AGENDA YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS WORKSHOP MEETING Thursday, June 8, 2017, 4:00 PM 1717 E Miraloma Ave, Placentia CA 92870

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1 AGENDA YORBA LINDA WATER DISTRICT BOARD OF DIRECTORS WORKSHOP MEETING Thursday, June 8, 2017, 4:00 PM 1717 E Miraloma Ave, Placentia CA CALL TO ORDER 2. PLEDGE OF ALLEGIANCE 3. ROLL CALL J. Wayne Miller, President Al Nederhood, Vice President Andrew J. Hall, Director Phil Hawkins, Director Brooke Jones, Director 4. PUBLIC COMMENTS Any individual wishing to address the Board is requested to identify themselves and state the matter on which they wish to comment. If the matter is on the agenda, the Board will recognize the individual for their comment when the item is considered. No action will be taken on matters not listed on the agenda. Comments are limited to matters of public interest and matters within the jurisdiction of the Water District. Comments are limited to three minutes. 5. DISCUSSION ITEMS This portion of the agenda is for matters that cannot reasonably be expected to be concluded by action of the Board of Directors at the meeting, such as technical presentations, drafts of proposed policies, or similar items for which staff is seeking the advice and counsel of the Board of Directors. Time permitting, it is generally in the District s interest to discuss these more complex matters at one meeting and consider formal action at another meeting. This portion of the agenda may also include items for information only Revenues and Reserves for FY 2018 (Materials to be provided at the meeting.) 6. ADJOURNMENT 6.1. The next Regular Board of Directors Meeting will be held Tuesday, June 13, Closed Session (if necessary) will begin at 5:30 p.m. and regular business at 6:30 p.m. Items Distributed to the Board Less Than 72 Hours Prior to the Meeting Pursuant to Government Code section , non-exempt public records that relate to open session agenda items and are distributed to a majority of the Board less than seventy-two (72) hours prior to the meeting will be available for public inspection in the lobby of the District s business office located at 1717 E. Miraloma Avenue, Placentia, CA 92870, during regular business hours. When practical, these public records will also be made available on the District s internet website accessible at Accommodations for the Disabled

2 Any person may make a request for a disability-related modification or accommodation needed for that person to be able to participate in the public meeting by telephoning the Executive Secretary at , or writing to Yorba Linda Water District, P.O. Box 309, Yorba Linda, CA Requests must specify the nature of the disability and the type of accommodation requested. A telephone number or other contact information should be included so the District staff may discuss appropriate arrangements. Persons requesting a disability-related accommodation should make the request with adequate time before the meeting for the District to provide the requested accommodation.

3 AGENDA REPORT ITEM NO. 5.1 Meeting Date: June 8, 2017 Subject: Revenues and Reserves for FY 2018 (Materials to be provided at the meeting.) ATTACHMENTS: Name: Description: Type: Budget_Presentation.pdf Backup Material Backup Material Draft_Financial_Reserves_Policy.pdf Backup Material Backup Material Target_Levels_for_Reserve_Policy.pdf Backup Material Backup Material

4 Budget Workshop #4 FY 2017/18 Presented By: Marc Marcantonio, General Manager Delia Lugo, Finance Manager Cindy Botts, Management Analyst June 8,

5 Presentation Overview 1. Revenue a. Assumptions b. CY & FY18 Projections, by Category 2. Reserves a. Purpose b. Current Target Levels c. Proposed Target Levels d. Discussion for Drafting of Reserve Policy 2

6 Assumptions for Budgeted Revenue FY17 Projected Year End Total Volumetric Revenue: Increase of 10.5% from Prior Year FY18 Budget 15% Bounce Back in Total Volumetric Revenue No Increase in Water Consumption Rate ($2.70/ unit) Increase of 8% in Sewer Rate No Change in Water Service Fees (Meter by Size) 3

7 Water Purchase/Demand Comparisons FY16 Budget FY16 Actual FY17 Budget FY17 Forecast FY18 Budget AF 16,534 15,743 17,696 17,949 18,170 Demand Recovery 12% 13.6% 15% 4

8 Yorba Linda Water District Water & Sewer Enterprise Draft of FY 2017/18 Operating Budget FY15 Actual FY16 Actual FY17 Budget FY17 Forecast FY18 Budget Revenue (Operating): Water Revenue (Residential) $ 15,461,640 $ 12,847,842 $ 13,907,406 $ 13,484,040 $ 14,278,688 Water Revenue (Commercial & Fire Det.) $ 1,913,712 $ 1,711,104 $ 1,874,818 $ 1,799,872 $ 2,071,031 Water Revenue (Landscape/Irrigation) $ 4,058,308 $ 2,700,775 $ 2,998,777 $ 3,261,264 $ 3,079,054 Service Charges $ 5,012,958 $ 10,560,917 $ 10,036,923 $ 10,116,996 $ 10,106,238 Sewer Charge Revenue $ 1,582,061 $ 1,584,348 $ 1,852,837 $ 1,877,616 $ 2,032,245 Sewer Parcel Assessments $ 193,615 $ 201,500 $ 198,400 $ 216,785 $ 223,000 Other Operating Revenue * $ 1,461,103 $ 2,632,499 $ 654,825 $ 1,010,402 $ 866,161 Total Operating Revenue $ 29,683,397 $ 32,238,985 $ 31,523,986 $ 31,766,976 $ 32,656,417 Revenue (Non-Operating): Interest $ 187,316 $ 273,006 $ 115,000 $ 306,128 $ 308,000 Property Tax $ 1,496,489 $ 1,615,454 $ 1,450,000 $ 1,675,275 $ 1,600,000 Other Non-Operating Revenue $ 744,572 $ 757,466 $ 616,525 $ 517,744 $ 624,521 Total Non-Operating Revenue $ 2,428,377 $ 2,645,926 $ 2,181,525 $ 2,499,148 $ 2,532,521 Total Revenue $ 32,111,774 $ 34,884,911 $ 33,705,511 $ 34,266,124 $ 35,188,938 5

9 Yorba Linda Water District Water Enterprise Draft of FY 2017/18 Operating Budget FY15 Actual FY165 Actual FY17 Budget FY17 Forecast FY18 Budget Water Revenue (Residential) $ 15,461,640 $ 12,847,842 $ 13,907,406 $ 13,484,040 $ 14,278,688 Water Revenue (Commercial & Fire Det.) $ 1,913,712 $ 1,711,104 $ 1,874,818 $ 1,799,872 $ 2,071,031 Water Revenue (Landscape/Irrigation) $ 4,058,308 $ 2,700,775 $ 2,998,777 $ 3,261,264 $ 3,079,054 Service Charges $ 5,012,958 $ 10,560,917 $ 10,036,923 $ 10,116,996 $ 10,106,238 Other Operating Revenue * $ 1,312,232 $ 2,596,208 $ 617,654 $ 842,734 $ 769,106 Total Operating Revenue $ 27,758,850 $ 30,416,846 $ 29,435,578 $ 29,504,907 $ 30,304,117 Revenue (Non-Operating): Interest $ 168,872 $ 265,006 $ 100,000 $ 271,749 $ 275,000 Property Taxes $ 1,496,489 $ 1,615,454 $ 1,450,000 $ 1,675,275 $ 1,600,000 Other Non-Operating Revenue $ 715,022 $ 745,541 $ 604,600 $ 404,200 $ 604,646 Total Non-Operating Revenue $ 2,380,383 $ 2,626,001 $ 2,154,600 $ 2,351,224 $ 2,479,646 Total Revenue $ 30,139,233 $ 33,042,847 $ 31,590,178 $ 31,856,131 $ 32,783,763 6

10 Comparison of Total Water Revenues $33,500,000 $31,500,000 $29,500,000 $32,091,004 $33,042,847 $31,590,178 $32,294,666 $32,783,763 $30,139,233 $27,500,000 FY14 Actual FY15 Actual FY16 Actual FY17 Budget FY17 Forecast FY18 Budget 7

11 Current Trends in Water Usage Residential Usage: Relatively flat, from a low of units/mo to a high of units/mo Commercial Usage: Relatively flat, from a low of units/mo to units/mo Landscape Usage: Large swings based on weather, from a low of units/mo to units/mo. 8

12 Total Revenues: FY17 Forecast to FY18 Budget 9

13 Composition of Other Water Revenue Category $6,000,000 $5,222,209 $5,000,000 $745,541 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 $3,718,708 $3,692,615 $1,615,454 $715,022 $1,255,176 $265,006 $1,496,489 $1,394,722 $168,872 $2,596,208 $131,833 $1,312,232 $936,977 $2,772,254 $3,632,493 $3,248,752 $842,734 $604,646 $604,600 $1,675,275 $1,600,000 $1,450,000 $271,749 $275,000 $100,000 $617,654 $842,734 $769,106 FY14 Actual FY15 Actual FY16 Actual FY17 Budget FY17 Forecast FY18 Budget Other Operating Revenue Interest Income Property Taxes Other Non-Operating 10

14 Yorba Linda Water District Sewer Enterprise Draft FY 2018 Operating Budget FY15 Actual FY16 Actual FY17 Budget FY17 Forecast FY18 Budget Revenue (Operating): Sewer Charge Revenue $ 1,582,061 $ 1,669,370 $ 1,852,837 $ 1,877,616 $ 2,032,245 Sewer Parcel Assessments $ 193,615 $ 179,744 $ 198,400 $ 216,785 $ 223,000 Other Operating Revenue $ 148,871 $ 69,627 $ 37,171 $ 167,667 $ 97,055 Total Operating Revenue $ 1,924,547 $ 1,918,741 $ 2,088,408 $ 2,262,068 $ 2,352,300 Revenue (Non-Operating): Interest $ 18,444 $ 23,811 $ 15,000 $ 34,380 $ 33,000 Other Non-Operating Revenue $ 29,550 $ 126,879 $ 11,925 $ 113,545 $ 19,875 Total Non-Operating Revenue $ 47,994 $ 150,690 $ 26,925 $ 147,924 $ 52,875 Total Revenue $ 1,972,541 $ 2,069,431 $ 2,115,333 $ 2,409,993 $ 2,405,175 11

15 Comparison of Total Sewer Revenues $2,500,000 $2,000,000 $1,500,000 $1,000,000 $1,960,974 $1,972,541 $2,069,431 $2,115,333 $2,409,993 $2,405,175 $500,000 $0 FY14 Actual FY15 Actual FY16 Actual FY17 Budget FY17 Forecast FY18 Budget 12

16 Total Revenues: FY17 Forecast to FY18 Budget 13

17 Composition of Other Sewer Revenue Category $350,000 $315,592 $300,000 $250,000 $220,317 $113,545 $200,000 $194,372 $196,865 $150,000 $70,509 $29,550 $18,444 $126,879 $34,380 $149,930 $19,875 $100,000 $13,215 $148,871 $23,811 $64,096 $167,667 $33,000 $50,000 $110,648 $69,627 $11,925 $15,000 $97,055 $37,171 $0 FY14 Actual FY15 Actual FY16 Actual FY17 Budget FY17 Forecast FY18 Budget Other Operating revenue Interest Income Other Income 14

18 Reserve Policy 15

19 FY 18 Reserve Policy Timeline 6/8/17: Discussion of Policy Changes- Budget Workshop #4 6/19/17: Results of the Policy Changes- Budget Workshop #5 6/27/17: Presentation to the Board for Approval- Board meeting 16

20 Overview Reserves A key element of prudent financial planning. A Reserve Policy exists to ensure an agency has sufficient funds to meet current and future needs by setting reserve target levels of funding. Reserve Fund Types: General Operating Funds that accumulate from day-to-day operations that have not otherwise been designated or restricted. Designated Reserves Established by action of the Board and designated for specific purposes. These funds are utilized to fund future such things as capital facilities, repair and replacement of existing assets, economic uncertainties, local disasters and other financial hardships in the local or state economy. Restricted Reserves Restrictions on the use of the funds are imposed by an outside source such as creditors, grantors, laws or regulations governing use. 17

21 Purpose Provides a general framework that adjusts to the changing political and economic environments. Establishes policy objectives that build adequate reserves to provide sufficient liquidity to withstand economic and operational fluctuations. Should not be seen as surplus funds, but necessary the short- and long-term operation of an agency. (2005 ACWA Policy Principals for Reserve Funds) 18

22 Target Levels Recommended to have both minimum and maximum thresholds when calculating reserve levels. Ensures an agency will meet the Reserve Policy requirements Assures the rating agencies there will be an adequate amount of savings for possible emergencies or operational and capital fluctuations 19

23 Rating Agencies Credit rating agencies view reserve target levels as accessible benchmarks Support current operating, capital and debt service needs Provide additional financial flexibility, especially during emergency situations. 20

24 Rating Agencies During a rate review or surveillance, they monitor an agency s status of operations and finances and evaluate the reserve levels To determine if the active Reserve Policy is being adhered to and that liquidity needs can be met. Adequate reserves directly affect an agency s bond rating, and ultimately its ability to borrow money at affordable interest rates. Ensures the ability to finance and construct infrastructure necessary to improve existing systems and expand service levels to meet future needs. 21

25 Reserves, 1 of 2 Reserves YLWD Current Fieldman Recommended Available as of May 31, 2017 Min Target Min Target Board Designated Reserves: Operating Reserve Water $2,220,928 $4,719,472 $6,940,401 $13,880,801 $8,326,943 Sewer $122,951 $261,271 $384,223 $768,445 $412,012 Emergency Reserve Water $1,000,000 $4,000,000 $1,155,720 $3,467,160 $1,046,197 Sewer $250,000 $1,000,000 $382,043 $1,146,128 $1,002,124 Capital Replacement Reserve Water $1,820,000 $1,820,000 $7,950,845 $15,461,136 Sewer $350,000 $345,000 $345,000 $3,014,516 Maintenance Reserve Water $200,000 $300,000 $201,674 Sewer $0 $200,000 $0 Administration Reserve Water $0 $0 $200,000 $200,000 $0 Rate Stabilizatio Reserve Water $0 $0 $1,476,751 $5,907,002 $0 Debt Service Reserve Water $2,723,509 $0 $0 $2,779,104 Employee Liability Reserve Water $372,000 $465,000 $372,049 Sewer $28,000 $35,000 $28,199 Total Water Unrestricted Reserve Balance $8,336,437 $13,834,981 $12,357,871 $32,170,808 $28,187,103 Total Sewer Unrestricted Reserve Balance $750,951 $1,639,271 $1,346,265 $2,494,573 $4,456,851 Total Reserve Requirements (Unrestricted) $9,087,388 $15,474,253 $13,704,136 $34,665,381 $32,643,954 22

26 Reserves, 2 of 2 Restricted Reserves: Conservation Reserve Water $1,323,294 $1,323,294 $1,323, A Acquisition Reserve Fairmont BPS $5,489,098 $5,489,098 $5,489, COP Reserve Water $0 $0 $0 Total Water Restricted Reserve Balance $6,812,392 $6,812,392 $6,812,392 $6,812,392 $6,812,392 Total Sewer Restricted Reserve Balance $0 $0 $0 $0 $0 Total Reserve Requirements (Restricted) $6,812,392 $6,812,392 $6,812,392 $6,812,392 $6,812,392 Total Reserve Requirements $15,899,780 $22,286,645 $20,516,528 $41,477,773 $39,456,346 23

27 RESERVE POLICY A. GENERAL POLICY: Maintaining adequate reserves is an essential part of sound financial management. The Yorba Linda Water District Board of Directors realizes the importance of reserves in providing reliable service to its customers, financing of long-term capital projects and funding availability for emergencies should the need arise. Interest derived from reserve balances shall be credited to the reserve account from which it was earned. B. CATEGORIES: Yorba Linda Water District (YLWD or District) shall accumulate, maintain and segregate its reserve funds into the following categories: 1. Board Designated Reserves; and 2. Contractually Restricted Reserves. C. SCOPE: This policy will assist the Board of Directors in establishing: 1. Target levels for reserve funds; 2. Requirements for the use of reserve funds; and 3. Periodic review requirements for each reserve. D. PERIODIC REVIEW: Staff and the YLWD Board shall review the reserve balances and targets annually as a part of the annual budget process. The Finance Staff will continue to review all reserve and investment balances monthly, with a quarterly report going to the full Board. E. RESTRICTED AND DESIGNATED RESERVES: 1. Board Designated Reserves: These are reserve funds earmarked for the purpose of funding such items as new capital facilities, repair or replacement of existing facilities and general operating reserves designated for a specific purpose and use by the Board of Directors. 1.0 Operating Reserve A. Definition and Purpose Established to cover temporary cash flow deficiencies that occur as a result of timing differences between the receipt of operating revenue and expenditure requirements and unexpected expenditures occurring as a result of doing business., 2017 Page 1 of 5

28 B. Target Level The District s current target will be a minimum of 25% and a maximum of 50% of the annual operating budget, including interest expense, for both the water and sewer funds. In the event this fund falls below its minimum funding level, the Board will act to restore the balance above the minimum funding level within twelve (12) months from the date that the fund fell below the minimum level. C. Events or Conditions Prompting the Use of the Operating Reserve This reserve may be utilized as needed to pay outstanding operating expenditures prior to the receipt of anticipated operating revenues. 1.1 Emergency Reserve A. Definition and Purpose Established to provide protection recovery to the District and its customers for losses arising from an unplanned event or circumstance (i.e. fires, earthquakes or financial emergencies). The reserve level combined with YLWD s existing insurance policies should adequately protect YLWD and its customers in the event of a loss. B. Target Level Established at a minimum level equal to 1% and a maximum level equal to 2% of the net capital assets for both the District s water and sewer funds. In the event this fund falls below its minimum funding level, the Board will act to restore the balance above the minimum funding level within twelve (12) months from the date that the fund fell below the minimum level. C. Events or Conditions Prompting the Use of the Emergency Reserve This reserve shall be utilized to cover unexpected losses experienced by the District as a result of a disaster or other unexpected loss. Any reimbursement received by the District from insurance companies as a result of a submitted claim shall be deposited back into the reserve as replenishment for the loss. 1.2 Capital Replacement Reserve A. Definition and Purpose Established to provide funding for general use on capital projects as well as capital repair and replacement funding as the District s infrastructure deteriorates over its expected useful life. B. Target Level The Board-approved 2010 Asset Management Plan recommended that the minimum level equal $1,820,000 for the water fund and $345,000 for the sewer fund. The target level for each reserve fund is at least 100% of the current Fiscal Year capital budget plus 100% of the subsequent Fiscal Year capital budget. The target levels in these reserve funds will fluctuate depending on the capital improvement plan and timing of the projects. Therefore, no maximum level will be established. In the event these fund falls below the minimum funding level, the Board will act to restore the balance above the minimum funding level within twelve (12) months from the date that the fund fell below the minimum level. C. Events or Conditions Prompting the Use of the Capital Replacement Reserve Through the annual budget process, staff shall recommend anticipated asset, 2017 Page 2 of 5

29 D. replacement and capital improvement projects. The Board of Directors shall take action to approve recommended project appropriations from the capital replacement reserve. Should unplanned replacement be necessary during any fiscal year, the Board of Directors may take action to amend the budget and appropriate needed funds as required. 1.3 Maintenance Reserve A. Definition and Purpose Established to provide funding for non-scheduled capital asset repair and replacement. B. Target Level Established at a minimum level of $200,000 for the water fund and $100,000 for the sewer fund. In the event this fund falls below its minimum funding level, the Board will act to restore the balance above the minimum funding level within twelve (12) months from the date that the fund fell below the minimum level. The maximum target levels for this reserve fund is $300,000 for the water fund and $200,000 for the sewer fund. C. Events or Conditions Prompting the Use of the Maintenance Reserve Unplanned failure of assets including but not limited to pumps, motors and major facility repairs. 1.4 Administrative Reserve A. Definition and Purpose Established to provide funding to partially or fully fund certain general and administrative projects on a pay-as-you-go basis. B. Target Level $200,000 subject to an annual review. In the event this fund falls below its minimum funding level, the Board will act to restore the balance above the minimum funding level within twelve (12) months from the date that the fund fell below the minimum level. C. Events or Conditions Prompting the Use of the Administrative Reserve Planned or unplanned replacement of short-term assets including but not limited to software, computers and office furniture. 1.5 Rate Stabilization Reserve A. Definition and Purpose Established to assist in smoothing out water rate increases. This reserve is governed by the District s bond covenants and funds deposited into this reserve are treated as operating revenues in the fiscal year designated by the District and will be treated as such in fiscal years of such designation for the purposes of computing the District's debt service coverage ratio. B. Target Level Established at a maximum level of 20% of budgeted water sales for the current fiscal year. The District has the option of not funding the Rate Stabilization Reserve if such is deemed appropriate by the Board based upon a recommendation from Staff., 2017 Page 3 of 5

30 C. Events or Conditions Prompting the Use of the Rate Stabilization Reserve The reserve can be used during any year where other revenues are not sufficient to meet the required debt service coverage ratio or when the maximum level in the reserve is reached. 1.6 Employee Liabilities Reserve A. Definition and Purpose The purpose is to cover employees accrued vacation and other compensatory time and to ensure the complete funding associated with the liability incurred for employees whom have met the requirements necessary for district paid health benefits at retirement. B. Target Level The annual contribution will be $100,000 ($93,000 for water and $7,000 for sewer) to be evaluated and/or adjusted annually thereafter based on an analysis of current employees vacation and sick time accrued and actuarial determinations of future retiree costs. As of July 1, 2015, an actuary determined that the District s Other Post Employment Benefit (OPEB) liability was $2,136,644. When combined with a liability on the District s books for vacation, compensatory and sick time of $1,204,595 at June 30, 2016, the target is projected to be approximately $3,341,239 for the combined water and sewer enterprises. C. Events or Conditions Prompting the Use of the Employee Liabilities Reserve This reserve may be used in the event that operating funds are not adequate to meet vacation, compensatory and sick time paid out or retiree medical cost obligations within the current year. 2. Contractually Restricted Reserves: These are funds held to satisfy limitations set by external requirements established by creditors, grant agencies or law. Examples include stipulated bond covenants and reserves held with a fiscal agent. 2.0 US Bank 2008 COP Reserve A. Definition and Purpose Established to cover reserve requirements held with a designated fiscal agent (US Bank) for the 2008 Certificates of Participation. B. Target Level Funding shall be held in an amount equal to $2,147,096. C. Events or Conditions Prompting the Use of the Contractually Restricted Reserve This reserve may be utilized as needed by the fiscal agent to pay any outstanding debt service payments not covered by the District within the specified billing and due dates. 2.1 Conservation Reserve A. Definition and Purpose Established to provide funding for District-wide conservation efforts., 2017 Page 4 of 5

31 B. Target Level Funding shall be established as the net result of administrative penalties assessed less allowed expenditures of each fiscal year. C. Events or Conditions Prompting the Use of the Conservation Reserve This reserve may be used to fund district-wide conservation efforts in relation to, but not limited to, salary and related, maintenance, and material expenses for leak detection, conservation efforts, and other allowable expenses outside the normal cost of service for each fiscal year. End of Policy Document, 2017 Page 5 of 5

32 Current and Recommended Reserve Target Levels Unrestricted Reserves YLWD Current RFC Recommended Fieldman Recommended Min Target Target Min Target Operating Reserve Water 8% of O&M 17% of O&M 25% of O&M 25% of O&M+ DS Int 50% of O&M+DS Int Sewer 8% of O&M 17% of O&M 25% of O&M 25% of O&M 50% of O&M Emergency Reserve Water $1,000,000 $4,000,000 $10,000,000 1% Net Position of capital costs CAFR 3% Net Positon of capital costs CAFR Sewer $250,000 $1,000,000 $3,000,000 1% Net Position of capital costs CAFR 3% Net Positon of capital costs CAFR Capital Replacement Reserve 2% asset value at At least 2 years of Water $1,820,000 Replacement Costs $1,820,000 CIP Budget Sewer $350,000 2% asset value at Replacement Costs $345,000 At least 2 years of CIP Budget Maintenance Reserve Water $200,000 $200,000 $200,000 $300,000 Sewer $0 $0 $100,000 $300,000 Administration Reserve Water $0 $0 $200,000 Rate Stabilization Reserve Water $0 15% Commodity Revenues 20% of Budgeted Water Sales Debt Service Reserve Water $2,723,509 $2,723,509 $0 Employee Liability Reserve Annual Contribution of Water $93,000 $93,000 $93,000 Sewer $7,000 $7,000 $7,000 Restricted Reserves YLWD Current RFC Recommended Fieldman Recommended Min Target Target Min Target Conservation Reserve Water $1,323,295 $0 $1,323, COP Debt Service Reserve Water $2,147,096 $2,147,096 $0 2017A Acquisition Reserve Water $0 $0 $5,489,098