DELTA CONVEYANCE FINANCE AUTHORITY BOARD OF DIRECTORS MEETING REGULAR MEETING. Thursday, August 16, :00 a.m.

Transcription

1 DELTA CONVEYANCE FINANCE AUTHORITY BOARD OF DIRECTORS MEETING REGULAR MEETING Thursday, August 16, :00 a.m. Sacramento Public Library, Tsakopoulos Library Galleria 828 I Street, Sacramento, CA Telephone Participation: The Metropolitan Water District of Southern California 700 N. Alameda St, Room Los Angeles CA AGENDA Assistance will be provided to those requiring accommodations for disabilities in compliance with the Americans with Disabilities Act of Interested person must request the accommodation at least two working days in advance of the meeting by contacting support staff at (916) or lstandlee@dcfinanceauthority.org California Environmental Quality Act (CEQA) Notice: Discretionary actions taken by the Delta Conveyance Finance Authority are in furtherance of financing the design and construction of the California WaterFix project. The Board of Directors of the Finance Authority, acting as a Responsible Agency under CEQA, determined that it has reviewed and considered Lead Agency DWR s Final Environmental Impact Report and Addendum for the California Water Fix Project and adopted DWR s CEQA determinations, and filed Notices of Determination in compliance with CEQA in July CALL TO ORDER 2. PLEDGE OF ALLEGIANCE 3. ROLL CALL 4. PUBLIC COMMENT Members of the public may address the Authority on matters that are within the Authority s jurisdiction but are not on the agenda today. Speakers are limited to three minutes each. Persons wishing to speak are requested to complete speaker cards. The Board Chair will call individuals to the podium in turn. Speaker comments should be limited to three minutes or as set by the Chair. The law does not permit Board action on, or extended discussion of, any item not on the agenda except under special circumstances. If Board action is requested, the matter may be placed on a future agenda. All comments that require a response will be referred to staff for a reply in writing. The Board may take action on any item of business appearing on the posted agenda. 5. OTHER MATTERS a. Appointment of Treasurer/Controller b. Discussion of Brown Act and Board Representation

2 DELTA CONVEYANCE FINANCE AUTHORITY BOARD MEETING AGENDA August 16, CONSENT CALENDAR Items on the Consent Calendar are considered to be routine by the Board of Directors and will be enacted by one motion and one vote. There will be no separate discussion of these items unless a director so requests, in which event the item will be removed from the Consent Calendar and considered separately. a. Approval of the minutes from the meeting of July 19, SCHEDULED ITEMS a. Consider and approve the operating budget for fiscal year ending June 30, 2019 and approve equal assessments to each member agency to fund the 2018/19 budget b. Approve Resolution 18-3, adopting a debt management policy c. Approve Resolution 18-4, adopting an investment policy 8. REPORTS AND ANNOUNCEMENTS a. Executive Director Report 9. FUTURE AGENDA ITEMS 10. ADJOURNMENT 2

3 Agenda Item 6a 1. CALL TO ORDER BOARD OF DIRECTORS MEETING MINUTES REGULAR MEETING Thursday, July 19, :00 am (Paragraph numbers coincide with agenda item numbers) The first regular meeting of the Delta Conveyance Finance Authority (DC Finance Authority) Board of Directors was called to order in the State Water Contractors Conference Room, 1121 L Street, Suite 1050, Sacramento, CA 95814, at 11:00 a.m. 2. PLEDGE OF ALLEGIANCE Chairperson Pryor led all present in reciting the Pledge of Allegiance. 3. ROLL CALL Board members in attendance were Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen. Staff members in attendance were Brian Thomas. 4. PUBLIC COMMENT Chairperson Pryor declared public comment open, limiting speaking time to three minutes, each. Ms. Barbara Barrigan Parrilla, Restore the Delta, expressed opposition to moving forward on financing the California WaterFix Project based on an unknown water supply, due to lack of modeling of climate change conditions past Chairperson Pryor closed the Public Comment. 5. OTHER MATTERS 5.a. Introduction of Board Members Chairperson Pryor introduced the DC Finance Authority Board members. 5.b. Election of Board Officers Chairperson Pryor requested nominations for Board President. Motion: Move to Approve: Second: Nomination of Randy Record for Board President Gary Kremen Jeff Davis Page 1

4 Agenda Item 6a Yeas: Nays: Abstains: Recusals: Absent: Summary: Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) Board President Record requested nominations for Board Vice President. Motion: Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: Nomination of Gary Kremen for Board Vice President Paul Sethy Valerie Pryor Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) Board President Record requested nominations for Board Secretary. Motion: Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: Nomination of Jeff Davis for Board Secretary Randy Record Valerie Pryor Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) 5.c. Adopt Resolution 18-1 designating regular meeting time and place. Recommendation: Meetings to be held at 11:00 a.m. on the third Thursday of every January, April, July, and October of each year, at 1121 L Street, Suite 1045, Sacramento, CA 95814, unless otherwise modified by the Board. Board President Record suggested that in lieu of meeting the third Thursday of every January, April, July, and October of each year, consideration should be given to meeting monthly on the third Thursday, to coincide with the Delta Conveyance Design and Construction Authority meetings, as well as to address the amount of work needed to stand up the DC Finance Authority. Motion: DC Finance Authority Board to meet the third Thursday of each month at 11:00 a.m., at 1121 L Street, Suite 1045, Page 2

5 Agenda Item 6a Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: Sacramento, CA 95814, unless otherwise modified by the Board. Jeff Davis Gary Kremen Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) 6. CONSENT CALENDAR: No Consent Calendar Items 7. SCHEDULED ITEMS 7.a. Adopt Resolution 18-2 adopting the CEQA determination for actions related to California Water Fix that the Board has reviewed and considered the BDCP/California WaterFix environmental documentation and adopts the lead agency s Findings of Fact, Statement of Overriding Considerations, Mitigation Monitoring and Reporting Program Recommendation: Motion: Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: Adopt the CEQA determination for actions related to California Water Fix that the Board has reviewed and considered the BDCP/California WaterFix environmental documentation and adopts the lead agency s Findings of Fact, Statement of Overriding Considerations, Mitigation Monitoring and Reporting Program Adopt the CEQA determination for actions pursuant to Joint Exercise of Powers Agreement with the Department of Water Resources that the Board has reviewed and considered the BDCP/California WaterFix Environmental Impact Report and related documents and adopts the lead agency s findings, SOC, and MMRP Jeff Davis Paul Sethy Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) 7.b. Authorize execution of professional service agreement with Michael Bell Management Consulting, Inc., for a not-to-exceed amount of $75,000 to retain the services of Brian Thomas as Interim Executive Director, and authorize Member Contributions for payment of invoices for said services, to be allocated equally among Members Page 3

6 Agenda Item 6a Recommendation: Authorize execution of professional service agreement with Michael Bell Management Consulting, Inc., for a not-toexceed amount of $75,000 to retain the services of Brian Thomas as Interim Executive Director, and authorize Member Contributions for payment of invoices for said services, to be allocated equally among Members Board President Record recused himself from this discussion noting he has done business with Mr. Thomas during the past year. Vice President Kremen took the gavel for this action. At the request of Board Member Davis, Mr. Thomas provided background information to the board on his professional experience. Motion: Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: Authorize execution of professional service agreement with Michael Bell Management Consulting, Inc., for a not-toexceed amount of $75,000 to retain the services of Brian Thomas as Interim Executive Director, and authorize Member Contributions for payment of invoices for said services, to be allocated equally among Members Davis Pryor Paul Sethy, Valerie Pryor, Jeff Davis, and Gary Kremen 1 (Randy Record) 4 Yeas; 0 Nays; 0 Abstains; 0 Absent, 1 Recusal. (Motion passed as MO ) 7.c. Authorize the Executive Director to negotiate and execute a services agreement with the Metropolitan Water District of Southern California to provide treasury/controller and accounting services in an amount not to exceed $30,000. Recommendation: Authorize the Executive Director to negotiate and execute a services agreement with the Metropolitan Water District of Southern California to provide treasury/controller and accounting services in an amount not to exceed $30,000. Executive Director Thomas reviewed the information on this item for the Board. Director Sethy suggested that in the long-term it could be useful to have these services conducted independently by the Finance Authority, rather than relying on one of the members. Motion: Move to Approve: Second: Yeas: Nays: Authorize the Executive Director to negotiate and execute a services agreement with the Metropolitan Water District of Southern California to provide treasury/controller and accounting services in an amount not to exceed $30,000. Davis Sethy Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen Page 4

7 Agenda Item 6a Abstains: Recusals: Absent: Summary: 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) 7.d. Report on Water Infrastructure Finance and Innovation Act (WIFIA) program and authorize the Executive Director to take actions to develop and submit a Letter of Interest to the U.S. Environmental Protection Agency for assistance under the WIFIA program to assist in financing the California WaterFix Recommendation: Authorize the Executive Director to take actions to develop and submit a Letter of Interest to the U.S. Environmental Protection Agency for assistance under the WIFIA program to assist in financing the California WaterFix. Executive Director Thomas provided a presentation and reviewed the information on this item for the Board. Motion: Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: Authorize the Executive Director to take actions to develop and submit a Letter of Interest to the U.S. Environmental Protection Agency for assistance under the WIFIA program to assist in financing the California WaterFix. Kremen Davis Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) 7.e. Authorize Executive Director to prepare and file all necessary documents related to the formation of a joint powers authority and to take other steps necessary and convenient limited to the creation of a public agency and that do not have a monetary obligation that exceeds $5,000. Recommendation: Authorize Executive Director to prepare and file all necessary documents related to the formation of a joint powers authority and to take other steps necessary and convenient limited to the creation of a public agency and that do not have a monetary obligation that exceeds $5,000. Executive Director Thomas reviewed the information on this item for the Board. Motion: Authorize Executive Director to prepare and file all necessary documents related to the formation of a joint powers authority and to take other steps necessary and convenient limited to the creation of a public agency and Page 5

8 Agenda Item 6a Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: that do not have a monetary obligation that exceeds $5,000. Davis Kremen Paul Sethy, Valerie Pryor, Randy Record, Jeff Davis, and Gary Kremen 5 Yeas; 0 Nays; 0 Abstains; 0 Absent. (Motion passed as MO ) 8. REPORTS AND ANNOUNCEMENTS 8.a. Executive Director Report Mr. Thomas discussed with the board the reasons for formation of the DC Finance Authority, anticipated initial work activities, and the next steps. Director Kremen noted that the Board may wish to consider the hiring of an outside Financial Advisor. 9. FUTURE AGENDA ITEMS: Board President Record requested future agenda items be raised at this time, noting that future agenda items should include, Treasurer/Controller, the JPA Structure, and the hiring of an Independent Financial Advisor. Director Sethy requested that the Board look at Executive Committee expansion, specifically looking at northern/southern California balance. Director Kremen requested that diversity be included as part of the DC Finance Authority s hiring process. 10. ADJOURNMENT: Board President Record adjourned the meeting at 10:54 a.m. Approved: Date: Move to Approve: Second: Yeas: Nays: Abstains: Recusals: Absent: Summary: Page 6

9 Agenda Item 7a 2018/19 Budget Delta Conveyance Finance Authority Board Meeting August 16, Delta Conveyance Finance Authority

10 Proposed 2018/19 Budget Item Object Proposed Budget 1 Executive Director Compensation $175,000 2 Professional Services 235,000 3 Accounting/Treasury Services 30,000 4 Insurance 35,000 5 Travel and Meeting 10,000 6 Materials and Supplies 10,000 7 Contingency 10,000 Total $505,000 2 Delta Conveyance Finance Authority

11 Recommendation That the Board approve the budget for Fiscal Year ending June 30, 2019 and approve equal assessments to each member agency to fund the 2018/19 budget, and authorize the Interim Executive Director to execute contracts and expenditures of up to $30, Delta Conveyance Finance Authority

12 Delta Conveyance Finance Authority Board Memo Contact: Brian Thomas, Interim Executive Director AGENDA DATE: August 16, 2018 Item No. 7a Subject: 2018/19 Budget Executive Summary Section 10 of the Joint Powers Agreement (JPA Agreement) states the Board of Directors may adopt an annual budget for administrative expenses, which shall include all expenses not included in any financing issue. These costs would be collected from each of the Finance Authority s members in three invoices, to be paid in September, January and April. Pursuant to the JPA Agreement, administrative costs that are approved by a majority vote of the Board are to be allocated equally among the Finance Authority members. As new members join the Finance Authority, these administrative costs will be reallocated to reflect equal shares among all members. The proposed budget for fiscal year 2018/19 includes potential expenditures for bond counsel, disclosure counsel and municipal advisory services that may or may not be paid from proceeds from a borrowing. The total budget, including disclosure counsel, bond counsel and municipal advisory fees equals $505,000. Detailed Report The proposed budget is shown in Table 1, and totals $505,000. The budget assumes that the Finance Authority will continue to receive in-kind services from Metropolitan Water District and State Water Contractors for administrative support (e.g., meetings, minutes, agendas, etc.) Each of the major categories are described in more detail as follows. Executive Director Compensation. This includes dollars for fees and expenses for the executive director, assuming that the existing contract is extended through the end of the fiscal year. If the WIFIA Letter of Interest is successful, this budget would likely be amended to reflect all of the activity associated with completing the application. In addition, should there be a debt issuance, the level of activity would also increase. Professional Services. This includes expenditures on bond and disclosure counsel, municipal advisors and the cost of retaining a general counsel. It is likely the bulk of bond counsel, disclosure counsel and municipal advisor fees will be paid out of the proceeds of a debt issuance or loan proceeds. But, given the need for work on the financing structure before any financing can be completed, some of the work by these professionals may be done on a time and materials basis. Until the Finance Authority has retained such professional services, these costs would not be included in the initial assessments to each of the Finance Authority members. Once arrangements for bond counsel, disclosure counsel and financial advisor have been made, any necessary changes to the budget and subsequent assessments would be implemented.

13 August 16, 2018 DC Finance Authority Board Meeting Agenda Item 7a Page 2 The expense for an interim general counsel is included to enable the Finance Authority to retain counsel to represent the Finance Authority and not be reliant on the Delta Conveyance Design Construction Authority or Finance Authority member counsel. Fees for the annual audit are also included as part of the Professional Services line item. Table 1. Proposed 2018/19 Budget Item Object Proposed Budget 1 Executive Director Compensation $ 175,000 2 Professional Services General Counsel 75,000 Bond Counsel (1) 50,000 Disclosure Counsel (1) 50,000 Municipal Advisor (1) 50,000 Audit 10,000 3 Accounting/Treasury Services 30,000 4 Insurance 35,000 5 Travel and Meeting 10,000 6 Materials and Supplies 10,000 7 Contingency 10,000 Total $ 505,000 (1) To be paid out of bond or loan proceeds Accounting/Treasury Services. This line item accounts for the costs for services from the Metropolitan Water District to provide accounting and treasury services (e.g., banking, check processing, etc.) This is consistent with the Board s action on July 19, Insurance. This is an estimate of the premium for liability and directors and officers insurance. Travel and Meeting. This expenditure reflects the cost of meeting rooms, travel (if any) for board members, and other similar expenses. Materials and Supplies. Materials and supplies includes basic office materials, supplies and costs for web hosting and other transparency initiatives. A contingency of $10,000 has been included in the proposed budget. Recommended Action That the Board adopt the Proposed Budget for fiscal year 2018/19 and authorize equal assessments for a total of $355,000 to be paid by each Finance Authority member in three equal installments, with additional assessments if needed up to $505,000, and that the Board authorize the Interim Executive Director to execute contracts and effectuate expenditures within the approved budget for up to $30,000 per fiscal year, including the contract for accounting/treasury services with Metropolitan.

14 Agenda Item 7b Debt Management Policy Delta Conveyance Finance Authority Board Meeting August 16, Delta Conveyance Finance Authority

15 SB 1029 Amended Code in 2017 Requires agencies to report proposed debt and certify: Agency has adopted a debt policy The proposed debt is consistent with that policy Debt management policy addresses: Uses of debt Types of debt Relationship of debt to capital and operating budgets Policy goals related to issuers planning goals Internal control procedures regarding use of proceeds 2 Delta Conveyance Finance Authority

16 Finance Authority Debt Purpose of debt is to help finance WaterFix Issue debt to purchase DWR WaterFix bonds Issue debt to finance capital projects Types of debt include: Long-term fixed rate bonds Variable rate bonds Short-term notes and commercial paper Bank loans Refunding bonds 3 Delta Conveyance Finance Authority

17 Policy Recognizes Authority Role Purpose. Finance Authority is organized to issue debt on behalf of others to support WaterFix Conduit. Finance Authority is a conduit financing agency and may rely on its members certification regarding things like consistency with capital planning, etc. Revenues. Finance Authority revenues will likely be from Installment Purchase/Sale Agreements with its members Taxes. Finance Authority has no power to levy taxes Laws and Regulations. Finance Authority will comply with all laws and regulations, including disclosure regulations Flexibility. Policy is designed to be flexible and can be amended to reflect new markets and changing conditions 4 Delta Conveyance Finance Authority

18 Recommendation That the Board approve Resolution 18-3, adopting a Debt Management Policy. 5 Delta Conveyance Finance Authority

19 Agenda Item 7b RESOLUTION NO RESOLUTION OF THE DELTA CONVEYANCE FINANCE AUTHORITY ADOPTING THE DEBT MANAGEMENT POLICY BACKGROUND In 1981 the California Legislature established the California Debt Advisory Commission as the State's clearinghouse for public debt issuance information and required it to assist state and local agencies with the monitoring, issuance and management of public debt. In 1996 the Legislature changed the name to the California Debt and Investment Advisory Commission (CDIAC) and expanded its mission to cover public investment and to provide information, education and technical assistance on debt issuance and public fund investments to local agencies and public finance professionals. In September 2016 the Legislature enacted Senate Bill 1029 which became effective January 1, 2017, which further amended the CDIAC requirements. In particular, Government Code Section 8855(i) was amended to require that all governmental entities establish a Debt Management Policy ( Debt Policy ) if any form of debt is being contemplated or anticipated to be issued by the entity. Government Code Section 8855(i), as amended by SB 1029, requires: CDIAC to track and report on all state and local outstanding debt until fully repaid or redeemed. The report of proposed debt include a certification by the issuer that it has adopted local debt policies, which include specified provisions concerning the use of debt and that the contemplated debt issuance is consistent with those local debt policies. A state or local public agency to submit an annual report for any issue of debt. The proposed Debt Policy meets all of the requirements of SB 1029, yet preserves flexibility for the Delta Conveyance Finance Authority (Authority) in managing its debt. Establishing the proposed Debt Management Policy is a necessary part of the Authority s efforts to support the financing of the California WaterFix, and is timely as the Authority recently submitted a letter of interest for a loan under the Water Infrastructure and Innovation Act (WIFIA) program. It is necessary for the Board to consider and adopt a debt management policy that meets the requirements of Government Code section 8855(i), as amended by SB The Debt Policy presented with this agenda report meets these State Law requirements, while, as noted, also preserves flexibility for the Authority in the management of its debt.

20 RESOLUTION NO DEBT MANAGEMENT POLICY RESOLUTION The Board finds that the attached Debt Management Policy meets the requirements of Government Code section 8855(i), as amended by SB 1029, and complies with Senate Bill 1029 requirements, and adopts this Debt Management Policy to: 1. Ensure the Authority has the flexibility to respond to possible changes in future obligations, revenues, and operating expenses; 2. Ensure that all debt is structured in order to protect both current and future ratepayers and the Authority members and their ratepayers or member entities; 3. Minimize debt service commitments through efficient planning; 4. Achieve the highest practical credit ratings, as applicable; and 5. Ensure the Authority is in compliance with all relevant State and Federal securities laws and other applicable laws and regulations. The Secretary of the Board of Directors shall certify to the passage and adoption of this Resolution. * * * * * This Resolution, passed and adopted this day of August, 2018, by the following vote: Ayes: Noes: Absent: Abstain: Attest: Randy Record, Board President Jeff Davis, Secretary 2

21 Delta Conveyance Finance Authority Debt Management Policy Agenda Item 7b (Attachment) 1. Introduction This Debt Policy provides guidelines for debt issuance, management and post issuance related policies and procedures for the Delta Conveyance Finance Authority (Authority). This Debt Policy may be amended by the Board as it deems appropriate from time to time in the prudent management of the debt and financing needs of the Authority. 2. Purpose The purpose of this Debt Policy is to establish guidelines and parameters for the effective governance, management and administration of debt and other financing obligations issued by the Authority. This Debt Policy is intended to improve and direct decision making, assist with the structure of debt issuance, identify policy goals, and demonstrate a commitment to long-term financial planning. Adherence to a debt policy helps to ensure the Authority s debt is issued and managed prudently in order to maintain a sound financial position and credit worthiness. When used in this Debt Policy, debt refers to all indebtedness and financing obligations of the Authority. 3. Debt Policy Objective This Debt Policy is intended to comply with the requirements of Senate Bill 1029 (SB 1029), codified as part of Government Code Section 8855(i), effective on January 1, 2017 and shall govern all debt undertaken by the Authority. The primary objectives of the Authority's debt and financing related activities are to: A. Ensure the Authority has the flexibility to respond to possible changes in future financing needs on behalf of its members and the California WaterFix; B. Ensure that all debt is structured in order to protect both current and future member agencies of the Authority and their ratepayers or member entities; C. Minimize debt service commitments through efficient planning and cash management. D. Protect the Authority's credit worthiness and achieve the highest practical credit ratings, when applicable; and E. Ensure the Authority is in compliance with all relevant State and Federal securities laws. 4. Acceptable Uses of Debt Proceeds The Authority will consider the use of debt financing primarily to facilitate the financing of California WaterFix, and to finance assets and capital projects only if the term of debt shall not exceed the asset or project's useful life and will otherwise comply with Federal tax law requirements. An exception to this long-term driven focus is the issuance of shortterm instruments, such as revenue anticipation notes, which are to be used for reasonable cash management purposes, as described below. Bonded debt should not be issued to finance normal operating expenses. 1

22 Delta Conveyance Finance Authority Agenda Item 7b (Attachment) A. Long-Term Debt. i. Long-term debt may be issued to finance the construction, acquisition, and rehabilitation of capital improvements and facilities, equipment, and land to be owned and/or operated by the Department of Water Resources (DWR), the Authority, or Authority members. In addition, long-term debt may be issued to facilitate the financing of WaterFix through the purchase of bonds issued by DWR. Long-term debt financings may also be used to refinance outstanding debt in order to produce debt service savings or to benefit from debt restructuring. ii. The Authority may use long-term debt financings subject to each of the following conditions: (1) The project to be financed has been or will be approved by the Board; (2) The weighted average maturity of the debt (or the portion of the debt allocated to the project) will not exceed the average useful life of the projects or assets to be financed by more than 20%; (3) The Authority estimates that sufficient revenues will be available to service the debt through its maturity; and (4) The Authority determines that the issuance of the debt will comply with the applicable requirements of State and Federal law. B. Short-term Debt. i. Short-term debt may be issued to provide financing for the Authority's purchase of bonds issued by DWR to finance WaterFix to the extent that such bonds mirror the debt service of the Authority s bonds. The Authority may also issue short-term debt on behalf of its members to finance construction as requested by the member and approved by the Board. C. Financings on Behalf of Other Entities. i. The Authority has been created to issue debt on behalf of other governmental agencies in order to further the public purposes of the Authority s members, primarily as a vehicle to facilitate the financing of California WaterFix. 5. Standards for Use of Debt Financing The Authority recognizes that there are numerous types of financing structures and funding sources available, each with specific benefits, costs, and risks. Prior to the issuance of debt or other financing obligations, the Authority will carefully consider the overall long-term affordability of the proposed debt issuance by conducting an objective analysis of the Authority's and its members ability to support additional debt service payments. 6. Types of Debt In order to maximize the financial options available to benefit the public, it is the Authority s policy to allow the consideration of issuing all generally accepted types of debt, including, but not exclusive to the following: 2

23 Delta Conveyance Finance Authority Agenda Item 7b (Attachment) A. Revenue Bonds: i. Revenue Bonds are limited-liability obligations tied to a specific revenue stream where the projects financed clearly benefit or relate to the enterprise or are otherwise permissible uses of the revenue. The Authority s revenues will generally be realized through installment purchase agreements from its members. B. Loans: i. The Authority is authorized to enter into loans, installment payment obligations, or other similar funding structures (including federal loans such as those offered by the Environmental Protection Agency through its Water Infrastructure and Innovation Act program) secured by a prudent source or sources of repayment. C. Short-Term Debt i. Short-term borrowing, such as commercial paper, Revenue Anticipation Notes (RANS), lines of credit, and short-term notes or put bonds will be considered as an interim source of funding in anticipation of long-term borrowing and may be issued to generate funding for to provide interim funding for WaterFix. Such short-term debt is expected to be refunded with long-term debt at the end of construction. The final maturity of the debt issued to finance the project shall be consistent with the useful life of the project. ii. Short-term debt may also be used to finance short-lived capital projects such as lease-purchase financing for equipment. D. Refunding Bonds: i. The Authority shall refinance debt pursuant to the authorization that is provided under California law, as market opportunities arise. Refundings may be undertaken in order: (1) To take advantage of lower interest rates and achieve debt service costs savings; (2) To eliminate restrictive or burdensome bond covenants; or (3) To restructure debt to lengthen the duration of repayment, relieve debt service spikes, reduce volatility in interest rates or free up reserve funds. ii. Generally, the Authority shall strive to achieve a minimum of 5% net present value savings. The net present value assessment shall factor in all costs, including issuance, escrow, and foregone interest earnings of any contributed funds on hand. Refundings which produce a net present value savings of less than 5% will be considered on a case-by-case basis. Upon the advice of the Executive Director and with the assistance of a financial advisor and bond counsel, the Authority may undertake refundings for other than economic purposes based upon a finding that such a restructuring is in the Authority's overall best financial interest. The Authority may from time to time find that other forms of debt would be beneficial to further its public purposes and may approve such debt without an amendment of this Debt Policy. 3

24 Delta Conveyance Finance Authority Agenda Item 7b (Attachment) Debt shall be issued as fixed rate debt unless the Authority makes a specific determination as to why a variable rate issue would be beneficial to the Authority and its members, and the specific form of a short-term line or letter of credit, variable rate demand obligation, commercial paper or note is recommended by the Authority s financial advisor and approved by the Board. 7. Relationship to Capital Improvement Program and Operating Budget The Authority intends to issue debt for the purposes stated in this Debt Policy and the decision to incur new indebtedness should be integrated with the Delta Conveyance Design and Construction Authority (DCA) and DWR s capital budget and construction cash flows associated with California WaterFix. Prior to issuance of debt, a reliable revenue source shall be identified to secure repayment of the debt and the Authority will include such debt service payments in its financing budget. 8. Policy Goals Related to Planning Goals and Objectives A. In following this Debt Policy, the Authority shall pursue the following policy goals: i. The Authority is committed to financial planning, maintaining appropriate reserves levels and employing prudent practices in governance, management and budget administration; ii. It is a policy goal of the Authority to protect its members and member ratepayers or constituents by utilizing effective financing methods and techniques so as to obtain the highest practical credit ratings and the lowest practical borrowing costs; iii. The Authority will comply with applicable state and federal law as it pertains to the maximum term of debt and the procedures for levying and imposing any related assessments, rates and charges; and iv. When refinancing debt, it shall be the policy goal of the Authority to achieve, whenever possible and subject to any overriding non-financial policy, minimum aggregate net present value debt service savings of at least 5% of the refunded principal amount. 9. Internal Control Procedures When issuing debt, in addition to complying with the terms of this Debt Policy, the Authority shall comply with any other applicable policies regarding initial bond disclosure, continuing disclosure, post-issuance compliance, and investment of bond proceeds. The Authority will periodically review the requirements of and will remain in compliance with the following: i. Federal securities law, including any continuing disclosure undertakings under SEC Rule 15c2-12; ii. Any federal tax compliance requirements, including without limitation arbitrage and rebate compliance, related to any prior bond issues; iii. The Authority s investment policies and the bond indenture as they relate to the investment and use of bond proceeds; and 4

25 Delta Conveyance Finance Authority Agenda Item 7b (Attachment) iv. Government Code section 8855(k) and the annual reporting requirements therein. The Authority shall be vigilant in using bond proceeds in accordance with the stated purpose at the time that such debt was issued. 10. Amendment and Waivers of Debt Policy This Debt Policy will be reviewed and amended from time to time as appropriate subject to Board approval. There will be circumstances from time to time when strict adherence to a provision of this Debt Policy is not possible or not in the best interest of the Authority, DWR or the Authority s members. If the Executive Director and the Authority s bond counsel and independent municipal advisor have determined that a waiver of one or more provisions of this Debt Policy should be considered by the Board, it will prepare an analysis for the Board describing the rationale for the waiver. Upon a majority of the weighted votes (based on Financial Commitments) of the Board, one or more provisions of this Debt Policy may be waived for a debt financing. The failure of a debt financing to comply with one or more provisions of this Debt Policy shall in no way affect the validity of any debt issued by the Authority in accordance with applicable laws. 11. SB 1029 Compliance SB 1029, signed by Governor Brown on September 12, 2016, and enacted as Chapter 307, Statutes of 2016, requires issuers to adopt debt policies addressing each of the five items below: A. The purposes for which the debt proceeds may be used. i. Section 4 (Acceptable Uses of Debt Proceeds) addresses the purposes for which debt proceeds may be used. B. The types of debt that may be issued. i. Section 6 (Types of Debt) provides information regarding the types of debt that may be issued. C. The relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable. i. Section 7 (Relationship to Capital Improvement Program and Operating Budget) provides information regarding the relationship between the Authority's debt and Capital Improvement Program and annual Operating Budget. ii. In addition, the Authority may rely upon the members on whose behalf it is issuing debt to certify the relationship of the debt to its Capital Improvement Program and Operating Budget. D. Policy goals related to the issuer's planning goals and objectives. i. Section 3 (Debt Policy Objective) and Section 8 (Policy Goals Related to Planning Goals and Objectives) address some of the Authority s policy goals and how this Debt Policy has implemented them. 5

26 Delta Conveyance Finance Authority Agenda Item 7b (Attachment) ii. In addition, the Authority may rely upon the members on whose behalf it is issuing debt to meet this requirement. E. The internal control procedures that the issuer has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use. i. The Authority may rely on DWR, the DCA and its members to certify that they have implemented procedures to ensure that proceeds of the proposed debt issuance will be directed to its intended purpose. Debt Management Policy Adopted on,

27 Agenda Item 7c Investment Policy Delta Conveyance Finance Authority Board Meeting August 16, Delta Conveyance Finance Authority

28 Investment Policy Provides guideline for: Types of investments Credit quality and limits on investments Institutions that can provide services Investment Policy is based on three principles: Safety of principal Liquidity Yield 2 Delta Conveyance Finance Authority

29 Consistent with State Guidelines Recognize that there will not be a lot of money to invest immediately Investment options include: Treasury and Federal Agency debt Corporate notes Bankers acceptances Commercial paper State and local government debt Repurchase agreements LAIF/CAMP Money market funds Certificates of deposit (insured) 3 Delta Conveyance Finance Authority

30 Recommendation That the Board approve Resolution 8-4, adopting an Investment Policy. 4 Delta Conveyance Finance Authority

31 Agenda Item 7c RESOLUTION NO RESOLUTION OF THE DELTA CONVEYANCE FINANCE AUTHORITY ADOPTING THE INVESTMENT POLICY BACKGROUND The authority to invest Delta Conveyance Finance Authority (Authority) public funds has been delegated to the Authority s Treasurer. An Investment Policy provides guidelines for the prudent investment of surplus cash, reserves, trust funds, bond proceeds and restricted monies held by the Finance Authority. The Investment Policy complies with California Government Code Section et. seq., which provides permitted investments for local agencies. RESOLUTION The Board finds that pursuant to section 53600, et. seq., of the Government Code of the State of California, the authority to invest Authority public funds has been delegated to the Authority s Treasurer, and adopts the attached Investment Policy to: 1. Safeguard the principal of the funds under the Treasurer s control when investing public funds, 2. Maintain liquidity as required by the Authority, and 3. Meet an objective of receiving a return on investment of surplus cash, reserves, trust funds, bond proceeds and restricted monies held by the Authority. The Secretary of the Board of Directors shall certify to the passage and adoption of this Resolution. * * * * * This Resolution, passed and adopted this day of August, 2018, by the following vote: Ayes: Noes: Absent: Abstain: Attest: Randy Record, Board President Jeff Davis, Secretary

32 DELTA CONVEYANCE FINANCE AUTHORITY Agenda Item 7c (Attachment) Investment Policy This policy is intended to provide guidelines for the prudent investment of surplus cash, reserves, trust funds, bond proceeds and restricted monies. 1.0 POLICY It is the policy of the Board of Directors of the Delta Conveyance Finance Authority ( Authority ) to invest public funds in a manner which conforms to the three fundamental criteria in order of importance, as listed: Safety of Principal Liquidity Return on Investment, or Yield 2.0 INVESTMENT AUTHORITY In accordance with Section 53600, et. seq., of the Government Code of the State of California, the authority to invest Authority public funds has been delegated to the Authority s Treasurer. 3.0 DELEGATION OF AUTHORITY Responsibility for the investment program is specifically delegated by the Board to the Board-appointed Treasurer or, if no such appointment has been made, to the Executive Director, hereafter referred to as Treasurer who will establish procedures for the investment program, consistent with this Investment Policy. The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities, including procedures to execute investment transactions in the absence of the Treasurer. 4.0 STATEMENT OF OBJECTIVES Per Section of the California Government Code, the primary objective of the Treasurer shall be to safeguard the principal of the funds under his or her control when investing public funds. The secondary objective will be to maintain liquidity as required by the Authority and the third objective is to obtain a return on investment of these funds. In order of priority, the three fundamental criteria shall be followed in the investment of funds: 4.1 Safety of Principal Investments shall be undertaken in a manner which first seeks to ensure the preservation of principal in the portfolio. Each investment transaction shall be entered only after taking into consideration the quality of the issuer, the underlying security or collateral, and diversification of the portfolio. Cash flow analysis will be conducted and utilized to avoid the need to sell securities prior to maturity. The Authority shall seek to preserve principal by mitigating both credit and market risk. 1

33 DELTA CONVEYANCE FINANCE AUTHORITY Agenda Item 7c (Attachment) 4.2 Liquidity Every effort shall be made to ensure that the Authority s portfolio is sufficiently liquid to meet current and anticipated operating requirements. Cash flow analysis should be performed on an ongoing basis. Investments shall be made to ensure maturities are compatible with anticipated cash flow requirements. 4.3 Return on Investment, or Yield Investments shall be undertaken to produce an investment return consistent with the primary objectives of Safety of Principal and Liquidity, and the Prudent Investor Standard. The Treasurer shall have an overall investment objective of holding investments to maturity and not investing with the objective of actively trading or trading for speculative purposes. However, the Treasurer may, from time to time, swap or sell securities in order to reposition securities to current coupon issues, maintain proper asset allocation limits, or to realize profits from market value appreciation. The Treasurer may sell securities in order to protect the overall quality of the portfolio under the following circumstances: i. To raise cash to meet unanticipated cash-flow requirements ii. To swap old securities for current coupon securities iii. To maintain portfolio allocation limits iv. To avoid further erosion and loss of investment principal due to deterioration in credit- worthiness, as well as to respond to rapidly changing interest rate environments 5.0 SCOPE The Investment Policy applies to all available funds of the Authority with the exception of proceeds of notes, bonds or similar external financings which would be invested pursuant to bond indentures or State of California Government Code Section 53600, et. seq., as applicable. 6.0 PRUDENT INVESTOR STANDARD All investments and evaluation of such investments shall be made with the Prudent Investor Standard as set forth in the California Government Code, Sections and , which is defined as a standard of conduct whereby any person authorized to make investment decisions on behalf of the Authority acts with care, skill, prudence and diligence under the circumstances then prevailing, including but not limited to, the general economic conditions and the anticipated needs of the Authority with the aim to safeguard principal and meet the liquidity needs of the Authority. 7.0 PORTFOLIO ADJUSTMENTS Portfolio percentage limitations for each category of investment are applicable only at the date of purchase. Should an investment percentage be exceeded due to instances such as the fluctuation in overall portfolio size, or market valuation changes, the Treasurer is not required to sell the affected securities. 2

34 DELTA CONVEYANCE FINANCE AUTHORITY Agenda Item 7c (Attachment) Should a security held in the portfolio be downgraded below the minimum rating criteria specified in this Investment Policy, the Treasurer shall sell such security in a manner designed to minimize losses. If the security is downgraded to a level that is less than investment grade, the Treasurer shall perform a credit analysis of such security to determine whether hold or sell the security. The Treasurer may elect to sell the security immediately to minimize losses in the event that an orderly disposition with minimal losses cannot be achieved. If the security matures within sixty (60) days of the rating decline, the Treasurer may choose not to sell the affected security. The Treasurer shall note in a quarterly report securities which have been downgraded below investment grade and the status of disposition. 8.0 SAFEKEEPING AND CUSTODY All securities transactions entered into by the Authority shall be conducted on a deliveryversus-payment (DVP) basis pursuant to a custodial safekeeping agreement. All securities owned by the Authority shall be held in safekeeping by an independent custodian designated by the Treasurer. Financial institutions providing safekeeping services shall provide reports or receipts which verify securities held in safekeeping. 9.0 REPORTING The Treasurer shall submit a quarterly report within 30 days following the end of the quarter covered by the report to the Authority Board of Directors pursuant to California Government Code Section (b)(1). The report shall at a minimum provide information on compliance to this policy and on the composition of the portfolio for each fund with: Types of investment Issuer Maturity dates Par and dollar amount Market values including source of the valuation Rates of Interest Expected yields to maturity In addition, the quarterly report shall also include a statement denoting the ability to meet the Authority s expenditure requirements for the next six (6) months INVESTMENT GUIDELINES AND ELIGIBLE SECURITIES Section 53600, et seq., of the Government Code of the State of California prescribes the statutory requirement relating to investments by local treasurers, providing guidance on: i. Allowable Investments ii. Portfolio diversification requirements including proportional limits on investment types, maximum maturity, and minimum credit rating criteria. 3

35 DELTA CONVEYANCE FINANCE AUTHORITY Agenda Item 7c (Attachment) The maximum maturity of any investment in the portfolios shall not exceed five (5) years except when specifically authorized by the Authority Board of Directors through resolution. When practical, the Treasurer shall solicit more than one quotation on each trade for the purpose of awarding investment trades on a competitive basis. The Authority will conform to the legal provisions set forth in the Government Code with further and more specific requirements about allowable investments and restrictions as detailed below: 10.1 US Treasury Bonds, Bills and Notes Bills, notes and bonds issued by the U.S. Treasury which are direct obligations of the federal government. Maximum limit: 100% of the portfolio Maximum maturity of five (5) years Credit Requirement: N.A Federal Agency Bonds and Notes Notes and bonds of federal agencies, government-sponsored enterprises and international institutions. Not all are direct obligations of the U. S. Treasury but may involve federal sponsorship and/or guarantees, in some instances. Maximum limit: 100% of the portfolio Maximum maturity of five (5) years Credit Requirement: N.A Banker s Acceptances Bills of exchange or time drafts drawn on and accepted by a commercial bank, typically created from a letter of credit issued in a foreign trade transaction. Maximum limit: forty percent (40%) of the portfolio Issued by banks with total deposits of over one billion dollars ($1,000,000,000) Maximum maturity of one-hundred eighty (180) days Twenty-five percent (25%) limitation to any one issuer Credit requirement: Ratings of A1, P1 or F1 or better by two of the three nationally-recognized rating agencies: S&P, Moody s, or Fitch, respectively. No rating may be lower than any of the rating listed above. Issued by banks from offices in the USA Commercial Paper Commercial paper is defined as short-term, unsecured promissory notes issued by financial and non-financial companies to raise shortterm cash. Financial companies issue commercial paper to support their consumer and/or business lending; non-financial companies issue for operating funds. Maximum limit: Twenty-five percent (25%) of the portfolio Maximum Maturity of two hundred seventy (270) days Maximum Issuer Exposure: Ten percent (10%) limitation on outstanding commercial paper to any one issuer 4