaining funds in the Conservation Reserve. Bill Lawrence (resident) spoke in favor of utilizing the remaining Conservation Reserve funds to implement a water use efficiency program and commented on the potential credit resulting from the District’s net position at the end of FY17. Greg Schultz (resident) spoke in favor of utilizing the remaining Conservation Reserve funds to implement a customer rebate program for the purchase of water efficient devices. Discussion followed regarding budget based rate structures, alternative techniques for encouraging water use efficiency, the community’s conservation efforts during the recent drought, limitations of the state’s aerial data collection efforts, and other agencies methods for educating customers regarding the potential impact of budget based rate structures. Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 5 Director Hall made a motion, seconded by Director Jones, to approve a one-time application of a Conservation Credit in an equal dollar amount to active customer connections for water service and authorize $149,882.19 to be retained from the Conservation Reserve for the purposes of: (1) completing preliminary analysis work towards investigating compliance with Governor Brown’s Executive Order B-37-16 “Making Conservation a California Way of Life” for the Yorba Linda Water District; and (2) processing a refund to PYLUSD for an appeal that was granted on the basis of “health and safety”. Motion carried 5-0. Staff indicated that the conservation credit would be applied to all active customer connections for water service as of July 25, 2017 6:00 p.m., including those that may be delinquent. Inactive connections would not receive a credit. Customers receiving paper bills will be notified of the credit during the next four billing cycles. 8.4. Potential Customer Credit Resulting from District’s Net Position as of June 30, 2017 (Nederhood) Staff explained that the analysis associated with this item would not be available until October 2017 following completion of the FY17 audit and presentation of the Comprehensive Annual Financial Report. Further discussions are necessary with the District’s legal counsel, financial advisors, bond counsel and auditors regarding the potential impacts on YLWD’s future financial stability. Board discussion of the District’s current unfunded liabilities, reserve balances and debt service requirements prior to consideration of this matter is also needed. Jeff Decker (resident) commented on the District’s historical revenues and expenses and a handout he had prepared and distributed to the Board. He also spoke against the establishment of a rate stabilization reserve. Terry Harris (resident) spoke in favor of issuing a customer credit resulting from the District’s net position at the end of FY17. Julia Schultz (resident) spoke in favor of funding future capital improvement projects and the establishment of a rate stabilization reserve. Pat Nelson (resident) spoke in favor of the establishment of a rate stabilization reserve and funding future repairs and replacements and capital improvement projects. Bill Lawrence (resident) commented on setting up a mechanism for issuing customer credit’s resulting from the District’s net position and the rate stabilization reserve. Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 6 Staff noted some of the pending adjustments to the year-end financials and suggested the Board consider scheduling a workshop meeting the following month to discuss the District’s bond related obligations and the development of a long range financial plan. Discussion ensued regarding the District’s bond related obligations, the purpose of the rate stabilization reserve, information contained in the preliminary ProForma financial statements for FY17, the benefits of issuing bonds to help fund construction of the Fairmont Booster Pump Station Upgrade Project, current reserve balances, the proposed customer credit resulting from the District’s net position at the end of FY17, and YLWD’s financial obligations and reserve targets. Director Miller made a motion, seconded by Director Jones, to postpone making a decision regarding this matter until after a workshop meeting can be scheduled with the District’s financial advisors and bond counsel to discuss YLWD’s financial obligations. Motion carried 5-0. The workshop meeting was then scheduled for Thursday, August 24, 2017 at 4:30 p.m. 8.5. California Special Districts Association (CSDA) 2017 Board Elections Staff reviewed the election information as provided by CSDA. Brief discussion of each of the candidates followed. Director Hawkins made a motion, seconded by Director Jones, to vote for John DeMonaco of Chino Valley Independent Fire District for Seat C in the Southern Network in the CSDA 2017 Board Election. Motion carried 5-0. 9. DISCUSSION ITEMS 9.1. Budget to Actual Statements for Month Ending June 30, 2017 Staff provided an overview of the statements touching on the cumulative demand recovery for FY17 as compared to FY16. 9.2. Cash and Investment Report for Period Ending June 30, 2017 Staff briefly reviewed the summary report highlighting the interest earned and reserve balances, and noted major expenditures scheduled in the next few months. 9.3. District Unfunded Long-term Projects The Board determined to postpone discussion of this matter to a future workshop meeting. Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 7 9.4. Request for Proposals (RFP) for Contractual Services (Nederhood/Miller) The Board and staff discussed the number of active contracts, periodic review of existing contracts and the process for issuing RFP’s, and the status of revisions to the District’s purchasing policy. 10. REPORTS, INFORMATION ITEMS, AND COMMENTS 10.1. Directors' Reports None. 10.2. General Manager's Report General Manager Marc Marcantonio reported on local agency efforts to help recharge the groundwater basin and scheduled flushing of the District’s water distribution system. Staff was instructed to place an item on the next regular meeting agenda for the Board to consider the District’s position on AB 1000. Each of the managers (or their designee) reported on activities within their respective departments. 10.3. General Counsel’s Report None. 10.4. Future Agenda Items and Staff Tasks Staff was instructed to place the following items on the next regular meeting agenda: Development of Water Shortage and Drought Response Plan Timeline for Updating the Strategic Plan Adjusting Time of Regular Meetings and Establishing Time of Adjournment Comparison of Retail Water Rates Staff was also instructed to provide the Board with a copy of the revised operating budget as adopted the previous month. 11. COMMITTEE REPORTS 11.1. Interagency Committee with MWDOC and OCWD (Miller/Nederhood) Minutes of the YLWD Board of Directors Regular Meeting Held July 25, 2017 at 6:30 p.m. 8 Next meeting is scheduled July 27, 2017 at 4:00 p.m. 11.2. Joint Agency Committee with City of Yorba Linda (Miller/Hawkins) Minutes of the meeting held June 12, 2017 at 4:00 p.m. will be provided when available. Next meeting is scheduled September 18, 2017 at 4:00 p.m. at YL City Hall. 11.3. Joint Agency Committee with City of Placentia (Miller/Nederhood) Next meeting yet to be scheduled. 12. INTERGOVERNMENTAL MEETINGS The Directors reported on their attendance at the following meetings. 12.1 LAFCO – July 12, 2017 (Nederhood – As Needed) 12.2 YL City Council – July 18, 2017 (Miller) 12.3. MWDOC Board – July 19, 2017 (Nederhood) 12.4. OCWD – July 19, 2017 (Jones) 13. BOARD OF DIRECTORS ACTIVITY CALENDAR 13.1. Meetings from July 26 – September 30, 2017 The Board reviewed the activity calendar and made no changes. 14. CONFERENCES, SEMINARS, AND SPECIAL EVENTS 14.1. ACWA Region 8 Water Reliability Program – August 24, 2017 Director Hawkins made a motion, seconded by Director Hall, to approve Director attendance at this event if desired. Motion carried 5-0. 15. ADJOURNMENT 15.1. The meeting was adjourned at 9:44 p.m. Annie Alexander Assistant Board Secretary ITEM NO. 7.2 AGENDA REPORT Meeting Date: September 26, 2017 Budgeted:Yes To:Board of Directors Cost Estimate:$1,673,851.15 Funding Source:All Funds From:Marc Marcantonio, General Manager Presented By:Delia Lugo, Finance Manager Dept:Finance Reviewed by Legal:N/A Prepared By:Richard Cabadas, Accounting Assistant I CEQA Compliance:N/A Subject:Payments of Bills, Refunds, and Wire Transfers SUMMARY: Section 31302 of the California Water Code says the District shall pay demands made against it when they have been approved by the Board of Directors. Pursuant to law, staff is hereby submitting the list of disbursements for Board of Directors’ approval. STAFF RECOMMENDATION: That the Board of Directors ratify and authorize disbursements in the amount of $1,673,851.15. DISCUSSION: The items on this disbursement list includes: A wire of $433.21 to So. California Edison Co. for August 2017 electrical charges at multiple locations; a wire of $17,228.25 to So. California Gas Co. for August 2017 gas charges at multiple locations; a wire of $683,219.22 to MWDOC for July 2017 water purchases; a check of $113,128.03 to ACWA/JPIA for October 2017 medical & dental premium; a check of $52,777.11 to Kidman Law for August 2017 legal services; a check of $238,689.40 to Pacific Hydrotech Corporation for Fairmont booster pump station progress payment #9; and a check of $61,023.35 to TBU, Inc. for the Richfield Rd water main plant retention release. The balance of $229,184.85 is routine invoices. The Accounts Payable check register total is $1,395,683.42; Payroll No. 18 total is $278,167.73; and the total of all listed disbursements for this agenda report is $1,673,851.15. A summary of the disbursements is attached. PRIOR RELEVANT BOARD ACTION(S): The Board of Directors approves bills, refunds and wire transfers semi-monthly. ATTACHMENTS: Name:Description:Type: 17-CS_0926.pdf CAP SHEET Backup Material CkReg092617.pdf CHECK REGISTER Backup Material 17_CC_0926.pdf CREDIT CARD SUMMARY Backup Material Summary of Disbursements September 26, 2017 CHECK NUMBERS & WIRES: Computer Checks 70552—70637 $ 694,802.74 ____________ $ 694,802.74 WIRES: W 091317 So. Cal Edison Co. $ 433.21 W091317A So. California Gas Co. $ 17,228.25 W091517 MWDOC $ 683,219.22 _____________ $ 700,880.68 TOTAL OF CHECKS & WIRES $1,395,683.42 PAYROLL NO. 18: Direct Deposits $ 175,232.70 Third Party Checks 6769—6776 $ 16,103.09 Payroll Taxes $ 50,859.76 EFT – CalPERS Payroll #18 $ 35,972.18 $ 278,167.73 TOTAL OF PAYROLL $278,167.73 ---------------------------------------------------------------------------------------------------------------------- DISBURSEMENT TOTAL: $1,673,851.15 ================================================================== APPROVED BY THE BOARD OF DIRECTORS MINUTE ORDER AT BOARD MEETING OF SEPTEMBER 26, 2017 ==================================================================. Check No.Date Vendor Name Amount Description 70568 09/26/2017 A Plus Awards By Dewey 19.93 NAME PLATE - BARBRE 70566 09/26/2017 ACWA/JPIA 113,128.03 MEDICAL & DENTAL PREMIUM - OCTOBER 2017 70567 09/26/2017 Alternative Hose Inc.119.38 TOOLS & EQUIPMENT - UNIT #145 70569 09/26/2017 Aqua-Metric Sales Co.4,087.69 WAREHOUSE STOCK 70570 09/26/2017 Aramark 376.00 UNIFORM SERVICE 70580 09/26/2017 ARC 103.95 J2009-22 #22 - WELL 22 - PW DOC/BID MANAGEMENT 70571 09/26/2017 AT & T - Calnet3 848.29 ATT CALNET3 70572 09/26/2017 AWWA - Dues 3,773.00 MEMBERSHIP DUES - 11/17-10/18 70552 09/26/2017 BARBARA KAMACHI 55.74 CUSTOMER REFUND 70573 09/26/2017 Bee Busters, Inc 500.00 BEE ABATEMENT - 5848 VIA MARIPOSA 70582 09/26/2017 C. Wells Pipeline 1,400.75 WAREHOUSE STOCK 70575 09/26/2017 CalCard US Bank 11,246.59 CREDIT CARD TRANSACTIONS - AUGUST 2017 70576 09/26/2017 California United Bank 12,562.60 J2010-11B -FAIRMONT PUMP STATION UPGRADE - RETENTION 70574 09/26/2017 Calolympic Safety Co.2,741.63 SAFETY EQUIPMENT 70577 09/26/2017 CDW Government, Inc 19,924.72 CISCO TELEPHONES & IT HARDWARE 70578 09/26/2017 City Of Placentia 3,350.54 SEWER FEES - AUGUST 2017 & ALARM PERMIT RENEWALS 70557 09/26/2017 CJR BUILDERS INC 446.71 CUSTOMER REFUND 70579 09/26/2017 Coastline Equipment 541.40 VEHICLE MAINTENANCE - UNIT #145 70581 09/26/2017 Culligan of Santa Ana 1,755.01 PE EQUIPMENT SOFTENER 70583 09/26/2017 Daniels Tire Service 522.86 TIRE REPLACEMENT - UNIT #145 70584 09/26/2017 Dapper Tire Co. Inc.275.50 SEWER VEHICLE MAINTENANCE 70585 09/26/2017 Dell Marketing L.P.11,738.31 POWEREDGE R730 SERVER & LATITUDE 5414 70586 09/26/2017 Dick's Lock & Safe Inc.60.48 BUILDING REPAIR PARTS 70588 09/26/2017 Elite Equipment Inc 284.46 TOOLS & EQUIPMENT 70589 09/26/2017 Enthalpy Analytical, Inc.1,959.70 WATER QUALITY - LAB SAMPLES 70591 09/26/2017 EyeMed 1,379.29 EYEMED - SEPTEMBER 2017 70590 09/26/2017 Fairway Ford Sales, Inc.293.73 VEHICLE MAINTENANCE - UNIT #182 70592 09/26/2017 Fieldman Rolapp & Associates 10,757.60 J2017-25 - PROF. SERVICES - LONG TERM FINANCIAL PLAN 70593 09/26/2017 Fleet Services, Inc 2,677.94 VEHICLE MAINTENANCE - UNIT #197 70594 09/26/2017 Fry's Electronics 158.34 IT HARDWARE & SUPPLIES 70561 09/26/2017 GEORGE HICKS 37.47 CUSTOMER REFUND 70595 09/26/2017 Golden Bell Products 7,032.00 ROACH CONTROL - SEWER 70596 09/26/2017 Haaker Equipment Co.248.42 VEHICLE MAINTENANCE - UNIT #197 70597 09/26/2017 Infosend Inc.6,281.41 POSTAGE BILLING - AUGUST 2017 70598 09/26/2017 Innovyze 1,600.00 TRANING - INFOWATER - LOGSDON 70601 09/26/2017 J & S Construction 1,875.00 CONCRETE REPAIR - 5034 WOODCREST 70599 09/26/2017 Jackson's Auto Supply - Napa 301.62 VEHICLE MAINTENANCE - UNIT #182, #197 & #210 70562 09/26/2017 JACOB L HALVORSON 5.50 CUSTOMER REFUND 70560 09/26/2017 JAY LAESSIG 76.26 CUSTOMER REFUND 70600 09/26/2017 John R Brundahl III 148.12 COURSE BOOK 70602 09/26/2017 Kidman Law 52,777.11 LEGAL SERVICES 70603 09/26/2017 Liebert Cassidy Whitmore 17,327.80 LEGAL SERVICES 70553 09/26/2017 LINDA HABER 154.41 CUSTOMER REFUND 70559 09/26/2017 LIZHONG MA 62.66 CUSTOMER REFUND 70554 09/26/2017 LYNDA CAVALLO 95.89 CUSTOMER REFUND 70604 09/26/2017 Marc Marcantonio 69.18 MILEAGE REIMBURSEMENT - AUGUST 2017 70605 09/26/2017 Mc Fadden-Dale Hardware 732.56 HARDWARE SUPPLIES 70606 09/26/2017 Minuteman Press 275.36 DOOR HANGERS - EXCESS WATER USAGE W091517 09/15/2017 Municipal Water District 683,219.22 WATER DELIVERIES - JULY 2017 70607 09/26/2017 Muzak LLC 89.56 CUSTOMER MESSAGE/PHONE SERVICE - SEPT 2017 70556 09/26/2017 MY LOAN 3.47 CUSTOMER REFUND 70608 09/26/2017 Nickey Kard Lock Inc 11,471.28 FUEL - 8/01/17 - 08/31/17 70609 09/26/2017 Office Solutions 753.26 OFFICE SUPPLIES & TONER 70610 09/26/2017 Omni Enterprise Inc.2,990.00 JANITORIAL SERVICES - JULY 17 70612 09/26/2017 Orange County - Tax Collector 885.84 ENCROACHMENT PERMITS 70611 09/26/2017 Orange County Register 120.62 OC REGISTER -M-F- 13 WEEKS 70613 09/26/2017 Orange County Water District 10,813.50 IN LIEU WATER SUPPLIES - JULY 2017 70618 09/26/2017 P.T.I. Sand & Gravel, Inc.2,195.72 MATERIAL - COLD MIX ASPHALT, +30 FILL SAND & 3/4" CL2 BASE 70614 09/26/2017 Pacific Hydrotech Corporation 238,689.40 J2010-11B - FAIRMONT PUMP STATION UPGRADE - PROGRESS PAYMENT #09 70615 09/26/2017 Pascal & Ludwig Constructors, Inc 918.00 J2014-23 - RICHFIELD RD - CLA VAL RECONFIGURATION 70616 09/26/2017 Powerstride Battery 275.86 BATTERY REPLACEMENT 70617 09/26/2017 Praxair Distribution 159.66 WELDING SUPPLIES Yorba Linda Water District Check Register For Checks Dated: 09/13/2017 thru 09/26/2017 70619 09/26/2017 Quinn Company 761.03 WELL 18 MAINTENANCE 70564 09/26/2017 R J NOBLE CO 735.00 CUSTOMER REFUND 70620 09/26/2017 Rick Walkemeyer 1,579.95 TRAVEL EXPENSE - VMWORLD 2017 & IT PUBLICATIONS 70621 09/26/2017 Ruben Maldonado 80.00 CERTIFICATE RENEWAL - REIMBURSEMENT 70624 09/26/2017 S&J Supply Co.845.52 MISCELLANEOUS WAREHOUSE PARTS 70622 09/26/2017 Sanders Paving, Inc.11,273.75 CONCRETE REPAIR - (3) LOCATIONS 70565 09/26/2017 SHAY R HINEMAN 72.57 CUSTOMER REFUND 70623 09/26/2017 Shoeteria Industrial 1,579.52 SAFETY BOOTS 70625 09/26/2017 Snap-on Incorporated 835.84 SCAN TOOL UPDATE 70626 09/26/2017 South Coast AQMD 505.74 RENEWAL & EMISSION FEE - SANTIAGO ENGINE W091317 09/13/2017 Southern Calif Edison Co.433.21 ELECTRICITY CHARGES - MULTIPLE LOCATIONS - AUGUST 2017 W091317A 09/13/2017 Southern Calif Gas Co.17,228.25 GAS CHARGES - MULTIPLE LOCATIONS - AUGUST 2017 70628 09/26/2017 St.Jude Hospital Yorba Linda 210.00 POST EMPLOYMENT TESTING - (3) EMPLOYEES 70627 09/26/2017 Step Saver Inc 741.15 COARSE SALT 70630 09/26/2017 Superior Fluid Solutions 218.99 HARDWARE SUPPLIES 70631 09/26/2017 Superior Water Technologies 517.20 CL2 PARTS 70629 09/26/2017 Support Product Services 7,797.17 BACT-AID 3 WAY ELEMENT CATALYTIC CONVERTER - HIGHLAND #1 70632 09/26/2017 TBU Inc 61,023.35 J2014-23 - RICHFIELD RD - RETENTION RELEASE 70555 09/26/2017 THOMAS JENNINGS 52.74 CUSTOMER REFUND 70558 09/26/2017 TIM HAWKINS 57.35 CUSTOMER REFUND 70633 09/26/2017 Time Warner Cable 179.25 MIRALOMA BASIC CABLE SERVICE 70634 09/26/2017 Underground Service Alert 419.20 DIGALERT - AUGUST 2017 70636 09/26/2017 United Water Works, Inc.10,999.06 WAREHOUSE STOCK 70635 09/26/2017 UNUM Life Insurance Co. of America 3,663.05 LIFE, AD&D, STD, & LTD - OCTOBER 2017 70587 09/26/2017 White Nelson Diehl Evans LLP 10,500.00 2ND INTERIM BILLING - YEAR END AUDIT FEES 70563 09/26/2017 XUEYAN SUN 195.92 CUSTOMER REFUND 70637 09/26/2017 YO Fire 14,402.28 WAREHOUSE STOCK 1,395,683.42 09-07-2017 PAYROLL #18 - EMPLOYEE DIRECT DEPOSIT 175,232.70 09-07-2017 PAYROLL #18 - PAYROLL TAX PAYMENT 50,859.76 09-07-2017 PAYROLL #18 - CALPERS EFT 35,972.18 6769 09-07-2017 COLONIAL LIFE & ACCIDENT 128.30 6770 09-07-2017 FLEX ADVANTAGE 1,914.72 6771 09-07-2017 LINCOLN FINANCIAL GROUP 4,446.83 6772 09-07-2017 NATIONWIDE RETIREMENT SOLUTIONS 8,271.33 6773 09-07-2017 KATHERINE VARGAS-LIMON 231.00 6774 09-07-2017 CALIFORNIA STATE DISBURSEMENT UNIT 366.92 6775 09-07-2017 CALIFORNIA STATE DISBURSEMENT UNIT 339.69 6776 09-07-2017 CALIFORNIA STATE DISBURSEMENT UNIT 404.30 278,167.73 Payroll Checks #18 Vendor Name Amount Description Staples 215.49 Office chair - customer service staff Napa Auto Parts 19.38 Fuel stabilizer Praxair Distribution 159.50 Mechanics shop supplies Orvac 54.38 Various part for production Light Bulbs 16.81 Light bulbs for production Home Depot 818.50 Tools & equipment Zena's Lebanese Cuisine 93.78 HR lunch meeting with Wells Fargo representative - 4 attendees Best Value Tire 77.78 Mount & balance tires - Unit #175 Trane U.S. Inc.31.77 Parts for AC repair Answer1 469.25 After hour answer service Staples 215.49 Office chair - customer service Home Depot 23.61 Vacuum replacement parts Harrington Industrial 7.82 3/4" caps for production Orange County Water Assn.630.00 OCWA 2017 Exhibitor and Operator training and competition KB Design 102.79 YLWD uniforms Monoprice.com 56.60 IT hardware supplies AWWA 185.00 Cross connection workshop Light Bulbs 875.90 Light bulbs & ballast for facilities Home Depot 99.43 Under carriage driveway attachment for pressure washer Home Depot 303.88 Facility repair parts ACWA Region 9 & 10 65.00 Registration - ACWA Region 9 & 10 Tour - Nederhood GM Parts Center 236.11 Vehicle maintenance - Unit #208 & #214 Pinnacle Seating 320.00 Casters for chair repairs Dan Copp Crushing 300.00 Disposal of old road material ACWA Region 9 & 10 65.00 Registration - ACWA Region 9 & 10 Tour - Jones ACWA Region 5 30.00 Registration - ACWA Region 5 Tour - Jones Byblos Mediterranean Grill 67.38 Maintenance Worker II & III interview panel lunch Orchard Supply 24.73 Electrical supplies for Camino de Bryant Sunstate Equipment 94.82 Refill for forklift propane tanks Home Depot 120.15 Electrical and hardware supplies McMaster Carr 157.19 Shelves for production Amazon 542.52 (2) Office chairs - customer service staff Amazon 21.48 Vehicle maintenance - Unit #175 Best Valve Tire 39.97 Install backhoe tires - Unit #145 So. Cal Sand Bags 838.25 (300) filled sand bags Home Depot 98.66 (24) quickrete bags and 9v batteries Home Depot 123.04 Hardware supplies Orvac 15.05 Shop supplies GFOA 305.00 User Fee Charges webinar - Lugo, D Fred Pryor Seminars 149.00 Seminar - How to become a great communicator - Millen Dunkin Donuts 10.99 Meeting refreshments Bad to the Bone BBQ 19.00 Travel expense - UWI Conference - Marcantonio, Marc Hilton 31.00 Travel expense - UWI Conference - Marcantonio, Marc Best Valve Tire 83.16 Mount & balance tires - Unit #190 Home Depot 292.36 Shop tools & equipment Home Depot 560.63 (80) fastset concrete bags & tools Hilton 35.05 Travel expense - UWI Conference - Marcantonio, Marc In n Out 10.02 Travel expense - UWI Conference - Marcantonio, Marc OC Water Association 30.00 OC Water Association meeting & luncheon Industrial Hearing and Pulmonary Mgmt 1,070.00 Post employment testing - (13) EMPLOYEES Stefano's Golden Baked Ham 60.97 Lunch - accountant interviews (7) attendees American Red Cross 210.00 Disaster preparedness academy Village Nurseries 14.55 Sod for landscape repair Home Depot 158.75 Tools & equipment YL Chamber of Commerce 75.00 Yorba Linda Mayor Prayer Breakfast - Miller, Nederhood & Marcantonio United Airlines 222.40 Flight for CSDA governance workshop - Hall Amazon.com 22.48 Disaster recovery kit Blue Water Grill 69.00 Business lunch with Mesa Water & EOCWD - Marcantonio, Marc Amazon.com 200.72 Vehicle maintenance - Unit #175 11,246.59 Cal Card Credit Card U S Bank ITEM NO. 7.3 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Gina Knight, HR/Risk and Safety Manager Dept:Human Resources/Risk Management Prepared By:Gina Knight, HR/Risk and Safety Manager Subject:Claim for Damages Filed by Wailea Property Partners, LLC. SUMMARY: A claim was received by the District on September 8, 2017 for indemnification from a personal injury compliant submitted by Brian Wooldridge arising from a trip and fall accident which occurred as a result of a broken meter cover on 11-29-2015. STAFF RECOMMENDATION: That the Board of Directors reject the claim filed by Wailea Property Partners, LLC and refer it to ACWA/JPIA for further handling. DISCUSSION: On September 8, 2017, the District received a claim filed by Wailea Property Partners, LLC stating that they were served with a personal injury compliant filed by plaintiff Brian Wooldridge arising from a trip and fall accident, which allegedly occurred as a result of a defective water meter cover. Wailea Property Partners, is requesting indemnification for plaintiff's alleged damages, unknown amount, and costs of defense, unknown amount. The claim form is on file and available for review in the office of the General Manager. ITEM NO. 7.4 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Marc Marcantonio, General Manager Prepared By:Brett R. Barbre, Asst General Manager Subject:Reschedule Regular Board Meeting in December SUMMARY: The regular Board of Directors meeting on Tuesday, December 26, 2017 at 6:30 falls on the day after Christmas. STAFF RECOMMENDATION: That the Board of Directors reschedule the regular meeting on Tuesday, December 26, 2017 to Wednesday, December 27, 2017 at 8:30 am. DISCUSSION: At the end of every year, contractors submit their bills for payment prior to the end of the year so they are able to close their books for the year. We have historically tried to accommodate those requests and are recommending changing the day and time of the meeting so as to accommodate holiday schedules as well as year end payment requests. PRIOR RELEVANT BOARD ACTION(S): The Board of Directors routinely reschedule Board and Committee meetings that conflict with holidays, conferences or special events. ITEM NO. 8.1 AGENDA REPORT Meeting Date: September 26, 2017 Budgeted:Yes Total Budget:$7.8 M To:Board of Directors Cost Estimate:$7.8 M Funding Source:Water Capital Reserves From:Marc Marcantonio, General Manager Job No:J2010-11B Presented By:Steve Conklin, Engineering Manager Dept:Engineering Reviewed by Legal:Yes Prepared By:Joe Polimino, Project Engineer CEQA Compliance:MND Subject:Approval of Change Order Number 1 for the Fairmont Booster Pump Station Upgrade Project SUMMARY: Work is proceeding on construction of the Fairmont Booster Pump Station Upgrade Project. Submitted for consideration is construction Change Order No. 1. STAFF RECOMMENDATION: That the Board of Directors approve Change Order No. 1 for $220,647.28 and 40 additional calendar days to Pacific Hydrotech Corporation for construction of the Fairmont Booster Pump Station Upgrade Project, Job No. 2010-11B. DISCUSSION: In accordance with the contract documents, Pacific Hydrotech Corporation has submitted Change Order No. 1 due to rain delays, differing site conditions, unknown utilities and other additional work. A copy of Change Order No. 1 is attached for your review. Specifically, the contractor has requested an increase of $220,647.28 and 40 calendar day extension for the project; some of the more costly items are described in detail below. Supply stainless steel pilot system materials for the pump control valves, in place of brass. The technical specifications called for brass or stainless steel. During the shop drawing review, it was determined through discussions between Engineering and Operations staff that the District should standardize on the higher-quality stainless steel for these components and now was the time to do it. (The specifications have been revised to delete brass.) The cost of this additional work for the eight pumps is $14,589.96. From December 2016 through January 2017, Yorba Linda experienced significant rain events, which prevented the contractor from working on the project on various occasions throughout these two months. The contractor therefore is requesting 40 additional days be added to the contract to make up for the lost time at no additional cost to the District. While installing soldier piles to support the excavation necessary to install the pump cans and piping underneath the new pump station, the contractor encountered differing site conditions than was anticipated from the approved plans and the soil borings provided as part of the specifications. This included excessive groundwater and unknown debris which delayed the drilling and broke equipment; loose gravel which caused drill holes to collapse and required the contractor to fill these holes with cement slurry, allow time to cure and re-drill; install perimeter casings to complete the pile installation in more severe areas; and abandonment of an unknown utility that was encountered by the contractor to be able to continue the drilling. The extent of the work that was determined to be outside of the scope of the contract and the amount payable for each item described above, was reviewed, discussed and negotiated over several months, after receipt of contractor's request for a substantially higher payment. The final negotiated cost of this extra work is $166,392.18. While installing a portion of the new 24-inch steel pipeline in the public street, the contractor encountered an unknown utility that was not known to District staff or shown on the plans. The new pipeline had to be re-aligned in the field as to not stop the progress of the work, which required more labor, equipment and materials to complete. The cost of this work is $30,461.66. During the submittal process, it was noted by the contractor that the roof hatch frames for the installation and removal ports for each of the eight pumps were not called out to be coated. The manufacturer recommended (and District staff concurred) that the coating be done to improve corrosion resistance and aesthetics of the building. The cost for this work is $5,767.34. The status of the construction contract with Pacific Hydrotech Corporation is as follows: The current contract is $6,911,100.00 and 740 calendar days. If approved, Change Order No. 1 adds 40 calendar days to the project. If approved, Change Order No. 1 adds $220,647.28 (a 3.2% construction cost increase) to the project. If approved, the revised construction contract is $7,131,747.28 and 780 calendar days. District staff reviewed this change order request and recommend approval. STRATEGIC PLAN: SR 3-B: Continue Planning for Long Term Capital Improvements and Replacements into the future PRIOR RELEVANT BOARD ACTION(S): The Board authorized the President and Secretary to execute a construction agreement with Pacific Hydrotech Corporation in the amount of $6,911,100.00 for the Fairmont Booster Pump Station Upgrade Project, Job No. 2010-11b. ATTACHMENTS: Name:Description:Type: PHC_CO1_signed.pdf Fairmont Pump Station Change Order No. 1 Backup Material YORBA LINDA WATER DISTRICT CHANGE ORDER NO. i DATE 9/11/17 Page 1 of 1 CONTRACT NAME: Fairmont Pump Station Upgrade CONTRACT AMT.: $6,911,100.00 DAYS: 740 CONTRACTOR: Pacific Hydrotech Corporation THIS CHANGE: $220,647.28 DAYS: 40 PROJECT NUMBER: 2010-11b (3.2%) OWNER: Yorba Linda Water District REVISED CONTRACT AMT: $7,131,747.28 DAYS: 780 This Change Order covers changes to the subject contract as described herein.The Contractor shall construct,furnish equipment and materials,and perform all work as necessary or required to complete the Change Order items for a lump sum price agreed upon between the Contractor and Yorba Linda Water District otherwise referred to as Owner. DESCRIPTION OF CHANGES +INCREASE CONTRACT /OR TIME +EXTENSION —DECREASE IN /OR- CONTRACT OR- CONTRACT REDUCTION AMOUNT($) (DAYS) PCO 1)Extra cost to supply stainless steel pilot system materials for the pump control valves $14,589.96 0 PCO 2)Time extension due to rain event ( $0.00 40 PCO 3,5,6&7)Extra cost during the installation of soldier piles caused by debris,gravel, I $166,392.18 0 groundwater and unknown utilities. PCO 4)Septic tank removal $2,042.80 0 PCO 8)Additional Soil Removal at Pump Station Excavation I $5,012.71 0 PCO 9)Conflicts Between Unknown Existing Utilities&24"Line Installation $30,461.66 0 PCO 10)Credit to delete encasements from contract $(1,319.37) 0 PCO 12)Extra cost to coat roof hatches $5,767.34 0 PGO 13)Credit for Floway to provide a PE to serve as YLWD's witness testing $(2,300.00) 0 NET CHANGE $220,647.28 40 REVISED CONTRACT AMOUNT AND TIME $7,131,747.28 780 The amount of the contract will be increased deeFeased by the sum of$220,647.28 and the contract time shall be increased desFeased by 40 calendar days.The undersigned Contractor approves the foregoing Change Order as to the changes,if any,in the contract price specified for each item including any and all supervision costs and other miscellaneous costs relating to the change in work,and as to the extension of time allowed,if any,for completion of the entire work on account of said Change Order.The Contractor agrees to furnish all labor and materials and perform all other necessary work,inclusive of that directly or indirectly related to the approved time extension,required to complete the Change Order items. This document will become a supplement of the contract and all provisions will apply hereto.It is understood that the Change Order shall be effective when approved by the Owner. This Change Order constitutes full,final,and complete compensation to the Contractor for all costs, expenses,overhead,profit,and any damages of every kind that the Contractor may incur in connection with the above referenced changes in the work,including any impact on the referenced work of any other work under the contract,any changes in the sequences of any work,any delay to any work,any disruption of any work,any rescheduling of any work,and any other effect on any of the work under this contract.By the execution of the Change Order,the Contractor accepts the contract price change and the contract completion date change,if any,and expressly waives any claims for any additional compensation,: amages or Ome pxtensions,in connection with the above-referenced changes. RECOMMENDED: { /ENGINEER OR DATE: - CONSULTANT {� Joe Polimino Construction Supervisor,YLWD ACCEPTED: /CONTRACTOR DATE: Kirk Harris �a c ydrotech C on APPROVED: /1 DATE: ---� /OWNER (, G Ste Conklin C Engineering Manager,YLWD ITEM NO. 8.2 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Delia Lugo, Finance Manager Dept:Finance Prepared By:Delia Lugo, Finance Manager Subject:Financial Reserves Policy for the Remainder of Fiscal Year 2018 SUMMARY: Attached for the Board's consideration is the proposed reserve policy for the remainder of FY18. Staff has worked with Fieldman Rolapp to update the policy to best serve the needs of the District and ensure that current and future generations of the District's management and governing body consistently adhere to sound, conservative and prudent fiscal practices. STAFF RECOMMENDATION: That the Board of Directors approve Resolution No. 17-31 adopting a Financial Reserves Policy for the remainder of Fiscal Year 2018 and rescinding Resolution No. 17-18. DISCUSSION: Attached is the proposed updated Financial Reserves Policy for the remainder of FY18. Maintaining adequate reserves is an essential aspect of sound financial management. Being fiscally prudent involves funding reserves to levels that enable the District the ability to provide reliable service to customers, maintain infrastructure, finance capital projects as well as capital repair and replacement and other related capital expenditures, and the ability to respond to changing circumstances. At the September 12, 2017 regular meeting, the Board discussed minimum and maximum target levels previously established for the various Board Designated Restricted and Unrestricted Reserve types. At the close of this discussion, it was the consensus of the Board that the presented target levels were appropriate, but that the funding for all of the listed reserves should be set at 67% of the recommended Maximum Target Level, unless otherwise noted. Staff is also recommending that the Employee Liability Reserve be reclassified as a restricted reserve rather than an unrestricted reserve, which is reflected in the revised policy. STRATEGIC PLAN: CP 1-A: Enhance Resources for Public Information and Governmental Affairs Division ATTACHMENTS: Name:Description:Type: Resolution_No._17-31_-_Financial_Reserves_Policy.docx Resolution Resolution 3010-005_-_Financial_Reserves_Policy.docx Exhibit Backup Material Staff_Memo.docx Supporting Documentation Backup Material Resolution No. 17-31 Adopting a Financial Reserves Policy for the Remainder of Fiscal Year 2018 1 RESOLUTION NO. 17-31 RESOLUTION OF THE BOARD OF DIRECTORS OF THE YORBA LINDA WATER DISTRICT ADOPTING A FINANCIAL RESERVES POLICY FOR THE REMAINDER OF FISCAL YEAR 2018 AND RESCINDING RESOLUTION NO. 17-18 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 Yorba Linda Water District Financial Reserves Policy as set forth in Exhibit A and attached hereto is hereby adopted and shall be deemed effective September 26, 2017. Resolution No. 17-31 Adopting a Financial Reserves Policy for the Remainder of Fiscal Year 2018 2 Section 2. That Resolution No. 17-18 is hereby rescinded effective September 26, 2017. PASSED AND ADOPTED this 26th day of September 2017 by the following called vote: AYES: NOES: ABSTAIN: ABSENT: J. Wayne Miller, Ph.D., President Yorba Linda Water District ATTEST: Marc Marcantonio, Secretary Yorba Linda Water District Reviewed as to form by General Counsel: Andrew B. Gagen, Esq. Kidman Law LLP 3010-005 Financial Reserves Policy Page 1 of 4 Policies and Procedures Policy No.: 3010-005 Adoption Method: Resolution No. 17-31 Effective Date: September 26, 2017 Last Revised: July 1, 2017 Prepared By: Delia Lugo, Finance Manager Applicability: District Wide POLICY: FINANCIAL RESERVES 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: • Target levels for reserve funds; • 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 the reserve balance amounts and changes in types of reserve categories. 3010-005 Financial Reserves Policy Page 2 of 4 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 designated for a specific purpose and use by the Board of Directors. All reserves in this category will be funded at 67% of the recommended maximum target level. 5.1.1 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 District’s current target 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. 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. 5.1.2 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 (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. B. Target 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. 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 3010-005 Financial Reserves Policy Page 3 of 4 claim shall be deposited back into the reserve as replenishment for the loss. 5.1.3 Capital Replacement Reserve A. 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. B. Target Level – The Board-approved 2010 Asset Management Plan recommended that the minimum level equal $1,820,000 for the water fund and $345,000 for the sewer fund. The minimum target level for each reserve fund is at least 100% of the current fiscal year capital budget 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 maximum 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. C. 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 A. 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. B. Target Level – Established at a maximum level of 20% of budgeted water sales for the current fiscal year. The District has the option of not funding the Rate Stabilization Reserve if such is deemed appropriate by the Board based upon a recommendation from Staff. C. 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 3010-005 Financial Reserves Policy Page 4 of 4 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 for specific purposes. Examples include stipulated bond covenants and reserves held with a fiscal agent. 5.2.1 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. 5.2.2 Employee Liability 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 – Funding for Fiscal Year 2018 shall be established at a minimum target level of $273,000. 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. M E M O R A N D U M TO: YLWD Board of Directors FROM: Brett R. Barbre DATE: September 12, 2017 RE: Item 9-1 – Reserves Policy Ranges/Goals Following completion of the FY 2016-17 budget, the Board made adjustments in the number and type of reserve accounts. The discussion below will highlight the current unrestricted reserve accounts, how they are calculated, and suggested minimum-maximum target levels. There is only one restricted Water Reserve Account, which will be discontinued by the end of FY 2017-18. DISCUSSION 1) The Operating Reserve covers temporary cash flow deficiencies to meet daily operational obligations. This reserve account is currently calculated as a percentage of the annual Operating Budget, including annual Debt Service interest expense. Levels Water Sewer Minimum 25% 25% Target 67% of Maximum 67% of Maximum Maximum 50% 50% Levels Water Sewer Minimum $7,059,170 $371,748 Target $9,459,287 $498,142 Maximum $14,118,340 $743,496 2) The Emergency Reserve provides protection recovery for catastrophic events or unplanned circumstances. This reserve account is calculated at a percentage of Net Capital Assets of water and sewer systems as reported annually in our CAFR. Levels Water Sewer Minimum 5% 5% Target 67% of Maximum 67% of Maximum Maximum 10% 10% Levels Water Sewer Minimum $5,813,701 $1,899,951 Target $7,790,359 $2,545,934 Maximum $11,627,401 $3,799,901 3) The Capital Project Reserve provides funding for capital projects as well as funding for capital repair and replacement of aging infrastructure nearing the end of its listed useful life. This reserve account is calculated either as a percent of annual depreciation or from the Asset Management Plan to be at least 100% of the next two FY approved capital budget. Levels Water Sewer Minimum $5,533,845 $345,000 Target 67% of Maximum 67% of Maximum Maximum $8,531,845 $2,267,699 Levels Water Sewer Minimum $5,533,845 $345,000 Target $5,716,336 $1,519,358 Maximum $8,531,845 $2,267,699 4) The Water Rate Stabilization Reserve provides funding to smooth out water rate increase adjustments during a year where revenues are not sufficient to meet required Debt Service Ratio. This reserve account is calculated at a percentage of Water Sales, which includes both commodity and fixed charges. 5) The Employee Liability Reserve covers the employees’ vacation and other compensatory time. The Other Post Employment Benefits (OPEB) formerly associated with this reserve fund, will be discussed under item 9.2 Target Levels Water Minimum 5% Target 67% of Maximum Maximum 20% Target Levels Water Minimum $1,476,751 Target $3,957,692 Maximum $5,907,004 Target Level 90% of Liability Target Level $272,054 ITEM NO. 8.3 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Brett R. Barbre, Asst General Manager Prepared By:Brett R. Barbre, Asst General Manager Subject:Management of District's Other Postemployment Benefit (OPEB) Liabilities SUMMARY: At the September 12, 2017 Board Meeting, staff was directed to bring back a policy and schedule of payments to fund our Other Post Employment Benefits (OPEB) Section 115 Trust at the 90% level. It was further requested that a payment schedule of a pay down over 3-5-7 years be included in the evaluation. STAFF RECOMMENDATION: That the Board of Directors direct staff to pay down the District's OPEB liability in the amount of $557,515.30 per year for a period of three years. DISCUSSION: The Yorba Linda Water District opened an account with the California Employers’ Retiree Benefit Trust (CERBT) fund in 2011. CERBT is a Section 115 Trust dedicated to prefunding OPEB for all eligible California Public Agencies. This year, in addition to lowering the earning assumption rate to 6.5%, CERBT has changed the terminology used to describe the various balances and liabilities. This is due to the GASB 75 changes which will apply to the YLWD balance sheet for FY 2017-18. Our Total OPEB Liability (TOL) is $3,595,567. Our current Plan Fiduciary Net position (PFN) is $1,277,186. Our Net OPEB Liability (NOL) is $2,318,381. Our Plan Fiduciary Net Position as a percentage of the Total OPEB Liability (FNP/TOL) is 35.52%. Though our NOL increased almost $1,000,000 this year, we do not anticipate drastic increases unless they adjust the assumption rate in the future. OPTIONS Staff was directed to provide a schedule of payments to fund our CERBT account until our NOL is funded at the 90% level. Staff worked with our actuary to determine the YLWD 90% funding of the NOL on a 3-5-7 year pay down schedule. Those amounts are shown below: One Year Pay Down: $2,086,543 Three Year Pay Down: $557,515.30/yr Five Year Pay Down: $279,309.58/yr Seven Year Pay Down: $160,078.56/yr ATTACHMENTS: Name:Description:Type: YLWD_GASB75_Actuarial_Valuation_2017.pdf Backup Material Backup Material YORBA LINDA WATER DISTRICT VALUATION OF RETIREE HEALTH BENEFITS REPORT OF GASB 75 ACTUARIAL VALUATION AS OF JULY 1, 2017 Prepared by: North Bay Pensions LLC September 21, 2017 Contents of This Report Actuarial Certification 1 Summary of Results 2 Detailed Exhibits Exhibit 1 Actuarial Values as of July 1, 2017 5 Exhibit 2 Net OPEB Liability 6 Exhibit 3 Sensitivity of the Net OPEB Liability 7 Exhibit 4 OPEB Expense for the Fiscal Year Ending 6-30-2018 7 Exhibit 5 Deferred Outflows and Inflows of Resources 8 Exhibit 6 Schedule of Changes in the Net OPEB Liability 9 Exhibit 7 Schedule of Contributions 10 Exhibit 8 Ten-Year Projection of Costs 10 Exhibit 9 Summary of Benefit Provisions 11 Exhibit 10 Summary of Actuarial Assumptions 11 Actuarial Certification This report presents the determination of benefit obligations under Statement No. 75 of the Governmental Accounting Standards Board (GASB 75) as of July 1, 2017 for the retiree health and welfare benefits provided by the Yorba Linda Water District. I was retained by the District to perform these calculations. GASB Statement 75, "Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions",was issued to provide standards for governmental employers to record expense for Other Postemployment Benefits (OPEB). GASB 75 replaces GASB 45 for the District, effective July 1, 2017. The information contained in this report was based on a participant census as of July 1, 2017 provided to me by the District. The actuarial assumptions and methods used in this valuation were selected by the District after consultation with me. I believe the assumptions and methods are reasonable and appropriate for purposes of actuarial computations under GASB 75. Actuarial computations under GASB 75 are for purposes of fulfilling employer accounting requirements. The calculations reported herein have been made on a basis consistent with my understanding of GASB 75. Determinations for purposes other than meeting employer financial accounting requirements may be significantly different from the results reported herein. Due to the limited scope of my assignment, I did not perform an analysis of the potential range of future measurements. To the best of my knowledge, this report is complete and accurate. This valuation has been conducted in accordance with generally accepted actuarial principles and practices. The undersigned is a Fellow of the Society of Actuaries, a Fellow of the Conference of Consulting Actuaries, and a Member of the American Academy of Actuaries, and meets their continuing education requirements and qualification standards for public statements of actuarial opinion relating to retirement plans. In my opinion, I am qualified to perform this valuation. Nick Franceschine, F.S.A. North Bay Pensions LLC 550 Du Franc Avenue Sebastopol, CA 95472 1-800-594-4590 FAX 707-823-6189 nickamorthbavpensions.com 1 ! NORTHBAY PENSIONS 2 Summary of Results Background The District maintains a program which pays part of monthly medical insurance premiums on behalf of retired former employees, provided that the employee has satisfied certain requirements. As of July 1, 2017, the District has accumulated $1,322,152 in the CalPERS CERBT (California Employers’ Retirement Benefit Trust) toward the cost of future benefits. In June 2015, the Governmental Accounting Standards Board (GASB) released Statement No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions”. This statement, often referred to as GASB 75, requires governmental entities to (1) record annual expense for their OPEB and (2) disclose certain information in their year-end financial statements. The District has requested this actuarial valuation to determine what its OPEB obligations under the program are, and what the fiscal impact of GASB 75 will be for the 2017-2018 fiscal year. Actuarial Present Value of Projected Benefit Payments The Actuarial Present Value of Projected Benefit Payments (APVPBP) for all current and former employees, as of July 1, 2017, is $4,055,543. This is the amount the District would theoretically need to set aside at this time to fully fund all those future benefits. The total value of $4,055,543 is the sum of these amounts: Future benefits of current employees $ 3,390,030 Future benefits of current retirees 665,513 APVPBP $ 4,055,543 This figure may be compared to the Actuarial Present Value of Total Projected Benefits (APVTPB, the GASB 45 term for the same quantity) of $2,998,208 that was reported in the 2015 valuation report. We would have expected the APVTPB to increase to approximately $3,140,000 by 2017. The difference between the 2015 figure of $2,998,208 and this year’s figure of $4,055,543 is due to: • Expected increase in the APVPBP since 2015 $ 142,183 • Changes in the discount rate (see below) 218,571 • Miscellaneous experience gains and losses 696,581 $ 1,057,335 3 The experience loss of $696,581 is the combined result of normal demographic effects (i.e., terminations, deaths and retirements different than expected); medical premiums in 2017 and 2018 different than anticipated; and possibly some different benefit eligibility requirements and/or elimination of benefit caps. These figures are computed by (1) estimating the OPEB benefits that will be paid to each current and former employee and their beneficiaries (if applicable), upon the employee’s retirement from the District, (2) estimating the likelihood that each payment will be made, taking into consideration the likelihood of remaining employed until retirement age and the likelihood of survival after retirement, and (3) discounting each expected future payment back to the present date at an assumed rate of investment return. Net OPEB Liability The Total OPEB Liability (TOL) is the portion of the APVPBP which has been “earned” by employees based on past years of service (i.e. benefits allocated to past years of service). The Plan Fiduciary Net Position (FNP) is equal to the value of assets that have been accumulated in an irrevocable trust for these benefits, plus the remaining unrecognized deferred outflows and inflows of resources relating to OPEB (from Exhibit 5). The Net OPEB Liability or Asset (NOL) is the excess of the Total OPEB Liability over the Plan Fiduciary Net Position. At the end of each fiscal year, beginning June 30 2018, the District must show a liability equal to the NOL. At June 30, 2016 and June 30, 2017, these amounts are: June 30, 2016 June 30, 2017 Present value of benefits for employees $ 2,684,248 $ 2,930,054 Present value of benefits for retirees 758,663 665,513 Total OPEB Liability $ 3,442,911 $ 3,595,567 Accumulated assets in the CERBT trust $ 983,754 $ 1,322,152 Deferred outflows/inflows of resources 0 (44,966) Plan Fiduciary Net Position $ 983,754 $ 1,277,186 4 Total OPEB Liability $ 3,442,911 $ 3,595,567 Plan Fiduciary Net Position (983,754) (1,277,186) Net OPEB Liability $ 2,459,157 $ 2,318,381 OPEB Expense under GASB 75 GASB 75 requires that the annual change in the NOL be recognized as OPEB expense, except for certain specific changes which are to be recognized over different periods of time. Changes in actuarial assumptions, and experience gains and losses, are to be recognized over the average of the expected remaining service lives of all employees. As of June 30, 2017, this average for District employees is 11.5 years. Differences between actual and expected investment earnings are to be recognized over 5 years. The unrecognized remaining amounts of assumption changes, experience gains/losses and investment earnings differences are called “deferred outflows and inflows of resources relating to OPEB” (see Exhibit 5), and are added to the value of plan assets to obtain the Plan Fiduciary Net Position (Exhibit 2). The OPEB Expense for the fiscal year ending June 30, 2018 is $214,896. A derivation of this amount is shown in Exhibit 4. Disclosure Information as of June 30, 2018 Amounts to be disclosed in the footnotes to the District’s audited financial statements as of June 30, 2018 are shown in Exhibits 2 through 7 of this report. Exhibit 8 shows estimated retiree benefits and OPEB expense for the next nine years after that. Actuarial Assumptions The assumed discount rate has been changed from 7.00% to 6.50%. All other actuarial assumptions are unchanged from the July 1, 2015 valuation. 5 Exhibit 1 - Actuarial Values as of July 1, 2017 The Actuarial Present Value of Projected Benefit Payments (APVPBP) as of July 1, 2017 of all future employer-paid benefits from the program, for all current and former employees, is as follows: Actuarial Present Values Number of Persons Current employees $ 3,390,030 48 Retired former employees 665,513 15 Totals $ 4,055,543 63 As of July 1, 2017, the District has accumulated $1,322,152 in an irrevocable trust toward this liability. The Total OPEB Liability (TOL) as of June 30, 2017 is the portion of the APVPBP which has been “earned” to date by current and former employees, based on the years of service already completed: Current employees $ 2,930,054 Retired former employees 665,513 Totals $ 3,595,567 Summary of Participating Employees as of July 1, 2017 Active Employees Number 48 employees Average Age 47.3 years Average Service 14.8 years Retired Former Employees and Surviving Spouses Number 15 persons Average Age 69.1 years There were also 27 other employees who are not eligible for benefits because they were hired after December 7, 2011. 6 Exhibit 2 - Net OPEB Liability The Net OPEB Liability (NOL) is the excess of the Total OPEB Liability (TOL) over the Plan Fiduciary Net Position (FNP). As of June 30, 2016 and June 30, 2017 these are: June 30, 2016 June 30, 2017 Total OPEB Liability 1. Value of benefits for employees $ 2,684,248 $ 2,930,054 2. Value of benefits for retirees 758,663 665,513 3. Total OPEB Liability $ 3,442,911 $ 3,595,567 Plan Fiduciary Net Position 4. Fair value of accumulated assets in CERBT $ 983,754 $ 1,322,152 5. Deferred outflows/inflows of resources 0 (44,966) 6. Plan Fiduciary Net Position $ 983,754 $ 1,277,186 7. Net OPEB Liability: 3. minus 6. $ 2,459,157 $ 2,318,381 The Net OPEB Liability has changed from June 30, 2016 to June 30, 2017 in this way: TOL FNP NOL 8. Values at June 30, 2016 $ 3,442,911 $ 983,754 $ 2,459,157 9. Service cost 71,330 71,330 10. Interest 219,305 219,305 11. Differences between actual and expected experience 0 0 12. Employer contributions 355,672 (355,672) 13. Net investment income 121,311 (121,311) 14. Benefits paid to retirees (137,979) (137,979) 0 15. Changes in deferred outflows/inflows of resources (44,966) 44,966 16. Administrative expense (606) 606 17. Net changes $ 152,656 $ 293,432 $ (140,776) 18. Values at June 30, 2017 $ 3,595,567 $ 1,277,186 $ 2,318,381 7 Exhibit 3 - Sensitivity of the Net OPEB Liability The following presents the Net OPEB Liability (NOL) as well as what the NOL would be if it were calculated using a discount rate that is 1-percentage-point higher or lower than the current discount rate, as of June 30, 2017: 1% Decrease Discount Rate 1% Increase 5.50 % 6.50 % 7.50 % Net OPEB Liability (Asset) $ 2,671,403 $ 2,318,381 $ 2,010,173 The following presents the Net OPEB Liability (NOL) as well as what the NOL would be if it were calculated using healthcare cost trend rates that are 1-percentage-point higher or lower than the current healthcare cost trend rates, as of June 30, 2017: 1% Decrease Trend Rate 1% Increase 3.0 % 4.0 % 5.0 % Net OPEB Liability (Asset) $ 1,991,704 $ 2,318,381 $ 2,695,925 Exhibit 4 - OPEB Expense for the Fiscal Year Ending June 30, 2018 For the year ending June 30, 2018, the District will recognize OPEB expense of $214,896, computed as follows: Service cost $ 71,330 Interest 219,305 Expected investment return (65,103) Administrative expense 606 Change in NOL due to changes in benefits 0 Recognition of difference between actual and expected experience 0 Recognition of changes in assumptions 0 Recognition of difference between projected and actual earnings on investments (11,242) Total $214,896 8 Exhibit 5 - Deferred Outflows and Inflows of Resources The values of deferred outflows and inflows of resources related to OPEB as of June 30, 2017, to be reported as of June 30, 2018, are: Deferred Outflows Deferred Inflows Of Resources Of Resources Differences between expected and actual experience $ 0 $ 0 Changes of assumptions 0 0 Net difference between projected and actual earnings on OPEB plan investments 0 44,966 District contributions subsequent to the measurement date UNKNOWN 0 Total $ UNKNOWN $ 44,966 The amounts shown as UNKNOWN are the total amounts contributed by the District to retirees’ benefits and to the CERBT trust during the year ending June 30, 2018. Amounts reported as deferred outflows and inflows of resources related to OPEB as of June 30 2017, to be reported as of June 30, 2018, will be recognized in OPEB expense as follows: Year Ended June 30 2019 $ (11,242) 2020 (11,242) 2021 (11,242) 2022 (11,240) 2023 0 Thereafter 0 9 Exhibit 6 - Schedule of Changes in the Net OPEB Liability Reporting date 6/30/2018 Total OPEB liability Service cost $ 71,330 Interest 219,305 Changes of benefit terms 0 Differences between actual and expected experience 0 Changes of assumptions 0 Benefits paid to retirees (137,979) Net change in Total OPEB liability 152,656 Total OPEB liability – beginning 3,442,911 Total OPEB liability - ending $ 3,595,567 Plan fiduciary net position Contributions - employer $ 355,672 Net investment income 121,311 Benefits paid to retirees (137,979) Changes in deferred outflows/inflows of resources (44,966) Administrative expense (606) Net change in plan fiduciary net position $ 293,432 Plan fiduciary net position - beginning 983,754 Plan fiduciary net position - beginning $ 1,277,186 Net OPEB Liability - ending $ 2,318,381 Plan fiduciary net position as a percentage of the Total OPEB liability 35.52 % Covered-employee payroll $ 6,116,587 Net OPEB liability as a percentage of covered-employee payroll 37.90 % 10 Exhibit 7 - Schedule of Contributions Reporting date 6/30/2018 Actuarially determined contribution $ UNKNOWN Contributions in relation to the actuarially determined contribution UNKNOWN Contribution deficiency (excess) $ Covered-employee payroll $ 6,116,587 Contributions as a percentage of covered-employee payroll Exhibit 8 - Ten-Year Projection of Costs Shown below are estimates of (a) the benefits expected to be paid to retirees, and (b) the amounts the District is expected to accrue as GASB 75 OPEB expense, for the next ten years. For these estimates, it is assumed that the service cost will increase 4% per year, that all actuarial assumptions and the size of the workforce will remain unchanged, that the promised benefits will remain the same, that the District will fund the retiree benefits each year, and that there are no experience gains or losses. Benefits GASB 75 To Retirees OPEB Expense Fiscal Year Ending: 2018 $ 210,100 $ 214,896 2019 224,700 206,700 2020 251,700 208,100 2021 254,400 208,300 2022 268,900 207,500 2023 277,200 217,500 2024 282,100 216,200 2025 301,700 214,500 2026 302,000 211,900 2027 314,700 208,600 11 Exhibit 9 - Summary of Benefit Provisions The District contributes toward post-retirement benefits for employees who retire after age 50 with at least 5 years of service. Only employees hired prior to December 8, 2011 qualify for these benefits. The District will pay 100% of the monthly medical, dental and vision premiums for the retired employee, and 2/3 of the premiums for dependents. Payments are made for 4 months, for each year of service that the retired employee had worked; so an employee who worked 15 years would receive payments for 5 years. After the retiree dies, payments continue to dependents for the remainder of the payment period. Exhibit 10 - Summary of Actuarial Assumptions Actuarial Assumptions: The following assumptions as of July 1, 2017 were selected by the District in accordance with the requirements of GASB 75. These assumptions are consistent with the 2014 CalPERS OPEB Assumptions Model and, in my opinion, are reasonable and appropriate for purposes of determining OPEB costs under GASB 75. Long-Term Expected Rate of Return on Investments: The long-term expected rate of return on investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of investment expense and inflation) are developed for each major asset class. The asset class percentages are taken from the current composition of the CERBT trust, and the expected yields are taken from a recent CalPERS publication for the Pension Fund: % of Fund Real return, next 10 years Global equity 57 % 5.25 % Fixed income 27 % 0.99 % Treasury securities 5 % 0.45 % Real estate trusts 8 % 4.50 % Commodities 3 % 3.90 % 100 % The estimated yield of 3.9% for commodities was obtained from various sources, and is a rough guess. Using these figures, the weighted-average real rate of return is estimated to be 3.73%. Adding estimated inflation of 2.75%, we obtain 6.48% as an estimate of the expected rate of return, which is rounded to: 6.5%. Discount rate: 6.50% per year. The cash flows of the OPEB plan were projected to future years, assuming that the District will contribute an amount at least equal to 12 retirees’ benefits until the Net OPEB Liability is expected to be $0, and then small amounts thereafter to keep the NOL at $0. Under that projection, the plan assets are projected to be adequate to pay all benefits to retirees in all future years, so the discount rate has been set equal to the long-term expected rate of return on investments, 6.50%. In the 2015 valuation, the discount rate was 7.00%. Medical Cost Increases (Trend): The medical, dental and vision premiums are assumed to increase 4% per year after 2018. Payroll Growth: Total payroll is assumed to increase 2.75% per year in the future. Plan Fiduciary Net Position: The FNP is the fair value of assets on the measurement date, plus the remaining unamortized amounts of deferred outflows and inflows of resources relating to OPEB. Coverage Elections: 100% of eligible employees are assumed to elect coverage upon retirement, and to remain covered under District plans for the payment period. All employees with no current medical coverage are assumed to elect PPO medical coverage prior to retirement. Mortality: Mortality rates are taken from the 2014 CalPERS OPEB Assumptions Model for “public agency miscellaneous”. Funding Method: The Entry Age actuarial cost method has been used, with normal costs calculated as a level percentage of payroll, as required by GASB 75. Retirement: Retirement rates are taken from the 2014 CalPERS OPEB Assumptions Model for “public agency miscellaneous 2% at 55”. Sample rates are: 10 Years Service 20 Years Service 30 Years Service Age 55 6.4 % 9.4 % 12.7 % Age 58 6.6 % 9.7 % 13.1 % Age 61 11.3 % 16.5 % 22.4 % Age 64 14.8 % 21.6 % 29.4 % 13 Turnover (withdrawal): Likelihood of termination within the next year is taken from the 2014 CalPERS OPEB Assumptions Model for “public agency miscellaneous”. Sample rates are: 5 Years Service 10 Years Service 15 Years Service Age 20 9.46 % Age 30 7.90 % 6.68 % 5.81 % Age 40 6.32 % 5.07 % 4.24 % Age 50 1.16 % 0.71 % 0.32 % Age-Specific Medical Claims: The estimated per person medical costs (true costs of coverage) during the 2017-18 fiscal year are as follows (rates are shown for certain ages only): Age 40 $ 6,295 45 7,612 50 9,404 55 11,598 60 13,518 64 14,504 These age-specific rates were developed so as to reproduce in the aggregate the same total premium that would be paid to the carriers for all current employees and all current retirees. ITEM NO. 8.4 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Brett R. Barbre, Asst General Manager Prepared By:Brett R. Barbre, Asst General Manager Subject:Management of District's Pension Liabilities SUMMARY: At the September 12, 2017 Board Meeting, staff was directed to bring back a policy and schedule of payments to fund our PERS Pension Liabilities in a Section 115 Trust at the 90% level. It was further requested that a payment schedule of a pay down over 5-10-15-20 years be included in the evaluation. STAFF RECOMMENDATION: That the Board of Directors: (1) implement a 10-year pay down strategy for eliminating the PERS Pension Liability, starting with an initial payment of $1,105,248 in July 2018; (2) direct staff to open a PRSP account with PARS; and (3) include in future budgets the required deposit to be made in July of each year for a period of 10 years until the District attains the 90% funded status. DISCUSSION: The Yorba Linda Water District (YLWD) has three tiers of employees as it pertains to PERS Pension Liabilities. They fall into the following categories with their pension formulas noted: Tier 1 (Original Classic Plan) – 48 members of this tier – 2% @ 55 Tier 2 (Classic New Hire Plan) – 5 members of this class – 2% @ 60 Tier 3 (PEPRA Plan) – 23 members of this class – 2% @ 62 While the Tier 2 and the Tier 3 Plans are funded at the 89.5% and 89.1% respectively, the Tier 1 Plan is only funded at a 75.4% level. The funded level for the Tier 1 will continue to decline as the Assumption Rate is reduced, as planned, over the next few years. Staff recommends opening a Section 115 trust with the Public Agency Retirement Services (PARS) and utilizing their Pension Rate Stabilization Program (PRSP), which has been designed for public agencies to prefund pension account liabilities. It appears that PARS is the only entity in California that provides a PRSP for public agencies. Staff will contact and arrange for a presentation at a future Board Meeting. CURRENT NUMBERS Our Current Funded Ratio (Combined) is 75.62% Our Unfunded Actuarial Liability (Combined) is $8,295,846 PAY DOWN SCHEDULE (Tier 1 or Original Classic Plan) Five Year Pay Down – Year One: $2,002,946; Year Five - $2,254,333 Ten Year Pay Down – Year One - $1,105,248; Year Ten - $1,442,098 Fifteen Year Pay Down – Year One - $810,284; Year Fifteen - $1,225,628 Twenty Year Pay Down – Year One - $665,936; Year Twenty - $1,167,723 Staff expects these amounts to increase as the assumption rate is lowered over the next few years. ITEM NO. 8.5 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Brett R. Barbre, Asst General Manager Prepared By:Brett R. Barbre, Asst General Manager Subject:Disposition of Positive Net Position as of June 30, 2017 SUMMARY: At the September 12, 2017 Board Meeting, staff was directed to bring back a proposal for the Disposition of Positive Net Position at June 30, 2017. STAFF RECOMMENDATION: That the Board of Directors consider the disposition of the District's positive net position as of June 30, 2017 and provide direction to staff. DISCUSSION: At the September 12, 2017 Board Meeting, staff was directed to bring back a proposal for the Disposition of Positive Net Position as of June 30, 2017. Following a robust discussion regarding reserve policies, including the establishment of the Employee Liability Restricted Reserve to cover employees’ vacation and compensatory time, it was determined that approximately $1,347,599 was available for discretionary spending possibilities by the Board, one option being another credit/refund to the customers and ratepayers of the Yorba Linda Water District. The Board also agreed that the recipients of a proposed refund would be selected in the same manner as the Board Approved Conservation Credit that was issued earlier this year. While the Board was not in unanimous agreement regarding the refund itself, there was unanimous agreement that any refund be contingent upon a review and reaffirmation of our AA credit rating by FITCH, a Nationally Recognized Statistical Rating Organization (NRSRO), who was one of NRSROs that issued a financial rating of the District in April 2017 for the YLWD Revenue Bonds. Staff worked with our financial advisors, Fieldman, Rolapp & Associates, to prepare a “ratings checklist” based on the FITCH criteria for water & sewer financings. This checklist along with the report on which it was based, was presented to the Board on September 12, 2017 and was utilized in determining the total unrestricted reserves for the District. Both the checklist and the report are attached to this item. We will continue to work with them as we prepare for the Fitch review should a refund be approved. It is anticipated that the review by Fitch will take between one and two months to complete. Also attached is a copy of the Fitch rating report, dated April 19, 2017, which was specific to the Revenue Bonds that were issued by the Yorba Linda Water District Financing Authority for the benefit of the Yorba Linda Water District. OPTIONS Option 1: The Yorba Linda Water District Board of Directors directs staff to deposit the remaining portion of the Positive Net Position, as of June 30, 2017, into a Pension Rate Stabilization Program (PRSP), which will be established with the Public Agency Retirement Services (PARS), to begin the reduction of the District’s PERS liability. Option 2: The Yorba Linda Water District Board of Directors directs staff to issue a refund, based on the remaining portion of the Positive Net Position, as of June 30, 2017, and that the amount would be equally divided by the number of current customers as of the date of the vote to issue the refund, and approval of the refund be subject to the reaffirmation of the District’s AA ratings by Fitch. ATTACHMENTS: Name:Description:Type: YLWD_Rating_-_04-19-17.pdf Fitch AA Rating April 2017 Backup Material Fitch_Four_Criteria_for_Strong_Ratings_- _with_Data.pdf Fitch Checklist With Data Backup Material Fitch_Ratings_Criteria_-_NOV_2016.pdf Fitch Criteria for Water & Sewer Backup Material Fitch Rates Yorba Linda Water District, CA's Water Revs 'AA'; Outlook Stable Fitch Ratings-San Francisco-19 April 2017: Fitch Ratings has assigned a 'AA' rating to the following Yorba Linda Water District Financing Authority, CA bonds: --$29.1 million revenue bonds, series 2017A. The bonds will refund the district's series 2008 certificates of participation (COPs), fund about $6 million of upgrades to a booster pumping station and pay cost costs of issuance. The bonds are scheduled to sell via negotiation on or about April 26, 2017. In addition, Fitch has affirmed the following ratings on bonds issued by the Yorba Linda Water District (the district) at 'AA': --$7.3 million revenue refunding bonds, series 2012A; --$29.1 million revenue COPs, series 2008. The Rating Outlook is Stable. SECURITY The revenue bonds and COPs are parity obligations secured by net water revenues of the district after payment of operations and maintenance expenses. KEY RATING DRIVERS STRONG FINANCIAL PROFILE: The district's financial performance remained strong across a period of extreme drought due to prompt rate adjustments to offset the impact of state mandated conservation and increasing infrastructure investment. Fitch-calculated debt service coverage (DSC) averaged a very strong 3x over the three years ended in fiscal 2016. Page 1 of 9[ Press Release ] Fitch Rates Yorba Linda Water District, CA's Water Revs 'AA'; Outlook... 9/22/2017https://www.fitchratings.com/site/pr/1022423 Liquidity increased to 601 days cash over the period. POLITICAL ENVIRONMENT WEIGHS ON RATING: Rate increases related to drought and increased investments in district infrastructure prompted a rate controversy that culminated in the replacement of four-fifths of the district's board of directors in November 2016. The new board appears focused on minimizing rate increases while maintaining strong financial performance but has not yet convincingly ended the rate controversy. The rating is lower than suggested by the financial metrics due to continued concerns about the district's governance and the electorate's willingness to accept rates that guarantee full cost recovery. HEALTHY DEBT PROFILE: The debt burden was moderate at $1,836 per customer at the end of fiscal 2016. Debt will remain moderate after the current transaction and is projected to decline somewhat over the next five year. The district has no other near-term borrowing plans. STRONG OPERATING PROFILE: The district serves a diverse, affluent suburban residential service area in Orange County, California. The district's supply position is solid after the district gained access to significant groundwater supplies in recent years, reducing reliance on imported supplies. RATING SENSITIVITIES RATE POLICY TO DRIVE RATING: The rating could be revised upward if adopted rates continue to produce strong financial performance and political tensions dissipate. Alternatively, the rating ultimately could come under downward pressure if the district and community fail to reach a consensus on rates that leads to full cost recovery and continued solid financial performance. CREDIT PROFILE The district is located in northeastern Orange County approximately 35 miles southeast of downtown Los Angeles, and 11 miles north of Santa Ana, the county seat. The service area predominantly covers the city of Yorba Linda, an upper income suburban community, in addition to portions of Anaheim, Brea, and Placentia, and unincorporated county areas. Page 2 of 9[ Press Release ] Fitch Rates Yorba Linda Water District, CA's Water Revs 'AA'; Outlook... 9/22/2017https://www.fitchratings.com/site/pr/1022423 STRONG FINANCIAL PROFILE The district performed very well through an intense period of drought that included unprecedented state actions to curb water usage across the state of California. The district was ordered to reduce water production by 28% to 36% during the most intense stages of the drought. Operating revenues fell 5.2% in fiscal 2015, but prompt rate adjustments recouped the loss in 2016 with a 10% jump in revenues. DSC remained strong across both years at 2.5x in fiscal 2015 and 4x in fiscal 2016. Liquidity has improved significantly over the past five years. Unrestricted cash and investments increased to $35.6 million, or 601 days cash, at the end of fiscal 2016 (June 30). The recent level of financial performance could result in upward rating movement if sustained. Both liquidity and coverage measures are in line with Fitch's 'AAA' category metrics. However, the future path of rates and financial performance is uncertain due to ongoing rate controversy. Currently approved rates and management plans would provide very strong coverage and continued solid liquidity but will depend on policymaker decisions that are still to be made. GOVERNANCE WEIGHS ON RATING The rating is lower than suggested by the financial metrics due to continued concerns about the district's governance and the electorate's willingness to accept rates that guarantee full cost recovery in the future. The district has faced periodic rate controversies over the past decade, which has led to significant and unusual turnover in senior staff and the board of directors. The current rate controversy grew out of very large increases in fixed meter fees that were imposed to offset drought-related revenue losses and to fund increased infrastructure investments that will allow the district to pump more groundwater. The controversy led to an unsuccessful lawsuit by a local taxpayers association and eventually culminated in an electoral takeover of the board of directors at the November 2016 election. Of five board members, two incumbents were defeated and two others were recalled. The newly elected board of directors has been in place for approximately six months and has not yet established a track record of rate setting. The board Page 3 of 9[ Press Release ] Fitch Rates Yorba Linda Water District, CA's Water Revs 'AA'; Outlook... 9/22/2017https://www.fitchratings.com/site/pr/1022423 will take its first rate action as part of the fiscal 2018 budget process. District management and the board have been focused on a robust board education effort to explain the district's revenue requirements, capital needs and operations to new policymakers. While the new board is focused on minimizing rate increases, newly elected board members have also stated that they intend to maintain strong financial performance, and they did not immediately roll back existing rates (which have eased in any case with the lifting of temporary drought-related penalties and lowering of fixed charges in anticipation of higher volumetric sales in fiscal 2017). The level of rate controversy and instability at the management and elected policymaker levels lowers Fitch's assessment of overall assessment of management and weighs on the rating. Fitch expects rate pressures to ease some with the ending of the drought, and the board and management are actively working to improve public trust, including the creation of a citizen rate advisory commission. A failure to develop some degree of consensus among stakeholders on rate policy ultimately could put downward pressure, while a sustained resolution of the controversy could lead to positive rating action (assuming continued strong financial performance). HEALTHY DEBT PROFILE Debt is moderate and expected to decline gradually over the next five years. The district had $45.7 million of debt outstanding at the end of fiscal 2016. Debt ratios are moderate with debt per customer at $1,836 versus a 'AA' category median of $1,823. Debt to net plant assets is low at 30%, and debt to funds available for debt service is low at 4x. Debt will decline slightly but remain moderate after the current transaction due to liquidation of a debt service reserve fund. Debt is projected to decline further with gradual amortization of outstanding debt and no further borrowing. The district's $21.1 million five year capital improvement plan includes just $6 million of borrowing, which is included in the current transaction. The remainder of the plan (72%) will be funded on a pay-go basis. Amortization is healthy with 89% of debt repaid over the next 20 years. STRONG OPERATING PROFILE Page 4 of 9[ Press Release ] Fitch Rates Yorba Linda Water District, CA's Water Revs 'AA'; Outlook... 9/22/2017https://www.fitchratings.com/site/pr/1022423 The district serves a diverse, affluent suburban residential service area in Orange County, California. Median household income is more than twice the national level, and unemployment rates trend lower the national average. The district's supply position is solid after the district gained access to significant groundwater supplies in recent years, reducing reliance on imported supplies. The district will get about 75% of its supplies from relatively affordable local groundwater after new facilities reach full production. The remainder of its supplies are imported. Supply availability remained solid throughout the recent drought due to large investments in water storage capacity and groundwater management by regional wholesalers. The district provides water services to roughly 24,900 customers, of which about 90% are residential. Customer concentration is moderate with the top 10 ratepayers providing 9.8% of 2016 operating revenues. The largest customers are governments and large homeowners associations that represent many underlying payers, lessening any concerns about concentration. Contact: Primary Analyst Andrew Ward Director +1-415-732-5617 Fitch Ratings, Inc. 650 California Street San Francisco, CA 94103 Secondary Analyst Shannon Groff Director +1-415-732-5628 Committee Chairperson Douglas Scott Page 5 of 9[ Press Release ] Fitch Rates Yorba Linda Water District, CA's Water Revs 'AA'; Outlook... 9/22/2017https://www.fitchratings.com/site/pr/1022423 Managing Director +1-512-215-3725 In addition to the sources of information identified in Fitch's Revenue- Supported Rating Criteria, this action was additionally informed by information from Lumesis. Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Revenue-Supported Rating Criteria (pub. 16 Jun 2014) (https://www.fitchratings.com/site/re/750012) U.S. Water and Sewer Revenue Bond Rating Criteria (pub. 30 Nov 2016) (https://www.fitchratings.com/site/re/890402) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/1022423) Solicitation Status (https://www.fitchratings.com/site/pr/1022423#solicitation) Endorsement Policy (https://www.fitchratings.com/regulatory) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS (https://www.fitchratings.com/understandingcreditratings). IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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Page 9 of 9[ Press Release ] Fitch Rates Yorba Linda Water District, CA's Water Revs 'AA'; Outlook... 9/22/2017https://www.fitchratings.com/site/pr/1022423 Four Main Areas of Consideration Governance and Management General Stability, effectiveness and experience of leadership Limited to no political pressure from governing body Transparency and communication between management and governing body History of forecasts and resource management plans Documented policies and procedures Financial Profile Total debt service coverage of approximately 2.0X or greater 309.23% Days cash and days of working capital equal to one year or more 370 days Free cash relative to depreciation equal to 100% or better 90.22% Residential charges for combined water/sewer less than or equal to 1.2% of MHI 0.90% (average 18 units and 1” meter) Approximately 30% or more of revenues recovered through fixed (connection) fees 37.78% Debt Profile Existing and five-year projected debt per customer of $1,500 or less Existing - $1,464.36 Five Year - $1,185.46 Existing and five-year projected debt per capita levels of $500 or less Existing - $462.85 Five Year - $361.79 Debt funding of capital of 50% or less 19.8% Amortization of principal equal to 90% or greater over the ensuing 20 years 89.0% Operating Profile Customer accounts stable or growing less than 1% annually 0.60% Top 10 customers for retail utilities represent 5% or less of system revenues and no customer accounts for more than 2% of system revenues 10.7%; City of YL – 6.95%; PYLUSD – 1.13% Annual renewal of 100% or more of depreciated assets 98.14% Unbilled/unaccounted for water of less than 10% 8.20% Full compliance with regulatory requirements YES Service territory MHI equal to 115% or more of state/nation State – 182% Nation – 210% www.fitchratings.com November 30, 2016 Public Finance Water & Sewer / U.S.A. U.S. Water and Sewer Revenue Bond Rating Criteria Sector-Specific Criteria Scope This report represents a sector-specific extension to Fitch Ratings’ global criteria on “Revenue- Supported Rating Criteria,” dated June 2014, and details Fitch’s approach to rating new and existing U.S. municipal water and sewer (sanitary and stormwater) utilities. Municipal water and sewer utilities in the U.S. are enduring natural monopolies that provide highly essential services and generally have local rate-setting authority. Fitch’s average rating for these utilities is ‘AA’. This report elaborates on Fitch’s review of specific factors known as the “10 Cs,” which are a subset of the Revenue-Supported Rating Criteria’s four areas: styled governance and management, financial profile, debt profile and operating profile. The 10 Cs include crew (an informal term for management); coverage and financial performance; cash and balance sheet considerations; charges and rate affordability; capital demands and debt burden; covenants; customer growth and concentration; capacity; compliance with environmental laws and regulations; and community characteristics. Fitch’s approach to rating sector credits remains consistent with prior sector criteria publications. As the industry evolves or new market dynamics emerge, particular emphasis on certain aspects of the credit evaluation may arise. In addition, not all factors outlined in this report apply to each individual rating or rating action. Each specific rating action commentary or rating report discusses those factors most relevant to the individual rating decisions. Key Rating Drivers Governance and Management: A utility’s operating and fiscal health is highly dependent on the actions of the utility’s employees and governing body. Consequently, Fitch performs a qualitative assessment of management, staff and policies to gauge likely ongoing operating stability. Financial Profile: Fitch evaluates both historical and forecast financial results to determine the ability of a utility to fund operating and capital needs and meet its debt obligations. This component of the analysis is primarily quantitative in nature. This area of the analysis includes the majority of Fitch’s key ratios. As a result, the financial profile of a utility is a primary determinant in the rating outcome. Debt Profile: Fitch analyzes the level and structure of a borrower’s debt in determining overall creditworthiness. This area includes both quantitative and qualitative assessments relating to a utility’s debt obligations. Like the financial profile, the analysis of a utility’s debt profile is a major factor in the credit rating. Operating Profile: The ability of a utility to provide service to its customers and generate resources sufficient to meet its financial obligations is affected by a range of factors from the deployment of assets to the health of the service area. This component includes both quantitative and qualitative assessments of all aspects related to a utility’s operations. Inside This Report Page Scope 1 Key Rating Drivers 1 Overview 2 Governance and Management 2 Financial Profile 3 Debt Profile 6 Operating Profile 9 Appendix A: Key Ratios Used in the “10 Cs” Rating Process 13 Appendix B: Water and Sewer Management Practices 14 Appendix C: Checklist of Basic Documents for the Rating Review Process 15 This report replaces the previous report of the same title dated September 3, 2015. Related Criteria Revenue-Supported Rating Criteria (June 2014) Analysts Doug Scott +1 512 215-3725 douglas.scott@fitchratings.com Kathryn Masterson +1 512 215-3730 kathryn.masterson@fitchratings.com Andrew DeStefano +1 212 908-0284 andrew.destefano@fitchratings.com U.S. Water and Sewer Revenue Bond Rating Criteria 2 November 30, 2016 Public Finance Governance and Management Crew Fitch’s evaluation of management and management practices is qualitative in nature and includes a review of organizational policies and practices. Because sound management practices are critical to a utility’s operations and affect all aspects of Fitch’s rating criteria, Fitch’s assessment in this area has an asymmetric impact on a utility’s credit rating, with standard to above-standard performance considered credit neutral and below-standard performance considered a credit negative. In general, utilities exhibiting management practices that promote operational stability (including actions that limit expenditure escalation by anticipating future regulatory and growth/supply demands); reliably implement rate increases to cover operational and capital costs; and ensure sufficient liquidity to cope with unexpected sales shortfalls or emergency needs are expected to be the norm. Throughout this report, numerous management practices that affect credit quality are discussed and highlighted in addition to being summarized in Appendix B. Financial Profile Coverage and Financial Performance This area — including the various quantitative ratios used to evaluate an entity’s revenues and expenditures — serves as a primary indicator in an entity’s credit rating. These ratios are not only used to gauge current, historical and projected performance, but also compared with those of other peer systems. Fitch typically rates only the senior lien debt of an issuer, as subordinate debt is more commonly privately placed with a state revolving fund and not rated. However, in the credit analysis, Fitch reviews not only an entity’s senior lien debt service coverage, but also coverage on all debt supported by the utility. This provides a more complete assessment of an entity’s ability to pay all its obligations (that is, operating and debt) and generate adequate financial margins. In evaluating debt service coverage, Fitch takes into consideration all pledged revenues. However, Fitch also reviews coverage without growth-sensitive revenues, such as connection fees, given their variability. As part of its evaluation of debt service coverage, Fitch also employs three standard stress scenarios internally to evaluate potential performance during periods of intense operating weakness such as prolonged drought, economic softness and/or a deceleration in customer usage. In general, the first scenario includes a 15% drop in revenues that continues throughout the five-year forecast without corresponding cuts to expenses or Attributes: Governance and Management Neutral to risk assessment • General stability, effectiveness and experience of leadership. • Limited to no political pressure from governing body. • Transparency and communication between management and governing body. • In the case of wholesale systems, coordinated efforts among member utility systems and the governing body. • History of forecasts and resource management plans. • Documented policies and procedures. Negative to risk assessment • Lack of experience, depth and/or stability in leadership at the utility. • Significant political pressure in the underlying municipality or in the members’ service areas. • Failure to maintain open communications between the utility and the governing body, which may reveal itself in unexpected, significant rate increases. • Lack of forecasts and resource management plans. • Lack of policies and procedures. U.S. Water and Sewer Revenue Bond Rating Criteria 3 November 30, 2016 Public Finance increases in rates. The second includes a similar initial 15% decline in revenues, followed by an immediate increase in user charges the following year to Fitch’s affordability levels (see Charges and Rate Affordability on page 4), which typically would lead to an increase in revenues during the following years of the forecast. The third is a break-even scenario evaluating the level of revenue declines that may be sustained without cuts in expenditures. These stress scenarios are used solely to inform the evaluation of debt service coverage and are not used to predict future performance. In addition to Fitch’s standard internal stress scenarios, other stress analyses may be performed if deemed necessary and appropriate, although such scenarios are not part of the normal review process. An example of a scenario that may be utilized includes calculating an issuer’s variable-rate debt service at a higher interest rate in future years than assumed by the issuer if an issuer has an elevated proportion of variable-rate debt (generally greater than 20% of an issuer’s debt profile) and/or any of the issuer’s variable-rate bonds have been tendered, not remarketed, and purchased by the liquidity provider in accordance with the liquidity support agreement (that is, bank bonds). Another example of a stress scenario that may be utilized by Fitch is to assume a higher level of operating expenses than forecast by the issuer to account for potential budgetary pressures such as accelerating electricity, chemical or water purchase costs. Other types of financial performance indicators evaluated by Fitch within its credit evaluation include growth in operating revenues and expenditures, operating margin, the level of transfers out made by the utility and the strength of the cash flows. Each of these ratios provides insight into the operations of the utility and serves to illuminate particular credit concerns. For example, growth in operating expenditures consistently outpacing that of operating revenues may signal that costs are not being adequately recovered in the rate structure. Also, cash flows consistently lower than the annual depreciation expense may signal that insufficient internal resources are being generated for renewal needs, which could lead to increased reliance on borrowable resources over time. In general, Fitch views long-term financial planning as a fundamental component for successful utility operations given long-range planning can clearly highlight future structural deficits necessitating revenue development, expenditure containment or both. Fitch believes utilities are more likely to be stable when such decisions are considered in advance, as a result of financial forecasting, rather than when they are made on a reactive basis, under pressure and with increased political controversy. Numerous factors can cause financial volatility, including variations in water supply, weather- related demand and economic cycles. Consequently, highly rated utilities set goals for appropriate financial margins, including debt service coverage levels, debt affordability and reserve funding (such as rate stabilization, repair and rehabilitation, and operating reserves), and consistently establish rates and budgets that comply with their goals. Utilities operating in areas especially prone to rainfall volatility that consider the effect of such variability on their revenues and establish financial cushions or rate structures to deal with potential weather events are considered stronger than those that do not consider such risks. Because the financial health of a utility depends on the receipt of revenues for services rendered, Fitch considers the development and maintenance of adequate billing and collection measures an imperative to investment-grade credit quality. Consequently, inadequate practices include failure to meter customers or to replace aging meters. Fitch also considers the existence of policies regarding the termination of service for unpaid accounts and a utility’s practice of acting on those policies when necessary. In cases where accounts receivable U.S. Water and Sewer Revenue Bond Rating Criteria 4 November 30, 2016 Public Finance (expressed as days of operating revenues) are significantly high in relation to a utility’s billing cycle (for example, 2.0x or higher), negative credit implications would be expected. Cash and Balance Sheet Considerations Similar to coverage and financial performance, a utility’s cash and balance sheet serve as key indicators of an entity’s credit rating, and the resulting analysis is closely tied to quantitative ratios and the comparison of these ratios with those of other peer utilities. For the most part, these ratios are designed to measure a utility’s available liquid resources to meet near-term liabilities, particularly in the event of unforeseen hardships or difficult operating conditions. Because of the nature of these calculations, Fitch considers liquid resources to be current unrestricted assets, although credit may be given to noncurrent or restricted assets if they are available for general purposes at the discretion of the governing body (for example, a restricted operating reserve fund) and if Fitch is aware of such resources. The key ratios Fitch uses in determining an entity’s liquidity are days cash and days of working capital, which compare available resources with operating expenses. However, other measurements are also used, including quick and current ratios, to gauge a utility’s ability to meet near-term liabilities. Fitch also considers an entity’s cash position relative to swap termination events to gauge the hardship such an event might pose to continued operating performance. Charges and Rate Affordability Fitch’s analysis in this area is a mixture of qualitative and quantitative factors. While this area typically does not have a significant impact on the rating outcome, Fitch’s perception of high utility rates, lack of future rate flexibility, volatility in the revenue structure or difficulty in obtaining timely rate relief may have a direct bearing on the entity’s rating level. In measuring affordability, Fitch generally considers rates for service higher than 1% of MHI for an individual water, sewer and stormwater utility to be financially burdensome. Fitch may also utilize the cost of service from other comparable utilities in the region, where available, in measuring relative affordability. The comparison is utilized to determine whether future growth may be hampered due to the lack of competitiveness, particularly in neighboring suburban communities that have similar economic and residential bases. The comparison is also useful in that anticipated rate increases may be projected forward to determine continued competitiveness. Finally, a regional comparison may act as a counterbalance to the 1% threshold where rates overall are above average but well within local affordability levels or, conversely, low to moderate overall but at or near 1% of MHI. In evaluating user charges, Fitch considers how a utility generates its revenues. Most utilities bill customers based on a fixed amount (that is, a readiness-to-serve charge) and a volumetric rate relative to actual usage. Because systems with greater percentages of fixed charges have less volatility in their revenue streams than systems that rely extensively or completely on volumetric charges, utilities whose fixed-charge components generate a significant amount (30% or more) of their revenue streams are considered stronger. U.S. Water and Sewer Revenue Bond Rating Criteria 5 November 30, 2016 Public Finance Fitch also incorporates the rate approval process and general relationship with the utility’s rate- making body into its rating analysis. A major credit strength of municipal utilities is the local control over rate setting, free from external oversight. Still, local authorities can be subject to other community interests or political pressures. A lengthy rate review process, which can hinder timely cost recovery, or a demonstrated reluctance by governing officials to adjust rates in line with increasing costs can negatively affect the rating. Debt Profile Capital Demands and Debt Burden Utilities are capital intensive, with debt service burdens that often surpass those of general governments as measured by the percentage of revenues. Because of the pressure capital and debt activities can have on a utility’s operating and financial profiles, the analysis related to this area also serves as a key indicator of an entity’s credit rating. Quantitative ratios are an overarching consideration, with such ratios compared with those of other utilities to help gauge relative capital needs and debt burden. In general, utilities limiting debt exposure by utilizing annual pay-as-you-go funding, including excess user charges and growth-related fees, for a significant portion of their capital programs are considered stronger than those relying predominantly on debt. Elevated debt issuance over the near term may not adversely affect credit quality, although, in assigning a credit rating, Fitch considers anticipated debt issuance in light of outstanding obligations, affordability levels and historical financial performance, as well as the need for financing such projects. Key ratios used in evaluating an entity’s debt burden include the measurement of outstanding debt on both a customer and per capita basis, as well as expected customer and per capita debt levels five years into the future; for wholesale systems, the measurement generally is limited to just debt per capita. Other quantitative ratios typically considered include the expected level of annual capital spending per customer through the capital improvement program (CIP) cycle, the percentage of debt funding relative to total CIP costs, and debt relative to equity and net plant assets. In addition, to gauge a utility’s capacity for future debt issuances over the long term, Fitch evaluates the amortization rate of all debt payable from system revenues. For debt funding of capital requirements, long-term fixed-rate debt historically has been the norm for water, sewer and stormwater utilities, with terms ranging from 20−30 years. However, borrowers have utilized variable-rate instruments as well to reduce borrowing costs. In some Attributes: Financial Profile Stronger • Total debt service coverage of approximately 2.0x or greater. • Days cash and days of working capital equal to one year or more. • Free cash relative to depreciation equal to 100% or greater. • Residential charges for individual or combined water/sewer utilities less than or equal to 0.6% or 1.2% of MHI, respectively. • Approximately 30% or more of revenues recovered through base charges as opposed to volumetric charges. Midrange • Total debt service coverage of approximately 1.5x. • Days cash and days of working capital of about six months. • Free cash relative to depreciation equal to approximately 85%. • Residential charges for individual or combined water/sewer utilities of about 0.8% or 1.5% of MHI, respectively. • Approximately 15% of revenues recovered through base charges. Weaker • Total debt service coverage of approximately 1.25x or less. • Days cash and days of working capital of three months or less. • Free cash relative to depreciation of 60% or less. • Residential charges for individual or combined water/sewer utilities in excess of 1.0% or 2.0% of MHI, respectively. • Little or no revenues recovered through base charges. U.S. Water and Sewer Revenue Bond Rating Criteria 6 November 30, 2016 Public Finance instances, borrowers have also entered into swap agreements as a hedge to variable-rate obligations or to take advantage of spreads between fixed-rate debt and a swap index. Fitch recognizes the potential benefits of both variable-rate obligations and swap agreements to borrowers and believes that both types of instruments can be important tools in a utility’s overall debt strategy. Nevertheless, Fitch believes it is imperative that management understand the implications of variable-rate and swap strategies prior to engaging in them, thoroughly evaluating the potential risks and benefits of such instruments within the utility’s asset/liability plans. Utilities with a perceived high degree of exposure (for example, a significant proportion of variable-rate debt and/or swaps relative to all outstanding debt or a high exposure of credit facilities with a single institution) and/or a perceived lack of understanding and ability to manage such exposure will face tighter scrutiny than those with little or no variable-rate obligations or swap agreements outstanding. In evaluating variable-rate and swap exposure, Fitch employs both qualitative and quantitative factors to assist in gauging relative risk associated with these instruments. Qualitative factors include items such as an evaluation of lien payment of regular and termination payments, collateral posting requirements and cross-default provisions. Quantitative factors generally include the amount of hedged and unhedged variable-rate debt and the ability to meet termination payments from unrestricted reserves. Covenants Fitch performs a qualitative assessment in this area. Fitch’s rating analysis focuses on actual and likely future performance as opposed to minimum covenanted performance. Consequently, risk factors in this area work asymmetrically, where only below-standard features are factored into the rating, while more credit-positive features are expected to be the rule, and would have a neutral impact on the rating. Fitch views standard bond covenants for retail utilities and most wholesale providers as those that limit parity bond issuance of either senior and/or subordinate lien obligations to instances when historical and/or projected revenues cover annual debt service (ADS) at least 1.1x and require 1.1x rate setting annually to cover both operations and debt service costs. Fitch also views 1.0x coverage of ADS from ongoing net revenues, excluding one-time sources such as connection fees, as standard for the additional bonds test and rate covenant. Additional covenants requiring debt service reserve funds and set-asides for operational, maintenance and other financial reserves are considered less standard but are positive credit features, as they heighten prospects for stable financial management. Attributes: Debt Profile Stronger • Existing and five-year projected debt per customer of $1,500 or less. • Existing and five-year projected debt per capita levels of $500 or less. • Debt funding of capital of 50% or less. • Amortization of principal equal to 90% or greater over the ensuing 20 years. Midrange • Existing and five-year projected debt per customer of approximately $1,800. • Existing and five-year projected debt per capita of about $550. • Debt funding of capital of about 75%. • Amortization of principal of approximately 80% over the ensuing 20 years. • Rate covenant of 1.10x or more of ADS by net revenues. • Additional bonds test of 1.10x or more of ADS by historical or projected net revenues. Weaker • Existing and five-year projected debt per customer of $2,100 or greater. • Existing and five-year projected debt per capita of approximately $600 or greater. • Debt funding of capital of about 90% or more. • Amortization of principal of about 70% or less over the ensuing 20 years. • Rate covenant of less than 1.10x ADS by net revenues and/or less than 1.0x ADS from recurring net revenues. • Additional bonds test of less than 1.10x coverage of ADS by historical or projected net revenues and/or less than 1.0x ADS from historical or projected recurring net revenues. U.S. Water and Sewer Revenue Bond Rating Criteria 7 November 30, 2016 Public Finance In nearly all cases, Fitch will consider financial performance on a net revenue basis even if a gross revenue debt security pledge is present, as creditworthy systems must reliably cover operating expenditures from the same revenue streams used to pay debt service. However, most retail and wholesale utilities comfortably exceed their covenant coverage and liquidity requirements and should continue to do so. For them, the focus of a rating review should be actual and likely future performance, not minimum covenanted performance in a stress scenario. A trend in the sector toward relaxed covenants continues. Changes proposed typically focus on reducing coverage requirements or reserve fund levels. The particular rating impact of relaxed covenants will depend on the system, its characteristics and the specific proposed changes. In cases where a change in covenants has not adversely affected a rating, such utilities have demonstrated strong and consistent performance well above existing requirements, and such change is not expected to weaken the credit quality of the utility in the foreseeable future. Covenants will be an increasingly greater credit factor for lower rated credits and in cases of declining credit quality. Consequently, any loosening or modernization of such covenants may be expected to have a negative impact on the credit rating in these instances. Other legal covenants that have been modified (and weakened from a bondholder’s perspective) include the elimination of DSRFs and satisfaction of these DSRF requirements with surety policies, along with the ability to enter into swaps or other forms of hedge agreements. To date, there has been little impact on utility credit ratings from these changes, and any future downward pressure on individual credits will likely be isolated. However, instances that may affect the credit rating of a utility include cases where there is a reasonable chance revenues available to pay debt service are below 1.0x and no DSRF exists or a surety policy is in place; a large swap termination payment(s) exists, which would have a material impact on an entity’s financial capacity if required to be paid; or it is likely that rated obligations could be affected by cross-default provisions of a hedge agreement. Operating Profile Customer Growth and Concentration A central component of a utility’s operating profile is the level of growth of a utility’s residential, commercial, industrial and government customer bases, as well as the utility’s customer concentration. In terms of growth, demonstrated steady increases are considered positive from a credit perspective, given projecting financial results and planning for needed improvements or expansions are generally easier in such stable environments. Conversely, high growth and declining customer bases are more likely to affect a rating negatively, as they can pressure the financial and capital decisions of a utility. Fitch considers annual growth rates above 3% to be rapid, whereas rates of 1% and under are viewed as stable; annual growth rates between 1% and 3% are seen as moderate. A high-growth environment poses special challenges for utilities, particularly in terms of the timing and funding of capital improvements. As a community expands, water and wastewater infrastructure must often be built in advance of growth and/or additional water supplies or treatment capacity must be developed. Potential vulnerabilities include instances when growth does not occur as fast as anticipated. In such cases, user charges will likely be raised for existing customers to cover debt and operating costs. Not only can this provoke political and rate pressure for the utility, potentially resulting in strained financial margins, but it can also reduce the community’s attractiveness to new residents and businesses, compounding the growth challenge. While these growth challenges pose credit concerns, management can offset potential risks through well-developed capital and financial plans and policies that identify the nature and timing of future capital and operational needs. U.S. Water and Sewer Revenue Bond Rating Criteria 8 November 30, 2016 Public Finance On the other end of the spectrum, Fitch’s credit analysis will consider the pressure associated with a declining customer base. Utilities with long-term planning practices in place may find savings through cost or personnel reduction and rely less on underused assets, when possible. The credit benefits of these management practices will be more pronounced when they are institutionally implemented on an ongoing basis, preparing for future challenges instead of responding to such demands in a reactive way. While planning may limit certain exposures of a declining service base, customer concentration, which may ultimately lead to the loss of significant revenues with the departure of a single customer or downturn in a particular industry, is considered a negative characteristic in the analysis. To this end, Fitch evaluates concentration levels in light of a service area’s economic focus and sector concentration among the users. Volatility in the service base can be most severe when the largest customers, particularly industrial entities, exit a community or substantially downsize operations. In such a case, a utility not only would face pressures from the loss of revenues of such large users, but also may be constrained to increase rates because of elevated unemployment among its residential customers. In general, Fitch views revenue concentration from the top 10 customers in excess of 20% as high. Fitch also considers concentration in excess of 5% from any individual customer as high. Capacity Fitch’s rating criteria take into account treatment capacity available to service demands given utilities facing treatment constraints are likely to require related capital expansion costs once available capacity falls below 120% of demands. Fitch’s criteria also consider a utility’s comprehensive plans to maintain existing facilities and replace aging or obsolete assets. Consequently, Fitch views trends of deferred maintenance as a credit risk. In this regard, Fitch quantitatively evaluates a utility’s annual depreciation in relation to its total historical depreciation of fixed assets to determine the age of plant. Fitch also compares a utility’s annual capital expenditures in relation to depreciation for the year to gauge the amount of ongoing maintenance being performed. Utilities with aging infrastructure or annual capital spending that regularly falls below the amount of annual depreciated assets may require substantial upgrades in the near term to maintain regulatory compliance. Another quantitative indicator of potential needs, as far as water utilities are concerned, is the amount of treated but unbilled water distributed. Water utilities regularly replacing aging pipelines should experience unbilled water rates at or below the 10%−12% typically seen within the industry. The availability of adequate water supplies is critical for a utility to meet its customer demands. Credit quality is enhanced for utilities that demonstrate a sustainable long-term supply to meet current and expected future growth needs. Alternatively, negative credit implications arise for utilities whose resources may be insufficient to allow for continued economic development. Compliance with Environmental Laws and Regulations Mandates have been a dominant factor for sector credits since passage of the federal Clean Water Act in 1972 (amended in 1977, 1981, 1987 and 2014) and federal Safe Drinking Water Act in 1974 (amended in 1986 and 1996). Although regulatory requirements continue to pressure some enterprises, utilities can reduce credit risk by consistently attempting to predict and stay ahead of expected requirements at both the state and federal level given this typically provides more flexibility to utilities than acting while under the threat of orders and fines from regulatory bodies or the courts. U.S. Water and Sewer Revenue Bond Rating Criteria 9 November 30, 2016 Public Finance For utilities facing regulatory enforcement, Fitch evaluates in the rating process the events leading to enforcement, scope of the corrective plan, current stage of the corrective plan and projected timeline for completion. Fitch also focuses on the expected impact on ratepayers and management’s commitment to meeting the set milestones and returning to compliance. Community Characteristics The service area economy and customer base characteristics are part of the rating analysis, since the essentiality of the enterprises’ services provides localities with a de facto ability to tax for their provisions. Quantitative factors related to the analysis of this particular area typically include employment/unemployment statistics, wealth levels in the form of median household income, poverty rates and an evaluation of major employers relative to the total employment base. The highest rated utilities typically reflect service areas with broad economies and broad and diverse customer bases, since they are less vulnerable to sectoral downturns and cyclical economic shifts. Utilities operating in service areas with prospects for significant future population, commercial and industrial volatility or long-term decline are more likely to have lower bond ratings. Rating Sensitivities Water and sewer ratings are subject to positive or negative adjustment based on actual utility experience. Below is a non-exhaustive list of the primary sensitivities that can influence water and sewer ratings. • Supply/Demand Performance: Changes in supply levels and resulting sales performance can affect a utility’s ability to earn projected revenues and potentially reduce its ability to service the debt. • Price Risk: Lower than expected rate action could reduce the expected cash flow generation, affecting coverage and leverage metrics and ultimately weighing negatively on a utility’s rating. Attributes: Operating Profile Stronger • Customer accounts stable or growing less than 1% annually. • Top 10 customers for retail utilities represent 5% or less of system revenues and no customer accounts for more than 2% of system revenues. • Treatment capacity in excess of 140% of demand or flows. • Annual renewal of 100% or more of depreciated assets. • Unbilled/unaccounted for water of less than 10%. • Full compliance with regulatory requirements. • Service territory median household income equal to 115% or more of the state and/or nation. Midrange • Customer account growth of 1%−3% annually. • Top 10 customers for retail utilities represent approximately 10% of system revenues and no customer accounts for more than 5% of system revenues. • Treatment capacity of about 130% of demand or flows. • Some deferred maintenance. • Unbilled/unaccounted for water of about 12%. • Limited noncompliance with regulatory requirements. • Service territory median household income equal to around 100% of the state and/or nation. Weaker • Customer account growth in excess of 3% annually. • Top 10 customers for retail utilities represent over 20% of system revenues and/or individual customer concentration accounts for 10% or more of system revenues. • Treatment capacity falls below 120% of demand or flows. • Significant deferred maintenance. • Unbilled/unaccounted for water exceeds 15%. • Material noncompliance with regulatory requirements, resulting in significant capital expenses and/or fines. • Service territory median household income equal to 85% or less of the state and/or nation. U.S. Water and Sewer Revenue Bond Rating Criteria 10 November 30, 2016 Public Finance • Costs: Operating and capital expenditures that deviate materially from projections may indicate greater than expected cost volatility, higher than expected funding needs, or a failure to properly estimate or fully capture all relevant cost items. Data Sources The key rating assumptions used in these criteria are based on Fitch’s analysis of transaction documents for various water and sewer projects; information received from local government issuers/obligors for financed projects; and reports issued by engineers, fiscal consultants and other third parties. Limitations Ratings, including Rating Watches and Outlooks, assigned by Fitch are subject to the limitations specified in Fitch’s Rating Definitions page, at www.fitchratings.com Variations from Criteria Fitch’s criteria are designed to be used in conjunction with experienced analytical judgment exercised through a committee process. The combination of transparent criteria, analytical judgment applied on a transaction-by-transaction or issuer-by-issuer basis, and full disclosure via rating commentary strengthens Fitch’s rating process while assisting market participants in understanding the analysis behind our ratings. A rating committee may adjust the application of these criteria to reflect the risks of a specific transaction or entity. Such adjustments are called variations. All variations will be disclosed in the respective rating action commentaries, including their impact on the rating where appropriate. A variation can be approved by a ratings committee where the risk, feature, or other factor relevant to the assignment of a rating and the methodology applied to it are both included within the scope of the criteria, but where the analysis described in the criteria requires modification to address factors specific to the particular transaction or entity. U.S. Water and Sewer Revenue Bond Rating Criteria 11 November 30, 2016 Public Finance Appendix A: Key Ratios Used in the “10 Cs” Rating Process Ratio Definition Significance Total Outstanding Long-Term Debt per Customer ($) Total amount of utility long-term debt divided by the number of utility customers (for a combined utility, the aggregate number of water and sewer accounts is used) Indicates the existing debt burden attributable to ratepayers (principal only) Projected Debt per Customer Year Five ($) Total projected outstanding system debt (existing debt less scheduled amortization plus planned issuances) divided by total outstanding projected customers five years from the date of the rating (for a combined utility, the aggregate number of water and sewer accounts is used and is inflated by anticipated growth) Indicates the total debt burden to ratepayers five years from the date of the rating (principal only) Total Outstanding Long-Term Debt per Capita ($) Total amount of utility long-term debt divided by total population served by the utility Indicates the existing debt burden of a utility attributable to each person served by the utility (principal only) Projected Debt per Capita Year Five ($) Total projected outstanding system debt (existing debt less scheduled amortization plus planned issuances) divided by total projected population served by the utility (population is inflated based on anticipated growth) Indicates the total debt burden of a utility to each person served by the utility five years from the date of the rating (principal only) Three-Year Historical Average Senior Lien Annual Debt Service (ADS) Coverage (x) Most recent three-year historical average of annual revenues available for debt service divided by respective senior lien debt service for the year Indicates the historical trend in senior lien ADS coverage Senior Lien ADS Coverage (x) Current-year revenues available for debt service divided by current-year senior lien debt service Indicates the financial margin to meet current senior lien ADS with current revenues available for debt service Minimum Projected Senior Lien ADS Coverage (x) Minimum debt service coverage projected typically over the ensuing five-year period, based on revenues available for debt service in any given fiscal year, divided by the respective senior lien debt service amount for that fiscal year Indicates the financial margin during the year in which future senior lien ADS coverage is projected to be the lowest Three-Year Historical Average All-In ADS Coverage (x) Most recent three-year historical average of annual revenues available for debt service divided by respective total debt service for the year Indicates the historical trend in total ADS coverage All-In ADS Coverage (x) Current-year revenues available for debt service divided by current-year total debt service Indicates the financial margin to meet current total ADS with current revenues available for debt service Minimum Projected All-In ADS Coverage (x) Minimum debt service coverage projected typically over the ensuing five-year period, based on revenues available for debt service in any given fiscal year, divided by the respective total debt service amount for that fiscal year Indicates the financial margin during the year in which future total ADS coverage is projected to be the lowest Days Cash on Hand Current unrestricted cash and investments plus any restricted cash and investments (if available for general system purposes), divided by operating expenditures minus depreciation, divided by 365 Indicates financial flexibility to pay near-term obligations Days of Working Capital Current unrestricted assets plus any restricted cash and investments (if available for general system purposes) minus current liabilities payable from unrestricted assets, divided by operating expenditures minus depreciation, divided by 365 Indicates financial flexibility to pay near-term obligations Free Cash as % of Depreciation Current surplus revenues after payment of operating expenses, debt service and operating transfers out divided by current-year depreciation Indicates annual financial capacity to maintain facilities at current level of service from existing cash flows U.S. Water and Sewer Revenue Bond Rating Criteria 12 November 30, 2016 Public Finance Appendix B: Water and Sewer Management Practices Financial Profile Related • Long-term integrated financial forecasting that considers future demand, expected rate increases, regulations, and infrastructure renovation and renewal needs. • Policies to ensure appropriate financial margins, including debt service coverage and operating liquidity levels. Utilities with variable-rate debt and swap agreements are expected to understand the implications and potential risks of such capital management strategies. In addition, these utilities should include management’s rationale for the sizing of financial reserves and the adequacy of those reserves to cope with interest rate fluctuations and possible termination payments. • Regular financial reporting and monitoring systems that enable policymakers access to timely information on fiscal performance relative to the budget. • Limited operating exposure to growth-sensitive revenues, such as tap, connection or impact fees. • Collection policies that regularly track the rate of timely payment receipts and enforce penalties against late payers or terminate service for nonpayment. • Willingness of governing board to adjust rates when necessary. • Limited exposure to financial operations of the general government, so that system revenues can be relied on for use to operate and improve the utility. For transfers to the general fund, policies that specifically limit their scope and growth are favorable. • Compliance with industry accounting practices and establishment of appropriate internal controls. • Rate affordability guidelines that consider absolute levels of rates and their affordability relative to income levels. Debt Profile Related • Prioritized capital improvement plans that cover at least five years and consider capacity, supply, regulatory, and replacement and renewal needs. • Debt issuance policies, including types, terms and suitability under specific conditions, as well as the total amount of variable-rate debt deemed appropriate. • Development of comprehensive policies on the use of hedge agreements and their disclosure prior to entering into any such agreements. Operating Profile Related • Key management industry experience and active participation in organizations to keep pace with sector issues, regulatory mandates and technological advances. • Use of professional engineers, either within the utility or outside of it, to prepare objective reviews of system performance and needs on a regular basis and provide periodic revisions of construction cost estimates. • Regular consultation with regional and local growth planners, community development officials and demographers to predict and, if possible, limit infrastructure needs related to population and business growth. U.S. Water and Sewer Revenue Bond Rating Criteria 13 November 30, 2016 Public Finance Appendix C: Checklist of Basic Documents for the Rating Review Process □ Legal documents related to the debt being rated. □ Five years of audited financial statements. □ Current budget. □ Detailed five-year capital improvement plan (CIP), including sources of funding by year. □ Minimum five-year financial forecast inclusive of implementation of the CIP-related debt issuance and operations; this forecast should include detailed assumptions used, including service rate adjustments, nonrecurring revenue sources and timing of debt issuances. □ List of current debt outstanding segregated by lien, including the principal maturity schedule, total annual debt service requirements for each lien and expected annual federal interest subsidies for each lien; this information should include all obligations outstanding that are supported by system revenues. □ Information related to all outstanding hedge agreements, including terms, notional amortization, lien pledge of regular and termination payments, bond events, and bond cures, including collateral posting requirements; a recent fair market value for each swap should also be provided. □ Discussion of longer term capital needs beyond the five-year horizon. □ Formal policies and disclosure of targets for annual financial performance and transfers to the general fund, as well as other formal policies, including those related to investments, cash funding of the CIP, and maintenance of repair/replacement, rate stabilization, and other reserve funds. □ Five-year history of average annual number of customers, average daily water demand, peak water demand, unbilled water, average sewer flows and peak sewer flows. Wholesale service providers, whether full or partial, should also provide an estimate of single-family equivalent units. □ List of top 10 customers in terms of both annual sales and revenue. □ Description of system facilities, including treatment and storage capacity. □ Description of water sources, any purchased water contract terms and priority of water rights; discussion of potential new supplies, if applicable. □ Integrated resource plan, if available. □ Disclosure of compliance or regulatory issues, if any; required remedies and major milestones; and costs. □ Policies on reviewing and setting rates, current rate schedule, historical rate changes for at least five years and proposed future rate schedule (planned or adopted). □ Current rate comparisons with other area providers. □ Description of billing procedures, level of delinquencies and bad debts, and available recourse options for customer nonpayment. U.S. Water and Sewer Revenue Bond Rating Criteria 14 November 30, 2016 Public Finance ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001. ITEM NO. 8.6 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Marc Marcantonio, General Manager Prepared By:Annie Alexander, Executive Assistant Subject:ACWA Region 10 Election of Officers and Board Members for 2018-2019 Term SUMMARY: ACWA's ten regions were established to provide geographic balance and representation by its membership throughout the state. Region 10 encompasses both Orange and San Diego counties and its board members are elected to represent the issues, concerns and needs of this region. The District is entitled to cast one vote for each of the Region 10 positions (chair, vice chair and three to five board members). STAFF RECOMMENDATION: That the Board of Directors consider voting for the Nominating Committee's recommended slate or individual candidates in the ACWA Region 10 Board Election. DISCUSSION: The Region 10 chair and vice chair will serve on ACWA's Board of Directors for the next two year term of office beginning January 1, 2018. Additionally, the newly elected chair and vice chair will make the Region 10 committee appointment recommendations to the ACWA President for the 2018-2019 term. Also, either the chair or vice chair will hold a seat on the ACWA Finance Committee. Additionally, the Region 10 chair and vice chair must be from different counties. The 2018-2019 term will consist of a chair and 2 board members from Orange County and a vice chair and 3 board members from San Diego County. At least one of the chair or vice chair positions must be an elected/appointed director from a member agency. The Region 10 ballot is attached and includes the individuals recommended by the Region 10 Nominating Committee or an option to vote for individual candidates for chair, vice chair and three to five members of the Board. The completed ballot will need to be returned to ACWA by September 29, 2017. PRIOR RELEVANT BOARD ACTION(S): The District has participated in previous ACWA Region 10 elections. ATTACHMENTS: Name:Description:Type: ACWA_Region_10_Ballot.pdf Backup Material Backup Material 2018-2019TERMOFFICIAL Please return completed ballot by September 29, 2017 E-mail: anaj@acwa.comMail: ACWA 910 K Street, Suite 100 Sacramento, CA 95814 General Voting Instructions: 1 You may either vote for the slate recommended by the Region 10 Nominating Committee or vote for individual region board members (please note rules & regulations for specific qualifications). Mark the appropriate box to indicate your decision. 2 Complete your agency informa-tion. The authorized representa-tive is determined by your agency in accordance with your agency’s policies and procedures. Region 10 Rules & Regulations: The chair and vice chair shall be from different counties. The 2018-2019 Term shall consist of a Chair and 2 Board Members from Orange County and a Vice Chair and 3 Board Members from San Diego County. At least one of the chair or vice chair positions must be an elected/appointed director from a member agency. AGENCY NAME AUTHORIZED REPRESENTATIVE DATE 1 2 Nominating Committee’s Recommended Slate I concur with the Region 10 Nominating Committee’s recommended slate below. CHAIR: • Cathy Green, Director, Orange County Water District (Orange County) VICE CHAIR: • DeAna Verbeke, Board Member, Helix Water District (San Diego County) BOARD MEMBERS: • Jim Atkinson, Director, Mesa Water District (Orange County) • Charles T. Gibson, Board President, Santa Margarita Water District (Orange County) • James B. Murtland, President, Rincon del Diablo MWD (San Diego County) • Richard L. Vasquez, Director, Vista Irrigation District (San Diego County) • Vacant (San Diego County) OR Individual Board Candidate Nominations (See Rules & Regulations before selecting) I do not concur with the Region 10 Nominating Committee’s recommended slate. I will vote for individual candidates below as indicated. CANDIDATES FOR CHAIR: (CHOOSE ONE) Cathy Green, Director, Orange County Water District (Orange County) CANDIDATES FOR VICE CHAIR: (CHOOSE ONE) DeAna Verbeke, Board Member, Helix Water District (San Diego County) CANDIDATES FOR BOARD MEMBERS: (MAX OF 5 CHOICES) Jim Atkinson, Director, Mesa Water District (Orange County) Charles T. Gibson, Board President, Santa Margarita Water District (Orange County) Cathy Green, Director, Orange County Water District (Orange County) James B. Murtland, President, Rincon del Diablo MWD (San Diego County) Richard L. Vasquez, Director, Vista Irrigation District (San Diego County) DeAna Verbeke, Board Member, Helix Water District (San Diego County) REGION 10 Board Ballot ITEM NO. 9.1 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Delia Lugo, Finance Manager Dept:Finance Prepared By:Kelly McCann, Senior Accountant Subject:Budget to Actual Reports for the Month Ending August 31, 2017 DISCUSSION: For the month ending August 31, 2017, staff is presenting Budget to Actual reports for the District as a whole, as well as the individual water and sewer funds. Cumulative Volumetric Water Revenue, as reported through the month ending August 31, 2017, reflects an average rebound of 23.8% as compared to the prior year for the same reporting period. Residential classified customer connections have experienced the largest rebound in monthly consumption as conservation restrictions were lifted compared to the prior year. Total Variable Costs results reflect at 1.4% increase when compared to prior year for the same reporting period. The increase in costs is reflective of the increase in water demand which is 3.8% ahead of budget while taking into consideration In-Lieu water purchases. Supplies & Services within the Water Department have decreased by 18.4%, due greatly to the District not incurring election costs compared to the prior year for the same reporting period. STRATEGIC PLAN: FR 1-F: Continue to Record and Report the Fairly Stated Financial Activities of the District in a Timely and Transparent Manner to the Board of Directors and Member Agencies ATTACHMENTS: Name:Description:Type: Pro_Forma_Aug_31_2017.pdf Backup Material Backup Material Consolidated_Budget_to_Actual_Statement_August_2017.pdf Backup Material Backup Material Water_Budget_to_Actual_Statement_August_2017.pdf Backup Material Backup Material Sewer_Budget_to_Actual_Statement_August_2017.pdf Backup Material Backup Material FY18 Budget YTD Actuals thru August 2017 Water Revenue (Residential)14,278,688$ 3,297,267$ Water Revenue (Commercial & Fire Det.)2,071,031$ 392,268$ Water Revenue (Landscape/Irrigation)3,079,054$ 907,022$ Service Charges 10,106,238$ 1,666,730$ Other Operating Revenue 769,106$ 141,069$ Total Operating Revenue 30,304,117$ 6,404,356$ Revenue (Non-Operating): Interest 275,000$ 36,506$ Property Taxes 1,710,000$ 2,643$ Other Non-Operating Revenue 604,646$ 145,198$ Total Non-Operating Revenue 2,589,646$ 184,347$ Total Revenue 32,893,763$ 6,588,703$ Expenses (Operating): Variable Water Costs (G.W., Import & Power) Water-Related Costs 11,240,088$ 2,609,211$ Fixed Costs 1,443,355$ 392,483$ Power-Related Costs 1,285,413$ 210,723$ Variable Water Costs Related Expenses Total 13,968,855$ 3,212,417$ Salary Related Expenses 8,859,867$ 1,379,793$ Salary Related Expenses - Limited-term Staff -$ -$ Reduction for Capital Project Labor (215,000)$ -$ Salary Related Expenses Total 8,644,867$ 1,379,793$ Supplies & Services Communications 189,565$ 16,354$ Contractual Services 519,653$ 54,577$ Data Processing 235,322$ 24,454$ Dues & Memberships 80,492$ 25,870$ Fees & Permits 264,641$ 17,947$ Board Election -$ -$ Insurance 263,506$ 40,347$ Materials 797,347$ 132,288$ District Activities, Emp Recognition 22,506$ 1,338$ Maintenance 339,342$ 56,656$ Non-Capital Equipment 104,678$ 10,943$ Office Expense 39,662$ 4,706$ Professional Services 650,108$ 73,712$ Training 61,728$ 4,254$ Travel & Conferences 102,493$ 5,222$ Uncollectible Accounts 17,205$ 99$ Utilities 158,100$ 44,244$ Vehicle Expenses 286,812$ 41,801$ Supplies & Services Sub-Total 4,133,160$ 554,811$ Total Operating Expenses 26,746,883$ 5,147,020$ Expenses (Non-Operating) Other Expense 15,220$ 5,524$ Special Item - Conservation Credit -$ 1,105,809$ Total Non-Operating Expenses 15,220$ 1,111,333$ Total Expenses 26,762,103$ 6,258,353$ Net Revenues 6,131,660$ 330,350$ Less: Debt Service (Principal & Interest)2,729,799$ -$ Less: Committed Capital Expenditures (PayGo)2,635,755$ 360,581$ Transfer to/(from) Reserves 766,107$ (30,231)$ Net -$ -$ $2,729,799 $2,729,799 225%12% Yorba Linda Water District Water Enterprise FY17 ProForma - Use of Funds August 2017 Yorba Linda Water District Summary Financial Report Water & Sewer Funds For Period Ending August 31, 2017 Annual YTD Aug YTD YTD Actual Prior Year Prior Year YTD Actual YTD Actual Budget Budget Actual Actual (Under) Over Aug. Actual Actual (thru vs vs FY 2018 FY 2018 FY 2018 FY 2018 YTD Budget FY 2017 Aug. 2016)PY Actual $PY Actual % Revenue (Operating): Water Revenue (Residential)$14,278,688 $3,181,292 $1,851,833 $3,297,267 115,975 $1,388,443 $2,602,967 $694,300 26.67% Water Revenue (Commercial & Fire Det.)2,071,031 461,426 220,839 392,268 (69,158)166,400 323,322 68,946 21.32% Water Revenue (Landscape/Irrigation)3,079,054 686,013 509,217 907,022 221,009 393,282 734,546 172,476 23.48% Water Revenue (Service Charge)10,106,238 1,684,373 834,470 1,666,730 (17,643)826,175 1,824,613 (157,883)-8.65% Sewer Charge Revenue 2,032,245 338,708 176,247 335,300 (3,408)156,896 291,676 43,624 14.96% Locke Ranch Assessments 223,000 - 85 85 85 74 74 11 0.00% Other Operating Revenue 866,161 144,360 77,080 156,963 12,603 87,281 181,575 (24,612)-13.55% Total Operating Revenue:32,656,417 6,496,171 3,669,771 6,755,635 259,464 3,018,551 5,958,773 796,862 13.37% Revenue (Non-Operating): Interest 310,000 51,667 31,942 39,044 (12,623)22,630 30,289 8,755 28.90% Property Tax 1,710,000 5,814 2,643 2,643 (3,171) 2,528 2,528 115 0.00% Other Non-Operating Revenue 624,521 141,587 89,948 150,567 8,980 14,980 41,387 109,180 263.80% Total Non-Operating Revenue:2,644,521 199,068 124,533 192,254 (6,813)40,138 74,204 118,050 159.09% Total Revenue 35,300,938 6,695,239 3,794,304 6,947,889 252,650 3,058,689 6,032,977 914,912 15.17% Expenses (Operating): Variable Water Costs (G.W., Import & Power)13,968,855 3,095,625 1,505,340 2,965,453 (130,172)1,365,473 2,924,291 41,162 1.41% Salary Related Expenses 9,643,124 1,399,943 703,021 1,254,114 (145,829)645,201 1,632,503 (378,389)-23.18% Supplies & Services 4,621,895 734,901 330,530 634,700 (100,202)372,789 733,774 (99,075) -13.50% Total Operating Expenses 28,233,874 5,230,470 2,538,891 4,854,267 (376,203)2,383,463 5,290,568 (436,302)-8.25% Expenses (Non-Operating): Interest on Long Term Debt 1,489,796 226,423 109,911 222,361 (4,062) 133,981 267,961 (45,600) -17.02% Other Expense 15,220 2,537 5,301 5,524 2,987 (17,706)(26,389)31,913 120.93% Total Non-Operating Expenses:1,505,016 228,960 115,212 227,885 (1,075) 116,275 241,572 (13,687) -5.67% Total Expenses 29,738,890 5,459,430 2,654,103 5,082,152 (377,278)2,499,738 5,532,140 (449,988)-8.13% Net Position Before Capital Contributions 5,562,048 1,235,809 1,140,201 1,865,737 629,928 558,951 500,837 1,364,900 272.52% Special Item - - 1,105,809 1,105,809 - - 1,105,809 0.00% Capital Contributions (Non-Cash Transaction -- - - - - 638 638 (638) 0.00% GASB 34 Compliant) Net Position Before Depreciation 5,562,048 1,235,809 1,140,201 759,928 (475,881)559,589 501,475 258,453 51.54% Depreciation & Amortization 7,182,000 1,197,000 601,956 1,203,912 6,912 592,413 1,184,826 19,086 1.61% Total Net Position ($1,619,952)$38,809 $538,245 ($443,984)($482,793)($32,824)($683,351)$239,367 -35.03% (20,990)(35,904) (35,904) (18,408) (40,194) 4,290 -10.67% (With August 31, 2016 for comparison purposes) Annual YTD Aug YTD YTD Actual Prior Year Prior YTD YTD Actual YTD - CUR Budget Budget Actual Actual (Under)Over Aug. Actual Actual (thru vs vs FY 2018 FY 2018 FY 2018 FY 2018 YTD Budget FY 2017 Aug. 2016) PY Actual $PY Actual % Revenue (Operating): Water Revenue (Residential)$14,278,688 $3,181,292 $1,851,833 $3,297,267 115,975 $1,388,443 $2,602,967 $694,300 26.67% Water Revenue (Commercial & Fire Det.)2,071,031 461,426 220,839 392,268 (69,158)166,400 323,322 68,946 21.32% Water Revenue (Landscape/Irrigation)3,079,054 686,013 509,217 907,022 221,009 393,282 734,546 172,476 23.48% Water Revenue (Service Charge)10,106,238 1,684,373 834,470 1,666,730 (17,643)826,175 1,824,613 (157,883) -8.65% Other Operating Revenue 769,106 128,184 71,576 141,069 12,884 79,325 161,723 (20,654) -12.77% Total Operating Revenue:30,304,117 6,141,288 3,487,935 6,404,356 263,068 2,853,625 5,647,171 757,185 13.41% Revenue (Non-Operating): Interest 275,000 45,833 29,408 36,506 (9,327)20,881 28,537 7,969 27.93% Property Tax 1,710,000 5,814 2,643 2,643 (3,171) 2,528 2,528 115 0.00% Other Non-Operating Revenue 604,646 138,274 86,733 145,198 6,924 12,359 40,797 104,401 255.90% Total Non-Operating Revenue:2,589,646 189,922 118,784 184,347 (5,575)35,768 71,862 112,485 156.53% Total Revenue 32,893,763 6,331,210 3,606,719 6,588,703 257,493 2,889,393 5,719,033 869,670 15.21% Expenses (Operating): Variable Water Costs (G.W., Import & Power)13,968,855 3,095,625 1,505,340 2,965,453 (130,172)1,365,473 2,924,291 41,162 1.41% Salary Related Expenses 8,644,867 1,252,218 624,623 1,113,282 (138,936)569,852 1,462,316 (349,034) -23.87% Supplies & Services: Communications 189,565 31,594 9,764 16,354 (15,240)19,600 30,237 (13,883) -45.91% Contractual Services 519,653 66,609 30,703 54,577 (12,032)37,107 72,018 (17,441) -24.22% Data Processing 235,322 39,220 9,788 24,454 (14,767)(1,436) 20,203 4,251 21.04% Dues & Memberships 80,492 26,000 544 25,870 (130)4,531 28,595 (2,725) -9.53% Fees & Permits 264,641 23,607 13,703 17,947 (5,660)14,278 15,484 2,463 15.91% Board Election - - - - - - 72,539 (72,539) -100.00% Insurance 263,506 43,918 19,754 40,347 (3,571)24,841 45,758 (5,411) -11.83% Materials 797,347 132,891 66,124 132,288 (604)66,577 126,315 5,973 4.73% District Activities, Emp Recognition 22,506 3,751 828 1,338 (2,413)1,026 1,472 (134) -9.10% Maintenance 339,342 56,557 5,783 56,656 99 29,876 33,340 23,316 69.93% Non-Capital Equipment 104,678 17,446 7,465 10,943 (6,503)8,865 11,913 (970) -8.14% Office Expense 39,662 6,610 3,287 4,706 (1,904)1,693 1,826 2,880 157.72% Professional Services 650,108 83,351 56,599 73,712 (9,639)69,389 104,109 (30,397) -29.20% Training 61,728 10,288 2,855 4,254 (6,034)1,598 6,204 (1,950) -31.44% Travel & Conferences 102,493 17,082 3,457 5,222 (11,860)4,695 8,411 (3,189) -37.91% Uncollectible Accounts 17,205 2,868 216 99 (2,769)4,896 3,781 (3,682) -97.38% Utilities 158,100 43,850 23,056 44,244 394 12,174 26,180 18,064 69.00% Vehicle Equipment 286,812 47,802 25,524 41,801 (6,001)43,626 72,259 (30,458) -42.15% Supplies & Services Sub-Total 4,133,160 653,445 279,450 554,811 (98,634)343,335 680,644 (125,833) -18.49% Total Operating Expenses 26,746,883 5,001,288 2,409,413 4,633,546 (367,743)2,278,660 5,067,251 (433,705) -8.56% Expenses (Non-Operating): Interest on Long Term Debt 1,489,796 226,423 109,911 222,361 (4,062)133,981 267,961 (45,600) -17.02% Other Expense 15,220 2,537 5,301 5,524 2,988 (17,706) (26,389) 31,913 120.93% Total Non-Operating Expenses:1,505,016 228,960 115,212 227,886 (1,074) 116,275 241,572 (13,686) -5.67% Total Expenses 28,251,899 5,230,249 2,524,625 4,861,431 (368,817)2,394,935 5,308,823 (447,392) -8.43% Net Position Before Capital Contributions 4,641,864 1,100,961 1,082,094 1,727,271 626,310 494,458 410,210 1,317,061 321.07% Special Item - - 1,105,809 1,105,809 - - 1,105,809 0.00% Capital Contributions (Non-Cash Transaction -- - - - - - - - 0.00% GASB 34 Compliant) Net Position Before Depreciation 4,641,864 1,100,961 1,082,094 621,462 (479,499)494,458 410,210 211,252 51.50% Depreciation & Amortization 5,832,000 972,000 488,820 977,640 5,640 481,649 963,298 14,342 1.49% Total Net Position (1,190,136) 128,961 593,274 (356,178) (485,139) 12,809 (553,088) 196,910 -35.60% Capital - Direct Labor (18,469) (32,626)(32,626) (16,764) (37,808) 5,182 -13.71% (With August 31, 2016 for comparison purposes) Yorba Linda Water District Water Fund For Period Ending August 31, 2017 Annual YTD Aug YTD YTD Actual Prior Year Prior Year YTD Actual YTD - CUR Budget Budget Actual Actual (Under)Over Aug. Actual Actual (thru vs vs FY 2018 FY 2018 FY 2018 FY 2018 YTD Budget FY 2017 Aug. 2016)PY Actual $PY Actual % Revenue (Operating): Sewer Charge Revenue $2,032,245 $338,708 $176,247 $335,300 ($3,408)$156,896 $291,676 $43,624 14.96% Locke Ranch Assessments 223,000 - 85 85 85 74 74 11 0.00% Other Operating Revenue 97,055 16,176 5,504 15,894 (282)7,956 19,852 (3,958) -19.94% Total Operating Revenue:2,352,300 354,883 181,836 351,279 (3,604)164,926 311,602 39,677 12.73% Revenue (Non-Operating): Interest 35,000 5,833 2,535 2,539 (3,294)1,749 1,753 786 44.84% Other Non-Operating Revenue 19,875 3,312 3,215 5,368 2,056 2,621 591 4,777 808.36% Total Non-Operating Revenue:54,875 9,146 5,750 7,907 (1,238)4,370 2,344 5,563 237.35% Total Revenue 2,407,174 364,029 187,586 359,186 (4,843)169,296 313,946 45,240 14.41% Expenses (Operating): Salary Related Expenses 998,257 147,725 78,398 140,832 (6,893)75,349 170,188 (29,356)-17.25% Supplies & Services: Communications 12,010 2,002 577 1,073 (929)1,475 2,269 (1,196)-52.71% Contractual Services 28,237 4,706 2,311 4,108 (598)2,780 5,408 (1,300)-24.04% Data Processing 15,078 2,513 737 1,841 (672)(108) 1,521 320 21.04% Dues & Memberships 6,053 1,009 41 1,947 938 341 2,152 (205)-9.53% Fees & Permits 17,474 2,912 883 1,080 (1,832)935 1,014 66 6.51% Board Election - - - - - - 5,460 (5,460)-100.00% Insurance 19,834 3,306 1,487 3,037 (269)1,870 3,444 (407)-11.82% Materials 51,653 8,609 1,731 12,491 3,882 5,728 6,377 6,114 95.88% District Activities, Emp Recognition 1,694 282 62 100 (182)77 111 (11)-9.91% Maintenance 170,559 28,427 14,135 14,803 (13,624)5,004 5,669 9,134 161.12% Non-Capital Equipment 20,147 3,358 4,338 5,959 2,601 1,250 1,541 4,418 286.70% Office Expense 2,963 494 247 354 (140)127 137 217 158.39% Professional Services 40,417 6,736 3,985 4,957 (1,779)2,014 4,251 706 16.61% Training 6,782 1,130 204 291 (839)118 973 (682)-70.09% Travel & Conferences 12,752 2,125 213 771 (1,354)311 591 180 30.46% Uncollectible Accounts 1,295 216 57 32 (184)863 724 (692)-95.58% Utilities 12,600 2,100 1,791 3,446 1,346 974 2,086 1,360 65.20% Vehicle Equipment 69,188 11,531 18,282 23,598 12,067 5,696 9,403 14,195 150.96% Supplies & Services Sub-Total 488,735 81,456 51,081 79,888 (1,568) 29,455 53,131 26,757 50.36% Total Operating Expenses 1,486,991 229,181 129,479 220,720 (8,461) 104,804 223,319 (2,599) -1.16% Expenses (Non-Operating): Interest Expense - - - - - - - - - Other Expense - - - - - - - - - Total Non-Operating Expenses:- - - - - - - - 0.00% Total Expenses 1,486,991 229,181 129,479 220,720 (8,461) 104,804 223,319 (2,599) -1.16% Net Position Before Capital Contributions 920,183 134,848 58,107 138,466 3,618 64,492 90,627 47,839 52.79% Capital Contributions (Non-Cash Transaction -- - - - - 638 638 (638) 0.00% GASB 34 Compliant) Net Position Before Depreciation 920,183 134,848 58,107 138,466 3,618 65,130 91,265 47,201 51.72% Depreciation & Amortization 1,350,000 225,000 113,136 226,272 1,272 110,764 221,528 4,744 2.14% Total Net Position (429,817) (90,152) (55,029) (87,806) 2,346 (45,634) (130,263) 42,457 -32.59% Capital - Direct Labor (2,521) (3,278)(3,278) (1,644) (2,386) (892)37.38% Yorba Linda Water District Sewer Fund For Period Ending August 31, 2017 (With August 31, 2016 for comparison purposes) ITEM NO. 9.2 AGENDA REPORT Meeting Date: September 26, 2017 To:Board of Directors From:Marc Marcantonio, General Manager Presented By:Delia Lugo, Finance Manager Dept:Finance Prepared By:Kelly McCann, Senior Accountant Subject:Cash and Investment Report for Period Ending August 31, 2017 SUMMARY: Government Code Section 530607, et. seq., requires the person delegated to invest funds to make monthly report of investments to the legislative body. DISCUSSION: The Cash & Investment Portfolio Report presents the market value and percent yield for all District investments by institution. The Cash & Investment Summary Report includes budget and actual interest and average term portfolio information as well as market value broken out by reserve categories. The Fair Value Measurement Report categorizes investments with the fair value hierarchy established by generally accepted accounting principles. The total average yield for the month ending August 31, 2017 is 1.22%. The overall increase in the investment balance from the previous month is approximately $126,000. A large portion was due to the Water Operating Fund increasing by $373,759 and the Sewer Operating Fund increasing by $125,340 due to a positive net effect between operating revenues and expenses through the reporting month of the fiscal year. The restricted 2017A Acquisition Fund decreased by $138,154 due to the payment capital expenses for the construction of the Fairmont Booster Pump Station. In addition, the Water Capital Project Reserve decreased by $237,181, due to its Pay-As-You-Go status for payments related to capital improvements. STRATEGIC PLAN: FR 1-F: Continue to Record and Report the Fairly Stated Financial Activities of the District in a Timely and Transparent Manner to the Board of Directors and Member Agencies ATTACHMENTS: Name:Description:Type: Invst_Agenda_Backup_-_August_2017.pdf Cash and Investment Summary Report Backup Material Invst_Rpt_8-17.pdf Cash and Investment Portfolio Report Backup Material Fair_Value_Measurement_Report_8-17.pdf Fair Value Measurement Report Backup Material Below is a chart summarizing the yields as well as terms and maturities for the month of August 2017: Average # of Month Portfolio Days to of 2017 Yield Maturity August 1.22%113 Below are charts comparing operating fund interest for current and prior fiscal years. Actual Interest 8/31/2016 8/31/2017 Monthly - August 22,630$ 31,942$ Year-to-Date 30,289$ 39,044$ Budget 2016/2017 2017/2018 Interest Budget, August YTD 19,167$ 51,667$ Interest Budget, Annual 115,000$ 310,000$ Interest earned on investments is recorded in the fund that owns the investment. The distribution of investments in the portfolio both in dollars and as a percentage of the total portfolio by funds is as follows: Total of $38.7 million in cash and investments which is split between minimum reserve requirements and what is available to meet current year obligations (operating costs, debt service, capital costs). July 2017 % Alloc August 2017 % Alloc Days In Cash Fund Description Balance 7/31/2017 Balance 8/31/2017 Calcualtion Water Operating Reserve 14,072,814$ 42.37%14,538,404$ 42.96% Water Emergency Reserve 3,467,724$ 10.44%3,469,414$ 10.25% Water Capital Project Reserve 5,479,628$ 16.50%5,242,447$ 15.49% Water Employee Liability Reserve 1,249,864$ 3.76%1,249,873$ 3.69% Rate Stabilization Reserve 4,003,323$ 12.05%4,010,178$ 11.85% Un-Restricted Water Reserve Balance 28,273,352 28,510,316$ 26,746,883$ 389 Conservation Reserve 147,700$ 0.44%111,262$ 0.33% Restricted Water Reserve Balance 147,700 111,262$ Sewer Operating Reserve 844,466$ 2.54%1,244,779$ 3.68% Sewer Emergency Reserve 1,147,799$ 3.46%1,150,036$ 3.40% Sewer Employee Liability Reserve 500,054$ 1.51%500,054$ 1.48% Sewer Capital Project Reserve 2,299,127$ 6.92%2,327,514$ 6.88% Un-Restricted Sewer Reserve Balance 4,791,447 5,222,383$ 1,486,991$ Total Reserve Balances 33,212,499$ 100.00%33,843,961 100.00%1,282 Water Operating 267,098 175,268 Sewer Operating 400,102 125,130 667,200 300,397 Revenue Bond 2017A-Acquisition Fund 4,743,960 4,605,805 Total Cash and Investments 38,623,659$ 38,750,164$ Cash & Investment Summary Report Cash & Investment Summary Comparison Between Current and Previous Month Wells Fargo Bank Checking US Bank Held (Restricted) Market %Date of Percent Value Par of Total Institution Maturity Yield Checking Account: 300,397$ 300,397$ Wells Fargo Bank 19,526 19,526 Pershing 319,923$ 319,923$ 0.83%Total 0.00% Money Market Accounts: 4,605,805$ 4,605,805 US Bank (Revenue Bonds)0.60% 952,726 952,726 Bank of the West 0.08% 5,558,532$ 5,558,532$ 14.34%Total 0.51% Federal Agency Securities: 498,710$ 500,000 Federal Home Loan Bank 06/12/18 1.00% 499,760$ 500,000 Federal Home Loan Bank 06/13/18 1.10% 998,470$ 1,000,000$ 2.58%Total 1.05% Certificates of Deposits: 247,712$ 248,000$ CIT Bank, Salt Lake 05/22/18 1.20% 247,928$ 248,000 Discover 05/22/18 1.20% 247,712$ 248,000 Goldman Sachs Bank 05/22/18 1.20% 247,980$ 248,000 Beal Bank 05/23/18 1.00% 248,497$ 247,000 Barclays Bank 04/30/18 2.23% 248,104$ 248,000 State Bank of India 05/14/18 1.14% 248,268$ 249,000 Webster Bank 05/03/18 0.90% 247,960$ 248,000 American Express Centurion Bank 05/23/18 1.20% 247,524$ 248,000 GE Capital Bank 05/24/18 1.10% 248,410$ 249,000 Oriental Bank & Trust 05/29/18 1.05% 248,313$ 249,000 Enterprise Bank & TR Co Lowell 05/30/18 1.00% 248,330$ 249,000 Safra National Bank 05/31/18 1.00% 247,311$ 248,000 Townebank Portsmouth 05/31/18 1.00% 248,318$ 249,000 Mascoma Savings Bank 05/29/18 1.00% 100,049$ 100,000 Ally Bank Midvale Utah 12/11/17 1.54% 198,390$ 200,000 World's Foremost Bk Sydney 05/28/19 1.31% 246,703$ 248,000 Capital One Bk USA Natl Assn 05/13/19 1.20% 246,433$ 249,000 Comenity Cap Bk Salt Lake City 06/30/21 1.66% 244,010$ 248,000 EnerBank USA Salt Lake City 08/26/20 1.32% 245,329$ 248,000 EverBank Jacksonville Fla CTF 08/30/19 1.16% 181,638$ 180,000 HSBC BK USA, NA MC Clean CTF 08/31/21 1.23% 242,457$ 248,000 Wells Fargo Bank NA Sioux Falls D 08/31/21 1.63% 248,032$ 247,000 PrivateBank & Tr Chicago Ill CTF 03/30/22 2.19% 250,643$ 249,000 JP Morgan Chase Bk NA Columbus 03/31/22 2.43% 5,676,051$ 5,693,000$ 14.65%Total 1.32% Pooled Investment Accounts: 7,152,623$ 7,152,623$ Local Agency Investment Fund 1.08% 1,317,197 1,317,391 CalTRUST Short Term 1.23% 17,727,367 17,751,718 CalTRUST Medium Term 1.49% 26,197,188$ 26,221,732$ 67.61%1.37% 38,750,164$ 38,793,187$ 100%Total Investments 1.22% Per Government Code requirements, the Investment Report is in compliance with the Yorba Linda Water District's Investment Policy, and there are adequate funds available to meet budgeted and actual expenditures for the next six months. 8/31/17 Yorba Linda Water District Cash & Investment Portfolio Report August 31, 2017 ________________________________ Kelly D. McCann, Senior Accountant Yorba Linda Water District Fair Value Measurement Report August 31, 2017 Quoted Observable Unobservable Prices Inputs Inputs Investments Level 1 Level 2 Level 3 Total CalTRUST Investment Pool -$ 19,044,564$ -$ 19,044,564$ Local Agency Investment Fund - 7,152,623 - 7,152,623 U.S. Government Sponsored Agency Securities - 998,470 - 998,470 Negotiable Certificates of Deposit - 5,676,051 - 5,676,051 Total Investments -$ 32,871,709$ -$ 32,871,709$ ITEM NO. 13.1 AGENDA REPORT Meeting Date: September 26, 2017 Subject:Meetings from September 27 - November 30, 2017 ATTACHMENTS: Name:Description:Type: BOD_-_Activities_Calendar.pdf Backup Material Backup Material Board of Directors Activity Calendar Event Date Time Attendance By September OCSD Wed, Sep 27 6:00 PM Hawkins/Jones Yorba Linda Planning Commission Wed, Sep 27 6:30 PM Hawkins (As Needed) Interagency Committee Meeting with MWDOC and OCWD Thu, Sep 28 4:00 PM Miller/Nederhood October ISDOC Executive Committee Tue, Oct 3 7:30 AM Nederhood Yorba Linda City Council Tue, Oct 3 6:30 PM Hawkins MWDOC Wed, Oct 4 8:30 AM Nederhood OCSD Operations Committee Wed, Oct 4 5:00 PM Hawkins OCWD Wed, Oct 4 5:30 PM Jones MWDSC Infrastructure Inspection Trip Fri, Oct 6 7:00 AM Jones/Nederhood WACO Fri, Oct 6 7:30 AM Jones (All Directors PA) Board of Directors Regular Meeting Tue, Oct 10 6:30 PM LAFCO Wed, Oct 11 8:00 AM Nederhood (As Needed) Yorba Linda Planning Commission Wed, Oct 11 6:30 PM Hawkins (As Needed) YL City Council Tue, Oct 17 6:30 PM Jones MWDOC Wed, Oct 18 8:30 AM Nederhood OCWD Wed, Oct 18 5:30 PM Jones Board of Directors Workshop Meeting Thu, Oct 19 6:30 PM Board of Directors Regular Meeting Tue, Oct 24 6:30 PM MWDOC/OCWD Joint Planning Committee Wed, Oct 25 8:30 AM Jones/Nederhood OCSD Wed, Oct 25 6:00 PM Hawkins/Jones Yorba Linda Planning Commission Wed, Oct 25 6:30 PM Hawkins (As Needed) OCWD Groundwater Adventure Tour Thu, Oct 26 8:00 AM Jones ISDOC Thu, Oct 26 11:30 AM Hawkins (All Directors PA) November MWDOC Wed, Nov 1 8:30 AM Nederhood OCSD Operations Committee Wed, Nov 1 5:00 PM Hawkins OCWD Wed, Nov 1 5:30 PM Jones YL State of the City Thu, Nov 2 11:30 AM Jones/Nederhood MWDOC Elected Officials' Forum Thu, Nov 2 6:00 PM Jones/Nederhood WACO Fri, Nov 3 7:30 AM Jones (All Directors PA) Well 21 Ribbon Cutting Ceremony Fri, Nov 3 10:00 AM Hall/Miller/Nederhood ISDOC Executive Committee Tue, Nov 7 7:30 AM Nederhood Yorba Linda City Council Tue, Nov 7 6:30 PM Miller LAFCO Wed, Nov 8 8:00 AM Nederhood (As Needed) Board of Directors Regular Meeting Tue, Nov 14 6:30 PM MWDOC Wed, Nov 15 8:30 AM Nederhood OCWD Wed, Nov 15 5:30 PM Jones Yorba Linda Planning Commission Wed, Nov 15 6:30 PM Hawkins (As Needed) Board of Directors Workshop Meeting Thu, Nov 16 6:30 PM Interagency Committee Meeting with MWDOC and OCWD Mon, Nov 20 4:00 PM Miller/Nederhood YL City Council Tue, Nov 21 6:30 PM Nederhood OCSD Wed, Nov 22 6:00 PM Hawkins/Jones District Offices Closed Thu, Nov 23 7:00 AM ACWA/JPIA Fall Conference Mon, Nov 27 8:00 AM Nederhood ACWA/JPIA Fall Conference Tue, Nov 28 8:00 AM Nederhood ACWA Fall Conference Tue, Nov 28 8:00 AM Jones/Nederhood Board of Directors Regular Meeting Tue, Nov 28 6:30 PM ACWA Fall Conference Wed, Nov 29 8:00 AM Jones/Nederhood Yorba Linda Planning Commission Wed, Nov 29 6:30 PM Hawkins (As Needed) ACWA Fall Conference Thu, Nov 30 8:00 AM Jones/Nederhood PA = Preauthorized