§ 3.09.040. Fund Target Levels and Management.

A.

RESTRICTED FUNDS.

a.

Bond Proceeds Fund(s): Bond proceeds funds are monies derived from the proceeds of a bond issue. Typically, they consist of construction fund monies and a debt service reserve fund ("DSRF"). The use of these proceeds is restricted by conditions set forth in the respective legal bond documents. These funds are usually held by the Trustee in favor of the bond holders.

i.

Target Level - The debt service reserve requirement is established at the time of the bond issue. This amount may be recalculated as the bonds are paid down. Any excess principal and/or interest earnings can be used to pay debt service on the bonds.

ii.

Events or Conditions Prompting the Use of the Fund(s) - As stipulated in the respective bond documents. Construction fund monies are expected to be spent on applicable projects, while DSRF can only be used in the event of a shortfall in revenues to pay debt service or to pay down principal at maturity.

iii.

Periodic Review Dates for Balances - Reviewed by the Trustee and District staff.

b.

Development Fees: Monies collected from development fees shall be separately accounted for.

i.

Target Level - Developer Fees are collected as a condition of development in accordance with the District's Water Code. The balance in this account will fluctuate depending on the amount collected and the amount expended for capital improvement projects for facilities and assets in the District's Water, Sewer and/or Recycled Water system. Therefore, no minimum or maximum levels will be established.

B.

LIQUIDITY FUNDS. Liquidity Funds will be comprised of the following sub-accounts: the Rate Stabilization Fund, the Water Banking Account, the Operating Reserve Account, the Compensated Absences Reserve Account, and the Customer Assistance Reserve Account. The balance in the Liquidity Funds will fluctuate each year.

a.

Rate Stabilization Fund: This fund is established in accordance with the terms and agreements listed in the Master Installment Purchase Agreement (Purchase Agreement) dated October 1, 2012. This fund must be maintained by the District as long as payments are due on outstanding debt under the Purchase Agreement.

i.

Target Level - This fund shall be maintained at a minimum level equal to $2.2 million. The balance in the Rate Stabilization Fund may decline below the minimum level if recommended by the AGM after consultation with the District's Municipal Advisor and expressly approved by the Board.

ii.

Events or Conditions Prompting the Use of the Fund - The District may deposit or withdraw available monies to or from the Rate Stabilization fund in accordance with the terms of the Purchase Agreement. The Board, on a case-by-case basis, will determine the amount and timing for any use of the fund.

iii.

Periodic Review Dates for Balances - Fund balances will be reviewed by staff and the Board during the preparation and approval of the Annual Operating and Capital Improvement Budget.

b.

Water Banking: The Water Banking Account is used for the purchase of available water supplies. Purchases from this fund are typically made to hedge the future rising costs of imported water. This fund is designated by the Board to maintain a reliable supply of water.

i.

Target Level - Funding shall be targeted at a minimum amount equal to three (3) percent of budgeted water sales and services and the maximum amount shall not exceed the cost of purchasing five thousand (5,000) AF of Metropolitan Water District (MWD) Tier II untreated imported water.

ii.

Events or Conditions Prompting the Use of the Fund - Upon Board authorization, this fund may be routinely utilized by staff to purchase excess supplies of water.

iii.

Periodic Review Dates for Balances - Fund balances and target level will be reviewed by staff and the Board during the preparation and approval of the Annual Operating and Capital Improvement Budget.

c.

Operating Reserve Account: The Operating Reserve Account is used for unanticipated operating expenses. This fund is designated by the Board to maintain a reserve for current operations and to meet routine cash flow needs.

i.

Target Level - Funding shall be targeted at a minimum amount equal to twenty (20) percent of the District's budgeted total operating expenses, and the maximum amount shall not exceed fifty (50) percent of the budgeted total operating expenses in the Water, Sewer and Recycled Water Funds.

ii.

Events or Conditions Prompting the Use of the Fund - Upon Board authorization, this fund may be routinely utilized by staff to cover temporary cash flow deficiencies caused by timing differences between revenue and expenses or decreases in revenues and unexpected increases in expenses.

iii.

Periodic Review Dates for Balances - Fund balances and target level will be reviewed by staff and the Board during the preparation and approval of the Annual Operating and Capital Improvement Budget.

d.

Compensated Absences Reserve Account: Eligible employees earn vacation and sick leave benefits in accordance with Employee Policies 3.11 and 3.13. These benefits accumulate each year and under certain circumstances, typically at separation or retirement, some employees have the option of receiving cash-out payments for some accumulated leave balances. The Compensated Absences Reserve Account is primarily used as a budget-smoothing technique for any leave bank liquidations in the Water, Sewer and Recycled Water Funds, respectively.

i.

Target Level - Funding shall be targeted at a minimum amount equal to fifty (50) percent of the calculated annual liability for each fund. The maximum amount shall not exceed one hundred (100) percent of the calculated annual liability for each fund.

ii.

Events or Conditions Prompting the Use of the Fund - Upon Board authorization, this fund may be routinely utilized by staff to cover large, unbudgeted cash-out payments.

iii.

Periodic Review Dates for Balances - Account balances and target level will be reviewed by staff and the Board annually at year-end.

e.

Customer Assistance Program Reserve Account: The Customer Assistance Program (CAP) was established to assist low-income households with their water utility costs through fixed savings on their utility statement. The CAP is funded by unrestricted cellular tower rental income and must be approved by the Board each year. Participation in this program varies each year and is not guaranteed. In order to fund unanticipated CAP participation from year-to-year, this reserve account will be established.

i.

Target Level - Funding will only be transferred to this account in the event that excess funding accumulates due to lower than expected participation. At the end of each fiscal year, any excess funding shall be deposited in this account for future year program funding.

ii.

Events or Conditions Prompting the Use of the Fund - In the event that CAP participation exceeds the amount allocated by the Board of Directors, the General Manager/CEO has authority to transfer funds in accordance with section 3.09.050.

iii.

Periodic Review Dates for Balances - Account balances will be reviewed by staff and the Board annually at year-end.

C.

CAPITAL RESERVE FUNDS. The District will strive to maintain the established minimum balances in the Capital Reserve Funds. The Capital Reserve Funds will consist of the following sub-accounts:

a.

Capital Project Account: The Capital Project Account is used for the funding of new capital assets or the replacement of capital assets when they reach the end of their useful lives.

i.

Target Level - The District may set aside replacement funds on a project-by-project basis. The minimum target level the District will strive for is one hundred (100) percent of the current budgeted pay-go capital project plus twenty-five (25) percent of subsequent year's pay-go capital projects for each of the Water, Sewer, and Recycled Water Funds, respectively.

ii.

Events or Conditions Prompting the Use of the Fund - Staff will recommend new assets to be constructed or assets to be replaced during the annual Capital Improvement Budget preparation. As projects are approved, funds will be appropriated from reserve funds or available revenues.

iii.

Periodic Review Dates for Balances - Fund balances and projected improvement projects will be reviewed by staff and the Board during the preparation and approval of the Annual Operating and Capital Improvement Budget.

b.

Emergency Account: The Emergency Account may be used in the event of economic events that negatively impact either revenues or expenses, or causes a material decline in other reserve accounts; to purchase equipment and infrastructure at any time or to begin repair of the water system after a catastrophic event, such as a severe earthquake or fire, while long-term financing is being arranged, State or Federal Assistance is obtained, or insurance claims are being processed. The District may use funds herein for either capital or operating purposes.

i.

Target Level - Funding shall be targeted at a minimum equal to one (1) percent of the net capital assets of the District's Water and Sewer systems with a maximum level set at two (2) percent, based on current Federal Emergency Management Agency (FEMA) guidelines.

ii.

Events or Conditions Prompting the Use of the Fund - The Board may designate use of this fund after establishing that conditions exist as called out in the definition and purpose of the fund.

iii.

Periodic Review Dates for Balances - Fund balances and target level will be reviewed by staff and the Board during the preparation and approval of the Annual Operating and Capital Improvement Budget.

c.

Administrative Capital Improvement Account: The Administrative Capital Improvement Account can be used to fund certain general, administration and overhead projects. It is intended to fund (or partially fund) office equipment, fixtures, furnishings, vehicles and other equipment on a Pay-Go basis. The Board will appropriate funds for specific projects during the Capital Improvement Project budgetary process.

i.

Target Level - This fund has no specific target level for each component. However, The District shall seek to maintain a minimum balance of one hundred (100) percent of each current budgeted vehicle, filed and office related capital projects for each of the Water, Sewer, and Recycled Water Funds. The maximum targeted balance in this account is equal to the minimum balance with an annual inflationary adjustment. Special projects can be funded on an as-needed or project-by-project basis.

ii.

Events or Conditions Prompting the Use of the Fund - Improvement projects will be identified by staff and recommended to the Board during the preparation of the Capital Improvement Project budgetary process. As projects are approved, funds will be appropriated from available funds.

iii.

Periodic Review Dates for Balances - Fund balances and projected improvement projects will be reviewed by staff and the Board during the preparation and approval of the Annual Operating and Capital Improvement Budget.

d.

Local Water Resource Development Account: The Local Water Resource Development Account is used for the funding of the development, improvement, or acquisition of local water resource projects or efforts. This fund is designated by the Board to reduce the District's reliance on costly imported water. The District may use funds herein for either capital or operating purposes in accordance with Board approval.

i.

Target Level - Funding shall be targeted at a minimum amount equal to $2 million, the approximate cost of a new groundwater well, and a maximum of $5 million.

ii.

Events or Conditions Prompting the Use of the Fund - Upon Board authorization, this fund may be utilized for projects or efforts to develop local water resources, such as but not limited to: purchase of water supplies/rights, development of groundwater or surface water supplies, and any other type of effort to reduce the District's reliance on imported water.

iii.

Periodic Review Dates for Balances - Fund balances and projected improvement projects will be reviewed staff and the Board during the preparation and approval of the Annual Operating and Capital Improvement Budget.

( Res. No. 2015-11-5, § 1, 11-24-2015 ; Res. No. 2016-5-6, § 1, 5-24-2016 ; Res. No. 2018-12-1 , § 4, 12-11-2018)