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HomeMy WebLinkAbout2018-05-30 - Board of Directors Meeting Agenda Packet AGENDA YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS WORKSHOP MEETING Wednesday, May 30, 2018, 4:30 PM 1717 E Miraloma Ave, Placentia CA 92870 1. CALL TO ORDER 2. PLEDGE OF ALLEGIANCE 3. ROLL CALL Al Nederhood, President Brooke Jones, Vice President Andrew J. Hall, Director Phil Hawkins, Director J. Wayne Miller, Director 4. 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. 5. 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. 5.1. Draft Operating Budget for Fiscal Year 2019 6. ADJOURNMENT 6.1. The Regular Board of Directors Meeting on Tuesday, June 12, 2018 has been rescheduled to Tuesday, June 5, 2018. Closed Session 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. 5.1 AGENDA REPORT Meeting Date: May 30, 2018 Subject:Draft Operating Budget for Fiscal Year 2019 SUMMARY: Topics to be discussed will include: Financial Policies Updated Financial Model Additional materials to be provided at the meeting. ATTACHMENTS: Name:Description:Type: 3010-004_-_Public_Funds_Investment_Policy.pdf Backup Material Backup Material 3010-003_-_Debt_Management_Policy.pdf Backup Material Backup Material 3010-008_-_PRSP_and_OPEB_Funding_Policy.pdf Backup Material Backup Material 3010-007_-_Purchasing_Policy.pdf Backup Material Backup Material 3010-004 Public Funds Investment Policy Page 1 of 14 Policies and Procedures Policy No.: 3010-004 Adoption Method: Resolution No. 17-16 Effective Date: July 1, 2017 Last Revised: October 13, 2016 Prepared By: Delia Lugo, Finance Manager Applicability: District Wide POLICY: PUBLIC FUNDS INVESTMENT TABLE OF CONTENTS Section 1.0 Policy Section 2.0 Scope Section 3.0 Delegation of Authority Section 4.0 Investment Objectives Section 5.0 Prudence Section 6.0 Ethics and Conflicts of Interest Section 7.0 Authorized Broker/Dealers Section 8.0 Authorized Investments Section 9.0 Review of Investment Portfolio Section 10.0 Investment Pools Section 11.0 Collateralization Section 12.0 Safekeeping and Custody Section 13.0 Diversification and Maximum Maturities Section 14.0 Internal Controls Section 15.0 Performance Standards Section 16.0 Reporting Section 17.0 Investment Policy Adoption Appendix A Description of Authorized Investments and Restrictions Appendix B Glossary 3010-004 Public Funds Investment Policy Page 2 of 14 1.0 POLICY 1.1 It is the policy of the Yorba Linda Water District (“District”) to invest public funds in a manner which ensures the safety and preservation of capital while meeting reasonably anticipated operating expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds. 1.2 The purpose of this policy is to provide guidelines for the prudent investment of funds of the District and to outline the policies for maximizing the efficiency of the District’s cash management. The District’s goal is to enhance the economic status of the District consistent with the prudent protection of the District’s investments. This investment policy has been prepared in conformance with all pertinent existing laws of the State of California. 2.0 SCOPE 2.1 This Investment Policy applies to all funds and investment activities of the District, except for the proceeds from capital project financing instruments, which are invested in accordance with provisions of their specific documents. These funds are accounted for as Enterprise Funds and are identified in the District’s Comprehensive Annual Financial Report. 3.0 DELEGATION OF AUTHORITY 3.1 The authority of the Board of Directors to invest funds is derived from Section 53601 of the California Government Code (“CGC”). Section 53607 of the CGC grants the Board of Directors the authority to delegate that authority, for a one-year period, to the District’s Treasurer. Therefore, management responsibility for the investment program is hereby delegated to the District’s Treasurer, who shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials and their procedures in the absence of the Treasurer. The Treasurer shall establish procedures for the management of investment activities, including the activities of staff consistent with this Policy. 3.2 The Treasurer may retain the services of an outside investment advisor or manager as approved by the Board to assist with the District’s investment program. Any investment advisor selected shall make all investment decisions and transactions in strict accordance with State law, and this Policy. 4.0 INVESTMENT OBJECTIVES 4.1 The primary objectives, in priority order, of the District’s investment activities shall be: 4.1.1 Safety: Safety and preservation of principal is the foremost objective of the investment program. Investments shall be selected in a manner that seeks to ensure the preservation of capital in the District’s overall portfolio. This will be accomplished through a program of diversification and maturity limitations, more fully described in Section 13, in order that potential losses on 3010-004 Public Funds Investment Policy Page 3 of 14 individual securities do not exceed the income generated from the remainder of the portfolio. 4.1.2 Liquidity: The District’s investment portfolio will remain sufficiently liquid to enable the District to meet all operating requirements which might be reasonably anticipated. Securities should mature concurrent with cash needs to meet anticipated demands. 4.1.3 Return on Investments: The District’s investment portfolio shall be designed with the objective of attaining the best yield or returns on investments, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives. 5.0 PRUDENCE 5.1 The standard of prudence to be used by the designated representative shall be the “prudent investor” standard and shall be applied in the context of managing the overall portfolio. The meaning of the standard of prudent investor is explained in CGC Section 53600.3, which states that “when investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.” 5.2 The Treasurer and delegated investment officers, acting in accordance with District procedures and the Policy and exercising due diligence, shall be relieved of personal responsibility for an individual security’s credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. 5.3 Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. 6.0 ETHICS AND CONFLICTS OF INTEREST 6.1 Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the District’s General Manager any material financial interests in financial institutions that conduct business with the District’s boundaries, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the District. 3010-004 Public Funds Investment Policy Page 4 of 14 7.0 AUTHORIZED BROKER/DEALERS 7.1 The Treasurer will maintain a list of authorized broker/dealers and financial institutions that are approved for investment purposes. Broker/dealers will be selected for credit worthiness and must be authorized to provide investment services in the State of California. These may include “primary” dealers or regional dealers that qualify under Securities & Exchange Commission Rule 15(C)3-1 (uniform net capital rule). No public deposit will be made by the broker/dealer except in a qualified public depository as established by the established state laws. Before a financial institution or broker/dealer is used, they are subject to investigation and approval by the Treasurer or his/her designated representative, and must submit the following: 7.1.1 Certification of having read and understood this investment policy resolution and agreeing to comply with the District’s investment policy; 7.1.2 Proof of Federal Investment Regulatory Authority certification; 7.1.3 Proof of State of California registration; 7.1.4 Audited financial statements for the institution’s three (3) most recent fiscal years; 7.1.5 References of other public-sector clients that similar services are provided to. 7.2 If a third party investment advisor is authorized to conduct investment transactions on the District’s behalf, the investment advisor may use their own list of approved independent broker/dealers and financial institutions. The investment advisor’s approved list must be made available to the District upon request. 8.0 AUTHORIZED INVESTMENTS 8.1 The District is provided a broad spectrum of eligible investments under the CGC Sections 53601 et seq. Authorized investments shall also include, in accordance with CGC section 16429.1 et seq., investments into the Local Agency Investment Fund (LAIF) and the Orange County Treasurer’s Commingled Investment Pool in accordance with CGC section 53684. Within the investments permitted by the CGC, the District seeks to further restrict eligible investment to the investments listed in Section 8.3 below. Percentage holding limits listed in this section apply at the time the security is purchased. Ratings, where shown, specify the minimum credit rating category required at purchased without regard to +/- or 1,2,3 modifiers, if any. 8.2 The purchase of any investment permitted by the CGC, but not listed as an authorized investment in this Policy is prohibited without the prior approval of the Board of Directors. 3010-004 Public Funds Investment Policy Page 5 of 14 8.3 Within the context of these limitations, the following investments are authorized: TABLE 1 Permitted Investments*/ Deposits CA Government Code % of Portfolio Limits / Maturity Limits YLWD % of Portfolio Limits / Maturity Limits Bank Deposits# No % limit, 5 years No % limit, 5 years CD Placement Service# 30% limit, 5 years 30% limit, 5 years Local Agency Investment Fund (LAIF)^ No % or maturity limit No % or maturity limit County Pooled Investment Funds^ No % or maturity limit No % or maturity limit Joint Powers Authority Funds (CalTRUST & CAMP)^ No % or maturity limit No % or maturity limit U.S. Treasury Obligations No % limit, 5 years No % limit, 5 years U.S. Agency Obligations No % limit, 5 years No % limit, 5 years Negotiable Certificates of Deposit# 30% portfolio, 5 years 30% portfolio, 5 years Money Market Funds* 20%, 10% per issuer, no limit 20%, 10% per issuer, no limit Medium-Term (or Corporate) Notes* 30% portfolio, 5 years 30% portfolio, 5 years Bankers Acceptances* 40%, 30% per issuer, 180 days 10% max, 5% per issuer, 180 days Commercial Paper* 25%, 10% per issuer, 270 days 25% max, 5% per issuer, 270 days * See Appendix A for more detailed descriptions and additional restrictions. ^ See Section 10.0 for additional restrictions. # See Section 11.0 for additional restrictions. 3010-004 Public Funds Investment Policy Page 6 of 14 9.0 REVIES OF INVESTMENT PORTFOLIO 9.1 The securities held by the District must be in compliance with Section 8 Authorized Investments at the time of purchase. The Treasurer shall at least quarterly review the portfolio to verify that all securities are in compliance with Section 8 Authorized Investments. In the event a security held by the District is subject to a credit rating change that brings it below the minimum credit ratings specified in Appendix A Authorized Investments, the Treasurer should notify the Board of Directors of the change. The course of action to be followed will then be decided on a case-by-case basis, considering such factors as the reason for the change, prognosis for recovery or further rate drops, and the market price of the security. 10.0 INVESTMENT POOLS 10.1 A thorough investigation of any investment pool or mutual fund is required prior to investing, and on a continual basis. The investigation will, at a minimum, obtain the following information: 10.1.1 A description of eligible investment securities, and a written statement of investment policy and objectives; 10.1.2 A description of interest calculations and how it is distributed, and how gains and losses are treated; 10.1.3 A description of how the securities are safeguarded (included the settlement processes), and how often the securities are priced and the program audited; 10.1.4 A description of who may invest in the program, how often and what size deposit and withdrawal are allowed; 10.1.5 A schedule for receiving statements and portfolio listings; 10.1.6 Are reserves, retained earnings, etc. utilized by the pool/fund; 10.1.7 A fee schedule and when and how it is assessed; 10.1.8 Is the pool/fund eligible for bond proceeds and/or will it accept such proceeds; 11.0 COLLATERALIZATION 11.1 Bank Deposits: Under provisions of the CGC, California banks and savings and loan associations are required to secure the District’s deposits by pledging eligible securities with a value of 110% of principal and accrued interest. State law also allows financial institutions to secure District deposits by pledging first trust deed mortgage notes having a value of 150% of the District’s total deposits. 11.2 Waiver of Security: The Treasurer, at his/her discretion and in accordance with CGC section 53653, may waive security for the portion of any deposits as is insured pursuant to federal law. 3010-004 Public Funds Investment Policy Page 7 of 14 12.0 SAFEKEEPING AND CUSTODY 12.1 All security transactions entered into by the District shall be conducted on a delivery-versus-payment basis. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. The only exception to the foregoing shall be depository accounts and securities purchases made with (i) local government investment pools, and (ii) money market mutual funds, since those purchased securities are not deliverable. 13.0 DIVERSIFICATION AND MAXIMUM MATURITIES 13.1 The District will diversify its investments by security type and institution. With the exception of U.S. Treasuries, U.S. Agency Securities, FDIC Insured Certificates of Deposit and authorized pools, no more than 30% of the District’s total investment portfolio will be invested in a single security type or with a single financial institution. 13.2 To the extent possible, the District will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow and approved in advance by the Board of Directors, the District will not directly invest in securities maturing more than 5 years from the date of purchase. 14.0 INTERNAL CONTROLS 14.1 The external auditors will annually review the investments and general activities associated with the investment program. This review will provide internal control by assuring compliance with the Investment Policy and District policies and procedures. 15.0 PERFORMANCE STANDARDS 15.1 The investment portfolio will be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. 15.2 The performance of the District’s investment portfolio will be evaluated and compared to an appropriate benchmark in order to assess the success of the investment portfolio relative to the District’s Safety, Liquidity and Return on Investments objectives. This review will be conducted annually by the District Treasurer. 16.0 REPORTING 16.1 Subject to CGC sections 53607 and 53646(b), the Treasurer will provide monthly and quarterly investment reports to the Board of Directors which provide a clear picture of the status of the current investment portfolio. The reports shall comply with the reporting requirements of CGC sections 53607 and 53646(b), respectively. 17.0 INVESTMENT POLICY ADOPTION 17.1 The District’s Investment Policy will be adopted by resolution of the Board of Directors. The policy will be reviewed on an annual basis and modification, if any, must be approved by the Board of Directors. 3010-004 Public Funds Investment Policy Page 8 of 14 APPENDIX A DESCRIPTION OF AUTHORIZED INVESTMENTS AND RESTRICTIONS The following descriptions of authorized investments, maximum maturities and limits are included here to assist in the administration of this policy. 1) BANK DEPOSITS The District may make bank deposits in accordance with California Government Code section 53630 et seq., which requires collateral. Per California Government Code Section, there are three classes of deposits: (a) inactive deposits, (b) active deposits and (c) interest-bearing active deposits. The collateral requirements apply to both active deposits (checking and savings accounts) and inactive deposits (non-negotiable time certificates of deposit). The maximum maturity shall be five years. No limit will be placed on the percentage total invested in this category. 2) CD PLACEMENT SERVICE – Government Code Sections 53601.8 and 53653.8 The District may invest in collateralized certificates of deposits in accordance with the requirements in California Government Code Sections 53601.8 and 53635.8. Purchases of certificates of deposit pursuant to Government Code Sections 53601.8, 53653.8, and 53601 shall not, in total, exceed 30 percent of District’s investment portfolio. The maximum maturity is limited to five years. 3) THE STATE LOCAL AGENCY INVESTMENT FUND (LAIF) – Government Code Section 16429.1 The LAIF is a special fund in the California State Treasury and an investment alternative for California’s local governments and special districts created and governed pursuant to CGC Section 16429.1 et seq. and managed by the State Treasurer’s Office. The District, with the consent of the Board of Directors, is authorized to remit money not required for the District’s immediate need, to the State Treasurer for deposit in this fund for the purpose of investment. Principal may be withdrawn on one day’s notice. The fees charged by LAIF are limited by statute. Investment of District funds in LAIF shall be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review described in Section 10 Investment Pools. No limit will be placed on the percentage total in this category. 4) ORANGE COUNTY TREASURER’S COMMINGLED INVESTMENT POOL (OCCIP) – Government Code Section 53684 The OCCIP is a money market investment pool managed by the Orange County Treasurer’s Office. OCCIP is more fully described in the glossary at Appendix B. The District has no funds invested in OCCIP at this time. Investment of District funds in OCCIP would be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review described in Section 10 Investment Pools. There is no maturity limit. No limit will be placed on the percentage total in this category. 5) THE INVESTMENT TRUST OF CALIFORNIA (CALTRUST) – Government Code Section 53601(p) The Investment Trust of California (CalTRUST) is a local government investment pool organized as a joint powers authority pursuant to California Government Code Section 6509.7. Wells Capital Management, a wholly-owned 3010-004 Public Funds Investment Policy Page 9 of 14 subsidiary of Wells Fargo, is the portfolio manager for each of the CalTRUST funds. Investment of District funds in CalTRUST shall be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review described in Section 10 Investment Pools. No limit will be placed on the percentage total in this category. 6) CALIFORNIA ASSSET MANAGEMENT PROGRAM (CAMP) – Government Code Section 53601(p) The Trust is currently governed by a Board of five Trustees, all of whom are officials or employees of Public Agencies. The Trustees are responsible for setting overall policies and procedures for the Trust. The Program’s Investment Adviser and Administrator is Public Financial Management, Inc. The amounts deposited in this category shall be limited to bond proceeds and are to be invested for the purpose of arbitrage management only. The District has no funds invested in CAMP at this time. Investment of District funds in OCCIP would be subject to investigation and due diligence prior to investing, and on a continual basis to a level of review described in Section 10 Investment Pools. Proceeds may be invested in the Treasury Portfolio and/or the Money Market Portfolio. There is no maturity limit. No limit will be placed on the percentage total in this category. 7) U.S. TREASURY OBLIGATIONS – Government Code Section 53601(b) United States Treasury notes, bonds, bills or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. The maximum maturity shall be limited to five years. No limit will be placed on the percentage total invested in this category. 8) U.S. AGENCY OBLIGATIONS – Government Code Section 53601(f) Federal agency or United States government-sponsored enterprise senior debt obligations, participations, mortgaged-backed securities or other instruments, including those issued by or fully guaranteed as to principal and interest by Federal agencies or United States government-sponsored enterprises. Examples of these securities include Federal National Mortgage Association, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation and Federal Home Loan Bank. The maximum maturity shall be limited to five years with no limit placed on the percentage total in this investment category. 9) NEGOTIABLE CERTIFICATES OF DEPOSIT – Government Code Section 53601(i) Investments are limited to deposits issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a state- licensed branch of a foreign bank. Individual investments shall be limited to Federal Deposit Insurance Corporation-insured limits of $250,000. Purchases of certificates of deposit pursuant to Government Code Sections 53601.8, 53653.8, and 53601 shall not, in total, exceed 30 percent of District’s investment portfolio. The maximum maturity is limited to five years. 10) MONEY MARKET FUNDS – Government Code Section 53601(l)(2) Shares of a beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission. 3010-004 Public Funds Investment Policy Page 10 of 14 The company shall have met either of the following criteria: (A) attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized rating services and (B) retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years of experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). There is no maturity limit. A maximum of 20 percent of the portfolio may be invested in this category, and a maximum of 10 percent of the portfolio may be invested in any single issuer. If the District has funds invested in a money market fund, a copy of the fund’s information statement shall be maintained on file. In addition, the Treasurer should review the fund’s summary holdings on a quarterly basis. 11) MEDIUM-TERM (OR CORPORATE) NOTES – Government Code Section 53601(k) Medium-term notes are defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less. The corporation must be domestic, the notes must be domestic and the notes must be issued in the United States. The corporation must be rated A or its equivalent or better by a nationally recognized rating service. The maximum maturity is limited to five years and the maximum percentage allowable for investment is 30 percent of the investment portfolio in the aggregate. 12) BANKERS’ ACCEPTANCES – Government Code Section 53601 (g) Bankers’ acceptances, otherwise known as bills of exchange or time drafts, are drawn on and accepted by a commercial bank. Purchases are limited to bankers’ acceptances issued by domestic or foreign banks, which are eligible for purchase by the Federal Reserve System. Eligible bankers’ acceptances are restricted to issuing financial institutions with a short-term debt rating of at least “A-1” or its equivalent by a nationally recognized rating service. The maximum term may not exceed 180 days and the maximum percentage allowable for investment is 10 percent of the portfolio in the aggregate, and 5% for an individual issuer. 13) COMMERCIAL PAPER – Government Code Section 53601(h) Commercial paper rated the highest ranking or of the highest letter and number ratings as provided for by a nationally recognized rating service. The entity that issues the commercial paper shall meet either of the following two sets of criteria: (1) The corporation shall be organized and operating within the United States, shall have total assets in excess of $500,000,000, and shall have debt, other than commercial paper, if any, that is rated A or higher by a nationally recognized rating service. (2) The corporation shall be organized within the United States as a special purpose corporation, trust, or limited liability company, has program wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond; has commercial paper that is rated “A-1” or higher, or equivalent by a nationally recognized statistical- rating organization. Eligible commercial paper may not exceed 270 days’ maturity and may not represent more than the 25 percent of the investment portfolio in the aggregate, and 5% for an individual issuer. 3010-004 Public Funds Investment Policy Page 11 of 14 APPENDIX B GLOSSARY AGENCIES: Federal agency securities and/or Government-sponsored enterprises. ASKED: The price at which securities are offered. BANKERS’ ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio’s investments. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a Certificate. Large-denomination CD’s are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report of the District. It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. COUPON: (a) The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. 3010-004 Public Funds Investment Policy Page 12 of 14 DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value (e.g., U.S. Treasury Bills.) DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. DURATION: A measure of the sensitivity of the price (the value of principal) of a fixed- income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L’s, small business firms, students, farmers, farm cooperatives, and exporters. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per entity. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks), which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation’s purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FHA mortgages. The term “pass- throughs” is often used to describe Ginnie Maes. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. 3010-004 Public Funds Investment Policy Page 13 of 14 MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase—reverse repurchase agreements that establishes each party’s rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve’s most important and most flexible monetary policy tool. PORTFOLIO: Collection of securities held by an investor. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)-registered securities broker-dealers, banks, and a few unregulated firms. PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state—the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (REPO): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security “buyer” in effect lends the “seller” money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection. 3010-004 Public Funds Investment Policy Page 14 of 14 SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15(C)3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, and derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve. TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY BONDS: Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. TREASURY NOTES: Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. 3010-003 Debt Management Policy Page 1 of 11 Policies and Procedures Policy No.: 3010-003 Adoption Method: Resolution No. 16-19 Effective Date: October 27, 2016 Revision Dates: N/A Prepared By: Delia Lugo, Finance Manager Applicability: District Wide POLICY: DEBT MANAGEMENT 1.0 INTRODUCTION 1.1 Purpose and Overview In its publication entitled Best Practice Debt Management Policy, the Government Finance Officers Association (GFOA) states that Debt management policies are written guidelines, allowances, and restrictions that guide debt issuance practices of Board adopted issuance processes, management of a debt portfolio, and adherence to state and federal laws and regulations. A debt management policy should improve the quality of decisions, and articulate policy goals, provide guidelines for the structure of debt issuance, and demonstrate a commitment to long-term capital financial planning. The Yorba Linda Water District Debt Management Policy as set forth herein provides a set of comprehensive guidelines for the issuance and management of District’s debt portfolio. Adherence to the policy is essential to ensure the District maintains a diversified debt portfolio that supports the District’s financing needs and minimizes the District’s cost of funds. 1.2 Roles and Responsibilities Finance Manager - The primary responsibility for debt management rests with the Finance Manager. The Finance Manager shall: • Provide for the issuance of District debt at the lowest possible cost and risk; • Determine the available debt capacity of the District; • Provide for the issuance of District debt at appropriate intervals and in reasonable amounts as required to fund approved and budgeted capital expenditures; • Recommend to the District’s Board of Directors (the “Board”) the method and manner of sale of District debt; • Monitor opportunities to refund debt and recommend such refunding as appropriate to reduce costs or to achieve other policy objectives; • Comply with all Internal Revenue Service (IRS), Municipal Securities Rulemaking Board (MSRB), Securities and Exchange Commission (SEC), and California Debt Investment Advisory Commission (“CDIAC”) rules and regulations governing the issuance of debt; 3010-003 Debt Management Policy Page 2 of 11 • Maintain a current database with all outstanding debt; • Provide for the timely payment of principal and interest on all debt; • Comply with all terms and conditions, including continuing disclosure, required by the legal documents governing the debt issued; • Submit to the Board all recommendations to issue debt in accordance with this Policy; • Distribute to appropriate repositories information regarding the District’s financial condition and affairs at such times and in the form required by law, regulation and general practice; • Provide for the frequent distribution of pertinent information to the rating agencies; • Apply and promote prudent fiscal practices; and • To ensure that proceeds of any debt issued in accordance with its governing documents and this Policy no disbursements shall be make without the approval of the Finance Manager and General Manager. The draw request shall be provided to the District by the project engineer with the consent of the District’s inspector. Approval shall only be provided when the Finance Manager is in receipt of an appropriate certification from the construction project manager with supporting invoices from suppliers and / or contractors evidencing appropriate expenses in connection with the project. In the case of an issue of bonds the proceeds of which will be used by a governmental entity other than the District, the District may rely upon a certification by such other governmental entity that it has adopted the policies described in SB 1029. 2.0 LEGAL GOVERNING PRINCIPLES In the issuance and management of debt, the District shall comply with all legal constraints and conditions imposed by federal, state and local law. The following section highlights the key governing documents and certain debt limitations. 2.1 Governing Law County Water District Law – The District was established in 1959 as a county water district under the County Water District Law, Division 12 of the Water Code of the State of California, as the successor to a private water company that was incorporated in or about 1909, for purposes of supplying water for domestic, irrigation, sanitation, industrial, commercial, recreation and fire suppression use. Federal Tax Law – The District shall issue and manage debt in accordance with the limitations and constraints imposed by federal tax law, to maximize its ability to sell tax-exempt debt. Such constraints include, but are not limited to, private activity tests, review of eligible projects, spend-down tests, and arbitrage rebate limitations. Securities Law – The District shall comply with the requirements of federal and state securities laws in offering District debt and the District shall comply with securities law requirements in providing ongoing disclosure to the securities markets. 2.2 Governing Legal Documents Indenture – The District’s debt issuance is further governed in part by the Indenture of Trust, adopted September 8, 2016 of which constitutes the “Indenture.” The Indenture establishes the basic security structure of debt 3010-003 Debt Management Policy Page 3 of 11 issued by the District that is secured by Net Water Revenues. Key terms and conditions include, but are not limited to, the definition of pledged revenues, the rate covenant and the additional bonds test. A copy of the Indenture can be found in Appendix B. The District shall comply with all limitations imposed under the Indenture, so long as such Indenture is in full force and effect. 2.3 Permitted Debt by Type The District may legally issue both short-term and long-term debt, using the debt instruments described below. The Director of Administrative Services, in consultation with the District’s General Counsel, Bond Counsel, and Financial Advisor shall determine the most appropriate instrument for funding purposes. General Obligation Bonds – The District is empowered, under California law, to levy taxes on all taxable property within its boundaries for the purpose of paying its voter-approved general obligation bonds and, subject to certain limitations. Certificates of Participation – Certificates of Participation (COP) provide debt financing through a lease, installment sale agreement or contract of indebtedness and typically do not require voter approval. Board action is sufficient to legally authorize a COP issue. The District shall pledge net revenues to the repayment of its COPs, under the terms and conditions specified in the Indenture. JPA Revenue Bonds – As an alternative to COPs, the District may obtain financing through the issuance of Debt by a joint exercise of powers agency with such Debt payable from amounts paid by the District under a lease, installment sale agreement, or contract of indebtedness. Commercial Paper – The District may issue short-term revenue certificates, including commercial paper and extendable commercial paper. Board action is sufficient to legally authorize a commercial paper issue. The District’s commercial paper is secured by net revenues. Voter approval is not required to issue commercial paper. Lines of credit - The District may enter into financing arrangements providing for a source of funds that can be readily accessed by the District for capital or operational needs. Board action is sufficient to legally authorize the establishment of a line of credit. Voter approval is not required to establish or access a lien of credit. Variable Rate Debt – The District is authorized to issue variable rate debt including, but not limited to, public market indexed notes, indexed notes or loans placed directly with financial institutions and other alternative variable rate and market access products as well as traditional variable rate demand obligations backed by bank liquidity facilities. Prior to the issuance of variable rate debt, the savings and other possible advantages compared to a fixed rate borrowing will be evaluated and a comparative analysis presented to the Board of Directors as part of the approval process. Refunding Revenue Bonds – The District is authorized to issue refunding revenue bonds to refund outstanding District indebtedness pursuant to the State of California local agency refunding revenue bond law (Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California). 3010-003 Debt Management Policy Page 4 of 11 Loans – The District is authorized to enter into loans, installment payment obligations, or other similar funding structures secured by a prudent source, or sources of repayment. Assessment Bonds – The District is authorized to issue assessment bonds pursuant to the Improvement Bond Act of 1915, subject to requirements imposed by Proposition 218. Such bonds are typically repaid from assessments collected within an assessment district formed pursuant to the Municipal Improvement Act of 1913. Assessments are levies of charges on real property to pay for projects or services that specifically benefit that parcel of property. 2.4 Limitations on Debt Issuance Short-Term Debt – The District’s short-term debt shall not exceed 30 percent of its total debt at the time of issuance. The calculation of short- term debt shall include any variable rate obligations, the authorized amount of commercial paper, any notes/bonds with a maturity equal to or less than five years. Variable Rate Debt – The Finance Manager will consult with the District’s Financial Advisor to determine appropriate parameters for the issuance of variable rate debt and may rely on rating agency standard’s and other industry standards for establishing prudent financial goals and establishing the amount of variable rate debt to be issued. Subordinate Lien Long-Term Debt - The District’s subordinate lien debt, for which net revenues are pledged, shall be limited to that amount for which current and projected revenues generate overall debt service coverage of at least 100 percent. Senior Lien Long-Term Debt – The District’s senior lien long-term debt, for which net revenues are pledged, shall be limited to that amount for which current and projected revenues generate a senior lien debt service coverage of at least 125 percent. The calculation of debt service shall not include General Obligation Bonds, Assessment Bonds, or Special Tax Bonds to which revenue sources other than pledged revenues, as defined in the Indenture, are pledged. It should be noted that the District will issue debt to attempt to meet the senior lien debt service coverage target of 225 percent in keeping with its prudent financial management practices and to maintain credit ratings aligned with rating agency methodologies. 2.5 Purpose for Borrowing The District shall issue debt solely for the purpose of financing the cost of design, engineering acquisition, and/or construction of water and wastewater system improvements in furtherance of the District’s Capital Improvement Program (CIP). Additionally, the District may, subject to Federal tax code limitations, include operational expenses in any debt issuance. 2.6 Ethical Standards Governing Conduct Members of the District, the Board and its consultants, service providers, and underwriters shall adhere to standards of conduct as stipulated by the California Political Reform Act, as applicable. All debt financing participants shall maintain the highest standards of professional conduct at all times, in accordance with: 3010-003 Debt Management Policy Page 5 of 11 • MSRB Rules, including Rule G-37 and G-42 shall be followed at all times; • Debt financing participants will assist the District staff in achieving its goals and objectives as defined in this Debt Management Policy; and • All debt financing participants shall make cooperation with the District staff their highest priority. 2.7 Use of Derivatives The use of derivative products can, among other things, increase District financial flexibility and provide opportunities for interest rate savings or enhanced investment yields. Careful monitoring of such products is required to preserve District credit strength and budget flexibility. Swaps will not be used to speculate on perceived movements in interest rates. Before the District enters into any derivative product associated with debt, the Board shall adopt an interest rate swap policy. 3.0 INTEGRATION OF CAPITAL PLANNING AND DEBT ACTIVITIES 3.1 Evaluating Capital Improvement Program Spending The District shall develop and maintain a capital finance model to evaluate the impact of capital program spending, operations and maintenance costs, and debt service on its financial condition. To that end, the Finance Director shall oversee the ongoing maintenance of quantitative modeling that includes, but is not limited to, the following: • Five years of historic and projected cash flows; • Five years of historic and projected capital expenditures; • Five years of historic and projected operating costs; • Five years of historic and projected fund balances for any funds established by the District’s then-adopted Reserve Fund • Five years of historic and projected debt service coverage; • The most efficient mix of funding sources (long-term debt; short-term debt, and cash); • Projected revenue requirements; and • Projected rates and charges. 4.0 PROCUREMENT AND EVALUATION OF PROFESSIONAL SERVICES 4.1 Appointment of Service Providers – The Finance Manager may solicit from time to time bids, quotes or proposals, including sole source proposals for the following services on an as needed basis: • Financial Advisor – Service provider that ensures the District complies with all financial management procedures and policies and ensures successful closing for bond transactions. • Bond Counsel – Service provider that drafts appropriate documentation to ensure successful and timely closing and create valid and legally binding security for bond issues, and provide appropriate advice and taking appropriate actions to ensure legal validity of bond issues under state and federal laws as applicable. 5.0 TRANSACTION-SPECIFIC POLICIES 5.1 Method of Sale – The Finance Manager shall determine the most appropriate form of sale of its debt. In making a recommendation to the Board the Finance Manger may consult with the District’s Financial Advisor 3010-003 Debt Management Policy Page 6 of 11 and Bond Counsel and may take into account, among other things, the type and tenor of the proposed debt; the District’s credit ratings; the amount of funding necessary; the timing of the needed funds; local and national economic conditions; and general bond market conditions. 5.2 Competitive Bid Method - When necessary to minimize the costs and risks of any District borrowing, the Director of Administrative Services may submit to the Board a request to sell bonds on a competitive basis. Such bids may take the form of hand- delivered or electronically transmitted offers to purchase the bonds. Any competitive sale of District debt will require approval of the Board. District debt issued on a competitive bid basis will be sold to the bidder proposing the lowest true interest cost to the District provided the bid conforms to the official notice of sale. 5.3 Negotiated Bid Method – A negotiated bond issue will provide for the sale of debt by negotiating the terms and conditions of the sale, including price, interest rates, credit facilities, underwriter or remarketing fees, and commissions. Examples of such sales include: • Variable rate demand obligations; • An issue of debt so large that the number of potential bidders would be too limited to provide the District with truly competitive bids; • An issue requiring the ability to react quickly to sudden changes in interest rates (e.g. refunding bonds); • An issue requiring intensive marketing efforts to establish investor acceptance; • An issue of debt with specialized distribution requirements; and • An issue of debt sold during a period of extreme market disruption or volatility. If bonds are sold on a negotiated basis, the negotiations of terms and conditions shall include, but not be limited to, prices, interest rates, underwriting or remarketing fees, and underwriting spreads and timing of sale. The District, with the assistance of its Financial Advisor, shall evaluate the terms offered by the underwriting team. Guidelines with respect to price, interest rates, fees, and underwriting spreads shall be based on prevailing terms and conditions in the marketplace for comparable issuers, credit ratings, tenor and par amount. If more than one underwriter is included in the negotiated sale of debt, the District shall establish appropriate levels of liability, participation and priority of orders. Such levels shall be based upon District policy with regards to the underwriting responsibility among the team members, the desired allocation of total fees, and the desired distribution of bonds. Guidelines for establishing liability, participation, and priority of orders shall be based on prevailing terms and conditions in the marketplace for comparable issuers. The District shall, with the assistance of its Financial Advisor, oversee the bond allocation process. The bond allocation process shall be managed by the lead underwriter, with the following requirements: • The bonds are allocated fairly among members of the underwriting team, consistent with the previously negotiated terms and conditions; • The allocation process complies with all MSRB regulations governing order priorities and allocations; • The lead underwriter shall submit to the Director of Administrative Services a complete and timely account of all orders, allocations, and underwriting activities with the investor names identified as appropriate. 3010-003 Debt Management Policy Page 7 of 11 The Finance Manager Services shall require a post-sale analysis and reporting for each negotiated bond sale. The Financial Advisor or the lead underwriter may perform such analysis. A post-sale analysis will include, but not be limited to: • Summary of the pricing, including copies of the actual pricing wires; • Results of comparable bond sales in the market at the time of the District’s pricing; • Detailed information on orders and allocation of bonds, by underwriting firm; • Detailed information on final designations earned by each underwriter; and • Summary of total compensation received by each underwriter. STRUCTURAL ELEMENTS 5.4 Pledge of Revenues – The District’s pledge of revenues shall be determined for each debt issue depending upon the debt instrument: • General Obligation Bonds of the District shall be repaid from voter- approved property taxes on property within the jurisdiction of the District. • Certificates of Participation of the District shall be repaid from net revenues, as defined in the Indenture. • Revenue Bonds of the District shall be repaid from net revenues, as defined in the Indenture. • Loans of the District may be repaid from net revenues of the water and or wastewater systems, or other financially prudent sources of repayment. • Assessment Bonds of the District shall be repaid levies or charges collected within an assessment district formed by the District pursuant to the Municipal Improvement Act of 1913. • Special Tax Bonds of the District shall be payable from net special taxes collected in applicable taxing jurisdiction as a result of the levy of special taxes. 5.5 Maturity – The District may issue tax-exempt debt with an average life equal to, but no greater than 125% of, the average life of the assets being financed. The final maturity of the debt should be no longer than 40 years absent compelling circumstances or facts. Factors to be considered when determining the final maturity of debt include: the average useful life of the assets being financed, relative level of interest rates, intergenerational equity and the year-to-year differential in interest rates. 5.6 Maturity Structure – The District’s long-term debt may include serial and term bonds. Other maturity structures may also be considered if they are consistent with prudent financial management practices. 5.7 Coupon Structure – Debt may include par, discount and premium. Discount and premium bonds must be demonstrated to be advantageous relative to par bond structures taking into consideration market conditions and opportunities. For variable rate debt, the variable rate may be based on one of a number of commonly used interest rate indices and the index will be determined at the time of pricing. 5.8 Debt Service Structure – Debt service may be structured primarily on an approximate level (combined annual principal and interest) basis. Certain 3010-003 Debt Management Policy Page 8 of 11 individual bond issues, such as refunding bonds, may have debt service that is not level. However, on an aggregate basis, debt service should be structured primarily on a level basis. 5.9 Redemption Features – In order to preserve flexibility and refinancing opportunities, District debt will generally be issued with call provisions. The District may consider calls that are shorter than traditional and/or non-call debt when warranted by market conditions and opportunities. For each transaction, the District will evaluate the efficiency of call provision alternatives. 5.10 Credit Enhancement – The District shall competitively procure credit enhancement for an original sale of bonds if the Finance Director, in consultation with the Financial Advisor and the senior underwriter, determines that it is cost effective to do so. The Finance Director may in consultation with the Financial Advisor and the senior underwriter determine that due to certain circumstances a sole source procurement process may be more advantageous than a competitive process. 5.11 Senior/Subordinate Lien – The District may utilize both a senior and a subordinate lien structure. The choice of lien will be determined based on such factors as overall cost of debt, impact on debt service, impact on rates, and marketing considerations. 5.12 Debt Service Reserve Funds – The District shall provide for debt service reserve funds to secure District debt when necessary. 6.0 COMMUNICATION AND DISCLOSURE 6.1 Rating Agencies The District shall maintain its strong ratings through prudent fiscal management and consistent communications with the rating analysts. The Finance Director shall manage relationships with the rating analysts assigned to the District’s credit, using both informal and formal methods to disseminate information. Communication with the rating agencies may include one or more of the following: • Full disclosure on an annual basis of the financial condition of the District; • A formal presentation, at least annually or as becomes necessary to the rating agencies, covering economic, financial, operational, and other issues that impact the District’s credit; • Timely disclosure of major financial events that impact the District’s credit; • Timely dissemination of the Comprehensive Annual Financial Report, following its acceptance by the District’s Board; • Full and timely distribution of any documents pertaining to the sale of bonds; and • Periodic tours of the water system operations, as appropriate. 6.2 Bond Insurers The Finance Director shall manage relationships with the bond insurers, to the extent any Debt is so insured, by providing appropriate information. Communication with other bond insurers shall be undertaken when the Director of Administrative Services, with the assistance of the District’s 3010-003 Debt Management Policy Page 9 of 11 Financial Advisor, determines that credit enhancement is cost effective for a proposed bond issue. Disclosure Reports – The District shall comply with its disclosure undertakings and make disclosure reports readily available to market participants though the Electronic Municipal Market Access website. Web Site – The District may use its website as a tool for providing timely information to investors. 7.0 REFUNDING POLICIES The District shall strive to refinance debt to maximize savings and minimize the cost of funds as market opportunities arise. A net present value analysis will be prepared that identifies the economic effects of any refunding to be proposed to the Board. The District shall target a 3% net present value savings for current and 5% for advance refunding transactions. Upon the advice of the Director of Administrative Services, with the assistance of the Financial Advisor and Counsel, the District will consider undertaking refundings for other than economic purposes, such as to restructure debt, change the type of debt instruments being used, or to retire a bond issue and indenture in order to remove undesirable covenants. 7.1 Savings Thresholds – Minimum savings thresholds have been established to help guide the economic analysis of refunding bonds. The minimum savings guidelines are applicable on a maturity-by-maturity basis and are expressed as a percentage of refunded bond par calculated by dividing the expected net present value savings generated by the proposed refunding by the par amount of refunded bonds. At the recommendation of the Director of Administrative Services, with the assistance of the Financial Advisor, the District may complete a refunding for net present values savings equal to the target specified above on an aggregate bond issue basis rather than a maturity by maturity basis. Generally, the District shall only refund bonds to generate debt service savings of the specified minimum savings set forth in the previous paragraph can be achieved. 7.2 Coupon on Refunded Bond – The Director of Administrative Services may take into consideration whether the coupon on the refunded bond is significantly higher or lower than the most common outstanding bond coupons of approximately five percent. 7.3 General Interest Rate Environment – The Director of Administrative Services may take into consideration whether the available refunding bond interest rates are generally high or generally low relative to long-term averages of historical rates. 7.4 General Interest Rate Outlook – The Director of Administrative Services may take into consideration the general outlook for future interest rates, as derived from economic forecasts, market forecasts, implied forward rates, or other sources. 7.5 Debt Management Considerations – The Director of Administrative Services may take into consideration debt management issues such as cost and staff efficiencies associated with combining multiple refunding bond issues or combining refunding and new money bond issues. 3010-003 Debt Management Policy Page 10 of 11 7.6 Call Date – The Director of Administrative Services may take into consideration the amount of time between the pricing/closing date of the refunding Debt and the call date of the Debt to be refunded. 7.7 Final Maturity Date – The Director of Administrative Services may take into consideration the amount of time remaining until the final maturity of the Debt to be refunded. 8.0 REINVESTMENT OF PROCEEDS 8.1 General – The District shall comply with all applicable Federal, State, and contractual restrictions regarding the use and investment of bond proceeds. This includes compliance with restrictions on the types of investment securities allowed, restrictions on the allowable yield of some invested funds, as well as restrictions on the time period during over which some bond proceeds may be invested. To the extent that a bond issue is credit enhanced, the District shall adhere to the investment guidelines of the credit enhancement provider. 8.2 Requirements of Indenture – The District will comply with all terms and conditions of the appropriate legal documents related to the Debt. Such limitations shall include, but not be limited to Investments in the Indenture. 9.0 CREATION AND MAINTENANCE OF FUNDS The District maintains a number of different funds integral to the long-range financial planning process. Each of these funds is held for a specific purpose and can generally be categorized as either an operating, capital or debt reserve fund. The District will comply with all requirements and limitations created under its Reserve Policy. 10.0 COMPLIANCE 10.1 Arbitrage Liability Management The District shall minimize the cost of arbitrage rebate and yield restrictions while strictly complying with tax law. Because of the complexity of arbitrage rebate regulations and the severity of non-compliance penalties, the District shall solicit the advice of bond counsel and other qualified experts about arbitrage rebate calculations. The District shall contract with a qualified third-party for preparation of the arbitrage rebate calculation. The District shall maintain an internal system for tracking expenditure of bond proceeds and investment earnings. The expenditure of bond proceeds shall be tracked in the financial accounting system by issue. Investment may be pooled for financial accounting purposes and for investment purposes. When investment of bond proceeds are co-mingled with other investments, the District shall adhere to IRS rules on accounting allocations. 10.2 Post-Issuance Tax Compliance The District has adopted Written Procedures to Ensure Compliance with Requirements for Tax-Exempt Bonds. The District shall comply with such procedures to maintain the tax-exempt status of District debt obligations or to maintain eligibility for direct pay subsidy payments, as applicable. 3010-003 Debt Management Policy Page 11 of 11 10.3 Continuing Disclosure The District shall comply with the requirements of each Continuing Disclosure Certificate entered into at the time of a sale of bonds. Annual information provided by the District shall mirror the information in any District offering statement at the time of a primary offering. Annual financial information will be sent by the District or its designated consultant, within the time required under the Continuing Disclosure Certificate to the EMMA System This shall include: • Comprehensive Annual Financial Report of the District; and • Updated tables from the Official Statement, as detailed in the Continuing Disclosure Certificate. In addition to annual disclosure, the District shall provide ongoing information about certain enumerated events, as defined by regulation, to the EMMA System. The District may engage a firm to assist it in ensuring timely completion and filing of annual reports and in identifying, and making timely filings with respect to, the occurrence of reportable enumerated events. 10.4 Legal Covenants The District shall comply with all covenants and conditions contained in governing law and any legal documents entered into at the time of a bond offering. 11.0 DEBT DATABASE MANAGEMENT The District shall maintain complete information on its outstanding debt portfolio, in a spreadsheet or database program format. The information in the database shall include, but not be limited to, the following: • Issue Name • Initial Issue Par Amount • Dated Date of the Issue • Principal Maturity Amounts • Coupon Rate by Maturity • Amount Outstanding • Call Provisions • Purpose of the Issue • Credit Enhancer, if any • Competitive or Negotiated Sale • Names of Underwriting Team Members The District shall use the debt database for the following purposes: • Generate reports • Gross annual debt service • Net annual debt service • Refunding Analyses • Output to Fund Accounting System 3010-008 PRSP and OPEB Funding Policy Page 1 of 4 Policies and Procedures Policy No.: 3010-008 Adoption Method: Resolution No. 17-33 Effective Date: October 24, 2017 Prepared By: Delia Lugo, Finance Manager Applicability: District Wide POLICY: PENSION RATE STABILIZATION PROGRAM AND OTHER POST-EMPLOYMENT FUNDING POLICY 1.0 GENERAL POLICY The purpose of this Pension Rate Stabilization Program (PRSB) and Other Post- Employment Benefits (OPEB) Funding Policy (“Policy”) is to establish a methodology and a process for funding current and future costs associated with the District’s contractual obligations to provide pension and retiree medical benefits as set forth in the District’s personnel rules and regulations. 2.0 ADOPTION AND IMPLEMENTATION District Board of Directors are responsible for adopting the Pension Rate Stabilization Program (PRSP) and Other Post-Employment Benefits (OPEB) Funding Policy and for approving any significant revision. The General Manager, or his/her designee, is responsible for developing administrative procedures, as needed, to implement the Policy. In this role, the General Manager, or his/her designee, is authorized to make minor administrative changes in the Policy as long as they are intended to carry out the purpose of this Policy and will not have any significant policy impact. The Board of Directors will review and approve this policy via resolution, as needed, to ensure it meets the current and future needs of the District. 3.0 INITIAL SETUP The District shall establish an Internal Revenue Service Code Section 115 approved irrevocable trust to achieve a higher rate of return on investments than that earned on the pooled investment portfolio or the Local Agency Investment Fund. Once the District transfers funds into such a trust, they can only be utilized for payment of employee pension or OPEB costs. After the trust is set up with Public Agency Retirement Services (PARS), funds will be transferred over to the new combined Pension/OPEB Trust and shall be allocated entirely to the PRSP OPEB account. The following outlines the governance and administration of the proposed Trust: District Board of Directors have the authority to establish the Trust and define policies for the administration of the Trust funds. 3010-008 PRSP and OPEB Funding Policy Page 2 of 4 District General Manager and staff have overall responsibility for the Trust funds and will develop and manage procedures in accordance with the District Board of Director’s adopted policies. Trust Administrator, PARS, keeps plan documents current to ensure that they reflect the substantive plan and provides ongoing consulting, reporting and plan accounting records. Trustee, currently US Bank, will be the plan’s trustee and custodian and will safeguard the assets in the Trust, hold the investment securities for safekeeping and make disbursements on request. Investment Manager, currently Highmark Capital Management, will recommend investment portfolio allocations based upon the Pension/OPEB Trust Funds’ adopted investment policies and manage those assets accordingly. 4.0 TRUST ADMINISTRATOR Public Agency Retirement Services (PARS) has established a multiemployer irrevocable trust in compliance with the requirements of Section 115 of the Internal Revenue Code. While it is a multi-employer trust, each employer’s contributions benefit only its own employees. There is no sharing of either liability or investment earnings, and separate employer accounts are maintained. PARS serves as the administrator of the Trust 5.0 TRUSTEE Any contributions made to the program are held and invested by a trustee. The trustee duties include: Safeguarding assets for the benefit of retirees; Providing oversight protection of the investments; Custodian of the assets Disbursing funds to pay for pension costs and/or retiree healthcare premiums 6.0 INVESTMENT MANAGER Investment Manager assists the District with selecting investment strategy depending on what rate of return the District expects to earn and level of risk tolerance the District is willing to take. Investment Manager provides annual review of the investment portfolio and asset allocation as well as takes on fiduciary responsibility for the District’s pension and OPEB assets management. 7.0 ASSET ALLOCATION INVESTMENT STRATEGY PARS provides flexibility to the District in the selection of the investment strategy for its funds in the Trust, giving the District control on target yield and level of risk on its investments. Within the Trust, the District has the option of pre-funding either or both of the Pension and OPEB accounts. In either case, the District has the ability to select one of five Investment Options that best suits its desired or expected return on its investments in the Trust. Each Investment Option allocates the assets in varying investment combinations of equity, fixed income, and cash. With each Investment Option, as the expected rate of return increases so does the assumed risk. 3010-008 PRSP and OPEB Funding Policy Page 3 of 4 The Asset Allocation Strategies and the corresponding Investment Options currently available are: Strategy Equity Fixed Income Cash Conservative 5% - 20% 60% - 95% 0% - 20% Moderately 20% - 40% 50% - 80% 0% - 20% Moderate 40% - 60% 40% - 60% 0% - 20% Balanced 50% - 70% 30% - 50% 0% - 20% Capital Appreciation 65% - 80% 10% - 30% 0% - 20% The District General Manager, or his/her designee, in coordination with the District Treasurer and Investment Manager will select the most appropriate investment option for each account (Pension and OPEB) in the Trust. This Policy recognizes that there will be investment market place volatility and that actual economic and demographic experience will differ from assumed experience. Accordingly, this Policy is intended to provide flexibility to smooth such volatility and experience in a reasonable, systematic and financially sound manner. The selected investment strategy will be reviewed by the Board annually 8.0 ANNUAL CONTRIBUTIONS In order to establish realistic and appropriate thresholds for annual contributions, the District adopts the following requirement for contributions to be proportionate between Water and Sewer Funds in any given fiscal year: Program Fiscal Year Minimum Maximum Pension Liability FY18 – FY27 $436,713 $1,105,248 OPEB Liability FY18 $210,100 $587,339 OPEB Liability FY19 $224,700 $601,939 OPEB Liability FY20 $251,700 $628,939 OPEB Liability FY21 $254,400 $631,639 OPEB Liability FY22 $268,900 $646,139 Note: FY18 OPEB Obligation (Benefit to Retirees) is $210,100, as determined by the actuarial valuation report prepared in accordance with the Governmental Accounting Standards Board Statement No. 75. Per North Bay Pensions LLC’s Valuation of Retiree Health Benefits Report of GASB 75 Actuarial Valuation Report of July 1, 2017, if the District funds OPEB component of the Trust at the listed levels, the OPEB Trust would be fully funded by FY22. 9.0 ANNUAL WITHDRAWALS The purpose of this Pension Rate Stabilization Program (PRSB) and Other Post- Employment Benefits (OPEB) Funding Policy (“Policy”) is to establish a methodology and a process for funding current and future costs associated with the District’s contractual obligations to provide pension and retiree medical benefits as set forth in the District’s personnel rules and regulations. Minimum Maximum Pension $0 CalPERS Annual Required Contribution OPEB $0 Annual OPEB Obligation 3010-008 PRSP and OPEB Funding Policy Page 4 of 4 10.0 ACTUARIAL TERM DEFINITIONS Normal Cost The District incurs an annual pension retirement obligation for current employees and an OPEB retirement obligation for current employees hired on or prior to December 8, 2011. The ongoing cost for pension and OPEB earned by current employees during the current year is referred to as the “normal” cost. Actuarial Present Value of Projected Benefit Payments (APVPBP) The actuarial valuation calculates an actuarial present value of projected benefit payments (APVPBP) as of the valuation date. The APVPBP represents the amount the District would theoretically need to set aside at this time to fully fund all future benefits for former and existing employees. Total OPEB Liability (TOL) The TOL is the portion of the APVPVP which has been “earned” by employees based on past year of service (i.e. benefits allocated to past years of service). Plan Fiduciary Net Position (FNP) The FNP is equal to the value of asses that have been accumulated in an irrevocable trust for the benefits, plus the remaining unrecognized deferred outflows and inflows of resources relating to OPEB. Net OPEB Liability or Asset (NOL) The NOL is the excess of the Total OPEB Liability over the FNP. At the end of each fiscal year, beginning June 30, 2018, the District must show a liability equal to the NOL. 3010-007 Purchasing Policy Page 1 of 14 Policies and Procedures Policy No.: 3010-007 Adoption Method: Resolution No. 17-30 Effective Date: August 22, 2017 Last Revised: February 14, 2013 Prepared By: Delia Lugo, Finance Manager Applicability: District Wide POLICY: PURCHASING POLICY 1.0 GENERAL POLICY 1.1 The Yorba Linda Water District Purchasing Policy (this “Policy”) establishes policies and procedures for acquiring services and materials, equipment and supplies (referred to collectively as “Services and/or Materials”), and for Public Works projects, for the Yorba Linda Water District (the “District”), pursuant to Government Code Section 54201 et seq. California Government Code Section 54202: requires every local agency to adopt policies and procedures, including bidding regulations, governing purchases of supplies, materials and equipment and that said purchases shall be in accordance with said duly adopted policies and procedures. California Government Code Section 54204: requires that if the local agency is other than a city or county, policies provided for in Section 54202 shall be adopted by means of a written rule or regulation, copies of which shall be available for public distribution. 1.2 This Policy establishes the Board of Directors’ (the “Board”) approved policies with respect to the procurement of Services and Materials and for Public Works projects, including expenditure authorization and limits, competitive proposal and bidding requirements, and general procurement procedures. All purchases of Services or Materials and Public Works projects to be paid for by the District must adhere to the authority level and dollar limits of this Policy as set forth in Section 2, except as otherwise provided by specific terms and exceptions set forth in this Policy. 2.0 AUTHORIZATION 2.1 By adoption of this Policy, the Board is authorizing the General Manager and other designated representatives to exercise certain 3010-007 Purchasing Policy Page 2 of 14 duties and responsibilities that are essential for the day-to-day operation of the District. 2.2 The General Manager may delegate the procurement of Services and Materials and the provision of Public Works projects to those staff members given specific authority, consistent with the terms of this Policy. 2.3 Delegation of purchasing authority may be through the authorized use of Purchasing Cards, Purchase Orders, check requests, or other written authorization. All such purchases will be made in conformity with the policies and procedures prescribed within this Policy. 2.4 The Board-established procurement limits and Contract signatory authority are listed in Table 1 below. These limits are applicable on a per-expenditure/per-Contract basis, not on an aggregated basis, for unrelated activities. Table 1 Procurement Limits and Contract Signature Authority Title Expenditure Authority Contract Signature Authority General Manager Up to $75,000 $75,001 and over with Board authorization; up to $75,000 without Board authorization. Asst General Manager Up to $50,000 Up to $50,000 Department Managers Up to $25,000 Up to $25,000 Superintendents, Senior Project Engineer, Water Quality Engineer, Management Analyst, IT Administrator Up to $5,000 None Executive Assistant Up to $2,500 None Administrative Personnel Up to $1,000 None 3.0 DEFINITIONS The terms referenced in this Policy shall have the meanings as defined below. 3.1 Administrative Personnel – District administrative employees authorized by the General Manager to purchase miscellaneous items, food and travel in support of District functions; includes Senior Accountant, Public Affairs Representative, Human Resources 3010-007 Purchasing Policy Page 3 of 14 Analyst and any other administrative position as authorized by the General Manager. 3.2 Amendment – A written change or addition to a legal document which, when properly executed, has the same legal validity of the original document. 3.3 Board – The Board of Directors of Yorba Linda Water District. 3.4 Change Order – A written Amendment modifying the terms of an existing Contract or Purchase Order. 3.5 Consultant – An individual, firm or entity that provides or offers to provide Professional Services to the District. 3.6 Contract - Written agreement authorizing a contractor, Consultant, supplier or service provider to provide Services or Materials, or Public Works, in accordance with the material requirements, conditions or scope of work stated in the Contract. 3.7 District – Yorba Linda Water District. 3.8 Emergency – A situation in which unforeseen circumstances present an immediate risk of harm or hazard to the public health, safety, and welfare, or to the District property, or threaten serious interruption of District operations. 3.9 General Manager – General Manager of the District or the person appointed by the Board to act in the capacity of the General Manager and authorized to administer this Policy on his/her behalf. 3.10 Invitation to Bid - A formal process for soliciting sealed bids from qualified prospective suppliers or Public Works contractors. Typically involves a formal bid opening, and the awarding of a Contract to a responsive and responsible supplier or contractor based on price, demonstrated competence and qualifications necessary to perform the services required, demonstrated quality of the goods required, other specified factors, and as otherwise required by law. 3.11 Multiple Year Contract - A Contract for the purchase of Services or Materials, or for Public Works for a multiple year term or that may contain provisions to extend performance by exercising optional renewal periods. A Multiple Year Contract does not obligate the District beyond the initial award period and shall not provide for a cancellation payment to the contractor if options are not exercised. 3.12 Non-Discretionary Purchases – Payments to utilities, temporary employment services, insurance providers, healthcare providers and national, federal, state or local agencies that relate to routine obligations and expenses essential to the District’s ability to provide service to customers and that have been approved in fiscal year operating or capital budgets. 3010-007 Purchasing Policy Page 4 of 14 3.13 Non-Professional Services – Services other than Professional Services, including supply and maintenance services. 3.14 Procurement - The purchase or lease of materials, supplies, equipment or services, or Public Works. 3.15 Professional Services – Any type of special service or advice in financial, economic, accounting, engineering, legal or administrative matters by persons specially trained and experienced and competent to perform the special services required. (Gov’t Code § 53060.) Such services include but are not limited to architectural; engineering; environmental; financial; land surveying; construction management; audits; training services; legal services; preparation of planning or studies; technology application development; and personnel, job classification and benefit studies. 3.16 Public Works – As defined by California Public Code Section 22002, public projects include construction, reconstruction, alteration, renovation, improvement, demolition, and repair work involving any publicly owned, leased or operated facility. Maintenance work is not considered a public project for purposes of this definition. 3.17 Purchasing Card - A form of charge card that allows Services and Materials to be purchased without using a Purchase Order. 3.18 Purchase Order (PO) – An authorization, under a standardized form in which the party designated as the “provider” is to provide Services and Materials for which the District agrees to pay. 3.19 Request for Proposal (RFP) - A solicitation used for the Procurement of Professional Services and Non- Professional Services. Prospective suppliers or Consultants submit requested information and are evaluated/awarded based on pre-established criteria. 3.20 Request for Quotes (RFQ) - A solicitation used for Procurement of supplies, materials, or equipment. 3.21 Requisition (REQ) - The procedural method by which departments may request a PO for the purchase of materials, supplies or equipment. Requisitions are entered into the District’s ERP system application. 3.22 Single Source Purchase - Procurement where: (1) there is a compelling reason for only one source, a preferred brand, like material, homeland security goods, services, etc., to be procured; or (2) the commodity is unique, including, but not limited to, acquisition of data processing, telecommunications and word processing equipment, goods and services; or (3) the purchase of a specific brand name, make or model is necessary to match existing District equipment or facilitate effective maintenance and support; or (4) when it is in the best interest of the District to extend or renew a 3010-007 Purchasing Policy Page 5 of 14 Contract from a previous contract period, based on satisfactory service, reasonable prices, avoidance of start-up costs, avoidance of interruptions to District business, or good business practices. Such a Procurement of $25,000 or greater must be presented to the Board of Directors as the next regular scheduled meeting. 3.23 Sole Source Purchase - Procurement where only one viable source exists. This is usually due to legal restrictions of patent rights and copyrights, a proprietary process, warranty issues, original equipment, etc. Such a Procurement of $25,000 or greater must be presented to the Board at the next regular scheduled meeting. 4.0 GENERAL PROCUREMENT POLICIES 4.1 Procurement practices shall comply with laws, regulations and guidelines of the State of California and any other applicable law, and the provisions of grant or funding contracts, if applicable. 4.2 Any employee/individual affecting any Procurement outside of the policies and procedures established by this Policy and without General Manager or Board authorization to do so, shall be subject to disciplinary action and/or termination in accordance with District policies. 4.3 Expenditures and Contract awards must be authorized by the appropriate authorization level indicated in Table 1. 4.3.1 Separating or dividing Contracts into smaller components for the purpose of bringing the cost of one or more Contracts below any specified sum to avoid a requirement in any section of this Policy or any policy incorporated herein is strictly prohibited. Contracts may be divided only to meet unique scheduling of a project or to accommodate necessary time frames. In addition, no specifications shall be drafted in such a manner as to limit competitive bidding or solicitation directly or indirectly to any one specific vendor, or any specific brand, product, thing, or service, except for those items that are approved as exempt from competitive bidding or solicitation requirements as provided in Section 7.1.3. 4.4 Purchase amounts include taxes and the cost of shipping, freight fees and any other charges billed by the supplier or contractor for purposes of the authorization limits under this Policy. 4.5 Purchase authorization and expenditure limits in Table 1, and competitive solicitation requirements in Table 2 and as further set forth in this Policy, are on a per purchase/per contract basis and shall not be applied as an aggregate limit to any vendor, supplier, contractor or Consultant. 3010-007 Purchasing Policy Page 6 of 14 4.6 With the exception of the General Manager, in the absence of an authorized signatory for a given request, authorization will be obtained from the next highest authority in Table 1. 4.7 The District may use electronic commerce whenever practicable or cost-effective. The District may accept electronic signatures and records in connection with the District Procurement, as permitted by applicable law. 5.0 PROCUREMENT METHODS The following methods are available to initiate a purchase request or to pay for Services and Materials or Public Works: 5.1 Requisition/Purchase Order - Staff that require Services and Materials to carry out the defined duties of their positions shall submit Requisitions, in advance, for purchases in accordance with this Policy and other applicable procedures and policies of the District. Staff will generate a Purchase Order from the Requisition. 5.1.1 Complete the Requisition form or Requisition data entry screen to request that Services or Materials are ordered. A. Allow at least two (2) working days of lead time. B. Provide complete name and address of selected vendor. C. Indicate the purpose of the Purchase Order. D. Describe the Services or Materials clearly and specifically. Include make, model, manufacturer’s part number, catalog number or vendor catalog page number, if available. Indicate color, size, or any option required. E. Indicate the quantity and unit price for each Service or Material. F. Note whether the Services or Materials are taxable. G. Note any freight charges. H. Must indicate a valid General Ledger account number(s), and correct projects number(s). I. Indicate the date the Services or Materials are needed. J. Attach any required price quotes and data that supports the requested purchase, if available. K. Seek appropriate approvals as required in Table 1. 3010-007 Purchasing Policy Page 7 of 14 L. Submit Purchase Order for processing. 5.1.2 Upon approval and receipt of a fully executed purchase Requisition, the Purchase Order will be systematically assigned the next consecutive number. A. The original Purchase Order will be given back to the originator or sent to the vendor. B. A copy of the approved Purchase Order, and any supporting documents, will be forwarded to Accounts Payable for processing. C. A copy of the approved Purchase Order will be forwarded to the Warehouse pending receipt of goods. D. An electronic record of the Requisition/Purchase Order will be kept within the purchasing system for historical purposes. 5.2 Check Request - A check request can be used to initiate payment for certain limited Services or Materials without a Purchase Order. Check requests can be used to request payment for Non- Discretionary Purchases, services rendered, subscriptions, membership dues, workshop/seminar/conference registrations, use of facilities, etc. 5.3 Cal Card and Other Purchasing Cards - Designated staff may be assigned a Cal Card for miscellaneous purchases up to $2,500 per purchase/per day. Purchases using the Cal Card are subject to the terms and conditions of the District Cardholder Acceptance Agreement and any other applicable District Cal Card policies or procedures. Services are not to be acquired on Cal Cards due to lack of insurance and indemnification language associated with these purchases. Cal Card limits may be increased temporarily or permanently with approval by an authorized manager subject to the authorization limits in Table 1. Use of all other Purchasing Cards are subject to the terms of this Policy and to any usage terms provided at the time of card issuance to the designated staff and any subsequent Amendments to such terms, and other applicable District policies. 5.4 Contracts - Provisions shall be made, either through specifications or procedures established by the District, for verification of the references and financial responsibility of the contracting parties prior to the award of a Contract. After award, all Contracts shall be executed on behalf of the District by the appropriate authorized signatory indicated in Table 1. In no case shall any Contract be made if sufficient funds are not budgeted and appropriated and not available to make payment promptly upon delivery or completion, or in accordance with a progress payment schedule, unless otherwise 3010-007 Purchasing Policy Page 8 of 14 authorized and approved by the Board or approved by the General Manager as provided for in Section 6.2 (Emergency). 5.4.1 Contracts for Non-Professional Services, Professional Services and Public Works shall be executed when an expenditure exceeds $5,000 (except in the event of an Emergency). 5.4.2 Multiple Year Contracts are allowed when in the best interests of the District as determined, and executed by the General Manager. A. For purposes of Procurement authorization, the dollar value of a Multiple Year Contract shall be the total contract value, including optional renewal periods. Once initially approved in accordance with the Policy requirements, any optional renewals may then be authorized by the General Manager at the time of renewal, regardless of the dollar amount, provided the pre-priced option is consistent with the terms of the Contract as initially approved. 6.0 EXCEPTIONS TO PRE-AUTHORIZATION 6.1 Non-Discretionary Purchases - Do not require Board approval for payment, including those that exceed the General Manager limit of $75,000. Purchase Orders are not required for Non-Discretionary Purchases that pertain to payments to utilities, insurance providers, heath care providers, and national, federal, state or local agencies that relate to routine obligations and expenses essential to the District’s ability to provide service to customers and that have been approved in fiscal year operating budgets 6.2 Emergency Work/Services - The General Manager, Assistant General Manager or the assigned Operations Manager may authorize Emergency expenditures for work, services, and/or supplies where the cost exceeds $75,000 without prior Board approval. The Board shall be notified of any expenditures for Emergency work, services and/or supplies exceeding the General Manager’s authorization limit at the next regularly scheduled Board meeting. 6.3 Purchase Requests - Require no prior authorization or signatory approval under Table 1 to replenish the District’s warehouse inventory within established inventory re-order levels. 7.0 COMPETITIVE SELECTION PROCESS 7.1 General - A competitive selection process for procurement of Services and Materials, and for Public Works projects, is required in accordance with the limits as set forth in Table 2 below (subject to 3010-007 Purchasing Policy Page 9 of 14 certain exceptions, qualifications or limitations as further set forth below). Table 2 Competitive Solicitation Process - Requirements Purchase Amount Solicitation Requirement $25,000 and under One Quote $25,001 - $50,000 Two Quotes $50,001 - $75,000 Three Quotes $75,001 and over RFP or RFQ or Invitation to Bid Process Required 7.1.1 Competitive Solicitation – Submission A. All quotes, bids and proposals must be in writing. Email is acceptable for expenditures under $75,000. B. RFP, RFQ, and Invitation to Bid submissions must be in writing and be in substantial compliance with terms in the solicitation, or as otherwise required by law, or may be disqualified. C. Quotes, bids and proposal documentation shall be retained pursuant to the District’s record retention policy. 7.1.2 Exceptions from Competitive Solicitation Process - Generally, solicitation of bids or proposals is preferable whenever practicable. In addition to the exceptions stated under Section 7.3.2, the competitive solicitation requirements set forth under Table 2 may be waived when any of the following is applicable: A. Sole Source Purchases. B. Single Source Purchases. C. Emergency expenditures. D. Supplies, materials or equipment procured through a Cooperative Purchasing program with federal, state, county, or other public agencies. E. After a reasonable attempt has been made to obtain competitive quotes/ responses and it has been determined that no additional 3010-007 Purchasing Policy Page 10 of 14 suppliers/providers/contractors/consultants can be located; the District has a lack of response from suppliers/providers/contractors/Consultants to a competitive solicitation; or, when sufficient, satisfactory bids/proposals are not received, based on the District’s sole discretion. F. Purchases to replenish the District’s warehouse inventory within established inventory re- order levels. G. As dictated by law. 7.1.3 It shall be at the discretion of the General Manager or Assistant General Manager and the initiating Department Manager(s) to determine whether an expenditure meets the qualifications listed herein to be exempt from a competitive solicitation, subject to any Board authorization. Such expenditures that meet this criteria will be presented to the Board of Directors at publicly held meeting. 7.2 Public Works - Contracts for Public Works projects shall conform to applicable requirements for Public Works contracts under State law, including but not limited to requirements relating to listing of subcontractors, posting of a payment bond in an amount not less than 100% of the total contract amount (for all Public Works contracts over $25,000) and payment of prevailing wages (for all contracts for Public Works exceeding $1,000), or as otherwise required by statute. Unless specifically waived by the District with the approval of the General Manager and District’s legal counsel, the District shall require performance bonds for all Public Works Contracts in an amount not less than 100% of the total Contract amount,. Public Works Contracts let by an Invitation to Bid shall be awarded to the lowest responsive, responsible bidder in accordance with State law and the District’s standard Public Works contract documents. 7.3 Professional Services (over $75,000) - RFPs will be initiated pursuant to the limits set forth in Table 2 when the Contract is anticipated to exceed $75,000, unless the District’s needs mandate uniquely qualified services, in which case only one proposal from a qualified firm may be solicited. Professional Services shall be engaged in accordance with California Government Code §4525 et seq., on the basis of demonstrated competence and qualifications for the types of services to be performed and at fair and reasonable prices to the District. 7.3.1 Professional Engineering Services - The District may request proposals for engineering services when the contract amount is anticipated to exceed $25,000, and up to $75,000. For engineering services anticipated to exceed $75,000, RFPs will be initiated pursuant to the limits set forth in Table 2. 3010-007 Purchasing Policy Page 11 of 14 7.3.2 Exceptions from Competitive Solicitation Process – Professional Services - In addition to the exception for “uniquely qualified services” set forth under Section 7.3, the following criteria shall apply as exceptions to the competitive solicitation requirements set forth under Table 2 for Professional Services where such requirements would otherwise apply: A. For Professional Services estimated to cost $25,000 or less, staff may request a proposal from one (1) qualified Consultant. B. For Public Works projects where the project design is scheduled in phases, the related Professional Services may be negotiated with the Consultant that performed the work for a prior phase, if the Consultant performed satisfactory work on the prior phase(s) in terms of quality, schedule and estimated design costs and a satisfactory Contract can be negotiated. C. For Professional Services in which it is impracticable to comply with the selection process because of the unique, exploratory or experimental nature of the project, staff may request a proposal from one (1) qualified Consultant. 7.4 Rejecting Competitive Responses - In response to an Invitation to Bid, RFQ, or RFP, the District may reject a bid or other response which is in any way incomplete, irregular, amplified, unqualified, conditional or otherwise not in compliance with the solicitation documents in all material respects, and in accordance with law. The District may waive any informality, irregularity, immaterial defects or technicalities in any bids or other responses received; and/or cancel an Invitation for Bid or RFP/RFQ, or reject all bids or responses for any other reason, which indicates the cancellation or rejection of all bids or responses is in the best interest of the District, and in accordance with law. Rejection of all bids or responses or cancellation of competitive solicitations, including determinations to re-bid, or re-solicit are subject to the same level of authority which is required to award a Contract as provided under Table 1, and as required by law. 7.5 RFPs and RFQs - The General Manager and the Board reserve the right to award Contracts based upon the best interests of the District, as determined by the District in its sole discretion. 8.0 CHANGE ORDERS 8.1 Change Orders may be issued from time to time as required by changes in the specifications or conditions of a project, services performed or materials issued. 3010-007 Purchasing Policy Page 12 of 14 8.1.1 Change Orders – PO Only - Change Orders up to 10% (to a maximum additional $1,000) of the original PO amount may be issued by the appropriate Department Manager without further approvals. A revised Purchase Order Requisition must be completed and approved at the appropriate authorization levels under Table 1 for any Change Order request exceeding the original amount by more than 10% or the $1,000 limit. 8.1.2 Change Orders – Formal Contracts and Amendments A. For Contracts and Amendments under $75,000: • Change Orders up to 10% of the original Contract amount can be approved by the appropriate authorization levels as outlined in Table 1 up to a maximum total Contract amount of $75,000 without Board approval. • Board approval is required for Change Order requests exceeding the original Contract amount by more than 10%, or resulting in a total Contract amount over $75,000. B. For Contracts and Amendments $75,001 and over: • Change Orders up to 10% (to a maximum additional $75,000) of the original Contract amount can be approved by the appropriate authorization levels as outlined in Table 1 without Board approval. • Board approval is required for Change Order requests exceeding the original Contract amount by more than 10%, or resulting in a $75,000 increase. 8.1.3 Change Order Exceeding Limits A Change Order exceeding the Change Order limits set forth in this article may be authorized by the General Manager prior to Board approval if, in the General Manager’s determination, any of the following circumstances exist: A. A delay in Change Order authorization could result in a negative financial impact to the District. B. A delay in Change Order authorization could result in damage to or impairment of the operations of a District facility. C. An Emergency exists which requires immediate work/services. 3010-007 Purchasing Policy Page 13 of 14 The Board shall be notified of any Change Order authorization exceeding the General Manager’s authorization limit at the next regularly scheduled Board meeting. 9.0 ETHICAL PROCUREMENT – CONFLICT OF INTEREST 9.1 Board members, District officers and employees shall not be financially interested in any Contract made by them in their official capacity. (Government Code Sections 1090 and 1091.5). Board Members, District officers and employees shall not participate in any way to influence a governmental decision in which he/she knows or has reason to know that he/she has a financial interest. (Government Code Section 87100 et seq.) 9.2 Any District employee (other than Administrative Personnel not under Designated Positions in the District’s Conflict of Interest Code) authorized under this Policy to make or enter into purchases on behalf of the District will complete a Statement of Economic Interests (Form 700) and comply with the District’s Conflict of Interest Code. 9.3 Confidential or proprietary information must be handled with due care and proper consideration of ethical and legal ramifications and governmental regulations. 9.4 Purchasing activities must be performed in accordance with all applicable laws and District policies. 9.5 Any employee/individual who violates the standards set forth in this Section shall be subject to disciplinary action consistent with District personnel policies. 10.0 COUNTY WATER DISTRICT STATUS The District is a County Water District and therefore is not mandated by State law to competitively bid any purchases, including those for Public Works projects and/or capital expenditures. The District has discretion to enter into non-bid Contracts for Public Works, to procure Services and Materials, to contract for design-build work, to utilize job-order contracting and to enter into Cooperative Purchasing arrangements for the design, construction and maintenance of Public Works, or undertake any other form of contracting determined to be in the District’s best interest, except as otherwise expressly restricted by law. Notwithstanding this lack of legal mandate and contractual discretion, District staff shall make a good faith effort to support the Competitive Selection Process described in Section VII. 11.0 POLICY REVISIONS This document will be maintained and revised by the General Manager with his/her designated representatives in consultation with the District’s legal counsel, subject to approval by the Board. This document will be reviewed annually and revisions will occur whenever applicable Federal, State or 3010-007 Purchasing Policy Page 14 of 14 local regulations change or otherwise as the need arises and in the discretion of the Board. 12.0 POLICY APPROVAL AND ADOPTION This Policy has been reviewed by the Yorba Linda Water District Board of Directors and adopted by Resolution No. 17-30 on August 22, 2017. YORBA LINDA WATER DISTRICT Notification of Single / Sole Source Procurement Pursuant to the District’s Purchasing Policy (3010-007), notification of single or sole source procurements of $25,000 or more must be presented to the Board at the next regular meeting. Vendor Name Requestors Name Address Department Purchase Amount Primary Contact Total Budgeted Phone Job # PO # Purchases from Same Vendor for Previous 24 Months Product/Service Description Justification / Background Department Manager Date General Manager Date BACKUP MATERIALS DISTRIBUTED LESS THAN 72 HOURS PRIOR TO THE MEETING 3010-008 Pension Rate Stabilization Program and OPEB Funding Policy Page 1 of 4 Policies and Procedures Policy No.: 3010-008XXXX-XXX Adoption Method: Resolution No. 17-3318-XX Effective Date: October 24, 2017June XX, 2018 Prepared By: Delia Lugo, Finance Manager Applicability: District Wide POLICY: PENSION RATE STABILIZATION PROGRAM AND OTHER POST-EMPLOYMENT FUNDING POLICY 1.0 GENERAL POLICY The purpose of this Pension Rate Stabilization Program (PRSB) and Other Post- Employment Benefits (OPEB) Funding Policy (“Policy”) is to establish a methodology and a process for funding current and future costs associated with the District’s contractual obligations to provide pension and retiree medical benefits as set forth in the District’s personnel rules and regulations. 2.0 ADOPTION AND IMPLEMENTATION District Board of Directors are responsible for adopting the Pension Rate Stabilization Program (PRSP) and Other Post-Employment Benefits (OPEB) Funding Policy and for approving any significant revision. The General Manager, or his/her designee, is responsible for developing administrative procedures, as needed, to implement the Policy. In this role, the General Manager, or his/her designee, is authorized to make minor administrative changes in the Policy as long as they are intended to carry out the purpose of this Policy and will not have any significant policy impact. The Board of Directors will review and approve this policy via resolution, as needed, to ensure it meets the current and future needs of the District. 3.0 INITIAL SETUP The District shall establish an Internal Revenue Service Code Section 115 approved irrevocable trust to achieve a higher rate of return on investments than that earned on the pooled investment portfolio or the Local Agency Investment Fund. Once the District transfers funds into such a trust, they can only be utilized for payment of employee pension or OPEB costs. After the trust is set up with Public Agency Retirement Services (PARS), funds will be transferred over to the new combination Pension/OPEB Trust and shall be allocated entirely to the PRSP OPEB account. The following outlines the governance and administration of the proposed Trust: ITEM NO. 5.1. MATERIALS SUBMITTED BY: Delia Lugo MEETING DATE: May 30, 2018 3010-008 Pension Rate Stabilization Program and OPEB Funding Policy Page 2 of 4  District Board of Directors have the authority to establish the Trust and define policies for the administration of the Trust funds.  District General Manager and staff have overall responsibility for the Trust funds and will develop and manage procedures in accordance with the District Board of Director’s adopted policies.  Trust Administrator, PARS, keeps plan documents current to ensure that they reflect the substantive plan and provides ongoing consulting, reporting and plan accounting records.  Trustee, currently US Bank, will be the plan’s trustee and custodian and will safeguard the assets in the Trust, hold the investment securities for safekeeping and make disbursements on request.  Investment Manager, currently Highmark Capital Management, will recommend investment portfolio allocations based upon the Pension/OPEB Trust Funds’ adopted investment policies and manage those assets accordingly. 4.0 TRUST ADMINISTRATOR Public Agency Retirement Services (PARS) has established a multiemployer irrevocable trust in compliance with the requirements of Section 115 of the Internal Revenue Code. While it is a multi-employer trust, each employer’s contributions benefit only its own employees. There is no sharing of either liability or investment earnings, and separate employer accounts are maintained. PARS serves as the administrator of the Trust 5.0 TRUSTEE Any contributions made to the program are held and invested by a trustee. The trustee duties include:  Safeguarding assets for the benefit of retirees;  Providing oversight protection of the investments;  Custodian of the assets  Disbursing funds to pay for pension costs and/or retiree healthcare premiums 6.0 INVESTMENT MANAGER Investment Manager assists the District with selecting investment strategy depending on what rate of return the District expects to earn and level of risk tolerance the District is willing to take. Investment Manager provides annual review of the investment portfolio and asset allocation as well as takes on fiduciary responsibility for the District’s pension and OPEB assets management. 7.0 ASSET ALLOCATION INVESTMENT STRATEGY PARS provides flexibility to the District in the selection of the investment strategy for its funds in the Trust, giving the District control on target yield and level of risk on its investments. Within the Trust, the District has the option of pre-funding either or both of the Pension and OPEB accounts. In either case, the District has the ability to select one of five Investment Options that best suits its desired or expected return on its investments in the Trust. Each Investment Option allocates the assets in varying investment combinations of equity, fixed income, and cash. With each ITEM NO. 5.1. MATERIALS SUBMITTED BY: Delia Lugo MEETING DATE: May 30, 2018 3010-008 Pension Rate Stabilization Program and OPEB Funding Policy Page 3 of 4 Investment Option, as the expected rate of return increases so does the assumed risk. The Asset Allocation Strategies and the corresponding Investment Options currently available are: Strategy Equity Fixed Income Cash Conservative 5% - 20% 60% - 95% 0% - 20% Moderately Conservative 20% - 40% 50% - 80% 0% - 20% Moderate 40% - 60% 40% - 60% 0% - 20% Balanced 50% - 70% 30% - 50% 0% - 20% Capital Appreciation 65% - 80% 10% - 30% 0% - 20% The District General Manager, or his/her designee, in coordination with the District Treasurer and Investment Manager will select the most appropriate investment option for each account (Pension and OPEB) in the Trust. This Policy recognizes that there will be investment market place volatility and that actual economic and demographic experience will differ from assumed experience. Accordingly, this Policy is intended to provide flexibility to smooth such volatility and experience in a reasonable, systematic and financially sound manner. The selected investment strategy will be reviewed by the Board annually 8.0 ANNUAL CONTRIBUTIONS In order to establish realistic and appropriate thresholds for annual contributions, the District adopts the following requirement for contributions to be proportionate between Water and Sewer Funds in any given fiscal year: Program Fiscal Year Minimum Maximum Pension Liability FY198 – FY287 $436,713 $1,105,248 OPEB Liability FY198 $210,100224,700 $587,339 OPEB Liability FY19FY20 $224,700251,700 $601,939 OPEB Liability FY20FY21 $251,700254,400 $628,939 OPEB Liability FY21FY22 $254,400268,900 $631,639 OPEB Liability FY22FY23 $268,900277,200 $646,139 Note: FY18 OPEB Obligation (Benefit to Retirees) wasis $210,100257,706, as determined by the actuarial valuation report prepared in accordance with the Governmental Accounting Standards Board Statement No. 75. Per North Bay Pensions LLC’s Valuation of Retiree Health Benefits Report of GASB 75 Actuarial Valuation Report of July 1, 2017, if the District funds OPEB component of the Trust at the listed levels, the OPEB Trust would be 90%fully funded by FY232. 9.0 ANNUAL WITHDRAWALS The purpose of this Pension Rate Stabilization Program (PRSB) and Other Post- Employment Benefits (OPEB) Funding Policy (“Policy”) is to establish a methodology and a process for funding current and future costs associated with the District’s contractual obligations to provide pension and retiree medical benefits as set forth in the District’s personnel rules and regulations. ITEM NO. 5.1. MATERIALS SUBMITTED BY: Delia Lugo MEETING DATE: May 30, 2018 3010-008 Pension Rate Stabilization Program and OPEB Funding Policy Page 4 of 4 Minimum Maximum Pension $0 CalPERS Annual Required Contribution OPEB $0 Annual OPEB Obligation 10.0 ACTUARIAL TERM DEFINITIONS Normal Cost The District incurs an annual pension retirement obligation for current employees and an OPEB retirement obligation for current employees hired on or prior to December 8, 2011. The ongoing cost for pension and OPEB earned by current employees during the current year is referred to as the “normal” cost. Actuarial Present Value of Projected Benefit Payments (APVPBP) The actuarial valuation calculates an actuarial present value of projected benefit payments (APVPBP) as of the valuation date. The APVPBP represents the amount the District would theoretically need to set aside at this time to fully fund all future benefits for former and existing employees. Total OPEB Liability (TOL) The TOL is the portion of the APVPVP which has been “earned” by employees based on past year of service (i.e. benefits allocated to past years of service). Plan Fiduciary Net Position (FNP) The FNP is equal to the value of asses that have been accumulated in an irrevocable trust for the benefits, plus the remaining unrecognized deferred outflows and inflows of resources relating to OPEB. Net OPEB Liability or Asset (NOL) The NOL is the excess of the Total OPEB Liability over the FNP. At the end of each fiscal year, beginning June 30, 2018, the District must show a liability equal to the NOL. ITEM NO. 5.1. MATERIALS SUBMITTED BY: Delia Lugo MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY Section I. Introduction Pumose and Overview In its publication entitled Best Practice Debt Management Policy, the Government Finance Officers Association (GFOA) states that Debt management policies are written guidelines, allowances,and restrictions that guide debt issuance practices of Board adopted issuance processes,management of a debt portfolio, and adherence to state and federal laws and regulations. A debt management policy should improve the quality of decisions, and articulate policy goals,provide guidelines for the structure of debt issuance, and demonstrate a commitment to long-term capital financial planning. The Yorba Linda Water District Debt Management Policy as set forth herein provides a set of comprehensive guidelines for the issuance and management of District's debt portfolio. Adherence to the policy is essential to ensure the District and its related financing authority maintains a diversified debt portfolio that supports the District's financing needs and minimizes the District's cost of funds. Roles and Resuonsibilities Finance Manager—The primary responsibility for debt management rests with the Finance Manager. The Finance Manager shall: • Provide for the issuance of District debt at the lowest possible cost and risk; • Determine the available debt capacity of the District; • Provide for the issuance of District debt at appropriate intervals and in reasonable amounts as required to fund approved and budgeted capital expenditures; • Recommend to the District's Board of Directors (the `Board' the method and manner of sale of District debt; • Monitor opportunities to refund debt and recommend such refunding as appropriate to reduce costs or to achieve other policy objectives; • Comply with all Internal Revenue Service (IRS), Municipal Securities Rulemaking Board (MSRB), Securities and Exchange Commission (SEC), and California Debt Investment Advisory Commission ("CDIAC") rules and regulations governing the issuance of debt; • Maintain a current database with all outstanding debt; • Provide for the timely payment of principal and interest on all debt; • Comply with all terms and conditions,including continuing disclosure,required by the legal documents governing the debt issued; • Submit to the Board all recommendations to issue debt in accordance with this Policy; • Distribute to appropriate repositories information regarding the District's financial condition and affairs at such times and in the form required by law,regulation and general practice; • Provide for the frequent distribution of pertinent information to the rating agencies; • Apply and promote prudent fiscal practices;and • To ensure that proceeds of any debt issued in accordance with its governing documents and this Policy no disbursements shall be make without the approval of the Finance Manager and General Manager. The draw request shall be provided to the District by the project engineer with the consent of the District's inspector. Approval shall only be provided when the Finance Manager is in receipt of an appropriate certification from the construction project manager with supporting invoices from suppliers and/ or contractors evidencing appropriate expenses in connection with the project. Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 1 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY • In the case of an issue of bonds the proceeds of which will be used by a governmental entity other than the District, the District may rely upon a certification by such other governmental entity that it has adopted the policies described in SB 1029. Section H. Legal Governing Principles In the issuance and management of debt, the District shall comply with all legal constraints and conditions imposed by federal, state and local law. The following section highlights the key governing documents and certain debt limitations. Governing Law County Water District Law—The District was established in 1959 as a county water district under the County Water District Law, Division 12 of the Water Code of the State of California, as the successor to a private water company that was incorporated in or about 1909,for purposes of supplying water for domestic,irrigation,sanitation, industrial,commercial,recreation and fire suppression use. Federal Tax Law—The District shall issue and manage debt in accordance with the limitations and constraints imposed by federal tax law, to maximize its ability to sell tax-exempt debt. Such constraints include, but are not limited to, private activity tests, review of eligible projects, spend-down tests, and arbitrage rebate limitations. Securities Law—The District shall comply with the requirements of federal and state securities laws in offering District debt and the District shall comply with securities law requirements in providing ongoing disclosure to the securities markets. Governin—a LeiVal Documents Indenture — The District's debt issuance is further governed in part by the Indenture of Trust, adopted September 8,2016 of which constitutes the"Indenture." The Indenture establishes the basic security structure of debt issued by the District that is secured by Net Water Revenues. Key terms and conditions include, but are not limited to, the definition of pledged revenues,the rate covenant and the additional bonds test. A copy of the Indenture can be found in Appendix B. The District shall comply with all limitations imposed under the Indenture,so long as such Indenture is in full force and effect. Permitted Debt by Tvue The District may legally issue both short-term and long-term debt,using the debt instruments described below. The Finance Manager, in consultation with the District's General Counsel, Bond Counsel, and Financial Advisor shall determine the most appropriate instrument for funding purposes. General Obligation Bonds —The District is empowered, under California law, to levy taxes on all taxable property within its boundaries for the purpose of paying its voter-approved general obligation bonds and, subject to certain limitations. Certificates of Participation — Certificates of Participation (COP) provide debt financing through a lease, installment sale agreement or contract of indebtedness and typically do not require voter approval. Board action is sufficient to legally authorize a COP issue. The District shall pledge net revenues to the repayment of its COPs,under the terms and conditions specified in the Indenture. ® Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 2 of 11 Water District MEETING DATE: May 30, 2018 I ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY JPA Revenue Bonds—As an alternative to COPs,the District may obtain financing through the issuance of Debt by a joint exercise of powers agency with such Debt payable from amounts paid by the District under a lease,installment sale agreement,or contract of indebtedness. Commercial Paper—The District may issue short-term revenue certificates,including commercial paper and extendable commercial paper. Board action is sufficient to legally authorize a commercial paper issue. The District's commercial paper is secured by net revenues. Voter approval is not required to issue commercial paper. Lines of credit-The District may enter into financing arrangements providing for a source of funds that can be readily accessed by the District for capital or operational needs.Board action is sufficient to legally authorize the establishment of a line of credit. Voter approval is not required to establish or access a lien of credit. Variable Rate Debt—The District is authorized to issue variable rate debt including,but not limited to,public market indexed notes, indexed notes or loans placed directly with financial institutions and other alternative variable rate and market access products as well as traditional variable rate demand obligations backed by bank liquidity facilities. Prior to the issuance of variable rate debt, the savings and other possible advantages compared to a fixed rate borrowing will be evaluated and a comparative analysis presented to the Board of Directors as part of the approval process. Refunding Revenue Bonds — The District is authorized to issue refunding revenue bonds to refund outstanding District indebtedness pursuant to the State of California local agency refunding revenue bond law (Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California). Loans—The District is authorized to enter into loans,installment payment obligations,or other similar funding structures secured by a prudent source,or sources of repayment. Assessment Bonds—The District is authorized to issue assessment bonds pursuant to the Improvement Bond Act of 1915, subject to requirements imposed by Proposition 218. Such bonds are typically repaid from assessments collected within an assessment district formed pursuant to the Municipal Improvement Act of 1913. Assessments are levies of charges on real property to pay for projects or services that specifically benefit that parcel of property. Other Obligations—There may be special circumstances when other forms of financing are appropriately utilized by the District. The District will evaluate such proposed transactions on a case-by-case basis. Such other forms include. but are not limited to. grant anticipation notes and judgment or settlement obligation bonds. Limitations on Debt Issuance Short-Term Debt—The District's short-term debt shall not exceed 30 percent of its total debt at the time of issuance. The calculation of short-term debt shall include any variable rate obligations,the authorized amount of commercial paper,any notes/bonds with a maturity equal to or less than five years. Variable Rate Debt—The Finance Manager will consult with the District's Financial Advisor to determine appropriate parameters for the issuance of variable rate debt and may rely on rating agency standard's and other industry standards for establishing prudent financial goals and establishing the amount of variable rate debt to be issued. Subordinate Lien Long-Term Debt - The District's subordinate lien debt, for which net revenues are pledged,shall be limited to that amount for which current and projected revenues generate overall debt service coverage of at least 100 percent. Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 3 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY Senior Lien Long-Term Debt—The District's senior lien long-term debt,for which net revenues are pledged, shall be limited to that amount for which current and projected revenues generate a senior lien debt service coverage of at least 125 percent. The calculation of debt service shall not include General Obligation Bonds, Assessment Bonds,or Special Tax Bonds to which revenue sources other than pledged revenues,as defined in the Indenture, are pledged. It should be noted that the District will issue debt to attempt to meet the senior lien debt service coverage target of 225 percent in keeping with its prudent financial management practices and to maintain credit ratings aligned with rating agency methodologies. Purpose for Borrowing The District shall issue debt solely for the purpose of financing the cost of design, engineering acquisition, and/or construction of water and wastewater system improvements in furtherance of the District's Capital Improvement Program (CIP). Additionally, the District may, subject to Federal tax code limitations, include operational expenses in any debt issuance. Ethical Standards Governing Conduct Members of the District, the Board and its consultants, service providers, and underwriters shall adhere to standards of conduct as stipulated by the California Political Reform Act, as applicable. All debt financing participants shall maintain the highest standards of professional conduct at all times,in accordance with: • MSRB Rules,including Rule G-37 and G-42 shall be followed at all times; • Debt financing participants will assist the District staff in achieving its goals and objectives as defined in this Debt Management Policy;and • All debt financing participants shall make cooperation with the District staff their highest priority. Use of Derivatives The use of derivative products can, among other things, increase District financial flexibility and provide opportunities for interest rate savings or enhanced investment yields. Careful monitoring of such products is required to preserve District credit strength and budget flexibility. Swaps will not be used to speculate on perceived movements in interest rates. Before the District enters into any derivative product associated with debt,the Board shall adopt an interest rate swap policy. Section III. Integration of Capital Planning and Debt Activities Evaluating Capital Improvement Program Spending The District shall develop and maintain a capital finance model to evaluate the impact of capital program spending, operations and maintenance costs, and debt service on its financial condition. To that end, the Finance Director shall oversee the ongoing maintenance of quantitative modeling that includes, but is not limited to,the following: • Five years of historic and projected cash flows; • Five years of historic and projected capital expenditures; • Five years of historic and projected operating costs; • Five years of historic and projected fund balances for any funds established by the District's then- adopted Reserve Fund • Five years of historic and projected debt service coverage; to Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 4 of 11 Water District MEETING DATE: May 30, 2018 � STATEMENT OF DEBT MANAGEMENT POLICY ITEM NO. 5.1. • The most efficient mix of funding sources (long-term debt;short-term debt,and cash); • Projected revenue requirements;and • Projected rates and charges. Section IV. Procurement and Evaluation of Professional Services Appointment of Service Providers—At the discretion of the Finance Manager may solicit from time to time bids,quotes or proposals,including sole source proposals for the following services on an as needed basis: • Financial Advisor—Service provider that ensures the District complies with all financial management procedures and policies and ensures successful closing for bond transactions. • Bond Counsel — Service provider that drafts appropriate documentation to ensure successful and timely closing and create valid and legally binding security for bond issues, and provide appropriate advice and taking appropriate actions to ensure legal validity of bond issues under state and federal laws as applicable. Section V. Transaction-Specific Policies Method of Sale —The Finance Manager shall determine the most appropriate form of sale of its debt. In making a recommendation to the Board the Finance Manger may consult with the District's Financial Advisor and Bond Counsel and may take into account, among other things, the type and tenor of the proposed debt; the District's credit ratings;the amount of funding necessary;the timing of the needed funds;local and national economic conditions;and general bond market conditions. Competitive Bid Method - When necessary to minimize the costs and risks of any District borrowing, the Director of Administrative Services may submit to the Board a request to sell bonds on a competitive basis. Such bids may take the form of hand-delivered or electronically transmitted offers to purchase the bonds. Any competitive sale of District debt will require approval of the Board. District debt issued on a competitive bid basis will be sold to the bidder proposing the lowest true interest cost to the District provided the bid conforms to the official notice of sale. Negotiated Bid Method—A negotiated bond issue will provide for the sale of debt by negotiating the terms and conditions of the sale,including price,interest rates, credit facilities,underwriter or remarketing fees, and commissions. Examples of such sales include: • Variable rate demand obligations; • An issue of debt so large that the number of potential bidders would be too limited to provide the District with truly competitive bids; • An issue requiring the ability to react quickly to sudden changes in interest rates (e.g.refunding bonds); • An issue requiring intensive marketing efforts to establish investor acceptance; • An issue of debt with specialized distribution requirements;and • An issue of debt sold during a period of extreme market disruption or volatility. If bonds are sold on a negotiated basis,the negotiations of terms and conditions shall include,but not be limited to, prices, interest rates, underwriting or remarketing fees, and underwriting spreads and timing of sale. The District,with the assistance of its Financial Advisor,shall evaluate the terms offered by the underwriting team. ® Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 5 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY Guidelines with respect to price,interest rates,fees,and underwriting spreads shall be based on prevailing terms and conditions in the marketplace for comparable issuers,credit ratings,tenor and par amount. If more than one underwriter is included in the negotiated sale of debt,the District shall establish appropriate levels of liability, participation and priority of orders. Such levels shall be based upon District policy with regards to the underwriting responsibility among the team members, the desired allocation of total fees, and the desired distribution of bonds. Guidelines for establishing liability,participation,and priority of orders shall be based on prevailing terms and conditions in the marketplace for comparable issuers. The District shall,with the assistance of its Financial Advisor,oversee the bond allocation process. The bond allocation process shall be managed by the lead underwriter,with the following requirements: • The bonds are allocated fairly among members of the underwriting team,consistent with the previously negotiated terms and conditions; • The allocation process complies with all MSRB regulations governing order priorities and allocations; • The lead underwriter shall submit to the Director of Administrative Services a complete and timely account of all orders, allocations, and underwriting activities with the investor names identified as appropriate. The Finance Manager shall require a post-sale analysis and reporting for each negotiated bond sale. The Financial Advisor or the lead underwriter may perform such analysis. A post-sale analysis will include,but not be limited to: • Summary of the pricing,including copies of the actual pricing wires; • Results of comparable bond sales in the market at the time of the District's pricing; • Detailed information on orders and allocation of bonds,by underwriting firm; • Detailed information on final designations earned by each underwriter;and • Summary of total compensation received by each underwriter. Structural Elements Pledge of Revenues —The District's pledge of revenues shall be determined for each debt issue depending upon the debt instrument: • General Obligation Bonds of the District shall be repaid from voter-approved property taxes on property within the jurisdiction of the District. • Certificates of Participation of the District shall be repaid from net revenues,as defined in the Indenture. • Revenue Bonds of the District shall be repaid from net revenues,as defined in the Indenture. • Loans of the District may be repaid from net revenues of the water and or wastewater systems,or other financially prudent sources of repayment. • Assessment Bonds of the District shall be repaid levies or charges collected within an assessment district formed by the District pursuant to the Municipal Improvement Act of 1913. • Special Tax Bonds of the District shall be payable from net special taxes collected in applicable taxing jurisdiction as a result of the levy of special taxes. Maturity—The District may issue tax-exempt debt with an average life equal to,but no greater than 125%of, the average life of the assets being financed. The final maturity of the debt should be no longer than 40 years Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 6 of 11 Water District MEETING DATE: May 30, 2018 STATEMENT OF DEBT MANAGEMENT POLICY ITEM NO. 5.1. absent compelling circumstances or facts. Factors to be considered when determining the final maturity of debt include:the average useful life of the assets being financed,relative level of interest rates,intergenerational equity and the year-to-year differential in interest rates. Maturity Structure — The District's long-term debt may include serial and term bonds. Other maturity structures may also be considered if they are consistent with prudent financial management practices. Coupon Structure—Debt may include par,discount and premium. Discount and premium bonds must be demonstrated to be advantageous relative to par bond structures taking into consideration market conditions and opportunities. For variable rate debt, the variable rate may be based on one of a number of commonly used interest rate indices and the index will be determined at the time of pricing. Debt Service Structure—Debt service may be structured primarily on an approximate level(combined annual principal and interest) basis. Certain individual bond issues, such as refunding bonds, may have debt service that is not level. However,on an aggregate basis,debt service should be structured primarily on a level basis. Redemption Features — In order to preserve flexibility and refinancing opportunities, District debt will generally be issued with call provisions. The District may consider calls that are shorter than traditional and/or non-call debt when warranted by market conditions and opportunities. For each transaction, the District will evaluate the efficiency of call provision alternatives. Credit Enhancement—The District shall competitively procure credit enhancement for an original sale of bonds if the Finance Manager, in consultation with the Financial Advisor and the senior underwriter, determines that it is cost effective to do so.The Finance Director may in consultation with the Financial Advisor and the senior underwriter determine that due to certain circumstances a sole source procurement process may be more advantageous than a competitive process. Senior/Subordinate Lien—The District may utilize both a senior and a subordinate lien structure. The choice of lien will be determined based on such factors as overall cost of debt,impact on debt service,impact on rates, and marketing considerations. Debt Service Reserve Funds —The District shall provide for debt service reserve funds to secure District debt when necessary. Section VI. Communication and Disclosure Rating Agencies The District shall maintain its strong ratings through prudent. fiscal management and consistent communications with the rating analysts. The Finance Manager shall manage relationships with the rating analysts assigned to the District's credit,using both informal and formal methods to disseminate information. Communication with the rating agencies may include one or more of the following: • Full disclosure on an annual basis of the financial condition of the District; • A formal presentation, at least annually or as becomes necessary to the rating agencies, covering economic,financial,operational,and other issues that impact the District's credit; • Timely disclosure of major financial events that impact the District's credit; • Timely dissemination of the Comprehensive Annual Financial Report, following its acceptance by the District's Board; Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 7 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY • Full and timely distribution of any documents pertaining to the sale of bonds;and • Periodic tours of the water system operations,as appropriate. Bond Insurers The Finance Director shall manage relationships with the bond insurers, to the extent any Debt is so insured, by providing appropriate information. Communication with other bond insurers shall be undertaken when the Director of Administrative Services, with the assistance of the District's Financial Advisor,determines that credit enhancement is cost effective for a proposed bond issue. Disclosure Reports—The District shall comply with its disclosure undertakings and make disclosure reports readily available to market participants though the Electronic Municipal Market Access website. Web Site—The District may use its website as a tool for providing timely information to investors. Section VII. Refunding Policies The District shall strive to refinance debt to maximize savings and minimize the cost of funds as market opportunities arise. A net present value analysis will be prepared that identifies the economic effects of any refunding to be proposed to the Board. The District shall target a 3%net present value savings for current and 5% for advance refunding transactions. Upon the advice of the Director of Administrative Services,with the assistance of the Financial Advisor and Counsel, the District will consider undertaking refundings for other than economic purposes, such as to restructure debt, change the type of debt instruments being used, or to retire a bond issue and indenture in order to remove undesirable covenants. Savings Thresholds—Minimum savings thresholds have been established to help guide the economic analysis of refunding bonds. The minimum savings guidelines are applicable on a maturity-by-maturity basis and are expressed as a percentage of refunded bond par calculated by dividing the expected net present value savings generated by the proposed refunding by the par amount of refunded bonds. At the recommendation of the Director of Administrative Services,with the assistance of the Financial Advisor, the District may complete a refunding for net present values savings equal to the target specified above on an aggregate bond issue basis rather than a maturity by maturity basis. Generally,the District shall only refund bonds to generate debt service savings if the specified minimum savings set forth in the previous paragraph can be achieved. Coupon on Refunded Bond—The Director of Administrative Services may take into consideration whether the coupon on the refunded bond is significantly higher or lower than the most common outstanding bond coupons of approximately five percent. General Interest Rate Environment—The Director of Administrative Services may take into consideration whether the available refunding bond interest rates are generally high or generally low relative to long-term averages of historical rates. General Interest Rate Outlook—The Director of Administrative Services may take into consideration the general outlook for future interest rates,as derived from economic forecasts,market forecasts,implied forward rates,or other sources. Debt Management Considerations—The Director of Administrative Services may take into consideration debt management issues such as cost and staff efficiencies associated with combining multiple refunding bond issues or combining refunding and new money bond issues. ® Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 8 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY Call Date—The Director of Administrative Services may take into consideration the amount of time between the pricing/closing date of the refunding Debt and the call date of the Debt to be refunded. Final Maturity Date —The Director of Administrative Services may take into consideration the amount of time remaining until the final maturity of the Debt to be refunded. Section VIII. Reinvestment of Proceeds General—The District shall comply with all applicable Federal, State, and contractual restrictions regarding the use and investment of bond proceeds. This includes compliance with restrictions on the types of investment securities allowed,restrictions on the allowable yield of some invested funds,as well as restrictions on the time period during over which some bond proceeds may be invested. To the extent that a bond issue is credit enhanced, the District shall adhere to the investment guidelines of the credit enhancement provider. Requirements of Indenture—The District will comply with all terms and conditions of the appropriate legal documents related to the Debt. Such limitations shall include, but not be limited to Investments in the Indenture. Section IX. Creation and Maintenance of Funds The District maintains a number of different funds integral to the long-range financial planning process. Each of these funds is held for a specific purpose and can generally be categorized as either an operating, capital or debt reserve fund. The District will comply with all requirements and limitations created under its Reserve Policy. Section X. Compliance Arb_�tra�e Liability Mana eg ment The District shall minimize the cost of arbitrage rebate and yield restrictions while strictly complying with tax law. Because of the complexity of arbitrage rebate regulations and the severity of non-compliance penalties, the District shall solicit the advice of bond counsel and other qualified experts about arbitrage rebate calculations. The District shall contract with a qualified third-party for preparation of the arbitrage rebate calculation. The District shall maintain an internal system for tracking expenditure of bond proceeds and investment earnings. The expenditure of bond proceeds shall be tracked in the financial accounting system by issue. Investment may be pooled for financial accounting purposes and for investment purposes. When investment of bond proceeds are co-mingled with other investments, the District shall adhere to IRS rules on accounting allocations. Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 9 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY Post-Issuance Tax Compliance The District has adopted Written Procedures to Ensure Compliance with Requirements for Tax-Exempt Bonds. The District shall comply with such procedures to maintain the tax-exempt status of District debt obligations or to maintain eligibility for direct pay subsidy payments,as applicable. Continuing Disclosure The District shall comply with the requirements of each Continuing Disclosure Certificate entered into at the time of a sale of bonds. Annual information provided by the District shall mirror the information in any District offering statement at the time of a primary offering. Annual financial information will be sent by the District or its designated consultant,within the time required under the Continuing Disclosure Certificate to the EMMA System This shall include: • Comprehensive Annual Financial Report of the District;and • Updated tables from the Official Statement,as detailed in the Continuing Disclosure Certificate. In addition to annual disclosure, the District shall provide ongoing information about certain enumerated events,as defined by regulation,to the EMMA System. The District may engage a firm to assist it in ensuring timely completion and filing of annual reports and in identifying,and making timely filings with respect to,the occurrence of reportable enumerated events. )mal Covenants The District shall comply with all covenants and conditions contained in governing law and any legal documents entered into at the time of a bond offering. Section XI. Debt Database Management The District shall maintain complete information on its outstanding debt portfolio,in a spreadsheet or database program format. The information in the database shall include,but not be limited to,the following: • Issue Name • Initial Issue Par Amount • Dated Date of the Issue • Principal Maturity Amounts • Coupon Rate by Maturity , • Amount Outstanding • Call Provisions • Purpose of the Issue • Credit Enhancer,if any • Competitive or Negotiated Sale • Names of Underwriting Team Members ® Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 10 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. STATEMENT OF DEBT MANAGEMENT POLICY The District shall use the debt database for the following purposes: • Generate reports • Gross annual debt service • Net annual debt service • Refunding Analyses • Output to Fund Accounting System ® Yorba Linda MATERIALS SUBMITTED BY: Delia Lugo 11 of 11 Water District MEETING DATE: May 30, 2018 ITEM NO. 5.1. Yorba Linda Water District 203 Pro-Forma Financial Plan PRO-FORMA FINANCIAL PLAN: 2018 UPDATE CIP IFY 2018 FY 2019 IFY 2020 IFY 2021 FY 2022 FY 2023 Descriptions Effective Month for New Rates Aug Jul Jul Jul Jul Jul Proposed Overall Revenue Adjustments 0% 0% 0% 0% 0% 0% Projected Water Sales(Projected FY 2019 Flat) 18,513 AF 19,622 AF 18,622 AF 18,622 AF 18,622 AF 18,622 AF REVENUES Existing Revenues from Rates $31,996,402 $32,027,986 $32,066,974 $32,105,962 $32,144,950 $32,183,938 Service Charges $10,222,892 $10,126,279 $10,165,267 $10,204,255 $10,243,243 $10,282,231 Commodity $21,773,510 $21,901,707 $21,901,707 $21,901,707 $21,901,707 $21,901,707 Proposed Rev Adjustments $0 $0 $0 $p $0 $0 Passthrough Water Supply Cost Rev $0 $0 $0 $0 $0 $0 Property Tax $1,753,780 $1,850,000 $1,887,000 $1,924,740 $1,963,235 $2,002,499 Other Revenues $1,476,634 $1,743,233 $1,530,003 $1,533,347 $1,533,779 $1,531,997 TOTAL REVENUES $35,226,816 $35,621,218 $35,483,976 $35,564,049 $35,641,963 $35,718,434 EXPENSES 0&M Expenses $26,610,468 $29,257,955 $30,055,832 $31,349,920 $32,566,607 $33,962,346 Power $1,285,413 $1,316,075 $1,342,397 $1,369,244 $1,396,629 $1,424,562 Water Supply Fixed Costs $1,443,355 $1,190,976 $1,227,686 $1,258,523 $1,290,593 $1,323,946 Water Supply Variable Costs $11,240,088 $12,758,798 $12,953,387 $13,501,867 $14,041,942 $14,603,619 Salary Related Expenses $8,644,867 $9,616,760 $10,097,598 $10,602,478 $11,132,602 $11,689,232 Supplies&Services $3,996,745 $4,375,347 $4,434,765 $4,617,808 $4,704,842 $4,920,987 Other Non-Operating Expenses -$52,719 $8,300 $8,549 $8,805 $9,070 $9,342 LOC Interest Expenses $0 $0 $0 $0 $0 $0 PARS Payments from EBL $1,343,839 $1,587,684 $1,612,794 $1,615,305 $1,628,790 $1,027,881 TOTAL EXPENSES $27,901,588 $30,853,939 $31,677,175 $32,974,030 $34,204,467 $34,999,568 NET OPERATING REVENUES $7,325,228 $4,767,279 $3,806,801 $2,590,019 $1,437,496 $718,866 TOTAL PROPOSED DEBT ISSUE $0 $0 $0 $0 $0 $0 Issuance Costs $0 $0 $0 $0 $0 $0 Debt Proceeds Available for CIP $0 $0 $0 $0 $0 $0 Revenue Bonds,Series 2017A Proceeds for CIP $4,208,157 $0 $0 $0 $0 $0 COP 2008 Reserve Release for Series 2017A Rev Bonds $0 $0 $0 $0 $0 $0 DEBT SERVICE LOC Principal Payment $0 $0 $0 $0 $0 $0 Current Debt Service $2,729,799 $2,738,256 $2,726,956 $2,729,381 $2,728,919 $2,724,681 2008 COP $0 $0 $0 $0 $0 $0 Refunding Bond 2012A $588,313 $591,213 $583,713 $590,713 $586,250 $585,388 Revenue Bonds,Series 2017A $2,141,486 $2,147,044 $2,143,244 $2,138,669 $2,142,669 $2,139,294 Proposed LT Debt Service $0 $0 $0 $0 $0 $0 Proposed ST Debt Service $0 $0 $0 $0 $0 $0 TOTAL DEBT PAYMENTS $2,729,799 $2,738,256 $2,726,956 $2,729,381 $2,728,919 $2,724,681 CIP Funded by 2017A $4,208,157 $0 $0 $0 $0 $0 New Debt Funded $0 $0 $0 $0 $0 $0 PAYGO $2,067,967 $4,969,789 $3,645,994 $4,717,822 $3,324,076 $3,809,847 TOTAL CIP $6,276,124 $4,969,789 $3,645,994 $4,717,822 $3,324,076 $3,809,847 NET CASH BALANCES $2,527,462 -$2,940,766 -$2,566,149 -$4,857,185 -$4,615,498 -$5,815,662 Beginning Reserve Balances $28,369,196 $30,896,658 $27,955,892 $25,389,743 $20,532,558 $15,917,060 Ending Reserve Balances $30,896,658 $27,955,892 $25,389,743 $20,532,558 $15,917,060 $10,101,398 Proposed Target Balances $28,121,118 $29,420,729 $29,169,294 $29,696,992 $30,189,450 $30,876,202 Proposed Min Balances $14,320,996 $14,967,905 $14,775,631 $15,131,459 $15,546,855 $15,788,202 Existing Min Balances $5,694,837 $5,997,636 $6,152,467 $6,346,994 $6,535,329 $6,737,988 Debt Coverage Ratio(excl.PARS Payments to EBL) 318% 232% 199% 154% 112% 64% Required Debt Coverage Ratio 125% 125% 125% 125% 125% 125% Target Debt Coverage Ratio 225% 225% 225% 225% 225% 22S% MATERIALS SUBMITTED BY: Delia Lugo MEETING DATE: May 30, 2018 ITEM NO. 5.1. Covenant Ratio requirements by Fiscal Year End (June 30, 2018): Pe-Official Statement 110% Per Debt Management Policy 225% Debt Service Ratio Calculation: Eligible Revenue—Eliizible Expenses Annual Debt Service P & I Payment Days in cash by fiscal year end goal is 365 or greater Unrestricted Reserve Balances X 365 Year End Operating Expenses MATERIALS SUBMITTED BY: Delia Lugo MEETING DATE: May 30, 2018