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Home My WebLink About6 - Utility Reserves Analysis and Survey - January 2007Cily ~ 8°Wder ~, •,~„ City of Boulder, Colorado ~ ~ Utility Reserves Analysis and Survey January 2007 Report Prepared By: , ~ ~~ )f~ k *.: ~ ~' ' CONSt11Tl NG ' ~ n~visiax or w~~coiw ~,av c 5311-002 ~ P A T H W A Y S T 0 L A S T I N G 5 O L U T I O N S ~ ~ r • ~ . ' ' REDDAK .- ~ ~ ~' CONSULTING •• R OIVISION Oi MALCOLM PIFNIE ~ ^ ~ 7anuary 17, 2007 ^ ~ Carol Linn ~ Utilities Financial Manager ~ City of Boulder Park Central Building ~ 1739 Broadway, Suite 415 r' Boulder, CO 80306 ~ Re: Utility Resources Analysis and Survey Yr ~ Dear Ms. Linn: ~ ~' Red Oak Consulting is pleased to submit this report on the Utility Reserves Analysis and ~ Survey. The detailed results of the survey of utility reserve practices for ten local and regional urilities are included in the attached Appendix. i ~ We have greatly appreciated your assistance in providing guidance and information for this study. Mr. Andrew Rheem has been responsible for the prepazation of the detailed r findings of this study as well as the interviews with survey participants. .. This opportunity to be of service to the City is greatly appreciated. ~ .. Very truly yours, ~ RED OAK CONSULTING ^. A Division of Malcolm Pirnie, Inc. Yr ~'~ T !~ ~ i~ Jo n Gallagher n Principal Consultant rr ~ ~ w r , . -.... - ...~ ~: :: , :}r ., -~ •.^" a T~~7 '•~-,~.~' ~ P . w.~x,ettcaY.cnneu~t~tage . ~ .. . -,., .... . ... _ . ,.. W~1 .. r ^ W r ~ ~ A ~ _ ^ ~ w ~ ~ ~ r r ^ W ~ ~ ~ ` #~ ~ ~ ir .. ~ ~ r ~ r ~;~ ~r eoma4 ~`,~~j, City of Boulder, Colorado I ~ Uti I ity Reserves Analysis and Survey January 2007 Report Prepared By: , ; ~ ; REIIDAK • • •• CONSULTING • • OIY1610X Of YALCOLY YIPXIC 5311-002 ~ .. ~. r ~ Table of Contents ~ Contents 1. Current Reserves Policies 1-1 ^ 1.1. Emergency Reserves ............................................................................... .....................1-1 " 1.2. Operating Reserves ................................................................................. .....................1-1 ~ 1.3. Bond Reserves ......................................................................................... .....................1-1 1.4. Sick/Vacation/Appreciation Bonus Liability Reserve ................................ .....................1-2 ~ 1.5. Pay Period 27 Reserve ............................................................................ .....................1-2 ^ 1.6. Lakewood Pipeline Reserve ..................................................................... .....................1-2 ` 1.7. Post-Flood Property Acquisition Reserve ................................................ .....................1-3 ^ 2. Survev of Reserve Practices of Other Communities 2-1 ~ 2.1. Introduction ............................................................................................... ..................... 2-1 ^ 2.2. Operating Reserves ................................................................................. .....................2-1 2.3. Capital Reserves ...................................................................................... .....................2-3 r 2.4. Debt Service Reserves Above Legal Covenants ..................................... ..................... 2-3 ^ 2.5. Rate Stabilization Reserves ..................................................................... .....................2-3 r. 2.6. Other Reserves ........................................................................................ ..................... 2-4 ~ 3. Pro posed Reserve Policies 3-1 ~ 3.1. Emergency Reserves ............................................................................... .....................3-1 ~ 3.2. Operating Reserves ......................................................................................................3-1 3.3. Capital Reserves ...........................................................................................................3-1 ~ 3.4. Rate Stabilization Reserves ..........................................................................................3-2 ~ r ~ . List of Tables .. Table 2-1 Summary of Reserves Survey ...................................................................................... 2-2 rr ~. Appendix r Survey of Reserve Practices of Other Communities a. r ^ ~ ,', ~ ; [~,~A[~ City of Boulder, Coloredo ^ ' C~N$ULTING Utiliry Reserves Analysis and Survey 7 . . o~.~.~e. a....~o...~..~. 5311-002 w r ~, ~ ~ ~. ~, 1. Current Reserves Policies r ^ The City of Boulder, Colorado (City) provides utility services to its constituents through °' its water, wastewater and stormwater / flood management utilities. Each of these utilities ,~ is financially self-supporting, deriving most of their revenues from rates and plant ~ investment fees. Each utility maintains cash reserves for emergencies, stabilization, bonds and liability. The City has developed specific policies regazding the purpose of ^ and the minimum amount to be retained in each reserve. ~ 1.1. Emergency Reserves ~ ~ The emergency reserves are an appropriated reserve to fund unanticipated operating emergencies. All of the utilities maintain an emergency reserve of approximately 3% of ^ each utility's operating budget. The projected year-end 2007 minimum emergency ~. reserve balance for each utility is as follows: ^ Water $330,000 ~ Wastewater $240,000 ~ Stormwater / Flood Management $ 84,000 r Total $654,000 ~ ~+ 1.2. Operating Reserves *~ The operating reserves aze an unappropriated reserve for operating and capital r. emergencies. All of the utilities maintain an operating reserve of at least 20% of each utility's operating budget (including transfers). The projected year-end 2007 minimum ~ operating reserve balance for each utility is as follows: rr Water $2,922,000 ~. rr Wastewater $1,714,000 ~,. Stormwater / Flood Management $ 631,000 ~ Total $5,267,000 '~ 1.3. Bond Reserves ~ Bond reserves are established in accordance with revenue bond covenants and equal to ~ approximately one year's annual debt payment. The City is in full compliance with its rr ~ ' • .~ [~j~Aj~ Ciry of Boulder, Colorado ~ ••~: C~NSULTING UGhty Reserves Analysis and Survey 1-1 '. . •' . o~.~.~o. o....~e...~..~~ 5311-002 ~ r ~ ~ r. ~ ~ Section 1 Introduction bond reserve requirements. The projected yeaz-end 2007 reserve balance far each utility is as follows: Water $6,270,000 ^ Wastewater $ 170,000 ~ Stormwater / Flood Management 825 000 ~ ,. Total $7,265,000 ~ 1.4. Sick/Vacation/Appreciation Bonus Liability Reserve r These reserves cover 100% of accrued costs associated with accumulated sick and ^- vacation time, appreciation bonuses and other employee benefits that result in liabiliries ,,,, upon termination or retirement. The City maintains these reserves at the levels calculated by the finance department. The projected year-end 2007 reserve balance for each utility ~ is as follows: r Water $ 724,000 ~ ~, Wastewater $ 605,000 ,.~ Stormwater / Flood Management $ 180,000 ~- Total $1,509,000 ~ 1.5. Pay Period 27 Reserve ~ These reserves cover yeazs where there is 27 or one additional pay period. 2013 is the " next yeaz with an additional pay period. The projected yeaz-end 2007 balance for each ~ utility is as follows: ~ Water $31,000 ~ Wastewater $25,000 ~+ Stormwater / Flood Management $ 7,000 ~ Total $63,000 ~ '~ 1.6. Lakewood Pipeline Reserve ~ This reserve was established within the water utility in 2006 resulting from a recent ~ settlement related to the Lakewood Pipeline. The initial $15,000,000 plus any interest income realized from unspent reserve balances will remain within this reserve until ~ required to fund future improvements related to the Lakewood Pipeline. rr ~ ` ,'~ ~ ; ~~/,[~ City of Boulder, Colorado . ..• C~~SUL'~ING Utilily Reserves Analysis and Survey 1-2 '...• .o~.~.~o.,...,.o...~..~. 5311-002 n ~ ~ r ~ ~ ~ r ~ .. ^ ~ w r ~w •r ~ W ~ ~ w r ~+ r ~ r ~ ! ~ ~ W A Y~ ~ ~ ~ ~ ~ r Section 1 Introduction 1.7. Post-Flood Property Acquisition Reserve This reserve is part of the stormwater / flood management utility and is for post-flood property acquisition in the event of a flood. The City maintains this reserve at the required level of $1,000,000. ' •.; [~~/\K City of Boulder, Colorado ~~' C~N$ULTING Utiliry Reserves Analysis and Survey '...• ..~.~.~o.o....~o...~..~. 5311-002 1-3 ~ ~. A ` 2. Survey of Reserve Practices ^ of Other Communities .. _ .. 2.1. Introduction ~- Red Oak surveyed the reserve policies and practices of regional and local utilities as part .. of this study. The survey includes operating, capital, debt service, rate stabilization and other special purpose reserves. The surveyed utilities include: ~ r ^ Albuquerque Bernalillo County Water Utility Authority, NM ^ Arvada, CO ~ ^ Denver Water, CO ` ^ Fort Collins, CO .. ^ Greeley, CO ~ ^ Longnont, CO ^ San Antonio Water Systems, TX "~ ^ Thomton, CO ""' ^ Tucson Water, AZ ~, ^ Westminster, CO "' The Appendix contains the survey and supporting information for each participant utility. ,,,. Table 2-1 summarizes reserve policies and practices of surveyed utilities, formal and ~ informal, that include a quantifiable targeted reserve range found as part of this survey. .• 2.2. Operating Reserves ~' Each of the surveyed utilities have operating reserve policies. The required reserve ~ amounts are based on the number of days of operation and maintenance expense (O&M), percent of the operating budget, or percent of annual water sales revenues or operating ~ revenues. ~ ~ This reserve generally provides sufficient working capital to pay recurring O&M throughout the year during cyclical, seasonal variations of revenue generation. For ~"" utilities with higher reserve tazgets, the operating reserve can also function as a revenue ~ or rate stabilization reserve to buffer against annual short-falls in actual revenues resulting from: ~ ~ ^ Reductions in customer demand and/or ^ Water use at lower rate tiers for utilities with tiered or conservation oriented rate s~ structures. r. • ~, Ci of Boulder, Coloredo ~• .., REDDAK b y : C~NSU~~-~NG Utility Reserves Analysis and Survey 2-1 . . . . >~.~.~o. o....~e...~..~. 5311-002 •. v ~ ~ ~. rr w r ~ r r ~ ~w r •. ~ ^ r r. ~ ~r. ~ ~ ir ^ ~ ^ r ~ ~ ~ ~ ~ Yr e~ ~ Section 2 Survey of Reserve Practices of Other Communities Table 2-1 Summary of Reserves Survey Debt Service Reserve Rate Ooeretina Above Leaal Stabilization Other Uti1Nv Reserves Caoital Reserves Covenants Reserve Reserve Albuqueique Will be Bemalillo Counly established in Water Utility 360 days O&M $2,000,000 2009 from Authority, NM surplus ievenues fortnerly used far debt service Arvada, CO g0 days O&M 1 Year debt service Boulder, CO Operating reserve of 20% (73 days Vacation / O&M) of operating Sidc / Bonus budget plus Liability; emergency reserve Post-Flood of approximately Property 3%(11 days O&M) Acquisition of operating budget Denver Water, CO Renewal & 90 days O&M Replacement = 1 year debl Self Insurance 50 /o of Mnual service Reserve R&R Fort Collins, CO 5% of operating ~ ese = 25 P i lic Art of R rv e ° /o P a es revenue agM Reserve Greeley, CO New Construction Capital = 50% of annual PIF 90 days O&M revenue; Replacement Capital Fund = 50% of annual depreciation Longmont, CO Water = 90 days 08M; WW=90days O&M; Storm Water = 60 days O&M San Antonio Water 60 days O&M Systems, TX Thomton, CO Water = 180 days yyater = ~ month of O&M; $3 000 000 debt service; W W= 90 days , , 4 months of O&M yyyy = $~50,000 notes payable payment Tucson Water, A2 10% of annual water sales Westrninster. CO Water = 45 to 60 Ranges from Water = 25% of days O&M; $5 000 000 to water revenue; W W= 30 to 45 , , 60% of 5-year CIP VJVJ = 5% of ww days O&M revenue ~ ~ ' •.; ~~AK City of Boulder, Coloredo ~~~' C~N$l~L~l'ING Utiliry Reserves.4nalysis and Survey 2-2 ~'...• ..~.~.~a.,...,~e...~..~. 5311-002 ~ ir ~ ` Section 2 Survey of Reserve Practices of Other Communities *. ~ 2.3. Capital Reserves ~ The most common capital reserve does not differentiate between types of capital. ` Additional reserve practices focus on renewal and replacement and/or gowth-related n capital expenditures. The following practices were found ~ ^ A range of $5,000,000 to 60% of project 5-year capital project expenditures ~- ^ $3,000,000 (water), $750,000 (wastewater) r ^ 50% of annual renewal and replacement expenditures ^ 50% of annual depreciation ~ ^ 50% of projected annual plant investment fee revenues r" ^ Wastewater bond reserve equal to 25% of operating expenditures ^ 2.4. Debt Service Reserves Above Legal Covenants ~ A common covenant of bond issues is the requirement that a debt service reserve is '~ established equal to either the average annual or maximum annual debt service. Utilities ~ may choose to satisfy this covenant through either the purchase of a surety policy or fund ,~ the reserve with cash. While a debt service coverage reserve was often cited by the surveyed utilities, it is legally required and not subject to policy, and has been omitted ~ from this suuunary discussion. For this reason, practices related to reserving funds above - the legal requirement is discussed. ~ The following three practices were found: ^ ~ ^$2,000,000 above the debt service reserve requirement ^ 1 year or 100% of annual debt service "" ^ 1 month ar 8% of annual debt service rr 2.5. Rate Stabilization Reserves ~ r, The water rate stabilization reserve target for the City of Westminster is 25% of projected annual water sales revenues. For wastewater, the tazget is 5% of projected annual ~"` wastewater sales revenues. The policy includes a range whereby a minimum of 80% and +~+ up to a macimum of 140% of the target may remain within this reserve before transfers from the operating fund or to the capital reserve fund aze dictated. s~ ~ The Albuquerque Bernalillo County Water Utility Authority is planning to establish a rate stabilization reserve in 2009, but has not established a policy regazding the amount of ~ this reserve. r ~ A formal rate stabilization reserve is not a common practice among the surveyed utilities. Rather the utilities cite a combination of the following practices: ` • ~ ,' ~ ; ~,~Aj~ Ciry of Boulder, Colorado ~ •••' C~N$ULTING Utility Reserves Analysis and Survey 2-3 . . >~.~.~o. o, ...~o.. .~..~. 5311-002 ~ lir .. ~ Section 2 Survey of Reserve Practices of Other Communities ~ ^ Multi-yeaz financial planning, .. ^ Levelized revenue increases, r ^ Debt service coverage targets more restrictive than the legally covenanted requirement, and '~ ^ Aforementioned reserve practices. .. The aggregate effect of such practices for a given utility are used to create a sufficient ~ total reserve that provides an indirect rate or revenue stabilization within the various " funds. While the level of conservatism varied for each surveyed utility, a level of ~, flexibility was common to allow the utility to manage neaz-term fluctuations in revenues without adversely altering the near-term operations of the utility. ~ .~ 2.6. Other Reserves " Denver Water self-insures employee health, dental and vision benefits and maintains a ,,, self-insurance reserve in the event of an unexpected number of claims filed in a given yeaz. The tazgeted reserve amount equals 5% of projected annual operating receipts. .. .. The City of Fort Collins utilities maintain an art in public places reserve equal to 1% of ~ eligible capital projects that exceed $25Q000. The funds aze transferred to a special purpose fund within the general fund that funds public art. .. r ~ r ~ r ~ w .. .. ~ r ^ r ~ ~ • •.; ~~/\K City of Boulder, Colorado ^ ~~~' C~NSULTING Utility Reserves Analysis and Survey 2-4 •'...• .e~.~.~o.o...aa...~..~. 5311-002 A i11 ~ W A11 ` ~ 3. Proposed Reserve Policies ~ ,,, Half of the surveyed utilities have both operating and capital reserve policies. The City's current utility policies primarily address operating reserves. r .. 3.1. Emergency Reserves '~ The City's emergency reserves are primarily for operating emergencies and unforeseen ,~ operating expenses. Red Oak believes the policy of maintaining these reserves at approximately 3% of operating budget (11 days of O&M) for all three utilities is a sound ~ practice and should be continued. ~ 3.2. Operating Reserves ~ ,,, Currently, the City's operating reserves are primarily for operating emergencies and unforeseen operating and capital expenses. As such, the policy of maintaining these ~ reserves at a minimum of 20% of operating budget (73 days of O&M) is generally - consistent with general industry standards and with the practices of surveyed utilities for ,. wastewater and stormwater utilities. Red Oak recommends that the water utility operating reserve be increased from 20% to 25% (91 days) of the operating budget or an ^ increase of $730,000 to the projected year-end 2007 minimum balance. A higher reserve ""' level for the water utility is consistent with general indushy standards as water sales ~, revenues aze more volatile than wastewater or stormwater sales revenues due to fluctuations in irrigation-related water demands. r ~, Red Oak also recommends that the designated purpose of utility's operating reserve be modified so that it is restricted primarily for operating emergencies and unforeseen r operating expenses. ., 3.3. Capital Reserves ,,,, ~ Red Oak proposes tttat the City consider formally creating a capital reserve for each of its ~ utilities to meet capital emergencies, unforeseen capital expenditures and to insulate neaz- term capital operations from unanticipated short-falls of revenues. The practice of ttte ~ surveyed utilities with capital reserves is to set the minimum amount on the basis of ~ annual replacement expenses, annual depreciation expense, or level of plant investment fees. .. .. Since the City's utilities aze mature with modest growth expected, the capital reserve should relate to assets already acquired. Red Oak proposes capital reserves be '~ established that are at least 50% of annual renewal, replacement and other types of ~. •• • . ~• Ci of Boulder, Colorado . . , RE~AK ~v ~. •~~' CONSIILTIN~'i Utility Reserves Analysis and Survey 3-1 . . o~.~.~o. e....~o...~..~. 5311-002 ~ r .~ ~ ~ Section 3 Survey of Reserve Practices of Other Communities r recurring capital costs. The basis for determining annual renewal, replacement and +^ recurring costs can be any of the following: r ^ Historic renewal, replacement and recurring capital costs ^ ^ Future renewal, replacement and recurring capital costs r. ^ 5-Year average of either historic or future renewal, replacement and recurring capital costs ' ~ ~ Whichever measure is chosen, it should be representative of ongoing capital replacements in current dollars. The primary purpose of this reserve is to provide sufficient funds ~ should the need arise for an emergency unplanned capital replacement above the ` emergency reserve and/or insulate capital replacement projects from near-term .. fluctuations in revenue. ` 3.4. Rate Stabilization Reserves ~ Red Oak does not believe that the City should establish a formal rate stabilization reserve ` for three primary reasons. First, the adopted water budget based rate structure was established whereby a portion of y projected Tier 5 rate revenue is above the water utility revenue requirements. This policy ~ by itself includes a level of conservatism that protects the water utility if actual water ,~ sales revenues are less than projected. ^- Second, the proposed increase to the water utility operating reserve increases the level of rr security providing additional protection against unanticipated reductions in water sales revenues. ~ .. Lastly, the existing and proposed reserves should not be viewed in isolation regardless of the designated purpose of each reserve. Rather it is the total reserve resulting from the ^ sum of all reserves which protects each utility from near-term short falls in sales based " revenues. ~ Red Oak believes a formal rate stabilization reserve in addition to the current and ~ proposed reserves is not necessary as the total reserve already functions as an indirect rate ~ stabilization reserve rr w ir ~ ~ ~ r ,'~ ~; RE~AK Ciry of eoulder, Colorado •••' C~N$ULTINCi Utility Reserves Analysis and Survey 3-2 . . >~.~.~o. o....«.. .~,.~. 5311-002 ~ r C.itY of Boulder ~,1~,,~~'yd~` City of Boulder, Colorado ~ ~~ Utility Reserves Analysis and Survey Appendix ~. ~. ,•~ ~ : REI3DAK • • •' CONSULTING • A GIVISION ~f MLL[OlM YIRNIE 5311-002 / DEN ' Survey of Utility Reserve Policies - Questionnaire Template 1 Entity: Albuquerque Bernalillo County Water Utility Authority, NM ' Person Interviewed: Stan Allred Title: Finance Director Date: 12/27/06 , Survev ~ 1. How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, ~ etc.)? City and County water and wastewater utilities were recently combined into a single ' authority (Authority) and Enterprise Fund. They are still transitioning (City provides billing, administrative, A/R, etc. and will continue to do so), but as of July 1, all employees will be transferred into Authority. ~ 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). ~ For accounting purposes, there are currently six sub-funds: ' • Operating Fund - All water and sewer user charge revenue and miscellaneous revenues are deposited in this fund. • Sustainable Water Fund - Funding a surface water treatment plant that will utilize ' San Juan Chama water rights previously acquired. This fund will be collapsed into the operating fund once completed. • Debt Service Fund - Utilitv E~pansion Char~e (impact fee) deposited here, but ~ mav be transferred to CIP funds as well. • CIP Funcl~ ~ o Line Extension Fund - Established to fund line extensions (primarily sewer) at parameter of service area. ~' o Rehabilitation Fund - Ordinance requires $13,000,000 spent per year. Split ,~„ 50% water, 50% sewer. ~ o Expansion Fund - Growth-related capital expenditures. ~ For planning purposes, the Authority uses a 10-year financial plan that includes water and sewer sub-funds. [t is adjusted periodically to track expenditures (operation and maintenance expenditures, debt service, etc.) and the inter-fund equity is tracked within water and sewer (customer class, etc.) as well as between the two so that water ~ rates fund water costs, etc. ~ ~ Survey of Utility Reserve Policies - Questionnaire Template Entity: Alnuquerque Bernalillo County Water Utility Authority, NM Person Interviewed: Stan Allred Title: Date: Finance Director 12/27/06 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). • Operating reserve equal to a 360-days operation and maintenance expenditures. Debt service reserve equal to legally covenanted debt service reserve requirements. Refer to attached from the tiscal year 2007 budget for detailed description of formal reserve policies. 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes Informal policies include: Additional $2,000,000 in debt service fund above covenanted debt service requirements (generally have about $5,000,000 in annual debt service) Target 1.50 debt service coverage without impact fees (currently around t.90) 5. Discuss revenue and/or rate stabilization fund utilized. Sewer rates were increased in July 2004 and water rates were increased in January 2006. The 2006 water rate study included a recommendation for the establishment of a rate stabilization fund. The recommended rate stabilization fund, part of the perfonnance plan, has not been implemented. Effectively, the fund balance acts as the rate stabilization fund as the Authority uses levelized rate increases and multi-year financial planning. Currently the Authority is paying balloon debt service payments related to capital appreciation bonds that will be retired by 2009. At that point, the Authority plans to use a portion of the revenue previously used to pay debt service payments to fund a rate stabilization fund. 6. Are you considering changing any of these for 2007? No. AL6UQUERQUE 6ERNAlILLO C4UNTY WATER UTIIITY AUTH~RITY Fiscal Year ~001 A roved 6ud e~ PP g Volume I -- Financ~al PEan Water Utilit~- Authorit~- Board Members: Commissioner Alan B. Armijo, Chair Councilor Martin Heinrich founcilor Isaac Benton, Yice-Chair Commissioner Deanna A. Archuleta ` founcilor Michael Cadigan Mayor Martin Chavez ~ Commissioner Teresa Cordova Trustee Pablo Rael, Ex Officia Member Mark S. Sanchez, Executive Director `~ Albuquerque, New Mexico .. r. ~* ALBUQUEROUE BERNALILLO COUNTY WATER UTILI'I`Y AUTHORITY ~ *, FINANCIAL POLICIES ` Long-te:m financial policies aze contained in state statute, and Albuquerque Bernalillo County Water Utility ^ Authority ordinances. Five major polices are described by the various laws and instructions cited below. A final policy regazding the need to match nonrecurring revenue with nonrecurring appropriations is described ~ but is not found in law or formal rule. ^ The adouted budeet is balanced and subsequent action will preserve the balance. Balance is defined as r, resources equal to or in excess of expendimres for each fiscal yeaz. ,~ STATE STATUTES: ` 6-6-6. Approved budgets; claims or warrants in excess of budget; liability. "When any budget for a ^ local public body has been approved and received by a local public body, it is binding upon all officials and goveming authorities, and no eoveminQ authoritv or official shall allow or approve +r claims in excess thereof, and the allowances or claims or checks or warrants so allowed or naid sha11 be a liabilitv aeainst the o~cials so allowing or paying [hose claims or checks or warrants, and "' recovery for the excess amounts so allowed or paid may be had against the bondsmen of those ~ officials." .. BUDGET ORDINANCE PROVISIONS: "' § 2-I-3 BUDGET CONTENTS AND FORMAT ~ "(A) The Executive Director's budget proposal submitted to the Boazd shall include: The ~ Executive director's budget message; M annual appropriation resolution recommended by the Executive Director for operating and capital; A complete statement of the non-capital project financial ^ operation of the Authority for the fiscal yeaz last completed; A compazable statement for the cu:rent ~„ fiscal year including expenditures to date and anticipated expendihues to the end of that yeaz; A financial plan in compazable form for the fiscal year commencing on July 1 of the year in which the .. budget proposal is submitted. "' The Financial Plan for the ensuing fiscal yeaz shall include: All proposed expendimres for the administration, operation and maintenance and capital projects of the Authority; All interest and debt A redemption chazges; All anricipated revenues and other available resources by source and amount; The rr proposed means of financing all proposed expenditures. ~ A performance plan for the fiscal year commencing on July 1 of the yeaz in which the budget ~ proposal is submitted. The performance plan shall be connected to the five-yeaz goals and contain performance measures that help guide the operating and capital budgets in allocating the Authority's ~ financial resources." ~ "(B) The Authority budget shall be fund based." ~ "(C) The budeet uroposal shall be balanced and not propose expenditures in excess of r~ resources anticipated to be available to the Authority for the fiscal yeat for which the budget is proposed." ~ rr ~ W 10 ~ r ~. . "' ALBUQUERQUE BERNALILLO COUNTY WATER UTII.ITY AUTHORITY r ~ § 2-1-8 BUDGET AMENDMENTS BY BOARD DURING FISCAL YEAR. ~ Upon its own initiative or upon a recommendation by the Executive Director, the Board may amend ~ the operating and/or capital budget during the fiscal yeaz to which it applies. No amendment to the .., operating budget shall result in total authorized expenditures that exceed resowces to be available for the fiscal yeaz to which the budget is applicable. A. ~ Authoritv eoals and objecrives are established and integrated into the budget process. ,^ BUDGET ORDINANCE PROVISIONS: " § 2-1-1 INTENT ~ "(A) Laws 2003, Chapter 437, codified as NMSA 1978, Section 72-1-10 created the ~ Albuquerque Bemalillo County Water Urility Authority ("Authority") and provides for the administration and operation of the Authority. As part of the administrative responsibiliries of the ^ Authority, it shall establish and adopt five-yeaz goals and one-year objectives, which goals and ~ objectives shall be reviewed and revised annually by the Albuquerque Bemalillo County Water Utility Authority Boazd ("Board"). The Authority operating budget shall be formulated by the .. Authority's Executive Director and be consistent with the goals and objectives as established and approved by the Boazd. In order to maintain uniformity, other legislation and policies of the '~ Authority are to be consistent with these goals and objectives as we11. The Executive D'uector shall ~ propose the budget to the Boazd at the April regulazly scheduled meeting each year with the Boazd to approve the budget as proposed or amend and approve it at or before the May regularly scheduled ~ meeting." ~ "(B) To adont a eoals and obiectives nrocess that encouraees active citizen narticination ~ that is linked to the budget process, that encourages oerformance measurement. and that is consistent with the desired condirions of the Authoritv's service azea, the Authoritv shall coordina[e its ~oal ,., settine with the Citv of Albuquerque and Bemalillo Countv eovernments." '~ "(C) The Boazd's adontion of eoals and obiectives, which will be valuable in themselves, will be major factors in determinine funding for Authoriri pro¢rams and imnrovecnents in [he ^ oneratine budget and the caoital imurovements budget." ~ "(D) This ordinance shall apply to all expendihues made by and approved by the ~ Authority and shall supercede any existing policies goveming the operating and capital budgets." r ~ ABCWiJA Boazd particiroates in the development of the Executive Directors proposed budget. ~ BUDGET ORDINANCE PROVISIONS: w r § 2-1-2 PREPARATION OF AUTHORITY BUDGET PROPOSAL *, "(A) The Authority shall prepaze a proposed operating and capital budget taking into consideration the needs of the Authority's operations, and the resources anticipated to be available to ~ the Authority £or the fiscal yeaz for which the budget is prepazed." ~ rr 11 ^. r ,. ~. " ALBUQUERQUE BERNALILLO COUNTY WATER UTILITY AUTHORITY r "(B) The Executive Director shall propose an operating and capital budget to the Boazd at the April `r meeting of each yeaz. This proposal shall include the budgets, capital program, and rate proposal which may ~ propose changes in rates and fees."The~ublic reviews and has an opportunity ro comment on the proposed budget. r BUDGET ORDINANCE PROVISIONS: .^ ~ § 2-1-5 CONSIDERATION OF BUDGET PROPOSAL BY THE BOARD ~ "(A) After receiving the budget proposal from the Executive Director the Boazd shall schedule at ~ least two public hearines on it. As a result of its deliberations and the information eathered at the nublic hearines, the Board may amend the budget proposal at any time prior to the May regulazly scheduled ,~ meeting." r ~ Total revenues minus the expenses of the svstem shall be 133% or more of the current debt service. r. RATE ORDINANCE PROVISIONS: ~ § 1-2 COMPUTATION OF REVENUES, EXPENSES AND DEBT SERVICE; DETERMINATION OF DEBT COVERAGE; REQUIRED MONTHLY FIXED CHARGE. w "(B) Computation of Revenues, Expenses and Debt Service, At the end of each quarter of the fiscal year a '~ determination will be made as to the total revenues, expenses and current debt service requirements of the system in accordance with definitions in §1-2(A). The determination will be made by the end of the first ~ month following the end of each quarter. The results of the determinarion will be transmitted to the .. Authority." ~ "(C) Increasing Minimum Monthly Fixed Charges. If the determination of §1-2(B) above shows that the total revenues minus the expenses of the system aze less than 133% of the current debt service for the W cumulative quarter of the fiscal yeaz, the fixed monthly chazge will be increased for water and sewer accounts. ,~, The increase in fixed monthly chazges will be a percentage of the established fixed monthly chazges that produce additional cevenues so that if the adjusted chazges had been effective the previous quarter, the total '~ revenues would have been sufficient to pay operating expenses and 133°/a of current debt service. The increased fixed monthly charge will be effecdve the second month following the quarter (i.e., the month ""' following the determination), and will remain in effect until such rime as the Authority acts on water and ~ sewer rates. If the determination of § 1-2(B) above shows the total revenues minus the expenses of the system aze less than 133% of the current debt service for the cumulative quarter of the fiscal yeaz, it shall be ~ determined if the revenue loss is due to efforts of utility Customers to conserve water by reviewing usage ~ pattems. If the usage study shows that the reduced revenues are due to conservation efforts, the Executive Director shall analyze the Utility's operations for the putpose of determining whether or not corresponding ~ expense reducfions can be effected and shall present any such expense reduction proposals to the Authority." i ~ IYW ww ir w w 12 .. ~ ~' ALBUOUERQUE BERNALILLO COUNTY WATER UTII.ITY AUTHORITY ~ ~ Nonrecurrine revenue should not be used to support recutring expenditure. Nonrecu~ring revenue produced ~ from a one-time event, such as a change in reserve policy. Nonrecurring expenditures include studies, capital projects, capital outlay, computer equipment, buildings, land and one-rime expenditures to pay off a loan, "' prior yeaz litigation expenses or other similaz expenses. r § 2-1-11 FINANCIAL AND MANAGEMENT REPORTS. "(B) Reports shall be received by the Board on a timely basis according to the following schedule: ` (4) The midyear report shall be received for in[roduction at the Boazd meeting in ~ February. The midyeaz report shall be accompanied by a midyear appropriation resolution for those programs which are projected to be overspent and which the Executive Direcror determines that ~ expenditure controls cannot bring the programs within the limits of adminishation expenditure authority, $100,000 or 5%a of the line-item authority, whichever is lower. Mid-yeaz appropriation ' adjustments shall be proposed only when caused by unexpected circumstances such as a natural ,~ disaster, unforeseen shifts in the national economy, and other eve~ts that constitute an emergency. Except as otherwise provided, the Executive Director and Board shall confine budget adjushnents to .~ the midyear resolution. The midyear report and midyeat appropriation resolution shall be reviewed by the Board at a minimum of one public hearing." r ~ The Authoritv's Debt and Canital Implementation Plan soendine is integrated in the budget process and is ~ mandated by ordinance. ^ ~, § 1-7 WATER AND SEWER SYSTEM AND UTILITY FINANCIAL POLICIES. "(A) The term of each and everv instrument of debt shall be 12 vears or less; exceot for sustainable ~ water suvnlv proiects." .. "(B) At a minimum. 50% of the cost of canital moiects which consti[ute the normal canital " pro~ram of the water and sewer svstem including the rehabilitation and replacement of existine facilities, and the wnstruction of water wells. pumo stations. reservoirs. service lines. other water " lines, eate valves. revenue meters and meter boxes, sewer lines, odor conffol stations, and pumnine ~ stations, and treatment faciliries shall be naid with cash rather than borrowed funds. The normal capital program excludes special capital projects such as the expansion of the wastewater treatment ~ plants, azsenic mitigation, state and federal grant projects, state and federal mandated projects, and ~ related to water resources management to achieve a sustainable supply of water (Sustainable Water Supply Fund - 622)." w ~ "(C) At a minimum. 25% of the cost of caoital nroiects not included in the normal canital program of the water and sewer svstetn shall bepaid with cash rathet than borrowed funds. This ~olicv shall ~ not apRlv to the nossible acquisition of other operating water and wastewater utilitv svstems." ~W w w ~ ~. ~ W 13 ~ ~ ALBUQUERQUE BERNALILLO COUNTY WATER UTILITY AUTHORITY r ~ "(D) Urility Expansion Chazge (UEC) revenues or those of successor development fees in excess " of $6,000,000 per yeaz shall be transferred to the Joint Water and Sewer Capital Funds. The transfer of these funds shall be made in the fiscal yeaz following the assessment of the chazges" r "(E) Utility Expansion Chazge rates shall be based on adopted policies of the Authority." ~ "(F) Anptouriations of cash transfers from water and sewer utiliri oneratine funds or debt service ~ funds to a Joint Water and Sewer Capital Fund shall be made in the amounts annropriated durine the vear for which the appronriations have been made." ~ 'W § 1-6 WATER AND SEWER REHABILITATION FUND. ^w w "(C) Expenditures for the rehabilitation of water wells, pump stations, reservoirs, service lines, other water lines, and gate valves from revenues in the Water and Sewer Rehabilitation Fund shall not w be less than $13 million dollazs per yeaz. The expenditures for rehabilitation of sewer lines, odor ~ control stations, pumping stations and treatment facilities shall not be less than $13 million dollazs per yeaz." n r ~ r ~ ~ ~lil ~ ~ ~ ~ ~ ~ ~ ~ W w ~ ~ r 14 Survey of Utility Reserve Policies - Questionnaire Template Entity: Arvada, CO Person Interviewed: Jim Sullivan Title: Utilities Manager Date: O1/08/07 Survey 1. How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc.)? City has the following separate Enterprise Funds: • Water • Wastewater ~ Storm Water 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). Water / Wastewater: • Operating • Tap Fee / growth-related capital Storm Water: • Operating 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). Utility does not have any formal reserve policies. 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes • All three utility Enterprise Funds have an operating reserve equal to 90-days operating and maintenance expenditures. • Water Enterprise Fund also maintains a debt service reserve equal to 1-year annual debt service in addition to the legally covenanted debt service reserve requirement. Refer to attached for a summary of Utility reserve policies as documented within the City's proposed 2007 / 2008 biennial budget. Survey of Utility Reserve Policies - Questionnaire Template ~ Entity: Arvada, CO ~ Person Interviewed: Jim Sullivan Title: Utilities Manager Date: O1/08/07 5. Discuss revenue and/or rate stabilization fund utilized. No formal revenue or rate stabilization fund is utilized. Financial planning is conducted over a five-year financial planning forecast period at the sub-fund level for each Enterprise Fund. If actual revenue receipts are below projected revenues, the Utility assesses the reason for the decrease. • If it is deemed to be short-term (e.g., wet summer), the baseline revenue projections may not be modified. • If the change is deemed to be long-term, o Baseline revenue projection may be adjusted downward. o Adjustment impacts subsequent years projected revenue increase within the 5- year financial planning period. 6. Are you considering changing any of these for 2007? No. ~ ~ ~ ~ ~ ~ ~~ ~ ~ ~ CITY OF ~'0~7-~a08 Pro oscd Bi~nnial 0~rafin and Ca ifal Bud e~ ~ p 9 P 9 ' CITY OFARVADA ~ 2007 AND 2008 BUDGET Financial Overview w Budget Summary Revised 2007 - 2008 ' The revised 2007-2008 operating and capital budgets represent both short- and long- term financial plans. The budget emphasizes the followmg objectives: ~ 1. Long-term financial stability 2. Planning for the future replacement and maintenance of major capita] assets 3. Capital improvements program 4. No tax rate inereases ~' S. One-time revenues support one-time expenditures ' 6. Maintain current levels of services or programming to Arvada citizens 7. Addresses a Council prioritized target 8. Progressively manage the City in a prudent and efficient manner ' 9. Maintain a competitive compensation package ~ Long-Term Fina~:cial Stability: The Budget Policies and Process section of this document explains the five-year financial model concept that the ~ City utilizes for long range financial planning. The City formally adopts a two-year budget However, it actually prepares a five-year tinancial model. Departments forecast revenues and expenditures in line item detai) for five years. This technique ensures long term financial stability and illustrates the ongoing costs of ~, today's decisions. The "Additional Information" section of this document includes summaries of these five-year financial models. The City also works toward maintaining a working capital balance in its General Fund equal to S% of annual expenditures. Three percent is reserved for emergencies as required by the State constitution. The remaining ~. 5% protects the City from cyclical fluctuations in revenues due to changing economic conditions. ' The City establishes an individualized working capital goal for various operating funds. No working capital goal has been established for the Arvada Center, Insurance, Golf Course and other administrative or minor funds. ' • Parks Fund - 11 % of annual operating expenditures. • Hospitality Fund - 25% of operating expenditures , • Water Fund - 25% of annual operating expenditures plus annual debt service requirement. . Wastewater Fund - 25% of annual operating expenditures. • Stormwater Fund - 25% of annual operating expenditures. ~ . Arvada Economic Development Fund - 11 % of annual operating expenditures. • Police Tax Increment Funds - 1 1% of annual operating expenditures. l6 O Survey of Utility Reserve Policies - Questionnaire Template Entity: Boulder, CO Person Interviewed: Carol Linn Title: Utilities Financial Manager Date: Ol/15/07 Survey 1. How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc. )'? Separate Watei•, Wastewater and Starmwater Enterprise Fuilds 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). Each Enterprise Fund has the followin~ ~ub-fund~: • Operatin~~ • Plant Live~tment Fee • Bond (tiepai-ate for each bond i~sue) 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). Boulder has the following esiahlished re~erves for each Enterprise F~md: ~ ~ Emergency reserve equal to approximately 3°Io of each funds annual operating budget. • Operating reserve equal to a minimum of 20°/r of each funds annual opet-ating ~ budaet ( includin~ transfers ). • Bond reser~•e equal to requirement specified by bond covenantti of each outstancling bond istiue. ~ • Sick, va~ation, appreciation, honus liability reser~~e cyual to accumulated tiick, vacation time, appreciation honuses and other employee benefits that result in liabilities upon termination or retirement. • Pay period 27 eyual to the cash requirement of an additional pay period for years ~ where there is an additional, ?7`h pay period. • Lakewood pipeline reserve within the w•ater utility and equal to recent settlement ~ award and restricted for future improvements to the Lakew•ood pipeline. - • Post-flood property acquisition within the stormwater utility and equal to ~ 1,(~O(l.0O0 in the event of a flood. ~ ~ Refer to attached from the ?~07 recommended bud~et t or a detailed description of ~ each reserve hy Enterpri~e Fund. ~ Survey of Utility Reserve Policies - Questionnaire Template Entity: Boulder, CO Person Interviewed: Carol Linn Title: Utilities Financial Manager Date: O1/15/07 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes Boulder uses the tollow~ing prartices: • Multi-year financial planniilg over a 6-year ~la-inin~ window. •[n addition to meeting all detiignated reserve requirements: il~aintain operating reserve requirements of ?O~'/~ throu~hout the 6-year pla-ining period and is the ~eneral hatiis for rate ad,jutitments. o lil a giveil year, the reserve may exceed the mi~iimum requirement a~id the fund balance may be drawn down in subsequent years as revenue requirements fluctuate. 5. Discuss revenue and/or rate stabilization fund utilized. The utilitie~ do not currently have a formal rate or revenue stabilization fund. 6. Are you considering changing any of these for 2007'? The reserve policies are being reviewed as part of this study. 2007 RECOMMENDED BUDGET Reserve Policies Byls~nce m F'rojce~ed Ynr-End Compk Fund Cat on~ Reservt Pu ase Currmt Resen~e PoGcr Bal~oce 2007 w/Bud e1 Poticv ~'ar"unc Comments CUiTC01 fGSQ~'G ~IIC)' LS 7h~t ts an apprnpnaied resm~e ~e 6eiog met: adjusted Emagmcy' fund unan~~cipa~ed npcaimg anoualty az'-e of cwmt Wata lkiLt~ Stab~zauon Emv rnn~ Resm~ emc maes. 3°-0 of Fund's o cat~n bud c~ }3(I,0 3?U,OU o atin bud et. ~ITILS LS dIl WIif~lrf~PilllC(I fCStT'G Curtm~ rame policy is fnr nperatmg and capn~l 20°~a of Fund's opaatmg budgn bcvig met; adjusted anagrncin Nid revenuc fincluding transfers) over six-year amually as °~o of currem craun~Rescrce shon(aLLs. launin timeGame. 4.959,GU9 ~9'_I.Skf '.03b.0'_i u catin bud~e~. R~me amow~ dcfined ~I'hcse resaves are eslublis6ed m mdiv~dually for each bond accordanee wrth twnd covrnam ~ssuance. equal tn approximately Currwt resa~ve policy ~s 8und Bond Rcsm~c r wremrnts fnr revrnuc bondc one 's annual debt a mt. h,.'O,IUi b,_"QID3 bein met. l~hc (und wss atabluhed for LebiLties assot wit6 accurttulaled s~ck and vuation twe. appreciation bonuses, and or SsC \'ar,App rnhtt employee brnefits tha~ result Resm~e is to cova I00°~o of Hun~s Liab~Lt~~ m La6diua upon ~rnnmatron or azttued mns as detmnmed by Currmt resa~-c pohc~ is LwbiW~ Resrn~e retvemrn~ Finance mmt. "~a,(W "_4,W~ bem met. Kecm~e atabl~ched tn prm~ide Resm~e ~s io coa~Q IW°~e o(cash tunduqc for ycars w wftich thac pa~mmt for 2 it6 pay penod for Pa~ Period 2? are'_? pay prnod5. Pvst one ytar in which it occurs Ie.q Cutrml resrn~c poGcV' Ls L~nb~Lrv R~cn~c occursm:0li. '017) ?I,OOI ?I,00 met. Currwt ram~e pohcv a 'Tlus u~n apprnprla~cd rtsrnc to being met; adjustnl E.mngrncq' funJ unnnudpa~cd npaatmg amually as °~o of cwrrni Was~ewaia Uuli~ ~ Siabduanon Eroa enc Reservc ancr~rnacs. 3°~5 o(Fund's o aatm 6ud a. 2ali,U(i( ~SU,00 u cratin bud a. Currem resave poGcy a 7his ~t an unappropnated resme ?0"~0 of Fund's opaatiag budga bemg met; adjus~ed for opaatinF and capttal (wcludmg transfers) ovv su-year annually as a~e of currrnt atm Res~T~c cma aicics. lamvn tuaeframe- ',G??.zi 1.~13.'I ~ S,Y23.6U o atin bu a. Currmt rescrvc polic}' u Ram~e amnunt defined bewg ma (mcluda Thesc rama are establis6ed m mdi~~duall}• for each bond atnnaeed r~ssuves (or acc~,rdance w~nh boad covenant tssuancc equal ~o approcvnatd~~ _'005 and'_00G projmeel Hond Bond Rcsm~c rc uvcmrn~s for rovenue boods. ooe- ar's amusl deM a mrnt. I'U.'_J 1'QZS bonds). Thc fmd u~as estabhshed for ~anm~~~ ~,~ ..nn ~~~~~,~a s~ct and vacacion time, apprce~auon bonus~s, and or S~ek \'ac App otha employa brnefiu Ihat rauh Resrn'e i~ m em-er 100°~ o of Bonus Liability m liabilina upon tummauoo or accrued costs u detamincd tn~ Current r~smr po~n~ ic Lta6Jm Reserve rchuanwt F~omce artment. t~US.I'_I 6USJ21 me~. R~su~~c ~sii~Muhcd ~u pruvidr RCSCf~'C LS l0 COVQ IOO°~u of cash (undmg (or years ~n wluch thac payman for 27th pa} perwd li+r Pay Pa~iod ?7 ue 27 pay periods. Fvsi one year m which it occurs (c.g Curten~ reserve ~licy u L~a6ihri~ Reserve occurs in 2013. 2013 ~. _'4.60C 24.60 ( bew ma_ Cmrm~ r~ave poGcy is T'his a an appropnated resme ~o bemg met; ad~ustcd titnrtmv;iicr Flnud Fmn~ernw~ lund unam~cipated opaating annually as io of curtrnt Mana ~ mcni L'tilit ~ Stabilizition Ema rncu~ Rcsavt cmcr ~u~cia 1°~'o uf Fuud~s o tm bu el kfJ.l~l~l N4.W~_ o t~ bu et. Cunmt resen'e poliry is ih¢ ~s an unappropr~ated resrn•c ?0°~e of Fund's opHatmg budgci bemg met; adjusted fnr oFxratmg and capital I mcluding transFers) ova su-~ear amuallv az°% of curtme aatin Resave ana rncfes- lannm ~~e6amc_ 2"49,F6 6iIJ6 '_J68,'0~ o atm bud et. Resm-e ~s mcreased bv SISO,UUU Post~Flood Ressm~e is for post - flood a year such that tbe fuod w~ill Ropestv property acqiusitioo ia the e+~~cai o azcumulate aod maiotaio a lntl u Curttat r[.w+t pnht}~ t~ Ac aitioo n ~ond SI,OOD,000. I.OSQOU 1,006.00 iG, Mm ma. Resm~e amounc de5ned 7Tese reterves are esteblished in mdi~tidualfy for eac6 bond accordance with Mnd covmant issuance, equal to appreximateh- Curtait resm~e poGcy u Bond Bund Rcsm~e rc wrcmrnls for revrnue bonds. onc car's amual deU a rnt ~:4.' 15 R7.9,? I S bcm met 2007 RECOMMENDED BUDGET Reserve Policies Balance to Prujec~ed ti'exr-End Comph~ Fuad Catt on Resrne Pu ose Current Reserve Poli Briance ~2007 w/Bud et PoBcv Varianc Commeols i Thc (und was establuhed For liabilitia azsoc with accumulaled vc~ and vacation twe. apprec~ation bonuses. and~or Ssk \`ac .4pp utha auployx bmcfris that result Rcsmr a ~o mra 100°a of Bonus Liability m LaMLUCS upon tcrminat~on or accrucd costs as dctatwnnl b~~ Curtrnt resmr ~~Lc~ is L~ab~ht~ Ra~~e raucmcvt Financc anmwt I-'?.-" I'9.-' ~ lxw ~ m~n Raerve cs~abl~chcd ~o prowde R~cerve is m co~~a 100°~e nf cach funding (nr yc:vs m which ihae payment fnr 2?th pay perioA (nr Pa}' Per~od'_"' arc ~~ pa~ penuds Pu~si onc )eu m~chich n ncn~rs Ir c ('unem ic.m~r pnhcy is Lieb~htv Resen~e n~rsm'iil4 'lil;~ -'_IW '.^pl f hau•met ~ . Survey of Utility Reserve Policies - Questionnaire Template ~ Entity: Denver Water, CO ~' Person Interviewed: Dave LaFrance Title: Director of Finance Date: O1/2/07 " Surve_y ~ 1. How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc.)? Denver Water is a single Enterprise Fund that only provides water service. ~ • It does not receive tax money or other transfers from the City and County of Denver. "' • It does not transfer funds to the City and County for an overhead andlor administrative services charge. • It assesses charges to City and County for its use of water consistent with other ~ customer charges. . Historically, GO Bonds were issued, repaid with user charges. Last GO Bond issue was completed in the early 1970s. Until recently Certificates of Participation (COPs) were the primary debt instrument used. Cunently, Revenue Bonds are the primary debt instrument. 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). Denver Water utilizes a single waterworks fund. There is ear--narking at the planning level (see question #3 ). 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). ' Denver Water utilizes 4 different ear-marks. T hey are: ' • Operating reserve equal to 90-days operations and maintenance expenditures. • Renewal and replacement reserve equal to 50% of current year repair and replacement capital expenditures. , ~ Debt service reserve equal to 1-year annual debt service in addition to lgeally covenanted debt service reserve requirements satisfied by Denver Water's surety ~ policy. • Self-insurance reserve equal to 5% of operating receipts and related to self- insurance of inedical, vision and dental benefits. ~ Survey of Utility Reserve Policies - Questionnaire Template Entity: Person Interviewed: Title: Date: Denver Water, CO Dave LaFrance Director of Finance 01/2/07 Refer to attached from 2006 budget for detailed description of the financial planning process, including designation of funds to the various ear-marks previously discuss. 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes Denver Water targets a debt service coverage ratio of 220% annual debt service (legal requirement is 1 10%). 5. Discuss revenue and/or rate stabilization fund utilized. Denver Water does not currentlv have a formal rate stabilization fund. Denver Water utilire~ the fund balance and aforementioned ear-marks to: • Levelize rate or revenue increases. • Buffer short-terms reductions in user charge revenue and shortfalls in revenue in the current year. If fund balance exceeds ear-marks, projected bond proceeds may be reduced or eliminated and the surplus rate revenues are used to cash fund capital expenditures. If the fund balance is drawn down below the ear-marks, the long-term financial plan is updated to: • Increase revenues. • Reduce operation and maintenance expenditures. • Modify capital plan and/or source of funds (e.g., additional debt, etc.). • Restore balance to targeted ear mark targets over time. 6. Are you considering changing any of these for 2007? Denver Water is currently reviewing all of its reserve policies, including: • Current ear-marks. • Targeted debt service coverage ratio. • Establishing a formal rate stabilization fund or reserve. ~ • Changing the frequency of billing. , The goal of the review is to establish reserve policies that balance accumulation of cash, use of debt and level of rates that prudently protects the utility and the service provided without overburdening rate payers. , ~ ~ ~ ~ ~ ~ o v ~ E o ~ a ~ U ~; Z c ~ W d ~ ~ 0 0 ~ ~ i^^~ ~^ ~ ~ ^~~ ~ ~^ ~ ^~ o w ~ ^~ ~ ~ ~ r ~ FI\A,\CLaL POLICIES B.~sis or Acc or~~ ivc :~~u F~~.~vci:3~ RePOxT-.~c Financial Policies The financial policies set forth below are the basic framework for the financial management of Denver Water. The policies are intended to assist members of the Denver Board of Water Commissioners (Board) and Denver Water's staff in evaluating current activities and proposals for future programs. The policies are to be reviewed on an annual basis and modified to accommodate changing circumstances or conditions. Basis of Accounting and Financial Reporting 1. The fiscal year for Denver Water shall begin on January 1 of each calendar year and will end on December 31 of the same calendar year. 2. Following the conclusion of the fiscal year, the Accounting section shall publish its financial reports and a Comprehensive Annual Financial Report (CAFR) prepared in accordance with generally accepted accounting and financial reporting principles established by the Governmental Accounting Standards Board. 3. The CAFR shall include the audited financial statements, including the opinion of the independent certified public accountants. 4. The Accounting section shall, each quarter, analyze and issue quarterly reports comparing financial results for the quarter and year to date with the same periods for the prior years. 5. Fixed asset records shall be maintained that provide sufficient detail information for monitoring, management and periodic inventorying of its facilities, land and water rights. Annual Budget 1. Denver Water's Manager and Staff will prepare the annual budget in the context of a long-term financial plan. 2. The Board shall, at its option, appoint one or more of its members to a budget review committee to meet with the Manager and Directors to review and provide guidance for the Long Range Plans and Annual Budget. 3. The Budget section, prior to the end of December each year, shall submit to the Board the annual budget covering the next fiscal year. The budget shall contain the following information: a. A letter from the Manager discussing the proposed financial plan for the next fiscal year, a review of the previous year's activities and the current financial condition of Denver Water. b. Proposed capital, operation and maintenance and debt service expenditures by program and type of expenditure for the budget year, along with comparisons to estimated expenditures for the current year and actual expenditures for two prior years. c. Proposed receipts, by source, for the budget year, along with comparisons to estimated receipts for the current year and actual receipts for three prior years. d. Debt policies and a comparison of actual ratios to target ratios. e. A table of organization with proposed staffing levels by division and section, along with comparisons to staffing levels for the current year. ~. F».avci,a~. Pot.irt~s ~ Rr:~~r.~i r:s f. An allocation of investment balances to system operations, normal replacements and improvements, debt service, self-insurance and future capital projects. r 4. At least one public Board meeting shall be conducted prior to adoption of the budget. 5. The Board shall review the budget, making any additions or deletions they feel appropriate, and shall, prior to the end of the year, adopt the budget by quorum. If the Board fails to adopt the budget, Denver `` Water shall continue to operate with specific instructions from the Board regarding debt service, system operations and capital expenditures. ~ 6. On final adoption, the budget shall be in effect for the budget year. It shall guide the activities of the Manager and Staff for the budget year. 7. The annual budget document shall be published in conformance with the Government Finance Officers Association's Distinguished Budget Program criteria. The final budget document shall be published no later than 90 days following the date the Board adopts the budget. '- 8. The Budget section shall monitor and report to the Manager and Staff the actual receipts and , Expenditures and shall compare them to budgeted receipts and expenditures on a monthly and year-to- date basis. Revenues 1. Denver Water will set rates and fees at a level that recovers the projected full cost of providing service pursuant to the City Charter. 2. Under certain circumstances, such as during times of drought, a temporary rate, charge, fee or surcharge may be adopted to support the Board's short-term goals, meet unanticipated costs, supplement lost revenues and when deemed necessary, enforce other short-term or temporary needs. 3. The collection and use of temporary or unpredictable revenue sources shall not be relied upon to provide for ongoing capital or operation and maintenance activities. Expenditures 1. In planning expenditures, Denver Water will follow the City Charter's mandate to keep rates as low as good service will permit. In general this means that Denver Water will properly maintain its facilities and continuously seek ways to operate more efficiently. 2. Debt policies are provided in Section 6 Debt Service, beginning on page 95. Balanced Budget Denver Water balances its budget by the planned use of or contribution to investment balances. The designated balances are maintained to provide for financial impacts to operation and maintenance, capital replacement, debt service and self-insurance. This approach is in accordance with the City Charter, which allows the accumulation of funds for improvements of such magnitude that they cannot be acquired from the surplus revenues of a single year. FINANCIAL POLICIF.S ' LO~G TERDi FINnNC~ni. Pi_~ns Long Term Financial Plans ' 1. Denver Water's Manager and Staff shall annually prepare a capital project plan that shall identify all capital improvements likely to be needed during the next ten years to satisfy projected growth in demand for water and to maintain existing capacity to provide water. ' 2. Each year the Manager and Staff will prepare a ten-year Operations and Maintenance Plan that shall identify expenses for normal operations, including significant changes to current operations and ~ expenses arising out of planned capital projects. 3. Each year Denver Water will develop a ten-year Financial Plan which incorporates projected revenues and expenditures included in the Capital and Operation & Maintenance Plans. The ten-year Financial Plan shall be used to develop one or more scenarios for financing projected expenditures. .. 4. The long-term plans will incorporate the Manager and Staffs assumptions with respect to revenues, ' expenditures and changes to designated balances over a ten-year horizon. The assumptions will be evaluated each year as part of the long-range planning and budget development process. ~ v ~ Survey of Utility Reserve Policies - Questionnaire Template Entity: Person Interviewed: Title: Date: Survev Fort Collins, CO Terri Bryant Utilities Finance and Budget Manager O1/09/07 How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc.)? Separate Water, Wastewater and Strom Water Enterprise Funds. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-gowth capital fund, etc.). The Enterprise Funds do not include sub-funds. 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). Water Utility revenues less operating and maintenance expenditures are reserved as follows: • Accrued principal and interest on water revenue bonds. • Debt service reserve as specified within bond ordinances. • Capital expenditures. • Operating reserve equal to 5% of projected annual operating revenue. • Water rights reserve equal to cash in-lieu-of water rights payments and raw water surcharges less water rights expenditures. • Art in public places reserve equal to 1% of eligible capital projects over $250,000. • Capital reserve equal to any remaining working capital after all other reserves are satistied. Wastewater Utility revenues less operating and maintenance expenditures are reserved as follows: • Accrued principal and interest on water revenue bonds. • Debt service reserve as specified within bond ordinances. • Wastewater bond capital reserve equal to 25% of budgeted operation and maintenance expenditures. • Operating reserve equal to 5% of projected annual operating revenue. • Art in public places reserve equal to 1% of eligible capital projects over $250,0~0. • Capital reserve equal to any remaining working capital after all other reserves are satisfied. Survey of Utility Reserve Policies - Questionnaire Template 1 Entity: Fort Collins, CO ~ Person Interviewed: Terri Bryant Title: Utilities Finance and Budget Manager Date: O1/09/07 Storm Water Utility revenues less operating and maintenance expenditures are reserved as follows: • Accrued principal and interest on water revenue bonds. • Debt service reserve as specified within bond ordinances. • Operating reserve equal to 5% of projected annual operating revenue. • Art in public places reserve equal to 1% of eligible capital projects over $250,000. • Capital reserve eyual to any remaining w<~rking capital after all other reserves are satistied. Refer to attached 2004 and 2005 biennial budget for detailed description of reserve policies and flow of funds. 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes In addition to the formal reserve policies previously discussed, a debt service coverage requirement is used as follows: ~ • Water Fund requirement equal to 110% of annual debt service. • Wastewater Fund reyuirement eyual to 115% of annual debt service. • Storm Water Fund requirement equal to 125% of annual debt service. ~ 5. Discuss revenue and/or rate stabilization fund utilized. ' No formal fund has been established. Multi-year tinancial planning process and a two-year budget cycle is used. Actual water sales revenues above projected are used to offset years where revenues are below projected. ~ Additionally, the water rate structure has been modified each year over the past four years and it has been difficult to establish a baseline projection for water sales = revenues. Recent discussions with City Council regarding rate stabilization funds ,~ have occuned, but nothing formal has been adopted. ' 6. Are you considering changing any of these for 2007? No. ' ~ ~ ADOPTED 2004 and 2005 BIENNIAL BUDGET 1 , ' ~ ~~ City af Fort Collins ~ MAYOR Ray Martinez CITY COUNCIL Bill Bertschy, Mayor Pro Tem Eric Hamrick Kurt Kastein David Roy Marty Tharp Karen Weitkunat CITY MANAGER DEPUTY CITY MANAGER John F. Fischbach Diane Jones BUDGET ~ RESEARCH DIRECTOR Doug L. Smith FINANCE DIRECTOR Alan J. Krcmarik 4.2. ENTERPRISE FUNDS The City has five Enterprise Funds. These are Golf, Light & Power, Wastewater, Storm Drainage, and Water. The Enterprise Fund classification has been used to account for various services for which there exists a significant potential for financing through user charges. Historically, services were accounted for in an Enterprise Fund if financed more than 50% by user charges (of the five Enterprise Funds, all but the Golf Fund are also treated as "enterprises" within the meaning of Article X, Section 20 of the State Constitution). All Enterprise Funds will recover 100% of their costs. The goal of all enterprise accounts is self-sufficiency. Toward this end, funds that are not recovering at least 75% of costs shall incrementally adjust their rate structures to achieve a positive income position. Those operations which cannot achieve a positive income position within a five year time frame may be accounted for as subsidized operations and not as Enterprise Funds. a. Utilitv Services The financial policies of the Utilities are administered in accordance with the City Charter. Each of the four utilities has been established, and is operated as an "enterprise" as permitted by the City Charter in accordance with Article X, Section 20 of the Colorado Constitution. 1. Fiscal Responsibility Per the Charter, the Financial Officer wilt maintain a standard system of accounting which shall, at all times, correctly reflect all financial operations of each utility. The Utilities may keep other supplemental records and data as are generally used by various segments of the utility industry. The Financial OfFicer shall keep accounts of each Utility Fund separate and distinct from all other accounts of the City. Accounts for the Utilities shall contain proportionate charges for all services performed by other departments as well as proportionate credits for all services rendered to other departments. 2. Utility Rates Utility rates will be based upon the cost of service approach to reflect full distribution of costs to appropriate rate classes in order to effect equitable sharing of costs. Rates shall be established and maintained at a level sufficient to maintain positive net income in each of the utility funds after paying the full cost of operating and maintaining the utilities and keeping them in good repair and working order. Such rates shall also be sufficient to enable each utility, where applicable, to meet rate requirements of City or utility enterprise bond ordinances. b. Electric Utilitv The following policies pertain to the electric utility-Light and Power Fund. Since the utility is debt-free, these policies pertain primarily to maintenance of reserves. The utility shall be operated: 1 1. To provide an operating reserve equal to 8% of budgeted operating expenditures, excluding the cost of purchased power; * 2. To pro~ide a future capital improvements reserve in an amount equal to the average annual cost (excluding debt financing) of the approved five-year capital improvement plan, considering any changes which, from time to time, may be made in such plan; ' 3. To provide a purchase power reserve up to approximately 25% of the annual revenue from the sale of electrical energy. This reserve shall be used to partially off- set, defer, or mitigate the impact of purchase power cost increases due to factors ~ such as federal power issues. Significant changes to the 25% level shall be reported to the Council during the budget process. ~ 4. Priority for the accumulation of reserves shall be as follows: reserves shall first be accumulated in the operating reserve, second in future capital improvements reserve, third in the purchase power reserve. In addition, 1% of specified capital ~ project appropriations shall be reserved and restricted for the City's Art in Public Places program. After reserves are funded, any remaining working capital shall be added to the purchase power reserve. A c. Water Uti~ity The following policies pertain to the water utility-Water Fund. ~ 1. Pledge of Revenues ~ The City's general obligation water bonds are general obligations of the City secured by a covenant to levy taxes to make all bond payments. Thus, they are backed by the full faith and credit of the City. In addition, the City has pledged revenues from monthly water charges, plant investment fees, supplemental user fees (collected ~ pursuant to the Anheuser-Busch Master Agreement--hence "A-B supplemental user fees"), investment earnings, and all other income derived from the operation of the Water Fund toward payment of the bonds. The City's practice is to pay general ~ obligation water bonds from revenues of the water system rather than through property taxation. The City has pledged the Water Fund revenues indicated above toward the payment of its water enterprise revenue bonds. ' 2. Flow of Funds ~ The City has committed to maintain rates and charges sufficient to generate sufficient "net revenues" of the water system to pay principal and interest on its water revenue bonds and general obligation water bonds. Net revenues include all revenues referred to above, less operation and maintenance (O&M) expenses. 0&M ~ expenses are those expenses necessary to operate, maintain, and repair the water system, but do not include any allowance for depreciation or capital replacements and improvements. After all O&M expenses are paid, the remaining net revenue is , pledged to pay the revenue bonds principal, interest, and related costs. After all O&M and debt services expenses are paid, the City is required to maintain the following revenue bond accounts: , ~ a) Principal and Interest Reserve - at an amount equal to the accrued principal and interest on the water revenue bonds; b) Debt Service Reserve - at an amount specified in the bond ordinances. Any remaining net revenues of the Water Fund may be used for any lawful purpose. These are used, in part, to fund major and minor capital improvements and the following reserves: a) Operating Reserve--at an amount equal to 5% of the projected operating revenue for the ensuing year; b) Water Rights Reserve--at an amount equal to the amount of cash in-lieu-of water rights payments and raw water surcharges less any expenditures for acquiring water rights; c) Art in Public Places Reserve--at an amount equal to 1% of eligible capital projects whose appropriations exceed $250,000; d) Capital Reser~e--at an amount equal to remaining working capital after all other reserves are satisfied. 3. Rate Maintenance The Water Revenue Bond Ordinances require the City to charge and earn sufficient revenue to produce "net pledged revenues" that are equal to 110% of the actual annual debt service requirements for all outstanding water revenue bonds plus 100% of all costs payable to issuers of reserve fund sureties. Net pledged revenues are defined as all revenues of the Water Fund, less O&M expenses. 4. Water Capital Cost Financing Capital cost will be identified as either a) Minor Capital--relatively small capital acquisitions such as vehicles, lab equipment, or minor improvements; or b) Capital Projects--major additions, improvements, or expansions to utility plant. Financing for minor capital is through water utility revenues. Financing for capital projects is principally through long-term debt financing. d. Wastewater Utility The following policies pertain to the wastewater utility-Wastewater Fund. 1. Pledge of Revenues In accordance with the City and Wastewater Enterprise Bond Ordinances (together the "Bond Ordinances"), the City has pledged revenue from monthly sewer charges, plant investment fees, A-B supplemental user fees, investment earnings, and all other income derived from the operation of its wastewater utility toward the payment of its sewer revenue bonds. 2. Flow of Funds The first charge against Wastewater Fund revenue is operation and maintenance (08~M) expenses--those expenses necessary to operate, maintain, and repair the sewer system. After all O&M expenses have been paid, the remaining net revenue is pledged to pay the sewer revenue bonds principal, interest, and related costs. After all O&M and debt services expenses are paid, the City is required to maintain the following reserve accounts (listed in pledge order): a) Principal and Interest Reserve--at an amount equal to the accrued principal and interest on the sewer revenue bonds; b) Debt Service Reserve--at an amount specified in the bond ordinances; c) Wastewater Bond Capital Reserve--at an amount equal to 25% of the O&M expenses budgeted for the fiscal year. Any remaining net pledged revenues of the Wastewater Fund may be used for any lawful purpose. These are used, in part, to fund major and minor capital improvements and the following reserves: a) Operating Reserve--at an amount equal to 5% of the projected operating revenue for the ensuing year; b) Art in Public Places Reserve--at an amount equal to 1% of eligible capital projects whose appropriations exceed $250,000; c) Capital Reserve--at an amount equal to remaining working capital after all other reserves are satisfied. 3. Rate Maintenance The Bond Ordinances require the City to charge and earn sufficient revenue to produce "net pledged re~enues" that are equal to 115% of the actual annual debt service requirements for all outstanding bonds plus 100% of all costs payable to issuers of reserve fund sureties. Net pledged revenues are defined as all revenues of the Wastewater Fund indicated above, less O&M expenses. 4. Wastewater Capital Cost Financing Capital cost will be identified as either: a) Minor Capital--relatively small capital acquisitions such as vehicles, lab equipment, or minor improvements; or , b) Capital Projects--major additions, improvements, or expansions to utility plant. ' Financing for minor capital is through utility revenues. Financing for capital projects is principally through long-term debt financing. ~ e. Stormwater Utility The following policies pertain to the stormwater utility - Storm Drainage Fund. ~ 1. Pledge of Revenues In accordance with the City and Storm Drainage Enterprise Bond Ordinances (together the "Bond Ordinances"), the City has pledged revenue from monthly r charges, stormwater development fees, investment earnings, and all other income derived from the operation of its stormwater utility toward the payment of its storm ~ drainage revenue bonds. 2. Flow of Funds r The first charge against Storm Drainage Fund revenue is operation and maintenance ~ (O&M) expenses-those expenses necessary to operate, maintain, and repair the storm drainage system. After all O&M expenses have been paid, the remaining net revenue is pledged to pay the storm drainage revenue bonds principal, interest, and related costs. After all 08M and debt service expenses are paid, the City is required to maintain the following reserve accounts (listed in pledge order): a) Principal and interest reserve-at an amount equal to the accrued principal and interest on the storm drainage revenue bonds; b) Debt service reserve-at an amount specified in the bond ordinances. Any remaining net pledged revenues of the Storm Drainage Fund may be used for any lawful purpose. These are used, in part, to fund major and minor capital improvements and the following reserves: , a) Operating Reserve--at an amount equal to 5% of the projected operating revenue for the ensuing year; ' b) Art in Public Places Reserve--at an amount equal to 1% of eligible capital projects whose appropriations exceed $250,000; and c) Capital Reserve--at an amount equal to remaining working capital after all ~ other reserves are satisfied. 3. Rate Maintenance r The Bond Ordinances require the City to charge and earn sufficient revenue to produce "net pledged revenues" that are equal to 125% of the actual annual debt , service requirements for all outstanding bonds. Net pledged revenues are defined as all revenues of the Storm Drainage Fund indicated above, less O&M expenses. 4. Storm Drainage Capital Cost Financing Capital cost will be identified as either a) Minor Capital--relatively small capital acquisitions such as vehicles, equipment, or minor improvements; or b) Capital Projects--major additions, improvements, or expansions to the storm drainage system. Financing for minor capital is through utility revenues. Financing for capital projects is principally through long-term debt financing. 4.3. INTERNAL SERVICE FUNDS Internal Service Funds account for certain support services provided to other funds and external agencies. By imposing charges to the users of the services, they recover their costs. The Finance Department may recommend the creation, continuation, or ending use of an internal service fund based on documented customer needs and financial benefits. The City now operates five internal service funds. These include the Benefits Fund, Communications Fund, Equipment Fund, Utilities Customer Service and Administration Fund, and the Self-Insurance Fund. The Internal Service Funds operate under the following guidelines. Accounting guidelines limit internal service fund charges to the recovery of the cost of the service, including depreciation, rather than making a profit. Each fund's prior year financial statements and estimates of future costs form the basis for the calculation of charges. 2. Fund managers should set charges at a level to avoid adverse financial impacts on ' their customers. Fund customers and independent experts review and make recommendations about the level of charges. The Finance Department coordinates this analysis. ~ 3. Internal service funds should compete with similar services offered by the private sector. The City staff will compare rates each year. If not competitive with the private sector, the Finance Department will analyze whether the private sector should provide the service. ~ 4. Internal service funds may build up reserves. Customer-approved master plans and ' independent third-party actuarial reviews (for the Benefit and Self-Insurance funds) guide the level of reserves. Fund managers may spend reserves only for their approved purpose. ^ 5. The City may buy equipment and facilities for the internal service funds through lease-purchase financing. Management's decision to recommend lease-purchase Survey of Utility Reserve Policies - Questionnaire Template ' Entity: Greeley, CO ~ Person Interviewed: Roger Berig Title: Budget Analyst Date: O1/OS/07 Survey 1. How are Water, Wastewater and Storm Water Utility Operations organized (e.g., Separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc.)? Separate Water and Sewer Utility Enterprise Funds. Water and wastewater service is governed by a separate Board similar to the organization of Denver Water. 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). Water: • Operating • Capital o New Construction o Replacement o Water Acquisition Wastewater: • Operating • Capital o New Construction o Replacement 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). Operating reserve is equal to 90-days operating and maintenance expenditures. While this is a formal policy, it is not clear where this reserve policy is codified and/or formalized. Survey of Utility Reserve Policies - Questionnaire Template ~ Entity: Greeley, CO ~ Person Interviewed: Roger Berig Title: Budget Analyst Date: O1/05/07 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes • New construction fund reserve equal to 50% of projected annual investment fee revenues. • Replacement fund reserve equal to 50% of annual depreciation. • Water acquisition transfers equal to 1.5% of rate increase in each year transferred from the operating fund. 5. Discuss revenue and/ar rate stabilization fund utilized. No rate stabilization fund exists. Utility updates financial planning and rate model annually and annually presents projected rate increase for two-years to Board. Typically, two alternatives presented include just-in-time rate increase and level rate increase over the two-year period. 6. Are you considering changing any of these for 2007? Water Board is reviewing the best way to promote conservation and reduction in gallons per capita per day without adversely affecting revenue. Survey of Utility Reserve Policies - Questionnaire Template ' Entit,y: Longmont, CO , Person Interviewed: Bill Powell Title: Administrative Services Manager Date: 12/27/06 ~ Surve 1. How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, Single Utility Enterprise Fund, no Storm Water Utility, etc.)? Separate Water, Wastewater and Storm Water Enterprise Funds. 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). The following budgetary sub-funds are utilized: Water: • Operating • Construction • Raw Water Storage • Water Acquisition Wastewater: • Operating • Construction Storm Water: • Engineering • Maintenance 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). Operating Reserves: + Water equal to 90-days operation and maintenance expenses. • Wastewater equal to 90-days operation and maintenance expenses. • Storm Water equal to 60-days operation and maintenance expenses. Refer to attached 2007 budget for a detailed description of the formal policy. Survey of Utility Reserve Policies - Questionnaire Template 1 Entity: Longmont, CO ~ Person Interviewed: Bill Powell Title: Administrative Services Manager Date: 12/27/06 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes The informal practices follow the formal policy very closely. 5. Discuss revenue and/or rate stabilization fund utilized. No farmal rate stabilization policy exists. Periodic cost-of-service and tinancial planning studies include multi-year financial planning and level rate increases and therefore the fund balance acts as an informal rate stabilization fund as the fund balance may be increased and/or drawn down in particular year based on a multi-year plan. 6. Are you considering changing any of these for 2007? A rate study is planned for 2007. City of Longmont, Colorado 2007 Operatin~ Budget Julia Pirnack Mayor Council Members Doug Brown Ward 1 Karen Benker Ward 2 City Administration Gordon Pedrow C(ay Douglas City Mana~er City Attorney Jim Golden Valeria Skitt Director of Finance Director of Administration/City Clerk Phil DelVecchio Karen Roney Director of Community Development Director of Community Services Mike Butler Steve Trunck Police Chief Fire Chief Dale Rademache~ Tom Roiniotis Director of Public Works and Director of Electric and Water Utilities Telecommunicaitons Utilities At Large Ward 3 Roger Lange At Lar~e Mayor Pro Tem At Lar~e ' City of Longmont, Colorado 2007 Proposed Operating Budget ' 4. All bonds will be sold at public sale; however, the City reserves the right ta reject any and all bids and sell the bonds at private sale if it is in the best interest of the City of Longmont. , The City currently follows this policy. ' 5. Subject to complying with the TABOR Amendment (Colorado Constitution, Article X, Section 20), the City Council may issue tax increment securities payable solely from the increment ad valorem property taxes, incremental sales and use tax proceeds and revenues within the area of an authority or district created in accordance with the Charter, including downtown development authorities, ~ notwithstanding the '/~ of 1% of assessed valuation limitation, or the limitation of actual valuation of property set forth in the Charter. The Cify currentJy follows this policy. The City rssued $2.6 mi!lion of tax increment revenue bonds for ~ fhe Longmont Downtown DevelopmentAuthority in 1998. ~ Lease Purchase and Straight Lease of Capital Items Lease purchase will be considered only when the useful life of the item is equal to or greater than the length of the lease. If the item may become technologically obsolete or is likely to require major repair ' during the lease purchase period, then the item should either be purchased or placed on a straight lease. ~ The City currently follows this policy. Subdivider's Escrow The monies contributed to the Subdivider's Escrow Fund for public improvements earn interest comparable with other City money market rates. All funds deposited for a particular project and all ~ interest earned by said funds will be appfied only to that project. e The City currently follows this policy. ' RESERVE POLICIES General Fund Reserve , The City will maintain an unappropriated reserve in an amount equal to approximately 6% of the General Fund operating budget. ~ The 2007 Operating Budget projects thaf the General Fund wi!! end the year with an unreserved fund balance of $4.53 million. Total 2007 expenses in the Genera! Fund are budgeted at $59, 054, 241. The projected fund balance represenfs 7. 68 % of the General Fund's operating budget. r General Fund Contingency Account A contingency account will be placed in the City Council budget each year to provide for unanticipated ' expenditures. This account will be budgeted at an amount to be determined after initial projections of revenues and expenses. ' The 2007 Operating Budget rncludes $51, 921 in the contingency line irem in the City Council budgef. ' Page 18 ' City of Longmont, Colorado 2007 Proposed Operating 8udget ' Water Fund Reserve ~ The Water Fund will maintain an unappropriated reserve in its operating fund of at least 90 days operating and maintenance costs. To do this, appropriate rate studies will be developed and implemented. ~ Based on current projections, the Water Fund will meet the reserve requirement through 2007. ' Sewer Fund Reserve The Sewer Fund will maintain an unappropriated reserve in its operating fund of at least 90 days operating and maintenance costs. To do this, appropriate rate studies will be developed and implemented. ' Based on current projectrons, the Sewer Fund will meet the reserve requirement through 2007. Electric Fund Reserve ' The Electric Fund will maintain an unappropriated reserve in its operating fund of at least 60 days operating and maintenance costs, excluding purchased power costs. To do this, appropriate rate ~ studies will be developed and implemented. Based on current projections. the Electric Fund wil! meet the reserve requirement through 2007. ~ Sanitation Fund Reserve The Sanitation Fund will maintain an unappropriated reserve in an amount equal to at least 60 days ~ operating and maintenance costs. To do this, appropriate rate studies will be developed and implemented. Based on current projections, the Sanitation Fund wil! meet the reserve requirement through 2007. ' Storm Drainage Fund Reserve The Storm Drainage Fund will maintain an unappropriated reserve in an amount equal to at least 60 , days operating and maintenance costs. To do this, appropriate rate studies will be developed and implemented. , Based on current projections, the Storm Drainage Fund will meet the reserve requirement through 2007. ~ Street Fund Reserve The City will maintain an unappropriated reserve in an amount equal to approximately 6% of the Street Fund operating budget. ~ Based on current projections, the Streer Fund will meet the reserve requirement through 2007. Emergency Reserve The City will maintain an emergency reserve, in compliance with Article X, Section 20 of the Colorado .~ State Constitution. ' The Crty currently follows fhis policy. The reserve is designated in the Crfy's Comprehensive Annua! Financial Report and comes from the fund balance in the General Fund. ' Page 19 Survey of Utility Reserve Policies - Questionnaire Template Entity: San Antonio Water Systems, TX Person Interviewed: Lou Lendman Title: Forecasting Statistical Analyst Date: Survev O 1/04/07 How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc.)? San Antonio Water Systems (SAWS} is a single Enterprise Fund providing the following utility services: • Water • Wastewater • Chilled and Steamed Water 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). For planning purposes, the operating activities of SAWS are split into separate system funds related to the three services provided. Water service has an additional system fund associated ~vith raw water supply. In addition to the four system funds, SAWS has additional fwlds as follaws: • Debt Service Fund - Monthly transfers from system funds for the payment of annual debt service. • Reserve Fund - A debt service reserve fund to satisfy legally covenanted debt service reserve requirements not satisfied by surety policies. • Project Fund - Proceeds of bond proceeds until spent. • Renewal and Replacement Fund - System capital project expenditures including improvements, enlargements, extensions, additions, replacements, or other capital expenditures. • Internal Service Fund - Accounts for services provided by one organization unit to another organizational unit. Survey of Utility Reserve Policies - Questionnaire Template Entity: San Antonio Water Systems, TX Person Interviewed: Lou Lendman Title: Forecasting Statistical Analyst Date: Ol/04/07 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). SAWS has the following four formal reserves: Operating reserve for the system fund equal to 60-days operation and maintenance expenditures. Debt service reserve equal to maximum annual debt service requirements not satisfied by surety policies. Refer to attached ordinance (Ordinance No. 75686 adopted in 1992 upon the creation of SAWS) for a detailed description of the formal reserve policies. 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes. Formal reserves followed for planning purposes. 5. Discuss revenue and/or rate stabilization fund utilized. Multi-year financial planning is utilized to project future revenue or rate increases, but is managed on a year-by-year basis. Transfers to and from the Renewal and Replacement Fund are utilized to manage annual surplus or deficiencies in actual revenues to budgeted revenues. For example, actual water sales have exceeded projected water sales during a recent drought and SAWS has transferred the surplus to the Renewal and Replacement Fund, cash funded a greater percent of capital project costs and avoided a planned 2007 rate increase. Additionally, SAWS is accumulating funds within the water supply fund in ~ anticipation of near-term surface water acquisitions and is projecting rate increases in ~ 2008 through 2012 to fund such expenditures. ' 6. Are you considering changing any of these for 2007? No. ~ ORDINANCE N0. ~ ~ v V AN ORDINANCE BY THE CITY COUNCIL OF THE CITY OF SAN ANTONIO, TEXAS AUTHORIZING THE ISSUANCE OF "CITY OF SAN ANTONIO, TEXAS WATER SYSTEM REVENUE REFUNDING BONDS, SERIES 1992"; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL OF AND INTEREST ON THE BOI3DS BY A LIEN ON AND PLEDGE OF THE PLEDGED REVENUES OF THE SYSTEM; PROVIDING THE TERMS AND CONDITIONS OF SUCH BONDS AND RESOLVING OTHER MATTERS INCIDENT AND RELATING TO THE IS~UANCE, PAYMENT, SECURITY, SALE, AND DELIVERY OF SUCH BONDS, INCLUDING THE APPROVAL AND DISTRIBUTION OF AN OFFICIAL STATEMENT; PRESCRIBING CERTAIN MATTERS CONCERNING ESTABLISHMENT OF THE BOARD; AUTHORIZING THE EXECUTION OF A PAYING AGENT/REGISTRAR AGREEMENT, PURCHASE CONTRACT, AND ESCROW AND TRUST AGREEMENT; ENACTING OTHER PROVISIONS INCIDENT AND RELATED TO THE SUBJECT AND PURPOSE OF THIS ORDINANCE; AND DECLARING AN EMERGENCY ~ WHEREAS, the City Council (the City Councii) of the City of San Antonio, Texas (the City) in a cooperative effort with the Waterworks Board of Trustees of San Antonio (the O[d Board) has determined that it is in the best interests of the ~ customers of the System (hereinafter defined) to consolidate the existing waterworks, sanitary sewer, and water reuse systems of the City; ~ ~ WHEREAS, the City Council and the Old Board are cognizant of the need to permit a stormwater utility system t~ be incorporated into the egisting waterworks, sanitary sewer, and water reuse systems to provide for a comprehensive plan to develop, manage, control, and conserve the water resources in the City and surrounding areas; WHEREAS, in order to grovide for improved and more efficient development of the water resources in the City and surrounding areas and. improved coordination of water-related issues, the City Council deems it advisable to consolidate {i) the City's existing waterworks system (currently operating as an agency of the City under the management and control of the Old Board), and (ii} the City's existing sanitary sewer and water reuse systems (currently operating as departments of the City under the management and control of the City Council), and to establish a new agency of the City to be known as the San t -1- 7228Z/7229Z ' that are payable from and equally and ratably secured, in whole or in part, by a subordinate lien on and pledge of the Net Revenues; and (3) the principal of and interest on any Inferior Lien Obligations hereafter issued by the City as the same become due and payable and to deposit the amounts required to be deposited in any special fund created and established for the payment and security of any Inferior Lien Obligations hereafter issued by the City; D. to produce Net Revenues, together with any other lawfully available funds, to fund the transfers as permitted by the provisions of Section 17 of this Ordinance; and E. to pay any other Debt payable from the Net Revenues and/or secured by a lien on the System. Should the annual audit report required by Section 28 hereof reflect that the Pledged Revenues for the Fiscal Year covered thereby were less than necessary to meet the requirements of paragraph B of this Section, the Board will, within thirty (30) days after receipt of such annual audit report, report such fact to the City Council (which report shall be in addition to other required reports to the City Council) and review the operations of the System and the rates and charges for services provided, and the Board (and the City Council, if required} will make the necessary adjustments or revisions, if any, in order that the Pledged Revenues for the succeeding year will be sufficient to satisfy the foregoing coverage requirement specified in paragraph B above. SECTION 14. System Fund - Flow of Fund~. The City hereby covenants, agrees, and establishes that the Gross Revenues shall be deposited by the Board, as collected and received, into a separate account (hereby created, established, and to be maintained with the Depository) known as the "City of San Antonio, Texas Water System Revenue Fund" (the Sysiem Furtd) and that the Gross Revenues shall be kept separate and apart from all other funds of the City. All Gross Revenues deposited into the System Fund shall be pledged and appropriated to the extent required for the following uses and in the order of priority shown: FIRST: to the payment of all necessary and reasonable Maintenance and Operating Egpenses as defined herein or required by statute, includinq, but not limited to, Texas Revised Civil Statutes Annotated Article 1113, as amended, to be a first charge on and claim against the Gross Revenues, including a two-month reserve amount based upon the budgeted amount of Maintenance and Operating Expenses for the current Fiscal Year, which amount shall be retained in the System Fund. 7228Z/7229Z -42- ~ SECOND: to the payment of the amounts required to be deposited into the Debt Service Fund created and established for the payment of the Bonds or any Additional Senior Lien Obligations hereafter issued by ~ the City as the same become due and payable. THIRD: to the payment of the amounts required to be deposited into the Reserve Fund created and ~; established to maintain the amounts required to be deposited in accordance with the provisions of this Ordinance or the ordinances relating to the issuance ~ of any Additional Senior Lien Obligations hereafter issued by the City. FOURTH: to the payment of the amounts required to be ~ deposited into the interest and sinking, reserve, or contingency fund to be created and established for the payment, security, and benefit of any Junior Lien ' Obligations hereafter issued by the City as the same become due and payable. FIFTH: to the payment of the amounts required to be deposited into the interest and sinking, reserve, or contingency fund to be created and established for the payment, security, and benefit of any Subordinate Lien Obligations hereafter issued by the City as the same become due and payable. SIXTH: to the payment of the amounts required to be deposited into the funds or accounts created and established for the payment of any In£erior Lien Obligations hereafter issued by the City as the same become due and payable; and SEVENTH: to the payment of the amounts to be transferred to the City's General Fund as provided in Section 17 hereof and into the Renewal and Replacement Fund created and established by Section 18 hereof. SECTION 15. Debt Service Fund - Excess Bond Proceeds. For purposes of providing funds to pay the principal of, premium, if any, and interest on the Senior Lien Obligations as the same become due and payable, the City agrees that the Board shall maintain, at the Depository, and there is hereby created a separate and special account or fund to be created and known as the "City of San Antonio, Texas Water System Revenue Bonds Interest and Sinking Ftind" (the Debt Serv[ce Fund}. The City covenants that the Board shall deposit into the Debt Service Fund prior to each principal and interest payment date from the available Pledged Revenues an amount equal to one hundred per -43- 7228Z/7229Z ~ * cent (100%) of the amount required to fully pay the interest on and the principal of the Senior Lien Obligations then falling due and payable, such deposits to pay maturing principal and accrued interest on the Senior Lien Obligations to be made by the Board in substantially equal monthly installments on or before the business day before the 15th day of each month, beginning on or before the business day before the 15th day of ~ the month next following the delivery of the Bonds to the Purchaser. If the Pledged Revenues in any month are insufficient to make the required payments into the Debt Service Fund, then the amount of any deficiency in such payment ' shall be added to the amount otherwise required to be paid into the Debt Service Fund in the next month. ~ The required monthly deposits to the Debt Service Fund for the payment of principal of and interest on the Senior Lien Obligations shall continue to be made as hereinabove provided until such time as (i) the total amount on deposit in the Debt ' Service Fund and the Reserve Fund is equal to the amount required to fully pay and discharge all outstanding Senior Lien Obligations (principal, premium, if any, and interest) or ~ (ii) the Senior Lien Obligations are no longer outstanding. Accrued interest and capitalized interest, if any, received from the purchaser of any Senior Lien ~bligation shall , be taken into consideration and reduce the amount of the monthly deposits hereinabove required to be deposited into the Debt Service Fund. Additionally, any proceeds of the Sonds not required to effectuate the refunding of the Refunded ~ Obligations or the payment of the costs of issuance of the Borids shall be deposited into the Debt Service Fund and shall be taken into consideration and reduce the amount flf monthly , deposits required to be deposited into the Debt Service Fund from the Pledged Revenues. ~ SECTION 16. Res~rve Fun~. To accumulate and maintain a reserve for the payment of the senior Lien Obligations equal to 100% of the Maximum Annual Debt Service Requirements (calculated by the Board at the beginning of each Fiscal Year ' and as of the date of issuance of the Bonds and each series of Additional Senior Lien Obligations) for the Senior Lien Obligations (the Required Reserve A»~ount), the City agrees that the Board shall create, establish, and maintain a separate ' and special fund or account known as the "City of San Antonio, Texas Water System Revenue Bond Reserve Fund" (the Reserve Fund), which Fund shall be maintained at the Depository. ~, Earnings and income derived from the investment of amounts held for the credit of the Reserve Fund shall be retained in the Reserve Fund until the Reserve Fund contains the Required Reserve Amount; thereafter, such earnings and income shall be ' -44- 7228Z/7229Z deposited to the credit of the System Fund. All funds ~ deposited into the Reserve Fund shall be used solely for the payment of the principal of and interest on the Senior Lien Obligations, when and to the extent other funds available for ~ such purposes are insufficient, and, in addition, may be used to retire the last Stated Maturity or Stated Maturities of or interest on the Senior Lien Obligations. Until the issuance of any Additional Senior Lien Obligations (or as recalculated by the Board as provided in the preceding paragraph), the Required Reserve Amount shall be $53,933,530, which shall be accumulated, if necessary, in the following manner. Heginning on or before the business day before the 15th day of the month next following the delivery of the Bonds to the Purchaser and on or before the business day before the 15th day of each following month until the Required Reserve Amount has been accurnulated in the Reserve Fund, the City covenants and agrees that the Board shall deposit to the Reserve Fund from the Pledged Revenues an amount not less than $213,893 being the Required Reserve Fund Deposits. As and when Additional Senior Lien Obligations are delivered or incurred, the Required Reserve Amount shall be increased, if required, to an amount calculated in the manner provided in the first paragraph of this Section. Any additional amount required to be maintained in the Reserve Fund shall be so accumulated by the deposit of all or a portion of the necessary amount from the proceeds of the issue or other lawfully available furids in the Reserve Fund immediately after the delivery of the then proposed Additional Senior Lien Obligations, or, at the option of the City, by the deposit of monthly installments, made on or before the business day before the 15th day of each cnonth following the month of delivery of the then proposed Additional 5enior Lien Obligations, of not less than 1/60th of the additional amount to be maintained in the Reserve Fund by reason of the issuance of the Additional Senior Lien Obligations then being issued (or 1/60th of the balance of the additional amount not deposited immediately in cash), thereby ensuring the accumulation of the appropriate Required Reserve Amount. When and for so long as the cash and investments in the Reserve Fund equal the Required Reserve Amount, no deposits need be made to the credit of the Reserve Fund; but, if and when the Reserve Fund at any time contains less than the Required Reserve Amount (other than as the result of the issuance of Additional Senior Lien Obligations as provided in the preceding paragraph), the City covenants and agrees that the Hoard shall cure the deficiency in the Required Reserve Amount by resuming the Required Reserve Fund Deposits to such -45- 7228Z/7229Z Fund from the Pledged Revenues such monthly deposits to be in amounts equal to not less than 1/6~th of the Required Reserve Amount covenanted by the City to be maintained in the Reserve Fund with any such deficiency payments being made on or before the business day before the 15th day of each month until the Required Reserve Amount has been fully restored. The City further covenants and agrees that, subject only to the prior payments to be made to the Debt Service Fund, the Pledged Revenues shall be applied and appropriated and used to establish and maintain the Required Reserve Amount and to cure any deficiency in such amounts as required by the terms of this Ordinance and any other ordinance pertaining to the issuance of Additional Senior Lien Obligations. During such time as the Reserve Fund contains the Required Reserve Amount, the Board may, at its option, withdraw all surplus funds in the Reserve Fund in excess of the Required Reserve Amount and deposit such surplus in the Debt Service Fund. The City may provide a Surety Policy vr Policies issued in amounts equal to all or part of the Required Reserve Amount for the Senior Lien Obligations in lieu of depositing cash into the Reserve Fund; provided, however, that no such Surety Policy may be so substituted unless the substitution of the Surety Policy will not, in and of itself, cause any ratings then assigned to the Senior Lien Obligations by any Rating Agency to be lowered and the ordinance authorizing the substitution of the Surety Policy for all or part of the Required Reserve Amount for the Senior Lien Obligations contains (i) a finding that such substitution is C05t effective and (ii) a provision that the interest due on any repayment obligation of the City by reason of payments made under such Surety Policy does not exceed the highest lawful rate of interest which may be paid by the City at the time of the delivery of the Surety Policy. The City reserves the right to use Gross Revenues to fund the payment of (1) periodic premiums on the Surety Policy as a part of the payment of Maintenance and Operating Egpenses, and (2) any repayment obligation incurred by the City (including interest) to the issuer of the Surety Policy, the payment of which will result in the reinstatement of such Surety Policy, prior to making payments required to be made to the Reserve Fund pursuant to the provisions of this Section to restore the balance in such fund the Required Reserve Amount for the Senior Lien Obligations. In the event a Surety Policy issued to satisfy aIl or ' a part of the City's obligation with respect to the Reserve Fund causes the amount then on deposit in the Reserve Fund to exceed the Required Reserve Ainount for the Senior Lien ' ~ -46- 7228Z/7229Z ~ Obligations, the Board may transfer such excess amount to any fund or funds established for the payment of or security for the Senior Lien Obligations (includirig any escrow established for the final payment of any such obligations pursuant to the ~ provisions of Texas Revised CiviZ Statutes Annotated Article 717k, as amended), or to the Renewal and Replacement Fund. SECTION 17. Payments to City General Fund. A. The Designated Financial Officer of the Soard shall transfer no later than the last business day of each month, commencing November, 1992 (or such later date as shall be mutually agreed to by the Board and the City Council), an amount of money calculated, subject to the second paragraph of Section 18, not to exceed 5% (or such lesser amount as may be determined from time to time by the City Council) of the Gross Revenues (after making each of the payments required by the provisions of subparagraphs Firsk through Sixth of Section 14 hereof) for the preceding month to be utilized by the City in the manner permitted by the provisions of Tegas Revised Civil Statutes Annotated Article 1113a, as amended. The amount so transferred shall be net of all amounts owed by the City to the Board for the utility services described in Section 29E hereof; provided, however, that the Board shall provide the City with a sufficiently detailed statement of charges for such utility services to permit the City to allocate the charges for such utility services to the appropriate office, division, or department of the City. B. To the extent that the available Net Revenues in any month are insufficient for the Board to make all or part of the transfer required by the preceding paragraph, the Board shall make up such shortfall (i} iri the next month in which available Net Revenues eaceed the amounts required to make the transfer to the City pursuant to the preceding paragraph and the pari passu payment to the Renewal and Replacement Fund under Section 18 or (ii) to the extent such shortfall has not been made up by the last month of the Fiscal Year, solely from any surplus funds deposited into the Renewal and Replacement Fund for such Fiscal Year. The Board's obligation to make up any shortfall in a Fiscal Year shall not carry over to a subsequent Fiscal Year. SECTION 18. R~newal ~nd R~placement Fund. There is hereby created and established and there shall be maintained on the books of the Board, and acco~~nted for separate and apart from all other funds of the City and the Board, a separate fund to be entitled the "City of San Antonio, Te~as Water System Renewal and Replacement Fund". The Renewal and Replacement -47- 7228Z/7229Z Fund shall be used for the purpose of (1) paying the costs of improvements, enlargements, extensions, additions, replacements, or other capital expenditures related to the System, or (2) paying the costs of unexpected or extraordinary repairs or replacements of the System for which System funds are not available, or (3) paying unexpected or extraordinary expenses of operation and maintenance of the System for which System funds are not otherwise available, or (4) depositing any funds received by the City pursuant to the CPS Contract, and such funds, including any interest or income thereon, shall be maintained in a separate, segregated account of the Renewal and Replacement Fund and shall only be used to pay Maintenance and Operating Egpenses of the water reuse facilities of the System or the debt service requirements on any obligations incurred as permitted by the CPS Contract and in no event shall any such amount, including interest and income thereon, be transferred to the general fund of the City except as permitted by the CPS Contract, or (5) paying bonds or other obligations of the System for which other System revenues are not available, or (6) in the last month of any Fiscal Year to make up any shortfall as required by Section 17B, or (7) for any other lawful purpose in support of the System. The Renewal and Replacement Fund shall be maintained at the Depository. Deposits to the Renewal and Replacement Fund shall be pari passu with the gross amount payable to the City pursuant to Section 17 (prior to the deduction of any charges for utility services provided pursuant to Section 29E) until the full amount payable to the City under such Section has been paid. That is, such deposits to the Renewal and Replacement Fund shall be made equally and ratably, without preference, and on a dollar-for-dollar basis with the gross amount payable to the City pursuant to Section 17, prior to the deduction of any charges for services, until the full amount to be paid to the City in a Fiscal Year under Section 17 has been transferred to the City's General fund. Thereafter, all surplus Net Revenues shall be deposited to the Renewal and Replacement Fund. SECTION 19. Projeck __F~n~. The creation of the special fund of the City, known as the "City of San Antonio, Texas Water System Project Fund" is hereby authorized and confirmed. The Project Fund shall be maintained as a separate account on the books of the Board at the Depository. The Project Fund shall be used only to account for (i) the proceeds of Senior Lien Obligations, (ii) any premium thereon, and (iii), except as hereinafter provided, investment earnings thereon issued for the purposes of paying the costs of and capitalized interest on, the Senior Lien Obligations during the extension, construction, improvement, or repair of the System, the costs of issuance of the Senior Lien Obligations, and for -48- 7228Z/7229Z any other lawful purpose. Any amounts remaining in the Project Fund upon the completion of the projects funded therefrom shall be transferred by the Board to the Debt Service Fund. Money on deposit in the Project Fund may, at the option of the Board, be invested as permitted by Texas law; provided that all such deposits and investments shall be made in such manner that the money required to be ezpended from the Project Fund will be available at the proper time or times. All such investments shall be valued in terms of current market value no less frequently than the last business day of the Fiscal Year, except that any direct obligations vf the United States of America -- State and Local Government Series shall be continuously valued at their par value or principal face amount. Any obligation in which money is so invested shall be kept and held in the Depository, except as hereinafter provided. For purposes of maximizing investment returns, money in the Project Fund may be invested, together with money in the funds maintained in the Renewal and Replacement Fund or with any other money of the Board, in common investments of the kind described above, or in a common pool of such investments which shall be kept and helc~ at the Depository, which shall not be deemed to be or constitute a comminqling of such money or Eunds, provided that safekeeping receipts or certificates of participation clearly evidencing the investment or investment pool in which such money is invested and the share thereof purchased, with such money or owned by the Project Fund are held by or on behalf of the Project Fund. ' All interest and income derived from such deposits and investments may be deposited in the Project Fund as permitted by the provisions of Texas Revised Civil Statutes Annotated ~ Article 717k-9, as amended, and shall not constitute Gross Revenues, except that, to the egtent required by law, such interest and income may be applied to make such payments to the United States as shall be required to assure that interest on IA the Senior Lien Obligations is excludable from gross income for federal income tax purposes of the Holders as described in Section 42 of this Ordinance. SECTION 20. D~fiCienczes - Excess Ples~Qed or Net ~r Revenues. ~ A. If on any occasion there shall not be sufficient Pledged Revenues (after making all payments pertaining to the Honds or any Additional Senior L,ien Obligations hereaFter issued by the City) to make tl~e required deposits into the Debt ~ Service Fund and the Reserve Fund, then such deficiency shall ~~ be cured as soon as possible from the next available unallocated Pledged Revenues, or from any other sources ' ~ -49- 7226Z/7229Z available for such purpose, and such payments shall be in addition to the amounts required to be paid into these Funds during such month or months. B. Subject to making the deposits required by this Ordinance, or any ordinances authorizing the issuance of Additional Senior Lien Obligations, or the payments required by the provisions of the ordinances authorizing the issuance of any Junior Lien Obligations, Subordinate Lien Obligations, or Inferior Lien Obligations hereafter issued by the City, the excess Net Revenues may be used as set forth in Sections 17 and 18 hereof. SECTION 21. P~yment of Bonds. While any of the Senior Lien Obligations are outstanding, the Designated Financial Officer shall cause to be transferred to the Paying Agent/Registrar therefor, from funds on deposit in the Debt Service Fund, and, if necessary, in the Reserve Fund, amounts sufficient to fully pay and discharge promptly each installment of interest on and principal of the Senior Lien Obligations as such installment accrues or matures; such transfer of funds must be made in such manner as will cause immediately available funds to be deposited with the Paying Agent/Registrar for the Senior Lien Obligations not later than the business day next preceding the date a debt service payment is due on the Senior Lien Obligations. SECTION 22. Investment of Funds - Valuation - Transfer of Investment Income. A. Money in the System Fund, the Debt Service Fund, the Reserve Fund, and the Renewal and Replacement Fund may, at the option of the Board, be invested in time deposits or certificates of deposit secured in the manner required by law for public funds, or be invested in direct obligations of, including obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, in obligations of any agencies or instrumentalities of the United States of America or as otherwise permitted by state law including, but not limited to, the Public Funds Investment Act of 1987, as amended, Texas Revised Civil Statutes Annotated Article 842a-2, or any successor provision of law, as in effect from time to time; provided that all such deposits and investments shall be made in such manner (which may include repurchase agreements for such investments with any national bank) that the money required to be egpended from any fund will be available at the proper time or times, and provided further that in no event shall such deposits or investments of money in the Reserve Fund mature later than the final maturity date of the Senior Lien Obligations. All such investments shall be 7228Z/7229Z -50- ' COMPREHENSIVE ANNUAL FINANCIAL REPORT e OF THE ~ SANANTONIO WATER SYSTEM A COMP~NENT UNIT OF THE CITY OF SANANTONIO, TEXAS ~, For the Years Ended December 31, 2005 and 2004 Prepared by: F/nancia! Services Department DouK/~s P. Evanson VP/Chie£Financia! D~cer San Antonio Water Svstem DESCRIPTION OF FUNDS For the Year Ended December 31, 2005 City Ordinance No. 7568G adopted .-1pri1 30, 1992 requires that Gross Revenues of the System be applied in sequence to: (a) current expenses of operation and maintenance including a two-month reserve amount; (b) debt service and reserve requirements; (c) transfers to the City and capital expenditures, or unexpected or extraordinary repairs or replacements, or for any other lawful purpose. .~ccordingly, the Syscem has escablished certain self-balancing funds within its enterprise fund accounts to demonstrate compliance with City Ordinance No. 7568G. In addition the System has established certain other self-balancing funds withia its accounting system for purposes of intemal management control and reportic~g. Following is a description oE each self-balancing fund maintained by the Board. FLINDS ESTABLISHED BY CITI" ORDINANCE NO. 75G8G System Fund -.~ll Gross Revenues of the System shall be credited to this fund upon receipt, unless otherwise provided in Ciry Ordinance No. 75G86. .~ll current expenses of operarion and maintenance of the System shall Ue paid Erom this fund as a fust charge against the gross revenues so credited. Before mal:ing any deposits to other funds required to be made from the System Fund, the Board of Trustees shall retain in the 5y~stem Fund at all times an amount at least equal to two months of the amount budgeted for the then current fisca] year for the current maintenance and operadon expenses of the System. Debt Service Fund - The sole purpose oE this fund is for the payment oE principal and interest on all bonds which are payable from Pledged Revenues. Reserve Fund - This fund shall be used to pay the principal oF and interest on an}~ Bonds when and to the extent the amounts in the Debt Service Fund are insufficient for such purpose, and may be used for rhe purpose of finally retiring the last of anv Bonds. Project Fund - This fund shall be used to account Eot (l) the proceeds of 5enior Iaen and Junior Lien Obligations and Commercial Paper Notes (2) any premium thereon, and (3) investment eamings thereon issued for the purposes of paying the costs of capitalized interest on the Senior Lien Obligaaons dunng the extension, construction, improvement, or repau of the S~stem, the costs of ~ssuance of Senior Lien and Junior Lien Obligations and (-1) an~~ other lawful purpose. Renev~•al and Replacement Fund - This fund shall be used for the purpose of ' (1) paying the costs of improvements, enlargements, extensions, additions, replacements, or other capital expenditures related to the System, or 51 San Antonio Water S~stem DESCRIPTION OF FUNDS For the Year Ended December 31, 2005 (2) pa}'ing the costs of unexpected or extraordinary repairs or replacements of the System Eor which System Funds are not available (3) paying unexpecred or extraordinary expenses of operation and maintenance of the System for which System Funds are not otherwise available (4) depositing any funds received by the System pursuant to the CPS Cuntract, (5) paying bonds or other obligations of the System for which other System revenues are not available (6) making up any shortfall in the Payment to the City General Fund required by tiection 17, and ('7) for any other lawful purpose, FUNDS ESTABLISHED Bl' MANAGEMENT Intecnal Service Fund - This fund is used to account for the financing of goods or services provided by an organizational unit to other organizational uni[s of the Board on a cost-reimbursemenr hasis. The Board utilized this fund for intemal management a~d control of a central stores and a central fleet operation during 2005. The Schedules of Funds presented on che following pages are prepared and presented For purposes of demonstrating compliance with City Ordinance No. 75GSG and management requirements. $2 Survey of Utility Reserve Policies - Question~aire Template Entity: Thornton, CO Person Interviewed: David Bovd Title: Finance Director Date: Survev 12/20/06 How are Water, Wastewater and Storm Water Utility Operations organized (e.g., separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc.)? Separate Water and Wastewater Utility Enterprise Funds. 2. Within the frund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). Within each Enterprise Fund separate: • Operating Fund • Capital Fund 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). Water: • Operating reserve equal to 180-days operation and maintenance expenditures. ~ Capital reserve equal to $3,000,000. • Debt service reserve sufficient to satisfy legally covenanted debt service reserve requirements. Wastewater: • Operating reserve equal to 90-days operation and maintenance expenditures. • Capital reserve equal to $750,000. • Debt service reserves sufficient to satisfy legally covenanted debt service reserve requirements. Refer to attached copy of Ordinance 2003-164, items 4 through 7 for a detailed description of formal reserves policies. Survey of Utility Reserve Policies - Question~aire Template ' Entity: Thornton, CO "~' Person Interviewed: David Boyd Title: Finance Director Date: 12/20/06 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes. In addition to the formal reserve policies, the City has the following informal reserve policies that apply to both water and wastewater: • 1 month annual debt service. • 4 months annual note payable payments. 5. Discuss revenue and/or rate stabilization fund utilized. Water: • Level, biennial revenue increases to meet and/or exceed a debt service coverage requirement of 125% annual debt service excluding 80% of connection fee revenues. • For financial planning purposes, the following three funds have been established: o Operations - Operation and maintenance expenses and non-~owth capital. o Water Resources - Growth-related water resource capital. o Water System - Growth-related water system capital. Each fund must maintain a balance greater than or equal to the formai and informal reserves previously discussed. Wastewater: • Level, annual revenue increases to pass through Metro Wastewater cost increases and level, biennial revenue increases to recover City cost increases. • For financial planning purposes, the following two funds have been established: o Operations - Operation and maintenance expenses and non-growth capital. o Wastewater System - Growth-related water system capital. 1 Survey of Utility Reserve Policies - Questionnaire Template ' Entity: Thornton, CO ~" Person Interviewed: David Boyd Title: Finance Director Date: 12/20/06 ~ 6. Are you considering changing any of these for 2007? ~ The City is reviewing establishing a formal rate stabilization fund equal to 3-years annual debt service. The intent of establishing the rate stabilization fund is to lower the financial planning debt service coverage requirement to include 100% of ~ connection fee revenues and thereby lowering projected rate increases and generating less cash in the Operating Fund. ~ City Council City of Thornton, Colorado Ward I Ron Kuehn Ward II Ward III Steve Lebsock Martin Wisniewski Mayor Pro-Tem City Manager and Key Staff Ward IV Sheila Fushimi Jack Ethredge, City Manager Margaret Emerich, City Attorney Bud Elliot, Deputy City Manager - Infrastructure Jeff Coder, Deputy City Manager - City Development Charlie Long, Deputy City Manager - Management Services Joyce Hunt, Assistant City Manager James Nursey, Police Chief Greg Sheehan, Fire Chief Mike Soderberg, Community Services Executive Director David Boyd, Finance Director Chris Molison, Budget Manager Janice Stedfast, Controller ~ Ward IV Erik Hansen Mayor Noel Busck Ward I Carol Beckler Ward II Jan Bach Ward III Rebecca Cavanaugh-Miller ~ uiimN~aiuiuir~i ~ ~ RE50 C.D. No. 2003-164 ~ RESOLUTION A RESOLUTION OF THE THORNTON CITY COUNCIL ADOPTING A FINANCIAL POLICY FOR THE CITY OF THORNTON REGARDING FUND BALANCES AND CASH RESERVES AND REPEALING RESOLUTION C.D. NO. 89-092 REGARDING FUND ` BALANCE AND CASH LEVELS, F WHEREAS, it is in the best interest of the City to maintain adequate fund balance and cash reserve levels to mitigate current and future risks from events such as revenue shortfalls, emergencies and other unanticipated needs; and WHEREAS, the City Counal recognizes that it is important to use available financial resources to address the needs of the communit~r and lherefore such fund balance and cash reserve levels should not be greater than those necessary to maintain the financial health and stability of the City; and w WHEREAS, the City Council has considered many factors to arrive at reasonable - fund balance and cash reserve levels, including, but not limited to: the volatility of sales tax revenue, which is the City's major revenue source; the concentration of targe sales taz producers in the City; the potential for periodic decreases in water supply available for sale to water customers; the potential for emergency expenditures and other unanticipated needs; and the recommendations of professional governmental finance organizations; and WHEREAS, the City can implement the fund balance and cash reserve levels established herein without any additional funding or budget amendments. NOW, THEREFORE, 8E IT RESOLVED BY THE CITY COUNCIL OF THE CfTY OF THORNTON, AS FOLLOWS: 1. That the fund balance of the General Fund will be maintained at an amount equal to 20% of the current year General Fund budget; 2. That the unreserved and undesignated fund balance of the Govemmental Capital Fund will be maintained at $1,000,000 plus an amount equal to the current year scheduled debt service payments supported by the City's general sales tax rate; 3. That the unrestricted cash reserves for the Risk Management Fund will be maintained at levels recommended by the City's actuarial studies of past claims history and future anticipated claims; 4. That the unrestricted cash reserves in the Water Fund will be maintained at ' a level equal to 18~ days of the Water Fund s operatians and maintenance budget for the current year; ' City of Thornton 530 2006 Budget , C.D. No, 2003-164 5. That the unrestncted cash reserves of the Water Capital Fund will be ' maintained at $3,000,000; 6. That the unrestricted cash reseroes in the Sewer Fund will be maintained at ' a level equal to 90 days af the Sewer Fund's operations and maintenance budget for the current year; 7. That the unrestricted cash reserves of the Sewer Capital Fund will be ' maintained at $750,OOd; 8. That the unrestricted cash reserves in the Sani#ation Fund will be maintained ~ at a level equal to 90 days of the Sanitation Fund's operations and maintenance budget for the current year; 9. That in the event any fund balance or cash reserve level exceeds the targeted amount required by this Resolution, the City Manager shall through W the development of the annual budget propose uses for such monies for the benefit of the community; ~ 10. That the City Council through the approval of the budget may consider the use of any amount of fund balance or cash reserves to address temporary revenue shortfalls, emergency expenditures, unanticipated needs, or when .~ it deems doing so is in the best interest of the City; 11. That in the event any fund balance or cash reserve level falls below the amount required by this Resolution, the Ciry Council will approve a plan not later than the adoption of the next annual budget to restore such fund ~ balance or cash reserve level to the amount required by this Resolution. It is the intent of this Resolution that such plan provides for the restoralion of the target fund balance or cash reserve level as quickly as is reasonable ~ given the current and projected future revenues and expenditures of the City at that time. Once app~oved, such plan may be mod~ed through an amendment to the budget if the actual revenues and expenditures difier from ~" those anticipated in the previousiy approved plan; and 12. That City Council will periodically review this policy to ensure it continues to r address the financial needs of the City. ~ 13. That Resolution C.D. No. 89-092 regarding Fund Balance and Cash Levels is repealed. ~ ' City of Thornton 531 2006 Budget C.D, No. 2003-164 PASSEO AND ADOPTED at a regular meeting of the City Council of the City of Thomton, Col~rado, this 28th day af October , 2003. CI7Y OF THORN70N, COLORADO ~.`~~~ do~ Noel I. Busck, Mayor ATTEST: Nan A. V~ cent, City Clerk City of Thornton 532 2006 Budget ' Survey of Utility Reserve Policies - Questionnaire Template ~ Entity: Tucson Water, AZ , Person Interviewed: Barbara Suus Title: Water Rates and Revenues Manager Date: O 1/04/07 , Survey ~• W W d S W U ili O i i 1. How are astewater an torm ater t ty perat ons organ zed (e.g., ater, separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, ~ etc.)? Tucson Water provides only water service as a single Enterprise Fund. ~ 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). ~ Tucson Water utilizes three main funds as follows: • Operating ~ o Operating and Maintenance o Debt Service ~ o Capital • Infrastructure Reserve (R&R) • Central Arizona Project Water Purchase Reserve A • Bond Proceed Funds -~ o Separate for each issue (2 at any time) 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). • Operating reserve equal to 5% annual water sales. o Provides a cushion against revenue short falls. o May be drawn down in short-term, but does not act as a contingency for unexpected expenditures. • Debt service coverage requirement equal to 175% annual debt service. o Legal debt service coverage requirement is 125% annual debt service. • Infrastructure reserve resulting from an early settlement. o Funds have not been drawn down to date. o Will likely be drawn down in the next few years. Refer to attached for detailed description of adopted reserve and financial policies. Survey of Utility Reserve Policies - Questionnaire Template ' Entity: Tucson Water, AZ ~ Person Interviewed: Barbara Buus Title: Water Rates and Revenues Manager Date: O1/04/07 ~ 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes ' • Operating reserve equal to 10% of annual water sales. ~ 5. Discuss revenue and/or rate stabilization fund utilized. Operating reserve is a revenue stabilization fund as it may be drawn down in the short-term to fund budgeted expenditures if water sales revenues are lower than ~" expected, but does not fund unexpected expenditures and/or act as a contingency. Multi-year financial planning process is used to levelize rate increases and may result in a iund balance being drawn down to cash fund capital projects and/or increasing fund balance. Recently, Tucson Water engaged in lengthy conversations regarding establishing some sort of rate stabilization fund and the use of operating reserves. The discussions focused on balancing prudent financial planning without accumulating excessive rate payer funds within utility reserves. No policy changes resulted from these discussions. 6. Are you considering changing any of these for 2007? Tucson Water is reviewing creating additional funds related to development and impact fees and formally accounting for revenues and expenditures within the formal fund organization. Impact fee revenues and expenditures are already separately accounted for within the operating fund and consistent with a strict interpretation of Arizona Revised Statutes governing impact and development fees. :~ ~ IX. ASSUM~TI~NS A. All financing shall be done in accordance with all city, state and federal requitements. B. To the extent that co~servaHon progxams succeEd in redu.cing deznand, ' capital iz~prove~ment progxams may be deEerred and rate increases adjusted accordingly. ' ICIES , I~I. POL A. Finance ~ 13 i ~ se as .s 1. finterpr ~ a. The Utility shall be a self-supporting enterprise with all costs assvciated with the Utility ta be Eunded frorn revenues derived firom the sale of wat~er and other water-related income sources. ~ b. An annual average debt service coverage of 1..75 sha~ be mai~tained. c. Revenues collected in excess oE operating needs of the Uti~~ty shall , be carried #orward Eor future capita~ bond funding rec~uirement~ and shall not be transfeXZ'ed to the City's Generai Fund. d. ~e Utility shall maiz~tain cash reserve.5 adequate for k~nown future obligations ~lus an allowance ~vr unbudgeted cantingencies set at ~.ve percent (5"/0) of revenues from water sales. e_ Low-income water users ~ivi.ng withi.n the City may be supplied a miniznum amount of water at reduced zates or other fortn of subsidized water service at the discretion o~ Mayor and Council. The cost of'fhis subsidy will be funded from the general [und of the City and no! from water rates. 2_ ~1Tater 1Zates a~-d Charges a. cost-of-service basis (1) Insofar as possible chazges for watez utility service shall be made on a cost~of-service basis. (2) Marginal cost aspects of the watec utility will be contimually studied by staff and considered as a Eartor in th,e making of rates. (3) The substituHon of effluent and reciaimed water for ~otable watez is an important element ixl achieving safe yield in the Tucson Basin. Rate setti~ng for eEE~uent shal! be in accordance with the following precepts: (a) charges for effluent and reclaimed water shall be based on the cost of sezvice whenever possible; (b) to the extent that charges for ekfluent and reclaimed water based on cost of sQrvice do not provide an adequate price incentive, the price of reclaimed wa#er sha~l be based on a market value which encaurages its use; (c} CWAC shall review and znake recvm~mendations and the Mayoc and Council shal! ho~d a duly adveztised ~public hearing prior to entezing into any agreen,ent to seU reclaimed water to any customer at a rate other than that rate established by ordinance and conta~ned i~n the Tu.cson Code. {4) In the event that Tucson Water enters iuntv contract with other water providers #or treatment and del.ivery o~ CAP allocat~ons, the Ciry shall recover its total cost of pcoviding this service. b. water rate design eletnents (1) Commodity charges shall reflect the costs of service accoss customer ciasses and seasons, using z~ate stn~cture features such as: seasanal rates; isolated areas service charge ~nd reserve fund surcharge. (2) Customers shall be charged for fixed and recurring tosts of service such as: (a) new connections (b) re-connections (c) meter reading (d) bxlling (3) Rate structures shall be designed so as to encourage water mns,ervation and to cantrol peak demand. , (4) Water zates and charges shall be zeviewed ann.ually and changes in the rate stzucture shall be uxtplemented so as to avoid sudden and large-scale stufts in water rates. , 4 (5) Water rates for customers iztside and outside the City limits shall be the same within each customer class uriless there is reasonable ~ustificalian based on cost-of-service rate difEeren~iaLs. (G) The Ciky shall provide an open process for detenninat~on of competitive ~vhoiesale water service rates. Thi,~ process shall include format parHci~ation by the governi~ng bodies of other cit~es and towns within which wholcsale water sezvice may occur. (7) The City shall wark cooperativety with wholesaic water customers to develop rate stnictures which avoi~d excessive retail water rate increases in any given year, with appropriate consideration for City palicy regarding full cost recove~y. (8) The City shall work caoperaHvely with whalesale water customers to establish rate stru~tures which comply with Acizona Corporatioxt Commissian requirements. (9) ~th regard to ex~sting agxee~-ents Eu~ wholesale water service, the City wiU devetap rates cocisistent with the provisivns of thc agreeznents. Survey of Utility Reserve Policies - Questionnaire Template ' Entity: Westminster, CO ' Person Interviewed: Tammy Hitchens Title: Finance Director Date: 12/28/06 w Survev 1. How are Water, Wastewater and Storm Water Utility Operations organized (e.g., Separate Enterprise Funds, single Utility Enterprise Fund, no Storm Water Utility, etc.)? For reporting purposes, a single Enterprise Fund providing the following utility services: • Water • Wastewater • Storm Water 2. Within the fund or division, what is the organization of sub-funds, if any (e.g., impact fee sub-fund, operations sub-fund, non-growth capital fund, etc.). Four utility funds are utilized throughout the year and collapsed at the end of the year into the single fund. The funds are: • Water • Wastewater • Storm Water • Climactic Reserve (a rate stabilization fund) 3. Discuss formal (written) reserve policies including level and basis of reserves. Obtain copy of documentation (e.g., budget, City Code, CAFR, or bond ordinance). The three reserves: • Capital project reserve o Minimum - $5,00,000 o Maximum - 60% of adopted 5-year total utility CIP • Operating reserve 0 45 - 60-days operating and maintenance expenditures for water 0 30 - 45-days operating and maintenance expenditures for wastewater • Rate stabilization reserve 0 25% of water revenue 0 5% of wastewater revenue ~ ~ Survey of Utility Reserve Policies - Questionnaire Template Entity: Westminster, CO Person Interviewed: Tammy Hitchens Title: Date: Finance Director 12/28/06 Refer to attached 10-9-06 City Council agenda item l OM for newly adopted reserve policies to be implemented in 2007 as it includes new reserves (see question # 6). 4. Discuss informal reserve policies or practices, including level and basis of reserves, not formally adopted, but generally followed for financial planning and rate purposes Older policies were similar to the newly adopted reserve policies (except capital project reserve), but less "formal" and focused on increasing rate revenue funding for renewal and replacement capital as the City approaches build-out. 5. Discuss revenue and/or rate stabilization fund utilized. The climatic reserve is a rate stabilization fund. A similar, more formalized, rate stabilization reserve will be implemented in 2007. On or before July 1, actual rate revenues are compared to budgeted rate revenues. Actual rate revenue: ~, • Above budgeted amounts are added to rate stabilization reserve. • Below budgeted amounts are deducted from rate stabilization reserve. When rate stabilization reserve falls below 80% of target, a rate increase and/or ~ reduction in expenses will be implemented over a reasonable time period. When rate stabilization reserve is in the range of 40% above the target, a transfer is made to the ~ capital project reserve until the maximum capital project reserve is met (60% of adopted 5-year CIP). ' 6. Are you considering changing any of these for 2007? The utility completed a rate study in 2006. As part of this study the reserve policies , outlined in the 10-09-06 l OM agenda item were adopted and are being implemented in 2007. The climactic reserve fund will be modified to be a rate stabilization and a capital project reserve (renewal and replacement focused) fund will be established. ' The capital project reserve purpose is to transition the utility to 100% rate funding of renewal and replacement CIP by 2015 as City approaches build-out. ~ ~ ~ Resolution No. 57 re Fiscal Policies - Utility Reserves Agenda Item 10 M Agenda Memorandum City Council Meeting October 9, 2006 ~~~~. . SUBJECT: Resolution No. 57 re Fiscal Policies - Utility Reserves Prepared By: Jim Arndt, P.E., Director Public Works and Utilities , Recommended City Council Action Adopt Resolution No. 57 that establishes certain Utility Reserve Fund policies in regard to an ' Operating Reserve, a Rate Stabilization Reserve and a Capital Project Reserve, together with target and minimum/maximum funding Ieveis, and authorize the use of $3,746,016 contingency of the 2006 Reserve Fund to establish the 2007 Operating Reserve. Summary Statement ~ • The City Council has recently adopted revised tap fees and utility rate fees as a result of their ' review of the City's utility infrastructure needs. . At their September 12, 2006 Study Session, City Council reviewed the practice and reasoning for establishing Utility Reserve Fund policies. w • Council directed staff to bring back a Resolution establishing Reserve policies for Operating, Rate Stabilization, and Capital Project Reserves for the City's Water and Wastewater Utility Fund. ~ • These policies are based on the City's Strategic Pian goals of a financially sound City government, safe and secure community, and vibrant neighborhoods and commercial areas. . There is adequate contingency available from 2006 Utility Reserves to fund the 2007 ~ Operating Reserve. ~ Expenditure Required: $0 Source of Funds: N/A SUBJECT: Resolution re Fiscal Policies - Utility Reserves Page 2 P li I ~ o cy ssue Should the City establish Operating, Rate Stabilization, and Capital Project Reserve policies for the ' ~ City s Water and Wastewater Utility Fund? Alternative ~ The City could continue to operate reserves without policies as to their size or use. By adopting the staff recommendation, future rate and tap fee revenue will be directed to specific reserves to ensure adequate resources for utility operations and replacement of aging infrastructure. With the adoption of the recommendations, the Operating and Rate Stabilization Reserves will buffer utility rates from impacts of an adverse revenue year, and the Capital Project Reserve will provide for replacement of irr aging infrastructure. Page 1 of 4 Resolution No. 57 re Fiscal Policies - Utility Reserves Background Information In 2005, the City of Westminster hired Financial Consulting Solutions Group, Inc. (FCS) to assist in reviewing the City's utilities fees, tap fees, infrastructure replacement needs, and reserve practices. Based on the FCS's analyses, Council has previously adopted revised tap fees (beginning in October, 2006) and utility rates (effective in January 2007 and January 2008). At their September 12, 2006, Study Session, the City Council reviewed the practice and reasoning for establishing Utility Reserves, specifically an Operating Reserve (OR), a Rate Stabilization Reserve (RSR), and a Capital Project Reserve (CPR). At that time, Council reviewed Staff's recommendations for target funding levels and minimum/maximum levels for these reserves. Council directed staff to bring back a Resolution establishing Reserve policies consistent with these recommendations. O~_erating~Working Capital~ Reservess~ORl The Operating Reserve is a minimum unrestricted fund balance needed to accommodate the short- term cycles of revenues and expenses. Operating reserves provide a"cushion" that can be used to cover cash balance fluctuations. Target funding levels are often characterized in terms of a recommended number of days of cash operating expense, with the minimum number of days varying with the expected risk of unanticipated needs. These are likely to vary among the utilities based on the relative volatility of revenues and expenses. Water utilities that recover a significant portion of their costs through volume charges exhibit greater seasonality in their revenue collection and a greater degree of revenue risk. Given that the expenses of a water utility are largely fixed, Operating Reserves may be used to cover deficits in the winter months (when lower demand results in lower revenues) until surpluses can be accumulated in the summer months (when higher demand results in higher revenues). Target operation balances of 45 - 60 days (12 - 16 percent) of operating expenses are common. Sewer utilities rely to a far lesser extent on volumes, and specifically exclude the most volatile irrigation volumes from their rate basis. Therefore, sewer utilities do not require as much of a cushion - typically, Operating Reserves on the order of 30 - 45 days (8 - 12 percent) of operating expenses are appropriate. The Operating Reserve Policy calls for funding this Reserve in an amount equal to 45 days of water operating expenses plus 30 days of wastewater operating expenses and is attached to the accompanying Resolution. SUBJECT: Resolution re Fiscal Policies - Utility Reserves Page 3 Rate Stabilization_Reserves LR~ Conceptually, this reserve is simple: deposit money in good years to have available to offset losses in bad years. The Rate Stabilization Reserve is based on the potential revenue risk during a severe water year, such as a drought with restrictions in place usually structured so that the use of this reserve also helps to meet bond covenants. Typically a Rate Stabilization Reserve is established and funded to meet a specific risk such as revenue loss related to a certain level of demand curtailment. This reserve can be 10 - 25% of annual rate revenues. The reserve is established with specific rules regarding contributions, withdrawals and replenishments. Those rules are generally constructed to minimize or mitigate rate impacts. Impacts to the rate stabilization reserves are determined by the annual performance of rates versus the budgeted rate revenue. Revenues less than budgeted rate revenues will reduce the RSR and revenue greater will increase the RSR. The Rate Stabilization Reserve target will also generally increase annually, with increasing budgeted revenues. The budget and rate forecast will identify contributions to the RSR to reflect increases to the target level over time. In general, normal year budgeting should lead to a relative long-term balance of surpiuses and shortfalls. If predictable, there would be no need for a rate response to replenish the reserve, since a surplus would ultimately occur and provide a funding source. However, the risk of multiple-year deficits necessarily leads to consideration of rate response when shortfalls occur below established levels. Page 2 of 4 Resolution No. 57 re Fiscal Policies - Utility Reserves When funds are used from the Rate Stabilization Reserve, the magnitude of the withdrawal will influence the timing and extent of response. The Rate Stabilization Reserve policy establishes a target as a combination of 25% of rate revenues for water and 5% of rate revenues for wastewater. Rate adjustments and time to replenish the target would occur anytime that the Rate Stabilization Reserve falls below 80% of the target. A surplus in the range of 40% over the target would be transferred to the Capital Project Reserve until the maximum Capital Project Reserve target is met. The RSR policy is attached to the accompanying Resolution. Capital Pro~ect_Reserves (CPR~ The Capital Improvement Reserve will assist the City in funding long-term utility capital requirements. A dominant factor in long-term needs is the escalating cost of system infrastructure replacement and rehabilitation. To ensure the sustainability of utility service, the City will fund an annual provision for system repair and replacement (R&R) as part of the utility user fees, with additional sources of funding including new debt and tap fees. Given that repair and replacement is not currently 100% funded in the rate structure, the City has begun a transition strategy to implement this policy. A phasing program consistent with the rate setting philosophy endorsed by Council has been developed to reach intended level of repair and replacement funding by 2015. Concurrent with this funding strategy, tap fees will be considered as a source of funding toward this target level to the extent that they are not used for debt service. Over time, debt service will become a rate burden, with less reliable tap fee revenues designated directly for capital funding. Rates will then supplement tap fees to attain the target funding level for the Capital Project Reserve. SUBJECT: Resolution re Fiscal Policies - Utility Reserves Page 4 ' The funding strategy for long-term capital needs will provide a steady source of funding. However, while capital expenditures may vary both in the near and long-term, the City's Capital Project Reserve may accumulate funds in excess of near-term needs. This policy is intended to foster timely system reinvestment, while providing resources for periodic increases in outlays without ~ undue rate burden. A maximum accumulation of capital funds is recommended at three years of adopted 5-year CIP, as determined by the current annual average of the CIP, times three. Should such maximum be reached, annual funding would be appropriately reduced until capital reserves fall below this threshold. P!I The Capital Project Reserve policy calls for establishing the maximum fund level to be three years of CIP expenditures, and the minimum being $5,000,000. If the CPR falls below the minimum, rate increases, or reducing the CIP shall be required. If the balance exceeds the maximum, annual funding would be reduced. The CPR policy is attached to the accompanying Resolution. Respectfully submitted, J. Brent McFall City Manager Attachments RESOLUTION RESOLUTION NO. 57 INTRODUCED BY COUNCILLORS SERIES OF 2006 ADOPTION OF FISCAL POLICIES FOR UTILITY FUND RESERVES WHEREAS, City Council authorized preparation of fiscal policies regarding estabiishing certain Utility Reserves, target funding levels, and minimum/maximum levels of appropriate reserve funds (Operating Reserve, Rate Stabilization Reserve, and Capital Project Reserve); and WHEREAS, fiscal policies regarding target funding levels, and minimum/maximum levels of appropriate Utility Reserve Funds (Operating Reserve, Rate Stabilization Reserve, and Capital Project Reserve) will establish funding levels and methods of transfer between reserves, and Page 3 of 4 ~ Resolution No. 57 re Fiscal Policies - Utility Reserves , replenishing reserves; and WHEREAS, the current Utiliry Reserve Fund has $9,544,850 of contingency available; and A WHEREAS, City Council recognizes the importance of the adoption of fiscal policies regarding Utility Reserves, including target funding levels, and minimum/maximum levels of appropriate reserve funds (Operating Reserve, Rate Stabilization Reserve, and Capital Project Reserve); NOW, THEREFORE, be it resolved by the City Council of the City of Westminster that City Council hereby adopts the attached fiscal policies regarding the establishment of certain Utility Reserves, ~ target funding levels, and minimum/maximum levels of appropriate reserve funds (Operating Reserve, Rate Stabilization Reserve, and Capitai Project Reserve), which are incorporated herein by ~ this reference. PASSED AND ADOPTED this 9th day of October, 2006. ' ATTEST: Mayor ' City Clerk ~ OPERATING RESERVE POLICY ~ The Operating Reserve shail be funded in an amount equal to the combination of 45 days of water operating expenses and 30 days of wastewater operating expenses. This amount shall be computed using the amount of budgeted funds for water and wastewater operating expenses in the ' ensuing year of operation. RATE STABILIZATION RESERVE POLICY , The target amount of the Rate Stabilization Reserve (the "Target RSR") in any given year shall be equal to 25% of the budgeted water rate revenues and 5% of the budgeted wastewater revenues for that year. On or before July 1 of each year, actual water and wastewater revenues received shall be compared ~ against budgeted rate revenues for the previous budget year. Any rate revenues that were received above the amount of budgeted rate revenues shall be added to the Rate Stabilization Reserve, and any shortfalls in rate revenues compared to the amount of budgeted rate revenues shall be deducted ~ from the RSR. If, in any year, the actual RSR balance as adjusted by the addition of rate revenues to, or deduction of rate revenues from, the RSR, pursuant to the foregoing sentence, exceeds the Target by 40%, an amount equal to such excess rate revenue shall be transferred to the Capital Project Reserve, and if the actual R5R balance, as adjusted, is below the Target R5R by 20% or ' more, revenue rate and/or expenditure adjustments shall be implemented over a reasonable time period to be determined by Council to increase the RSR to the Target RSR for the following and subsequent years. ' CAPITAL PROJECT RESERVE POLICY The Capital Project Reserve minimum shall be $5,000,000. The Capital Project Reserve maximum shall be three years of adopted CIP expenditures, as determined by the annual average of the ~ adopted five year CIP, times three. If the Capital Project Reserve balance falls below the minimum, rate increases and/or reducing the CIP shall be required. If the balance exceeds the maximum, funding of the Capital Project Reserve shall be reduced until the Capital Project Reserve falls below the maximum, which may include rate ~ reductions. Funding for the Capital Project Reserve may include contributions/deductions from rates, tap fees, ~ working capital carryover, interest, miscellaneous revenue, capital project refunds, and Rate Stabilization Reserve transfers. Page 4 of 4