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Reso 0351-04/1972 RESOLUTION NO. 351 RESOLUTION OF THE BOARD OF DIRECTORS OF THE SAN MARCOS COUNTY WATER DISTRICT ESTABLISHING DISTRICT INVESTMENT POLICIES AND PROCEDURES " WHEREAS, the San Marcos County Water District has certain bonded indebtedness and recurrent management and ad- ministrative indebtedness; and WHEREAS, the policy of the Board of Directors re- quires that all funds over and above those required for current commitments shall be systematically invested in order to provide funds to meet District obligations. WHEREAS, a STUDY AND ANALYSIS OF INVESTMENT POLICIES AND PROCEDURES OF SAN MARCOS COUNTY WATER DISTRICT has been conducted, reviewed and accepted by the Board of Directors of the San Marcos County Water District. NOW, THEREFORE, THE BOARD OF DIRECTbRS OF THE ~ SAN MARCOS COUNTY WATER DISTRICT DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1: The STUDY AND ANALYSIS OF INVESTMENT POLICIES AND PROCEDURES OF SAN MARCOS COUNTY WATER DISTRICT, as set forth in EXHIBIT "A" incorporated herein as a part of this Resolution is hereby adopted and approved by the Board of Directors as a statement of the investment policies and procedures of the District. Section 2: The District Staff and the District Finance Committee, unless directed otherwise by formal action of the Board of Directors, shall follow the investment -1- policies and procedures set forth in Exhibit "A". ADOPTED, SIGNED AND APPROVED this 3rd day of April , 1972, by the following roll call vote: AYES: Directors: Dutton, Dow and Blanchard NOES: Directors: Vanderbeck ABSTAIN: Directors: Mahr ABSENT: Directors: None of San~arcos C%unty Water District ATTEST: ~~"~ ~'~'c~D e t. e retary of Ehe Board o~c ors arcos County Wate '~strlct EXHIBIT "A" OF RESOLUTION NO. 351 June 1, 1971 STUDY AND ANALYSIS OF INVESTMENT POLICIES AND PROCEDURES It was the belief of our Board and Staff that certain of our cash surpluses in certain funds should be invested in either long or short term bonds, to yield more interest than T.C.D's. As of mid-year 1970 interest rates were at historical highs. The District did invest certain of our cash surpluses during this high period. As future cash surpluses accrue we continue to invest in bonds or follow a subsequent Board altered policy. Below we discuss policies for all of our Funds: A. Bond Funds: Here we differentiate between: 1. Funds with the major income being from non-tax sources (Improvement Districts #1,2 and 5) 2. Funds with major income from tax sources (such as Water and Improvement District #6) B. All other funds which we title "Office Account Funds". C. Procedures for handling major steps in this investment program. D. Report on our current investment position as of March 31, 1971. A. BOND FUNDS 1. Currently I. D. #1,2 and 5 receive %he bulk of their revenue from "Capacity Right Fees" (I.D. #5 does receive some tax money.) Such funds should have an amount equal to not less than one years payment of Principal and Interest in liquid form. No less than $10,000.00 or one-third of which is to be cash and/ or T.C.D.'s (see asterisk note Page 4) and balance in short term bonds of not over six (6) years to maturity. All additional cash surpluses to be in long term bonds. It is expected that I.D.'s 1,2 and 5 will be fully funded by or before 1977. At that time or before, a simple but vital decision (resolution) must be made by the Board in order to preserve the solvency of each of these funds, and to provide for disbursements of excess fund monies. -1- Page 2 of Exhibit "A" to Resolution No. 351 Since we have projected the reinvestment of all assigned principal monies at six per cent (6%) compound interest, a one per cent (1%) difference on interest rates would alter the yield. Also since history has proven that experts can err, our projections could be $5,000.00 to $10,000.00 out of line either way; up or down. Thus, it seems only prudent that whatever Fund receives "Sewer Capacity Right Fees" after fee payments are stopped to I.D.'s 1,2 and 5, that this new recipient shall: a. Be due to receive additional disbursements from I.D.'s 1,2 and 5 if surplus cash is accumulating. b. Be liable for charges from I.D.'s 1,2 and 5 if deficits clearly are established. However, the limit of the new recipient's liability is limited to the amount of Sewer Capacity Right Fees it has received. 2. Currently Water Bonds and I.D. #6 receive the bulk of their revenue from taxes. Such funds need a minimum of $10,000.00 cash and T.C.D.'s. Then they should each have $20,000.00 short term (not over six (6) years) bonds. All additional cash surpluses to be in long term bonds. (At some future date when I.D. #6 will probably be receiving income from Capacity Right Fees, its liquid- ity policy should be reconsidered.) B. OFFICE ACCOUNT FUNDS The Office Account Funds are: General Fund, Facility Enlarge- ment, Sewer Plant Expansion, Equipment, I.D. #60.& M., they do not have bond issues to repay. Investments for each of these funds must consider: 1. The size of the fund 2. The purpose of the fund 3. The probability of its reduction within two years. Currently there is no need for long term bond investments. However, certain funds have some short term (3-6'year) bonds. All other cash surpluses are in T.C.D.'s and some cash. The special conditions surrounding each of these funds should be reviewed annually or more often as seen fit by staff and discussed with Page 3 of Exhibit "A" to Resolution No. 351 the Finance Committee, and reported to the Board of Directors if significant changes are to be made. C. PROCEDURES FOR HANDLING MAJOR STEPS IN THIS INVESTMENT PROGRAM The District staff is to initiate all investments and changes. ' Any investment of $25,000.00 and over must have Board approval. Investments of less than $25,000.00 need only Finance Committee approval but are to be reported to the Board. Investments should be made in increments of $10,000.00 face value or more. When more than one fund is involved in a purchase of a bond, we compute their share of the purchase to the third decimal per cent (i.e: .436% or .017%) and allocate interest payments and principal ownership accordingly. When buying bonds, we should try to select bonds which have interest payment dates just prior to the Principal & Interest payment dates for the fund involved. Currently Mr. Worden Harris of the Municipal Bond Department of the Bank of America, Los Angeles, is the District Financial Advisor on all bond transactions. The then District's Attorney, Don Martinson, has approved of these investments. The then District Auditor, Paul Walker has approved of our method of recording the transactions. Our staff must be alert to be sure we comply with the water code governing us on purchasing of bonds, (we purchase only gov- ernment guaranteed bonds.) The Bank of America, Los Angeles holds all purchased bonds, sends us all interest payments at due dates. Currently we anticipate all transactions of buy and sell to be handled through a special checking account in the Bank of America, Escondido Branch. A minimum balance of $1.00 will be maintained in the special checking account to keep it active. Bonds may be transferred from one fund to another as follows: (1) Upon Board approval (2) sufficient monies in fund to receive bonds, (3) letter from Bank of America, Los Angeles establishing the price of said transferred bond as of the date of transfer. Use an average of bid and ask price supplied by bank. Page 4 of Exhibit "A" to Resolution No. 351 At least every other year some "knowledgeable" person should review this program in its entirety to make certain that it is properly performing. This is a thrity (30) year program. Changes will be necessary. Perhaps our annual audit shouId contain some comments as to whether the Board and Staff should review and study further certain aspects of the program. Technical Accounting adjustment for our annual audit state- ment. Here for example, only, is an outline of the official adjustments required annually for our statement. This must be done for each long or short term bond, and then pro-rated to the funds owing a share of said bond. re: Premium and/or discount at which bond was purchased. BOND PURCHASES I.D. #1 and #2 (a) (purchased 7/13/70) (to expire 8/12/88) Cost of G.N.M.A. (P.C.) $119,804 Discount 26,076 Par Value $145,880 Adjustment for discount amortization on June 30. Discount of $26,076 ½ 18 years $1,448.67 Entry: (every June 30, 19 ) Dr. Acct. 22-1350 (investments) 1,448.67 Cr. Acct. 22-4920 (interest. Revel,448.67 D. Report on our current investment position March 31, 1971. Bracketed figures are current target amounts when such are called for by the established policy. Pertinent notes are in- cluded. *Note: All "minimum cash & Target" for all bond funds refer to the "minimum", after making a P. & I. payment. This would be the minimum on our Financial Cash Balance projection sheet for each bond fund. WATER BONDS- $1,958,000 to 1996, annual P. & I. payment averages $126,000, increasing to $135,000. Current Fund Total $156,600 Cash & T.C.D.'s 30,245 ($10,000 Min. *target) Short Term Bonds (@ cost) 20,304 ($20,000, target) Long Term Bonds (@ cost) 106,237 (par value $129,360) Note: Minimum cash, T.C.D.'s and short term bonds equal approx- imately 1/4 of annual P. & I. payable. Long term bonds should increase about $16,000 per year; $12,000 from interest and about $3,000 to $5,000 from excess tax income received. When a 2 year surplus has been achieved, we might use our interest income to further reduce taxes. Page 5 of Exhibit "A: to Resolution No. 351 IMPROVEMENT DISTRICT #1 and #2 $403,000 to 1998, annual P. & I. payment averages $28,000, no increase in future. Current Fund Total - $209,700 Cash & T.C.D.'s 44,600 ($10,000 Min. *target) Short Term Bonds (@cost) 20,300 ($20,000 target) Long Term Bonds (@cost) 144,800 (par value $173,480) Note: Minimum cash, T.C.D.'s and short term bonds now cover approximately 2-1/2 years P. & I. payment. But should never be less than one (1) year. All surplus revenue which exceeds annual P. & I. payments of $28,000 per year should be invested in long term bonds. Projections will be made annually to indicate how many future payments of P. & I. are funded and estimate the years needed to complete funding. IMPROVEMENT DISTRICT #5 $550,000 to year 2,000, annual P. & I. payment averages $35,000 increasing to $38,000. Current Fund Total $166,055 Cash & T.C.D.'s 54,156 ($10,000 min. *target) Short Term Bonds (@cost) 19,805 ($20,000 Target) Long Term Bonds (@cost) 92,100 (par value $92,160) Note: Minimum cash T.C.D.'s and short term bonds totals $74,000 but could be $35,000 to equal current annual payment, about $40,000 more long term bonds are to be purchased. Surpluses are currently building very rapidly due to increased amounts from Capacity Right Fee's. Interest income should be approximately $10,000 a year. We should continue our policy or reducing the annual tax rate. IMPROVEMENT DISTRICT #6 $1,190,000 to year 1998, annual P. & I. payment averages $80,000, increasing to $85,000. Current Fund Total $45,143 Cash & T.C.D.'s 45,143 ($10,000 Min. *target) Short Term Bonds -0- ($20,000 target) Long Term Bonds -0- ($130,000 target before allowing int. to reduce tax rate.) Note: Minimum cash and T.C.D.'s of $45,000, obviously this fund is short on investments, and will continue to be for a few more years, even though we retain the same tax rate. This is in grouping "A-2" Only when I.D.'s 1,2 & 5 are fully funded may this fund receive Capacity Right Fees, which could be used to build a two (2) year P. & I payment reserve, before considering partial reduction. NON-BOND FUNDS General Fund Current Fund Total $229,380 Cash & T.C.D.'s 179,580 Short Term Bonds 49,800 No Long Term Bonds to be purchased - review annually Water Facility Englar~ement Current Fund Total $ 74,000 Cash & T.C.D.'s 53,100 Short Term Bonds 19,900 No Long Term Bonds to be purchased - review annually Page 6 of Exhibit "A" to Resolution No. 351 NON-BOND FUNDS - CONT. Sewer Facility Enlargement Current Fund Total $6,694 Cash & T.C.D.'s 6,694 Short Term Bonds -0- No Long Term Bonds to be purchased - review annually Sewer Plant Expansion Current Fund Total $54,537 Cash & T.C.D.'s 6,519 Short Term Bonds 48,018 No Long Term Bonds to be purchased - review annually Equipment Fund Current Fund Total $12,133 Total retained in cash & T.C.D.'s - no other investments.