Reso 1450 06/2014RESOLUTION NO. 1450
RESOLUTION OF THE BOARD OF DIRECTORS OF THE
VALLECITOS WATER DISTRICT APPROVING
THE STATEMENT OF RESERVE POLICY AND
RESCINDING RESOLUTION 1433
WHEREAS, the Board of Directors of the Vallecitos Water District (District)
recognizes a need to reserve funds for unanticipated, unforeseeable or planned working
capital deficiencies, and
WHEREAS, the Board of Directors recognizes a need to reserve funds for
unanticipated, unforeseeable, and planned repair or replacement of water and
wastewater system equipment and infrastructure, and
WHEREAS, the Board of Directors recognizes that the District's ability to issue
bonds for working capital and the repair or replacement of water and wastewater
system equipment and infrastructure is limited, and
WHEREAS, the Board of Directors desires to avoid the cost of debt issuance and
ongoing interest expense, and
WHEREAS, the Board of Directors feels that it is more prudent to collect funds
for unanticipated, unforeseeable, and planned repair or replacement of water and
wastewater system equipment and infrastructure from current customers benefiting from
the District's services and use of the District's systems, and
WHEREAS, the Statement of Reserve Policy of the Vallecitos Water District is as
follows:
Section 1: — Operating Reserves
The District shall maintain two operating reserves in cash equivalents and short-
term investments: One for the District's water operations, and the other for the District's
wastewater operations.
The reserve balances shall be limited to one - hundred eighty days of budgeted
operating expenses, calculated by dividing total budgeted operating expenses less
water purchases by three hundred and sixty -five and multiplying by one - hundred eighty.
I The reserve balance limits shall be determined during the budget process, before the
beginning of the respective fiscal year.
Anticipated operating reserve deficiencies will be funded first by transfers from
rate stabilization funds, if available, next from replacement reserves, if available, and
next by budgeted surplus which may result from increased rates.
Amounts anticipated to exceed operating reserve limits shall be transferred to
OPEB and replacement reserve funds to the extent of those fund limits. Amounts
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accumulated in excess of OPEB, operating, and replacement reserve limits shall be
transferred to a rate stabilization fund.
Section 2: — OPEB Reserve
The District shall maintain a reserve level necessary to eliminate the required
recorded obligation to fund Other Post - Employment Benefits, in accordance with
i Governmental Accounting Standards Board pronouncements, in cash equivalents and
investments. Anticipated OPEB reserve deficiencies will be funded first by transfers
from rate stabilization funds, if available, next from replacement reserves, if available,
and next by budgeted surplus which may result from increased rates.
Section 3: — Replacement Reserves
The District shall maintain two replacement reserves in cash equivalents and
investments: One for the District's water system, and the other for the District's
wastewater system.
The balance for the Water Replacement Reserve shall be greater than the sum
of the next three years of projected system replacement costs, but less than the next
ten years of system replacement costs. The balance for the Wastewater Replacement
Reserve shall be greater than the sum of the next three years of projected system
replacement costs, but less than the next eight years of system replacement costs.
Replacement costs shall be projected using the following assumptions:
• Replacement costs equal net additions to infrastructure and system assets
increased according to the published Construction Cost Indices from the year of
acquisition to the most current monthly index.
• Water System replacement occurs starting on year forty through year seventy of the
life of the additions at an amount equal to 3.226% of the replacement cost for each
year.
• Wastewater System replacement occurs starting on year thirty -five through year fifty
of the life of the additions at an amount equal to 6.25% of the replacement cost for
each.
Costs of additions shall be recorded from footnotes of audited financial statements.
Replacement reserves shall equal all funds available for debt service, asset
acquisition and residual for draws for unusual occurrences such as drought
management, excluding funds restricted under the Mitigation Fee Act, and less OPEB
and operating reserves.
Anticipated replacement reserve deficiencies will be funded first by transfers from
rate stabilization funds, if available, and next by budgeted surplus which may result from
increased rates.
Amounts anticipated to exceed replacement reserve limits shall be transferred to
operating and OPEB reserve funds to the extent of fund limits. Amounts accumulated in
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excess of the operating, OPEB, and replacement reserve limits shall be transferred to a
rate stabilization fund.
Section 4: - Rate Stabilization Funds
The District shall maintain two rate stabilization funds in cash equivalents and
\ short-term investments: One for the District's water operations, and the other for the
District's wastewater operations. Amounts accumulated in replacement reserves in
j excess of replacement reserve limits will be transferred to the respective rate
stabilization fund. Rate stabilization funds will be used to restore reserves to their limits
in subsequent years while holding rates for commodity and recovery of fixed costs
steady. If, after restoring reserve funds, the rate stabilization fund balance continues to
increase, rates will be lowered to the extent deemed necessary by management, and
subject to Board approval and public hearing, to curtail increasing trends in the rate
stabilization funds.
Water replacement reserves will be maintained at the limits established and
water rate stabilization funds will increase in anticipation of the wholesale water cost
increases from contracted desalinated water deliveries. After desalinated water
deliveries commence, the District will use water rate stabilization funds to mitigate
pricing impacts to its customers from the wholesale cost of desalinated water.
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the
Vallecitos Water District as follows:
The Statement of Reserve Policy is hereby approved and the District Treasurer is
directed to follow this Statement of Reserve Policy in managing available funds and
investments of the District.
PASSED, APPROVED AND ADOPTED by the Board of Directors of the
Vallecitos Water District at a special meeting held on the 10th day of June, 2014, by the
following roll call vote:
AYES: EVANS, HERNANDEZ, POLTL, SANNELLA, MARTIN
NOES:
ABSTAIN:
ABSENT:
H# J' Martin, Presiddnt
B &rd of Directors
Vallecitos Water District
ATTEST:
Dennis O. Lamb, Secretary
Board of Directors
Vallecitos Wafer District