Reso 1216-05/2004RESOLUTION NO. 1216
RESOLUTION OF THE BOARD OF DIRECTORS OF THE
VALLECITOS WATER DISTRICT APPROVING
THE STATEMENT OF RESERVE POLICY
WHEREAS, the Board of Directors 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 benefitting 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:
§1 - Operating Reserves
The Vallecitos Water District (District) shall maintain two operating reserves in cash and
cash equivalents: One for the District's water operations, and the other for the District's
wastewater operations.
The reserve balances shall be limited to ninety days of budgeted operating expenses,
calculated by dividing total budgeted operating expenses by three hundred and sixty-five and
multiplying by ninety. 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
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
replacement reserve funds to the extent of replacement fund limits. Amounts accumulated
Resolution No. 1216
Page 2
in excess of both the operating and replacement reserve limits shall be transferred to a rate
stabilization fund. Rate stabilization funds will be used to restore operating and replacement
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.
§2 - Replacement Reserves
The District shall maintain two replacement reserves in cash and cash equivalents: one
for the District's water system, and the other for the District's wastewater system.
The reserve balances 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.
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.
Replacement occurs starting on year forty through year seventy of the life of the
additions at an amount equal to 3.228% of the replacement cost for each year.
Costs of additions shall be recorded from footnotes of audited financial statements.
Replacement reserves shall equal all funds available for asset replacement (which
does not include funds restricted under the Mitigation Fee Act), less funds encumbered by
assets approved in the capital budget for replacement, less operating reserves.
Anticipated replacement reserve deficiencies will be funded first by transfers from
operating reserves, 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 reserve funds to the extent of operating fund limits. Amounts accumulated in
excess of both the operating and replacement reserve limits shall be transferred to a rate
stabilization fund. Rate stabilization funds will be used to restore operating and replacement
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.
Resolution No. 1216
Page 3
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 regular meeting held on the 19th day of May, 2004 by the following roll call
vote:
AYES:
NOES:
ABSTAIN:
ABSENT:
CRUZ, DAVY, FERGUSON, HANNAN, MASON
Dale Mason, President
Board of Directors
Vallecitos Water District
ATTEST:
William W. Rucker, Secretary
Board of Directors
Vallecitos Water District