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HomeMy WebLinkAboutAgenda Packet - Finance & Human Resources Committee - 02/13/2024FINANCE & HUMAN RESOURCES COMMITTEE FEBRUARY 13, 2024 East Valley Water District was formed in 1954 and provides water and wastewater services to 107,000 residents within the cities of San Bernardino and Highland, and portions of San Bernardino County. EVWD operates under the direction of a 5­member elected Board. COMMITTEE MEMBERS David E. Smith Governing Board Member Ronald L. Coats Governing Board Member Finance & Human Resources Committee Meeting February 13, 2024 ­ 1:30 PM 31111 Greenspot Road, Highland, CA 92346 www.eastvalley.org PLEASE NOTE: Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection in the District’s office located at 31111 Greenspot Rd., Highland, during normal business hours. Also, such documents are available on the District’s website at eastvalley.org and are subject to staff’s ability to post the documents before the meeting. Pursuant to Government Code Section 54954.2(a), any request for a disability­related modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District Clerk at (909) 885­4900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approval of the March 14, 2023 Finance and Human Resources Committee Meeting Minutes 2.Approval of the April 11, 2023 Finance and Human Resources Committee Meeting Minutes 3.Approval of the June 13, 2023 Finance and Human Resources Committee Meeting Minutes 4.Approval of the July 11, 2023 Finance and Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 5.Financial Planning Workshop 6.Review Revised Reserve Funds Policy 7.2 DISCUSSION ITEMS 7.Set the day and time for holding recurring meetings REPORTS 8.Finance Activities 9.Human Resource Activities ADJOURN FINANCE & HUMAN RESOURCES COMMITTEEFEBRUARY 13, 2024East Valley Water District was formed in 1954 and provides water and wastewater services to107,000 residents within the cities of San Bernardino and Highland, and portions of SanBernardino County.EVWD operates under the direction of a 5­member elected Board.COMMITTEE MEMBERS David E. Smith Governing Board Member Ronald L. Coats Governing Board Member Finance & Human Resources Committee Meeting February 13, 2024 ­ 1:30 PM 31111 Greenspot Road, Highland, CA 92346 www.eastvalley.org PLEASE NOTE: Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection in the District’s office located at 31111 Greenspot Rd., Highland, during normal business hours. Also, such documents are available on the District’s website at eastvalley.org and are subject to staff’s ability to post the documents before the meeting. Pursuant to Government Code Section 54954.2(a), any request for a disability­related modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District Clerk at (909) 885­4900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approval of the March 14, 2023 Finance and Human Resources Committee Meeting Minutes 2.Approval of the April 11, 2023 Finance and Human Resources Committee Meeting Minutes 3.Approval of the June 13, 2023 Finance and Human Resources Committee Meeting Minutes 4.Approval of the July 11, 2023 Finance and Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 5.Financial Planning Workshop 6.Review Revised Reserve Funds Policy 7.2 DISCUSSION ITEMS 7.Set the day and time for holding recurring meetings REPORTS 8.Finance Activities 9.Human Resource Activities ADJOURN FINANCE & HUMAN RESOURCES COMMITTEEFEBRUARY 13, 2024East Valley Water District was formed in 1954 and provides water and wastewater services to107,000 residents within the cities of San Bernardino and Highland, and portions of SanBernardino County.EVWD operates under the direction of a 5­member elected Board.COMMITTEE MEMBERSDavid E. SmithGoverning Board Member Ronald L. CoatsGoverning Board MemberFinance & Human Resources Committee MeetingFebruary 13, 2024 ­ 1:30 PM31111 Greenspot Road, Highland, CA 92346www.eastvalley.orgPLEASE NOTE:Materials related to an item on this agenda submitted to the Board after distribution of theagenda packet are available for public inspection in the District’s office located at 31111Greenspot Rd., Highland, during normal business hours. Also, such documents are availableon the District’s website at eastvalley.org and are subject to staff’s ability to post thedocuments before the meeting.Pursuant to Government Code Section 54954.2(a), any request for a disability­relatedmodification or accommodation, including auxiliary aids or services, that is sought in orderto participate in the above agendized public meeting should be directed to the District Clerkat (909) 885­4900 at least 72 hours prior to said meeting. In order to comply with legal requirements for posting of agenda, only those items filed with the District Clerk by 12:00 p.m. on Wednesday prior to the following Wednesday meeting not requiring departmental investigation, will be considered by the Board of Directors. CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL OF BOARD MEMBERS PUBLIC COMMENTS Any person wishing to speak to the Board of Directors is asked to complete a Speaker Card and submit it to the District Clerk prior to the start of the meeting. Each speaker is limited to three (3) minutes, unless waived by the Chairman of the Board. Under the State of California Brown Act, the Board of Directors is prohibited from discussing or taking action on any item not listed on the posted agenda. The matter will automatically be referred to staff for an appropriate response or action and may appear on the agenda at a future meeting. APPROVAL OF CONSENT CALENDAR All matters listed under the Consent Calendar are considered by the Board of Directors to be routine and will be enacted in one motion. There will be no discussion of these items prior to the time the board considers the motion unless members of the board, the administrative staff, or the public request specific items to be discussed and/or removed from the Consent Calendar. 1.Approval of the March 14, 2023 Finance and Human Resources Committee Meeting Minutes 2.Approval of the April 11, 2023 Finance and Human Resources Committee Meeting Minutes 3.Approval of the June 13, 2023 Finance and Human Resources Committee Meeting Minutes 4.Approval of the July 11, 2023 Finance and Human Resources Committee Meeting Minutes INFORMATIONAL ITEMS 5.Financial Planning Workshop 6.Review Revised Reserve Funds Policy 7.2 DISCUSSION ITEMS 7.Set the day and time for holding recurring meetings REPORTS 8.Finance Activities 9.Human Resource Activities ADJOURN Agenda Item #1 February 13, 20241 Meeting Date: February 13, 2024 Agenda Item #1 Consent Item 1 0 1 5 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Approval of the March 14, 2023 Finance and Human Resources Committee Meeting Minutes RECOMMENDATION That the Finance and Human Resources Committee approve the minutes as submitted. AGENCY GOALS AND OBJECTIVES II - Maintain a Commitment To Sustainability, Transparency, and Accountability B. Utilize Effective Communication Methods FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS March 14, 2023 Minutes Page 1 of 2 Minutes 3/14/2023 cmk 5 1 8 Draft pending approval EAST VALLEY WATER DISTRICT March 14, 2023 FINANCE & HUMAN RESOURCES COMMITTEE MEETING MINUTES Ms. Koide called the meeting to order at 3:31 p.m. and Director Smith led the flag salute. PRESENT: Directors: Coats, Smith ABSENT: None STAFF: Michael Moore, General Manager/CEO; Brian Tompkins, Chief Financial Officer; Kerrie Bryan, Director of Administrative Services; Ryan Ritualo, Information Technology Manager; Rudy Guerrero, Finance Supervisor; Mark Hokanson, Accountant; Christi Koide, Business Services Coordinator GUEST(s): Members of the public PUBLIC COMMENTS The Business Services Coordinator declared the public participation section of the meeting open at 3:32 p.m. There being no written or verbal comments, the public participation section was closed. REVIEW RESOLUTION 2023.06 AND INVESTMENT POLICY 7.6 The Chief Financial Officer stated that updates to the District’s Investment Policy 7.6 are taken to the Board of Directors annually. He gave a brief overview of policy changes. Director Smith notated that on page 14 of the Investment Policy, Treasury Bills and Treasury Bonds should not be removed from the Glossary. The Chief Financial Officer stated that he will look into moving the custody of investments to another investment pool. The Committee recommended that Resolution 2023.06 and Investment Policy 7.6 be presented to the Board of Directors for approval. Page 2 of 2 Minutes 3/14/2023 cmk 5 1 8 The Committee took a short recess at 3:46 p.m. The Committee reconvened the Meeting at 3:51 p.m. WATER AND WASTEWATER PATHWAY AND EDUCATIONAL PARTNERSHIP UPDATE The Director of Administrative Services gave a brief overview of the partnerships with the San Bernardino City Unified School District, Claremont McKenna College Data Science Program, and the Harbor Freight Fellowship Program. She stated that in February 2020 the District launched the Water and Resource Management Pathway (Pathway) class at Indian Springs High School and due to the Covid-19 pandemic, the Pathway was altered to a virtual format. The Director of Administrative Services stated the District partnered with the Harbor Freight Fellows Program to sponsor paid internships. SET THE DAY AND TIME FOR HOLDING RECURRING MEETINGS The Committee discussed and established that they will meet the second Tuesday at 1:30 p.m. monthly starting in April. ADJOURN The meeting adjourned at 4:30 p.m. Ronald L. Coats David E. Smith Governing Board Member Governing Board Member Agenda Item #2 February 13, 20241 Meeting Date: February 13, 2024 Agenda Item #2 Consent Item 1 0 2 3 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Approval of the April 11, 2023 Finance and Human Resources Committee Meeting Minutes RECOMMENDATION That the Finance & Human Resources Committee approve the minutes as submitted. AGENCY GOALS AND OBJECTIVES II - Maintain a Commitment To Sustainability, Transparency, and Accountability B. Utilize Effective Communication Methods FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS April 11, 2023 Minutes Page 1 of 2 Minutes 4/11/2023 cmk 5 1 8 Draft pending approval EAST VALLEY WATER DISTRICT April 11, 2023 FINANCE & HUMAN RESOURCES COMMITTEE MEETING MINUTES Ms. Koide called the meeting to order at 1:33 p.m. and Director Coats led the flag salute. PRESENT: Directors: Coats, Smith ABSENT: None STAFF: Michael Moore, General Manager/CEO; Brian Tompkins, Chief Financial Officer; Kerrie Bryan, Director of Administrative Services; Ryan Ritualo, Information Technology Manager; Rudy Guerrero, Finance Supervisor; Mark Hokanson, Accountant; Christi Koide, Business Services Coordinator GUEST(s): Members of the public PUBLIC COMMENTS The Business Services Coordinator declared the public participation section of the meeting open at 1:34 p.m. There being no written or verbal comments, the public participation section was closed. REVIEW FY 2023-24 Program Goals and Objectives The Chief Financial Officer gave a brief presentation of each Program’s Goals and Objectives for upcoming FY 2023-24. He shared one accomplishment and one goal for each of the 18 Programs and stated that each Program Manager will present their Program’s goals and objectives to the Board of Directors during the next Board meeting. The Chief Financial Officer stated that all employees have personal goals that are tied to Program Goals and the completion status of each Program Goal is reported during the Mid-Year Review. Page 2 of 2 Minutes 4/11/2023 cmk 5 1 8 ADJOURN The meeting adjourned at 2:21 p.m. Ronald L. Coats David E. Smith Governing Board Member Governing Board Member Agenda Item #3 February 13, 20241 Meeting Date: February 13, 2024 Agenda Item #3 Consent Item 1 0 3 2 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Approval of the June 13, 2023 Finance and Human Resources Committee Meeting Minutes RECOMMENDATION That the Finance & Human Resources Committee approve the minutes as submitted. AGENCY GOALS AND OBJECTIVES II - Maintain a Commitment To Sustainability, Transparency, and Accountability B. Utilize Effective Communication Methods FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS June 13, 2023 Minutes Page 1 of 2 Minutes 6/13/2023 cmk 5 1 8 Draft pending approval EAST VALLEY WATER DISTRICT June 13, 2023 FINANCE & HUMAN RESOURCES COMMITTEE MEETING MINUTES Ms. Koide called the meeting to order at 1:31 p.m. and Director Smith led the flag salute. PRESENT: Directors: Coats, Smith ABSENT: None STAFF: Michael Moore, General Manager/CEO; Brian Tompkins, Chief Financial Officer; Kerrie Bryan, Director of Administrative Services; Rudy Guerrero, Finance Supervisor; Mark Hokanson, Accountant; Christi Koide, Business Services Coordinator GUEST(s): Members of the public PUBLIC COMMENTS The Business Services Coordinator declared the public participation section of the meeting open at 1:32 p.m. There being no written or verbal comments, the public participation section was closed. REVIEW REVISED DEBT MANAGEMENT POLICY 7.3 The Chief Financial Officer gave a brief overview of the formation of East Valley Water District Community Facilities District (CFD) 2021-1 Mediterra and stated that the District received a Bond Issuance Request Letter from D.R. Horton Los Angeles Holding Company, Inc. to commence the issuance of bonds for Mediterra Improvement Area 1A. He also stated that Bond Counsel’s recommendation was to revise the District’s Debt Management Policy, to incorporate and allow CFD debt. The Chief Financial Officer clarified to the Committee that bonds issued for CFDs have no effect on the District’s financial statements. The Committee recommended that Debt Management Policy 7.3 be presented to the Board of Directors for approval. Page 2 of 2 Minutes 6/13/2023 cmk 5 1 8 DISTRICT RISK AND SAFETY UPDATE 2023 The Director of Administrative Services gave an update on the District’s Risk and Safety Program. She provided a brief presentation of the following: purpose of a comprehensive program; risk control evaluation and recommendations from Special District Risk Management Authority (SDRMA); mandatory and optional safety trainings; Workers’ Compensation/Liability Program; and health and wellness services available to staff. Information only, no action required. ADJOURN The meeting adjourned at 2:16 p.m. Ronald L. Coats David E. Smith Governing Board Member Governing Board Member Agenda Item #4 February 13, 20241 Meeting Date: February 13, 2024 Agenda Item #4 Consent Item 1 0 3 3 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Approval of the July 11, 2023 Finance and Human Resources Committee Meeting Minutes RECOMMENDATION That the Finance & Human Resources Committee approve the minutes as submitted. AGENCY GOALS AND OBJECTIVES II - Maintain a Commitment To Sustainability, Transparency, and Accountability B. Utilize Effective Communication Methods FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS July 11, 2023 Minutes Page 1 of 2 Minutes 7/11/2023 cmk 5 1 8 Draft pending approval EAST VALLEY WATER DISTRICT July 11, 2023 FINANCE & HUMAN RESOURCES COMMITTEE MEETING MINUTES Ms. Koide called the meeting to order at 1:30 p.m. and Director Coats led the flag salute. PRESENT: Directors: Coats, Smith ABSENT: None STAFF: Michael Moore, General Manager/CEO; Brian Tompkins, Chief Financial Officer; Kerrie Bryan, Director of Administrative Services; Rudy Guerrero, Finance Supervisor; Mark Hokanson, Accountant; Christi Koide, Business Services Coordinator GUEST(s): Members of the public PUBLIC COMMENTS The Business Services Coordinator declared the public participation section of the meeting open at 1:31 p.m. There being no written or verbal comments, the public participation section was closed. REVIEW LETTER REGARDING AUDITOR RESPONSIBILITIES AND PLANNING DOCUMENT FROM ROGERS, ANDERSON, MALODY & SCOTT, LLP FOR PREPARATION OF THE DISTRICT’S FY 2022-23 AUDIT The Chief Financial Officer introduced Scott Manno from Rogers, Anderson, Malody & Scott, LLP (RAMS) to give a presentation regarding the FY 2022-23 audit of District Financials. Mr. Manno gave a brief presentation of the following: audit responsibilities for the Board, management, and RAMS; upcoming pronouncements; scope of the audit of District financial statements; single audit if required; audit timing; and risk assessment procedures. The Chief Financial Officer reminded the Committee that RAMS works for the Board of Directors. Information only, no action required. Page 2 of 2 Minutes 7/11/2023 cmk 5 1 8 RECLASSIFICATION OF WATER QUALITY COORDINATOR TO WATER AND WASTEWATER COMPLIANCE SUPERVISOR The Director of Administrative Services stated once the Sterling Natural Resource Center (SNRC) goes online, the District will be required to establish and implement a source control program. She stated that over the past several months staff evaluated the responsibilities of a new position and is confident that the Water Quality Coordinator is qualified to take on the additional responsibilities required to maintain compliance with applicable regulatory requirements. Staff created a new job classification, Water and Wastewater Compliance Supervisor, that accurately represents the duties, knowledge, skills, and abilities to manage the Water Quality and Source Control Programs. The Committee recommended that the reclassification of the Water Quality Coordinator to Water and Wastewater Compliance Supervisor be presented to the Board of Directors for approval. ADJOURN The meeting adjourned at 2:05 p.m. Ronald L. Coats David E. Smith Governing Board Member Governing Board Member Agenda Item #5 February 13, 20241 Meeting Date: February 13, 2024 Agenda Item #5 Informational Item 1 4 7 4 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Financial Planning Workshop RECOMMENDATION This agenda item is for informational purposes only, no action is required. BACKGROUND / ANALYSIS East Valley Water District, like other rate setting public agencies in the State of California, must regularly conduct a Cost of Service Analysis (COSA) to evaluate whether rates are sufficient to maintain public services. The results of this study then produce recommendations for consideration as to the necessary rates to meet operational needs with rates adopted for no more than a five-year period, at which point the organization must refresh the COSA. The District’s last COSA was completed in February 2021, with rates presented to, and adopted by the Board on May 12, 2021. The District contracted IB Consulting (IBC) to start the process of updating their Cost of Service Analysis’ completed in 2021, to determine revenue requirements and possible rate adjustments to the District’s water and wastewater utility rates. IBC has progressed with the development of their models and financial plans for the District’s three enterprises (Water, Wastewater Collection, and Reclamation). Changes in revenues and expenses over the past three years have caused the District to reduce capital spending and utilize reserve funds. The COSA allows the District to reset revenue and expense assumptions for the next five years. The District’s Five-Year Plan identifies goals and objectives that are included in the financial plan. Staff have worked closely with IBC to account for strategic initiatives and changing operational needs. The five key drivers of the financial plan are described below: •Water Sales / Consumption - The District has experienced a 12% drop in water demand in the last two years. Sales in 2022-23 were just 15,340 acre feet, the lowest level since 2015-16, the middle of a severe drought, and right after the District adopted budget based rates. Prior to that drought, customer demand ranged between 18,000 and 21,000 annually. This unusual decrease in water sales reduced revenue for both the Water and Wastewater Funds. Water sales over the next five years are assumed to slightly increase with relatively modest development. Agenda Item #5 February 13, 20242 Meeting Date: February 13, 2024 Agenda Item #5 Informational Item 1 4 7 4 •Inflation - Consumer Price Index (CPI) for San Bernardino ranged from 5%-10% over the past three years. Price increases have affected the costs of materials, services, labor, and construction costs. General inflation is assumed to be between 3% and 5% over the next five years. However, labor and construction costs are assumed to be higher due to inflation. •Staffing levels - The District has added eight staff to operate the new SNRC. Staffing levels remain low relative to the industry benchmark of similar agencies. Three new staff positions are anticipated over the next five years to meet operational and regulatory needs. •Power costs - Power costs have increased more than general inflation. Power costs are assumed to continue to rise 7% annually over the next five years. Additionally, the SNRC power cost will be partially offset by on-site generation. SNRC power costs will be higher than originally anticipated due to larger electric loading of equipment and less on-site generation than previously assumed over the next five years. •Capital Improvement Program - The District has primarily invested in the SNRC over the past eight years. Capital Improvements in storage, groundwater wells and pipeline will require increased funding levels of $5 to $7 million annually. Special projects above this level will be added where grants become available. IB Consulting has now completed the Cost of Service Analysis’ for all three enterprises. They will be presenting their work at two committee meetings. The first will include presenting the financial plans for all three enterprises, and then at the second meeting IBC will present the Cost of Service and Rate Design for all three enterprises. These meetings will be followed by an abbreviated presentation to the full Board on March 13th, and then if approved, a Prop 218 public hearing on May 15, 2024. Staff is concurrently working on Prop 218 notices to be mailed to all ratepayers if authorized by the Board at the March 13th meeting. AGENCY GOALS AND OBJECTIVES II - Maintain a Commitment To Sustainability, Transparency, and Accountability A. Practice Transparent and Accountable Fiscal Management Agenda Item #5 February 13, 20243 Meeting Date: February 13, 2024 Agenda Item #5 Informational Item 1 4 7 4 FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS 1. Presentation BT-Cost of Service Study for Water and Wastewater 2. Presentation IB Consulting-Financial Planning Workshop Finance and Human Resources Committee Cost of Service Study for Water and Wastewater February 13, 2024 2 FINANCIAL STRATEGIES Customer Focused Rates System Reliability Cost Recovery Long Term Flexibility 3 CUSTOMER FOCUSED RATES •Budget-based rates •Customer efficiency lowers bills •Conservation Rebates 4 •Proactive maintenance •Asset Management Program •Increase infrastructure replacement and rehabilitation SYSTEM RELIABILITY 5 •Strive for rate stability (avoid spikes) •Following Water and Wastewater Master Plans •Prop 218 COST RECOVERY 6 LONG-TERM FLEXIBILITY •Pay-go and debt for capital improvements •Reset reserve policies •Pay-off debt where beneficial •Have funds available to receive grants 7 RATE DRIVERS Rate StudyWater Sales Inflation Staffing Level Power Costs Capital Improvement Projects DISCUSSION East Valley Water District Financial Plan Workshop February 13, 2024 Financial Plan Workshop Agenda Financial Plan Summary1 2 3 4 5 Financial Plan Assumptions 2 Current Financial Position Proposed Financial Plans Reserve Policies Financial Plan Summary Factors Impacting the Financial Plan 3 Reserve Funding Account for unforeseen risks through well established reserves Expense Projections Account for cost escalations by expense category and any debt obligations Capital Spending Account for anticipated repair and replacement projects to maintain a safe and reliable system. Revenue Projections Account for rate revenues, other operating revenues, and non-operating revenues Water Demands Account for expected changes in total water usage, growth, as well as changes in service needs Financial Plan Financial Plan Key Assumptions Long-Term Financial Plan Water Demand Historical and Projected Sales 5 Water Sales Fluctuations due to mandatory conservation, growth, COVID-19, and weather. FY 2023: Historical wet winter FY 2024 Year to date: Usage is similar to FY 2023 Using FY 2023 as baseline = 15,622 AF 0.5% growth rate for future years FY 2029 = 15,876 AF Water Supplies Quantities in Acre Feet 6 Source of Water Supplies (AF)FY 2022 FY 2023 FY 2024 Water Sales (AF)17,921 AF 15,622 AF 15,622 AF Water Loss %8.3%8.3%8.3% Water Demand/Production 19,544 AF 17,036 AF 17,036 AF Surface Water 771 AF 1,128 AF 3,950 AF State Water Project 3,037 AF 2,026 AF 1,800 AF Groundwater 15,736 AF 13,882 AF 11,286 AF Over the previous two fiscal years, the State Water Project was used more than Surface Water With improvements to Plant 134, more Surface Water will be used Amounts of Surface Water and State Water Project will stay constant, with Groundwater covering any additional demand Financial Assumptions Expense Escalations 7 Capital Construction reflects the 5-Year Average – Engineer’s News Record Construction Cost Index General Costs reflect the 5-Year Average – Consumer Price Index (LA) Key Assumptions Source:FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Expenditure Escalation Benefits 5.0%5.0%5.0%5.0%5.0% Capital Construction ENR 20-City 5-Year Average 3.9%3.9%3.9%3.9%3.9% Energy Costs 7.0%7.0%7.0%7.0%7.0% General Costs CPI - LA (BLS)5-Year Average 3.9%3.9%3.9%3.9%3.9% Insurance 7.0%7.0%7.0%7.0%7.0% Salaries 7.0%5.0%5.0%5.0%5.0% Reserves Purpose of Reserves Benefits 9  Robust, well-defined reserves generate a strong financial outlook  Reserves are critical for mitigating inherent risk Known and unknown  Stabilize rates  Provides coverage for debt covenants  Ensures necessary capital repair and replacement projects move forward  Covers unexpected capital repairs due to system failures OPERATING Provides ongoing cash for daily operations and expenses of utility. Existing Reserve Policies DEBT Set aside funds required as part of securing debt. Typically, equal to the annual debt payment. EMERGENCY Mitigates risk due to system failures without impacting funding for the planned system improvements. RATE STABILIZATION Funding to offset unforeseen increases in O&M or new regulatory requirements. Also provides funding for rate smoothing over multiple years. CAPITAL REPLACEMENT Provides funding for system R&R. Ensures system reinvestment occurs without delays or deferments. Reserve Targets Minimum Requirement and Target 11 Operating Reserve Capital Replacement Reserve Min/Target: Function of total operating expenses and bill frequency (monthly versus bi-monthly) Guidelines: Minimum – 90 days of operating expenses Target – 120 days of operating expenses Min/Target: Cost of project replacement and forward- looking projections of planned capital Guidelines: Minimum – At least one year of planned capital Target – Multiple years of planned capital Reserve Targets 12 Rate Stabilization Reserve Emergency Reserve Minimum Requirement and Target Min/Target: Function of total rate revenue or commodity rate revenue Guidelines: Min – % of rate revenues Target – % of rate revenues Min/Target: Function of Asset Values or based on the cost to replace critical asset(s) to offset the greatest risk Guidelines: Minimum – % of Asset Value Target – Replacement of critical asset of the system Reserve Targets 13 Debt Reserve Capacity Fee Fund Minimum Requirement and Target Min/Target: Typically, equal to a year’s worth of debt payments Guidelines: Min – Average annual debt service payment Target – Maximum debt service payment Min/Target: No target, as capacity fee revenue is dependent on growth. Need to be segregated Guidelines: Minimum – N/A Target – N/A Existing Reserve Policy 14 Minimum Requirement and Target Reserve Minimum Requirement Target Operating Reserve 90 days of annual operating expenses less debt 120 days of annual operating expenses less debt Replacement Reserve $10M less emergency reserve Minimum 7 years of planned capital Emergency Reserve 2% of system asset value 2% of system asset value Rate Stabilization 45 days of operating expenses 60 days of operating expenses Existing Designated Reserves Debt Reserve Annual debt payment N/A Capacity Fee Fund No targets; established to segregate capacity fee funds from new development Recommended Reserve Adjustments 15 Minimum Requirement and Target Reserve Minimum Requirement Target Operating Reserve 90 days of all annual operating expenses 120 days of all annual operating expenses Replacement Reserve 2 years of 5-Year Avg of rate -funded planned capital 5 years of rate-funded planned capital Emergency Reserve 1% of system asset value 2% of system asset value Rate Stabilization ------------------------------------------Eliminate-------------------------------------------- Existing Designated Reserves Debt Reserve Annual debt payment N/A Capacity Fee Fund No targets; established to segregate capacity fee funds from new development Proposed Reserves 16 Minimum Targets Reserve Water Existing FY 2024 Water Revised FY 2024 WW-Combined Existing FY 2024 WW-Combined Revised FY 2024 Operating Reserve $5.6M $6.1M $3.65M $4.2M Replacement Reserve $7.6M $10.9M $6.35M $1.9M Rate Stabilization $3.1M -$2.15M - Emergency $2.4M $1.2M $3.65M $1.8M Designated Reserves Debt Reserve ---- Total $18.7M $18.2M $15.8M $7.9M Days of Operating Cash 272 days 261 days 334 days 165 days FY 2025 Min = $15.4 326 days Water Current Financial Position Long-Term Financial Outlook Water –Capital Improvement Plan (CIP) CIP with Funding Sources 18 Grant Funding - $19.5M for seismic upgrades New well = $4M will be funded by Capacity Fees Project Description Rate Funded FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Water System Canal 3 Zone Reservoir 100.0%$300,000 $0 $0 $0 $1,000,000 $5,000,000 New Well 01 - Lower/Inter/Upper 100.0%$0 $2,700,000 $1,300,000 $0 $0 $0 New Well 02 - Lower/Inter/Upper 100.0%$0 $0 $500,000 $2,500,000 $3,000,000 $0 Reservoir Rehabilitation 100.0%$500,000 $650,000 $650,000 $0 $1,000,000 $1,100,000 Plant 101 Hydro System Rehabilita 100.0%$500,000 $1,000,000 $0 $0 $0 $0 Water Main Rehab 100.0%$100,000 $0 $0 $0 $0 $0 Gate Valve Replacement 100.0%$300,000 $300,000 $0 $0 $0 $0 Monitoring "Well #3 0.0%$0 $0 $0 $1,000,000 $0 $0 North Fork Creek crossings 100.0%$0 $0 $0 $0 $1,000,000 $0 Pipeline Replacement Program 50.0%$0 $0 $0 $0 $2,000,000 $3,000,000 Main Replace - Seismic Mitigation 100.0%$0 $5,000,000 $5,000,000 $5,000,000 $0 $0 AMI Meter Upgrades 100.0%$150,000 $0 $200,000 $200,000 $0 $0 Plant 120 Rehab 100.0%$200,000 $0 $0 $0 $0 $0 Facility Rehab and Relocation 100.0%$870,000 $0 $0 $0 $0 $0 Plant 134 Membranes 100.0%$305,000 $0 $320,000 $320,000 $320,000 $0 Plant 134 Process Improvements 100.0%$0 $130,000 $0 $0 $0 $0 Seismic Upgrades 100.0%$0 $0 $2,500,000 $2,500,000 $2,500,000 $0 Subtotal Water System $3,225,000 $9,780,000 $10,470,000 $11,520,000 $10,820,000 $9,100,000 Equipment Control Valve Replacements 50.0%$0 $25,000 $25,000 $25,000 $25,000 $25,000 Switch Gear Replacements 50.0%$0 $50,000 $50,000 $50,000 $50,000 $50,000 SCADA Upgrades 50.0%$0 $30,000 $30,000 $30,000 $30,000 $30,000 Well Rehabiliation, Repairs, Inspec 50.0%$0 $220,000 $220,000 $220,000 $220,000 $220,000 Replace booster pumps 50.0%$0 $30,000 $30,000 $30,000 $30,000 $30,000 Replace Pick Up Trucks 50.0%$0 $126,000 $126,000 $126,000 $126,000 $126,000 Dump Trucks 50.0%$0 $16,000 $16,000 $16,000 $16,000 $16,000 Water Truck 50.0%$0 $7,500 $7,500 $7,500 $7,500 $7,500 Hydro Excavator 50.0%$0 $42,000 $42,000 $42,000 $42,000 $42,000 Misc. Equipment, tools, supplies 50.0%$0 $300,000 $300,000 $300,000 $300,000 $300,000 Headquarters Equipment 50.0%$0 $300,000 $300,000 $300,000 $300,000 $300,000 Actual Equipment 100.0%$570,000 $0 $0 $0 $0 $0 Subtotal Equipment $570,000 $1,146,500 $1,146,500 $1,146,500 $1,146,500 $1,146,500 Subtotal Scenario 2 - Base $3,795,000 $10,353,250 $11,043,250 $11,093,250 $10,393,250 $8,173,250 Scenario 2 - Base Total Costs $3,795,000 $10,753,699 $11,914,046 $12,430,894 $12,096,956 $9,880,996 Capital Improvement Plan 19 May be funded by Capacity Fee funds $19.5M funded by Grants ($10) $0 $10 $20 $30 $40 $50 $60 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s All Reserves (except Capacity ) Ending Balance Minimum Reserve Target Reserve $0 $5 $10 $15 $20 $25 $30 $35 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s Opera�ng Financial Plan Net Cashflow Projected Revenue Opera�ng Expenses Current Financial Position Water Enterprise 20 Financial Plan Metrics Generate Positive Net Income Comply with Debt Covenants Sufficiently Fund Capital Needs Meet Reserve Targets Current Financial Position Previously noticed rates 21 Results From Review  FY 2024 is developing into another wet winter Year -to-date water consumption is similar to FY 2023  Net operating income reducing Annual rate-funded capital averages $6.7M over the next 5 years Rate revenue increases needed to meet revised minimum reserves Water Proposed Financial Plan Proposed Long-Term Financial Plan $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s Opera�ng Financial Plan Net Cashflow Projected Revenue Opera�ng Expenses $3.8 $10.8 $11.9 $12.4 $12.1 $9.9 $0 $2 $4 $6 $8 $10 $12 $14 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s Capital Funding Sources Capacity Fee Funded Debt Funded Grant Funded Rate /Reserve Funded Total CIP $0 $10 $20 $30 $40 $50 $60 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s All Reserves (except Capacity ) Ending Balance Minimum Reserve Target Reserve Water Proposed Financial Plan FY 2024 – FY 2029 Planning Period 23 Proposed Financial Plan  Positive Net Income  Fully Fund Planned CIP Option 1: Rate Funded Option 2: Rate and Debt Funded  Meets minimum reserve in FY 2027 WW -Collection Current Financial Position Collection System Long-Term Financial Outlook WW Collection –Capital Improvement Plan (CIP) CIP with Funding Sources 25 WW Collection –Capital Improvement Plan (CIP) CIP 26 Project Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Wastewater Collection Wastewater Main Rehab $0 $200,000 $200,000 $200,000 $200,000 $0 Capital Outlay $260,000 $260,000 $260,000 $260,000 $260,000 $0 CIP from Budget $300,000 $0 $0 $0 $0 $0 Out-Years $0 $0 $0 $0 $0 $480,000 Subtotal Scenario 1 - 5 YR CIP Program $560,000 $460,000 $460,000 $460,000 $460,000 $480,000 Scenario 1 - 5 YR CIP Program Total Costs $560,000 $477,792 $496,272 $515,468 $535,405 $580,293 $0 $1 $2 $3 $4 $5 $6 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s All Reserves (except Capacity ) Ending Balance Minimum Reserve Target Reserve ($1) $0 $1 $2 $3 $4 $5 $6 $7 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s Opera�ng Financial Plan Net Cashflow Projected Revenue Opera�ng Expenses Current Financial Position WW Collection Enterprise 27 Financial Plan Metrics Generate Positive Net Income Comply with Debt Covenants Sufficiently Fund Capital Needs Meet Reserve Targets Current Financial Position Existing Rates 28 Results From Review  Healthy net income, but annually reduces CIP includes standard mainline replacement and capital outlay Reserves slightly below minimum and requires a rate adjustment to meet minimum reserves WW -Collection Proposed Financial Plan Collection System Proposed Long-Term Financial Plan $0 $1 $2 $3 $4 $5 $6 $7 $8 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s Opera�ng Financial Plan Net Cashflow Projected Revenue Opera�ng Expenses $0 $1 $2 $3 $4 $5 $6 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s All Reserves (except Capacity) Ending Balance Minimum Reserve Target Reserve WW Collection Proposed Financial Plan FY 2024 – FY 2029 Planning Period 30 Proposed Financial Plan  Positive Net Income  Fully Fund Planned CIP  Meet minimum reserves Reclamation Current Financial Position Sterling Natural Resource Center Long-Term Financial Outlook Reclamation –Capital Improvement Plan (CIP) CIP with Funding Sources 32  SRF Funded = $4M remaining draw Reclamation –Capital Improvement Plan (CIP) CIP 33 Project Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Wastewater Treatment SNRC - Construction $4,000,000 $0 $0 $0 $0 $0 Reclamation Replace Diffusers and UV Lamps $0 $0 $0 $0 $650,000 $0 Capital Outlay $150,000 $150,000 $150,000 $150,000 $150,000 $0 Out-Years $0 $0 $0 $0 $0 $2,475,000 Subtotal Scenario 1 - 5 YR CIP Program $4,150,000 $150,000 $150,000 $150,000 $800,000 $2,475,000 Scenario 1 - 5 YR CIP Program Total Costs $4,150,000 $155,802 $161,828 $168,087 $931,139 $2,992,135 ($10) ($5) $0 $5 $10 $15 $20 $25 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s Opera�ng Financial Plan Net Cashflow Projected Revenue Opera�ng Expenses $0 $5 $10 $15 $20 $25 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s All Reserves Ending Balance Minimum Reserve Target Reserve Current Financial Position Reclamation Enterprise 34 Financial Plan Metrics Generate Positive Net Income Comply with Debt Covenants Sufficiently Fund Capital Needs Meet Reserve Targets Additional Notes SNRC debt payments start in FY 2026 Minimum reserve requirement and target increases in FY 2026 Current Financial Position Existing Rates 35 Results From Review  SNRC debt payments commence in FY 2026 = $7.6M  Required debt reserve needs to be funded (equal to annual debt payment) Capacity Fees = $3M Edison SGIP Program = $2M SRF reimbursements from previously funded SNRC construction = $2.66M Rate revenue increases needed to meet increased operating expenses (SNRC debt payments) and maintain healthy reserves Reclamation Proposed Financial Plan Sterling Natural Resource Center Proposed Long-Term Financial Plan $0 $5 $10 $15 $20 $25 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s All Reserves Ending Balance Minimum Reserve Target Reserve ($5) $0 $5 $10 $15 $20 $25 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Mi l l i o n s Opera�ng Financial Plan Net Cashflow Projected Revenue Opera�ng Expenses Reclamation Proposed Financial Plan FY 2024 – FY 2029 Planning Period 37 Proposed Financial Plan Limited net Income as SNRC debt comes online Reserves can absorb shortages Fully Fund Planned CIP  Meet minimum reserves Next Steps Upcoming Tasks / Meetings 38  Cost-of-Service Analysis Rate Development Board Rate Workshop March 13th Agenda Item #6 February 13, 20241 Meeting Date: February 13, 2024 Agenda Item #6 Informational Item 1 4 6 3 Regular Meeting TO: Committee Members FROM: Chief Financial Officer SUBJECT: Review Revised Reserve Funds Policy 7.2 RECOMMENDATION That the Finance & Human Resources Committee recommend that the Board of Directors approve the attached Reserve Funds Policy revisions. BACKGROUND / ANALYSIS Periodic reviews of financial policies are important to ensure that policies are relevant and up-to-date with industry practices and legal provisions. Reserve funds provide the District with options to respond to unexpected issues and a strong reserve policy helps the District plan for future projects and mitigate potential risks. The District has both restricted and unrestricted reserves. Restricted reserves are required for specific debt obligations and customer deposits. Unrestricted reserves provide funds for infrastructure (Capital Reserve) and daily operating expenses in case of an emergency (Operating Reserve). An evaluation of unrestricted reserve target levels and minimum were performed to ensure the District has reasonable reserves that are consistent with industry guidelines. Staff is proposing the following updates to Reserve Funds Policy 7.2: •Updating the Replacement Reserve from a minimum requirement of $10 million to twice the five-year average of the District’s annual Capital Improvement Plan (CIP) and reduce the target maximum from seven years to five years of total projected CIP expenditures. •Adjusting the Emergency Reserve from a minimum requirement of 2% of the system asset value to 1% of the system’s asset value. •Eliminate the Rate Stabilization Fund. The primary purpose of the fund was intended to offset significant fluctuations in water supply cost which the District has deemed is not necessary. •All other changes are minor formatting or wording amendments. Attached is a copy of the District’s Reserve Funds Policy with proposed revisions. Agenda Item #6 February 13, 20242 Meeting Date: February 13, 2024 Agenda Item #6 Informational Item 1 4 6 3 AGENCY GOALS AND OBJECTIVES II - Maintain a Commitment To Sustainability, Transparency, and Accountability A. Practice Transparent and Accountable Fiscal Management FISCAL IMPACT There is no fiscal impact associated with this agenda item. Respectfully submitted: ________________ Brian Tompkins Chief Financial Officer ATTACHMENTS 1. Presentation RG-Reserve Funds Policy 7.2 2. Reserve Funds Policy 7.2 (redlined) Rudy Guerrero, Finance Supervisor REVISED RESERVE FUNDS POLICY 7.2 February 13, 2024 EXISTING RESERVE FUNDS POLICY 2 •Rate Stabilization •OperatingLiquidity •Replacement •EmergencyCapital •Bond Restrictions •Customer DepositsRestricted 3 PROPOSED RESERVE FUNDS POLICY Operating •Replacement •EmergencyCapital •Bond Restrictions •Customer DepositsRestricted 4 PROPOSED RESERVE TARGETS CATEGORY RESERVE PROPOSED TARGET Operating Operating Minimum: Equal to 90 days of the District’s budgeted total operating expense Capital Replacement Emergency Minimum: Equal to twice the five-year average of the District's annual CIP Minimum: 1% of the total value of the District's plant and equipment Restricted Bond Restrictions Customer Deposits Established at the time of the bond issuance Fluctuates depending on the number of utility customer deposits (currently at $150 per account -see District ordinance) EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Reserve Funds Policy Original Approval Date: August 10, 2010 Last Revised: February 28, 2024 Policy No: 7.2 Page 1 of 7 Purpose It is the purpose of East Valley Water District Reserve Policy to ensure that sufficient funding is available for current operating, capital, and debt service needs. Additionally, fiscal responsibility requires anticipating the likelihood of, and preparing for, unforeseen events. East Valley Water District (District) will at all timesalways strive to have sufficient funding available to meet its operating, capital, and debt service obligations. Reserve Funds (FundsReserves) will be accumulated and maintained to allow the District to fund expenditures in a manner consistent with the District's Capital Improvement Plan, and avoid significantwhile avoiding undue pressure on District operations rate fluctuations due to changes in cash flow requirements. The Board of Directors (Board) may designate specific fund accountsReserve Funds and maintain minimum fund reserve balances consistent with statutory obligations that it has determined to be in the best interest of the District. The Policy directives outlined in this document are intended to ensure the District has sufficient funds reserves to meet current and future needs. The Board will annually review the level of FundsReserves. General Provisions The District has established and will maintain the following primary funds reserves and their respective sub-accounts: • Legally Restricted Reserves – comprised of Debt Proceeds and Customer and Developer Deposits. • Capital Reserves – includes the Capital Replacement Fund Reserves and Emergency FundReserves. • Operating Reserves – includes the Rate Stabilization Fund and Operating Fund. The District will maintain its liquidity operating and capital funds reserves in designated sub- accounts in a manner that ensures their financial soundness and provides transparency to its ratepayers. The Fund Reserves balances are considered the minimum necessary to maintain the District's credit worthiness and adequately provide for: • Compliance with applicable statutory requirements. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Reserve Funds Policy Original Approval Date: August 10, 2010 Last Revised: February 28, 2024 Policy No: 7.2 Page 2 of 7 • Financing of future capital facilities and repair and replacement of existing assets. • Cash flow requirements. • Economic uncertainties, local disasters, and other financial hardships or downturns in the local or national economy. • Contingencies or unforeseen operating or capital needs. In the context of funding future capital facilities and maintaining and replacing existing assets, in each instance, the District will analyze the benefits and tradeoffs of utilizing pay- as-you-go and/or debt financing and determine the optimal funding strategy or combination of funding strategies. The analysis should consider the District's current and projected liquidity and capital positions, as well as the impact of inflation and other factors on the operations of the District and its capital improvement program. Through a variety of policy documents and plans, including East Valley's Capital Improvement Plan, Water and Sewer System Master Plans, Strategic Plan, and Five-Year Financial Plan, the Board has set forth a number ofseveral long-term goals for the District. A fundamental purpose of these documents is to link what must be accomplished with the necessary resources to successfully do so. Among the resources which may be considered are the District’s Reserves Funds. A principal tenet of the District's Reserve Funds Policy shall be the crediting of interest income to specific reserve funds until the respective reserve fund's maximum is achieved. Once the maximum balance is reached within a specific FundReserve, the surplus interest earnings will be reallocated to other Funds Reserves whose funding level is below the minimum or maximum requirement recommended by this Policy. Fund Reserves balances will be reviewed on an annual basis at, or near, the end of the fiscal year to ensure compliance with this Policy. In the event the Liquidity Operating Fund Reserves balance exceeds the established maximum, excess monies will be transferred annually into the Capital FundReplacement Reserves. On an as-needed basis, monies from the Capital Fund Replacement Reserves can be moved to pay for operating emergencies to supplement the Liquidity FundOperating Reserves. In addition, in the event thatif the Capital Fund Replacement Reserves balance exceeds the established maximum, the Board will make a determination regarding the reallocation of excess monies. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Reserve Funds Policy Original Approval Date: August 10, 2010 Last Revised: February 28, 2024 Policy No: 7.2 Page 3 of 7 The minimum established for each Reserve Fund represents the baseline financial condition that is acceptable to the District from risk and long-range financial planning perspectives. Maintaining Funds Reserves at appropriate levels is a prudent, ongoing business process that consists of an assessment and application of various revenue generating alternatives. These alternatives (either alone or in combination with each other) include but are not limited to: fees and charges, water usage, capital financing, investment of funds, and levels of capital expenditures. To achieve and maintain a strong credit rating, in every fiscal year the District will strive to maintain unrestricted cash and designated fund reserves balances totaling a minimum of 180 120 days of budgeted operating expenses. Should the District determine to target a higher credit rating level, this minimum will be adjusted accordingly. However, should the District decide to pursue a credit rating upgrade, it will need to analyze carefully under what circumstances and in what timeframes it will be optimal to achieve this goal. The Board shall approve any reallocation of funds reserves or any transfers among FundsReserves. LEGALLY RESTRICTED RESERVES A. Bond Debt Proceeds – Bond Debt proceeds funds are monies derived from the proceeds of a bond issue. TypicallyTypically, 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 debt documents. These funds are usually may be held by the a Trustee in favor of the bond holders, if applicable. 1. Target Level – The debt service reserve requirement is established at the time of the bond issue or execution of debt agreements. This amount may be recalculated as the bonds are debt is paid down. Any excess principal and/or interest earnings can be used to pay debt service on the bonds. 2. Events or Conditions Prompting the Use of the Fund(s)Reserves – As stipulated in the respective bond debt 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. EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Reserve Funds Policy Original Approval Date: August 10, 2010 Last Revised: February 28, 2024 Policy No: 7.2 Page 4 of 7 3. Periodic Review Dates for Balances – Reviewed by the Trustee on a semi-annual basis (i.e., every interest and/or principal payment date). B. Customer Deposits and Construction Advances – Monies held on behalf of District customers as required for their utility account or as cash bonds for development projects. 1. Target Level -– Customer deposits, and deposit requirements for development projects, are outlined in District Ordinances and Schedule of Water and Sewer Rates and Charges. The balance in these accounts will fluctuate depending on the number of utility customer deposits required and the number of development projects in process. Therefore, no minimum or maximum levels will be established. 2. Events or Conditions Prompting Use of the FundReserves(s) – As deposits on utility accounts are released, they will be refunded to the customer. When development projects are complete, the projects will be closedclosed, and a final accounting will be completed. Excess deposit monies will be returned to the development customer. 3. Periodic Review Dates for Balances -– Reviewed by staff on a regular basis as part of the monthly closing process. CAPITAL REPLACEMENT RESERVE The District will strive to maintain a the minimum balances as defined for each of the reserves listed belowof $10.0 million in the Capital Replacement Reserves. The Capital Funds will consist of the following sub-accounts: A. Capital Replacement Fund Reserve – Both the water and sewer All divisions will maintain a replacement fund reserves for the replacement of capitalized assets when they reach the end of their useful lives. The source of replacement funds reserves will be user fee revenue from the respective enterprises. 1. Target Level – The District may set aside replacement funds reserves on a project- by-project basis. The minimum target level should be equal to twice the five-year average of the District’s annual Capital Improvement Plan budgetthe $10.0 million EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Reserve Funds Policy Original Approval Date: August 10, 2010 Last Revised: February 28, 2024 Policy No: 7.2 Page 5 of 7 required for the Capital Funds less the minimum levels established for the Emergency Fund. The maximum balance in Capital Replacement Funds Reserves shall not exceed the projected needs for seven five years according to the District’s Capital Improvement Plan. 2. Events or Conditions Prompting the Use of the Fund Reserve – Staff will recommend assets to be replaced during the Capital Improvement Plan / Capital Budget presentation. As projects are approved, funds reserves will be appropriated from undesignated funds reserves or available revenues. 3. Periodic Review Dates for Balances – Fund Reserve balances and projected improvement projects will be reviewed by staff and the Board during the preparation and approval of the annual budget. B. Emergency Fund Reserve – The Emergency Fund Reserve is may be used to begin repair of the water and sewer systems after a catastrophic event or other unforeseen circumstances. , such as a severe earthquake or fire, while long-term financing is being arranged or insurance claims are being processed. 1. Target Level – The minimum target for this fund reserve is two one (21%) percent of the total value of plant and equipment while striving to achieve a two (2%) percent target.. 2. Events or Conditions Prompting the Use of the Fund Reserves – The Board may designate use of this fund reserve after establishing that conditions exist as called out in the definition and purpose of the fundreserve. 3. Periodic Review Dates for Balances – Fund Reserve balances and target levels will be reviewed by staff and the Board during the preparation and approval of the annual budget. LIQUIDITY OPERATING RESERVES FUNDS Liquidity Funds will be comprised of the following sub-accounts: the Rate Stabilization Fund and the Operating Reserve. The balance in the Liquidity Funds will fluctuate depending on the annual operating expenses. The maximum balance in the Liquidity Funds will be equal EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Reserve Funds Policy Original Approval Date: August 10, 2010 Last Revised: February 28, 2024 Policy No: 7.2 Page 6 of 7 to 180 days of the annual budgeted operating expenses. A. Rate Stabilization Fund -This fund is established to provide flexibility to the Board when setting rates to allow for absorbing temporary rate fluctuations or for one-time expenditures. 1. Target Level - This fund shall be maintained at a minimum level of 45 days of the annual budgeted operating expenses. The maximum level of this fund shall not exceed 60 days of the annual budgeted operating expenses. 2. Events or Conditions Prompting the Use of the Fund - This fund is intended to be used to defray any temporary unforeseen and extraordinary increases in the cost of water supply. The Board, on a case by case basis, will determine the amount and timing for any use of the fund. 3. Periodic Review Dates for Balances - Fund balances will be reviewed by staff and the Board during the preparation and approval of the annual budget. B.A. Operating Reserve – The Operating Reserve is used for unanticipated operating expenses. This fund reserve is designated by the Board to maintain working capital for current operations and to meet routine cash flow needs. 1. Target Level – Funding shall be targeted at a minimum amount equal to 90 days of the District's budgeted total operating expenses, and the maximum amount shall not exceed 120 days of the budgeted total operating expenses. 2. Events or Conditions Prompting Use of the Fund Reserve – This reserve may be routinely utilized by staff to cover temporary cash flow deficiencies caused by timing differences between revenue and expenses and extraordinary decreases in revenues and unexpected increases in expenses. 3. Periodic Review Dates for Balances – Fund Reserve balances and target level will be reviewed by staff and the Board during the preparation and approval of the annual budget. Investment Guidelines EAST VALLEY WATER DISTRICT Administrative Policies & Programs Policy Title: Reserve Funds Policy Original Approval Date: August 10, 2010 Last Revised: February 28, 2024 Policy No: 7.2 Page 7 of 7 It has been the District’s practice to rely primarily on a pay-as-you-go (pay-go) strategy to fund capital improvements and replacement of existing assets. However, maintaining a balance between debt and pay-go sources may provide an added benefit to the District in terms of allowing for a more optimal investment strategy. In the context of these policies and in circumstances where such balance is present, the investment portfolio can be separated into short and long portfolios to maximize investment returns. The balance in the Liquidity FundsOperating Reserves should be kept in short-term investments. Monies in the Capital FundsReserves, however, may be invested for a longer horizon as the funds reserves are needed in the later years. Delegation of Authority The Board has sole authority to amend or revise the Reserve Funds Policy. Through approval of this Policy, the Board has established written procedures for staff to follow in the management of East Valley Water District’s Funds.