VALLEY CENTER MUNICIPAL WATER DISTRICT
Regular Board Meeting
Monday, November 15, 2004
Time: 2:00 P.M.
Place: Board Room
29300 Valley Center Road
Valley Center, CA 92082
The Valley Center Municipal Water District Board of Directors’ meeting was called to order by President Broomell at 2:00 P.M.
ROLL CALL
Board members present were: Directors Broomell, Polito, Aleshire, Stone and Haskell. Staff members present were: General Manager Arant, General Counsel Cowett, District Engineer Jewell, Director of Operations Dacus, Director of Finance Jeffrey, Manager of Accounting Pugh, Project Engineer Grabbe, Interim Director of Operations Hoyle, IT Specialist Rivard and Board Secretary Stetson. Spectators present were representatives from Fieldman, Rolapp & Associates, Messrs. Johnsen and Kim.
CONSENT CALENDAR
Upon motion by Polito, second by Stone and unanimously carried, the following consent calendar items were approved:
1. Minutes of the Board meeting held November 1, 2004
2. Audit demands
ACTION AGENDA
3. Approval of Purchase Order for Seven New Vehicles:
Bids were opened on November 3rd for seven new trucks as had been approved in the 2004-2005 fiscal year budget. Interim Director of Operations Hoyle reported that nine bids were received with the lowest submitted by Raceway Ford as follows:
Three ½ ton full size truck extended cab, 4x4 - $19,510.98 each
Three 1 ton full size truck extended cab and chassis, 4x4, diesel - $28,719.14 each
One 1½ ton full size truck cab and chassis, 4x4, diesel - $34,182.07
Approval of Purchase Order No. 16063 to Raceway Ford for the purchase of seven trucks in the sum of $178,872.43 was recommended.
Upon motion by Aleshire, seconded by Stone and unanimously carried, the issuance of Purchase Order No. 16063 to Raceway Ford for $178,872.43 for the purchase of seven trucks was approved.
5. Update on Development of Long-Range Capital Financing Program:
General Manager Arant commenced the workshop on the development of the long-range capital financing program noting that the refinement of the District’s financial model and development of a long-term financial plan to meet the capital facility replacement and expansion needs identified in the 2002 Water System Master Plan Update is an extensive and complicated process and is a work in progress. In the process of developing an effective capital improvement program and the means of financing the identified projects, several factors were considered; for example, affordability as agricultural use is very sensitive to the price of water and 80% to 85% of our water sales go to agriculture, the financial plan’s flexibility to find the appropriate balance between debt and cash financing, and the trend from predominantly variable to fixed revenue sources which would produce revenue that is more stable than commodity based revenues with the District’s large agricultural water sales.
Thomas Johnsen, Principal of Fieldman, Rolapp & Associates, provided a synopsis on capital financing in which he explained that local governments have the power to borrow money, usually on terms that are much more favorable than most private sector enterprises. He described a municipal bond as an interest bearing obligation of a state or local government that is generally used for capital financing and is usually exempt from federal income taxation. Mr. Johnsen stated that there are two theories on the payment of debt: pay-as-you-use and pay-as-you-acquire. The pay-as-you-use approach advocates that new facilities should be paid for over time by those who benefit while proponents of the pay-as-you-acquire approach purport that new facilities should be acquired as community assets and generally some portion will be funded from accumulated balances.
The decision to issue debt and management of the debt was discussed. To be considered are the covenants, insurance requirements, ongoing disclosure and investor relations. The District has established reserve accounts (rate stabilization, operating, restricted and capital projects), and Mr. Johnsen reviewed the importance of establishing reserves as they provide:
~ Insurance for timely payment of obligations
~ A buffer against volatility in revenues
~ Liquidity
~ Designated funds
~ Funds for future projects
Circumstances and events outside of the District’s control (Mexican Fruit Fly and the October 2003 fire) have impacted development of the long-term financial plan. Recent activities affecting revenues are the ERAF tax shift that is expected to be 100% of the District’s share for Fiscal Years 2004-05 and 2005-06, and reduced water sales if cutbacks are imposed due to the drought or deficiency in the treatment capacity at Skinner Treatment Plant. However, the District’s direction has been to move forward with an effective capital improvement program or face the prospect of declining levels of service and reliability associated with an aging water distribution system.
Mr. Kim of Fieldman, Rolapp & Associates presented summary results of several possible financing scenarios and sub-scenarios to provide a concept of the range of options available to the District and to encourage further input and discussion for development of the long-range financial plan. The four basic scenarios presented were:
▪ Cash financing, corporate facility constructed in 2010
▪ Bond financing, corporate facility constructed in 2010
▪ Cash financing, corporate facility constructed in 2015
▪ Bond financing, corporate facility constructed in 2015
All basic scenarios have the following common assumptions:
► All the Master Plan Projects will be constructed in the time frame indicated in the schedule previously reviewed by the Board.
► All Metropolitan Water District and San Diego County Water Authority wholesale rate increases are passed through.
► Valley Center Municipal Water District local rates are offset by an annual COLA adjustment.
► The ERAF property tax shift of the District’s general property tax is offset over a two-year period with a rate increase that is sustained to fund the CIP.
The scenario “Bond financing, corporate facility constructed in 2015” was selected to apply several sub-scenarios as it has the lowest rate of water rate increase (rate ramp) that is critical to sustaining the District’s agricultural base. The four sub-scenarios with the basic scenario of bond financing, corporate facility constructed in 2015, were reviewed as follows:
Sub-scenario 1 – Restructuring CIP
Fund replacement and existing projects over 15 years rather than 10 years, or at an average of $4 million per year plus inflation.
“Ultimate projects” including development of the corporate facility, will start no sooner than 2015-2016, with the projects constructed over an 8 year period at an average of $2.75 million per year.
Capacity fees adjusted to include appropriate share of new corporate facility and then accumulated in a reserve for “ultimate projects”.
Sub-scenario 2 – Restructuring Benefit Obligations
Remove the $1 million unfunded liability cash payments to PERS and factor in CAL-PERS “fresh start” program at 7.75%.
Sub-scenario 3 – Introduce a New Revenue Source
Establish a new “Capital Replacement Charge” which represents 20% of the monthly meter charge, phased in over two years (2005-06 and 2006-07)
Sub-scenario 4 – All of the above
Includes all of the factors listed in sub-scenarios 1, 2 and 3.
A graph of the agricultural rate through FY 2022-23 implementing the basic scenario of bond financing, corporate facility constructed in 2015 with the sub-scenario factors shows a consistent incline in the water rates, but without steep rate ramps. The present value of the agricultural water rate through FY 2022-33 with the same basic scenario and the factors contained in sub-scenario 4 depicts a gradual water rate increase.
The Board will be presented with additional scenarios containing different factors in the financial model to refine development of the long-range capital financing program to be reviewed at a future Board meeting. The Board elected utilizing the base scenario “Bond Financing, Corporate Facility Constructed In 2015” with Sub-Scenario 4 to create additional financial model scenarios including, paying off the CAL-PERS liability, a lower rate with the CAL-PERS “fresh start” program and deferring construction of the corporate facility to 2020.
GENERAL MANAGER’S AGENDA
6. Review of Miscellaneous Informational Items:
The District’s Status Report for October 2004 was reviewed. Dates will be included in the table summarizing the District’s capital funded projects to indicate when the project was initiated and its estimated completion date.
7. Land Use Designation – Future Corporate Facility Site:
General Manager Arant reported that following the presentation by Mr. Chagala, Planning and Land Use Consultant, on behalf of the District at the GP 2020 workshop in which a land use designation for the District’s Lilac Road property of 1 dwelling unit per acre for the northern parcels and 4.3 dwelling units per acre for the southern parcel were requested, the Valley Center Community Planning Group and County Department of Planning & Land Use have recommended a designation of Public/Semi-Public and Preserve Lands. An appeal will be presented to the County.
ADJOURNMENT
8. Upon motion by Aleshire, seconded by Haskell and unanimously carried, the meeting was adjourned at 4:20 p.m.
ATTEST: ATTEST:
____________________________ _______________________________
President Board Secretary