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Home My WebLink About11 Finance Master Plan 2004 Agendas Item # Memorandum To: Board of Directors From: Peter Holzmeister Date: August 27, 2004 Subject: Financial goals WHY THIS MATTER IS BEFORE THE BOARD HISTORY: During the last strategic plan workshop we talked about the finance master plan. We concluded that the finance master plan would not be a completely useful tool until it reflected policies regarding cash reserves and the use of debt. These policies would be entered into the finance master plan such that we would build reserves and structure debt over a reasonable period of years to build a healthy financial condition for the District while maintaining reasonable rates. I began the review of finance policies by researching the web site maintained by the Government Finance Officers Association (GFOA). GFOA is the professional association for persons who work in the government finance field, to state the obvious. It is a long-standing group with an excellent reputation. It publishes text books, a monthly journal, and conducts annual seminars. I have used its material for many years. GFOA does not necessarily provide specific advice on what a policy should say. It leaves that to us to wrestle with based on our values and factual circumstances. GFOA does, however, suggest that we develop policies in certain areas to help us get our arms around the District's overall financial position. NEW INFORMATION: After reviewing the GFOA suggestions and thinking about the policies we already have in place, I believe we should adopt the following policies to serve as goals that will lead us to financial strength. Planning policies • Review water and electric master plans at least every five years • Review our finance master plan each year • Prepare annually five year capital replacement budget • Review rate structure and levels at least once every three years Revenue Policies • Set operating revenues to capture entire cost to provide service plus maintain reserves and Satisfy debt coverage ratios • Review connection charges each year and set then to recover all costs • Review facilities fees every three years Debt Policies • Separate debt that is serving development (facilities fees), debt serving current customers (rates), and debt serving a special assessment district (assessments). These categories of debt should be separately identified in the budget. • One-half the debt service for all long-term debt in the aggregate is due in the first ten years • No more than one half the projected annual facilities fee revenue committed to debt service • No more than twenty percent of general fund revenues committed to debt service • No debt more than 25 years maturity • No debt longer than useful life of the project Cash Reserve Policies Operations • Water general fund should have a reserve equal twice the highest month budgeted expenditure (this will probably be the month in which principal and interest on debt is due) • Electric general fund should have a cash reserve equal to twice the highest month budgeted expenditure (This will be the month in which the highest wholesale electric bill is due plus the highest debt service payment) • Electric rate stabilization fund should maintain a balance of$1,000,000 Capital Reserve • There should be a revolving water capital reserve fund in the amount of$4,000,000 to permit projects to be initiated and funded prior to arrangement of long-term debt or other financing. • There should be an electric capital reserve fund in the amount of$1,000,000. Debt reserves • There should be a reserve fund for each debt instrument equal to one year's principal and interest RECOMMENDATION: I recommend that the board adopt the above described financial policies. I will prepare a formal policy resolution incorporating the policies, and have it available at the board meeting • ILKEE UCKEE Do +� Ity stj Public Utility District R solu ion No. 2004- XXX Establishing Financial Goals for the District WHEREAS the District provides water and electric service to the residences and businesses in the Truckee community; and WHEREAS in providing said service the District charges rates and fees and spends money on necessary goods and services; and WHEREAS the District is relied upon by its customers to provide high quality, reliable services into the indefinite future; and WHEREAS the customers further expect the District organization to spend the funds is raises in a careful and informed manner; and WHEREAS to provide said services and to spend said funds carefully it is necessary for the District organization to establish and maintain sound fiscal policies. NOW THEREFORE BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE TRUCKEE DONNER PUBLIC UTILITY DISTRICT that the Code of Policies of the District is hereby amended by adopting the following Financial Goals: 3.01. 001 Financial Goals 3.01.01.1 The following goals are established to promote and maintain the financial strength of the District: Planning Goals • Review water and electric master plans at least every five years • Review our finance master plan each year • Prepare annually five-year capital replacement budget • Review rate structure and levels at least once every three years Revenue Goals • Set operating revenues to capture entire cost to provide service plus maintain reserves and satisfy debt coverage ratios • Review connection charges each year and set then to recover all costs • Review facilities fees every three years Debt Goals • Separate debt that is serving development (facilities fees), debt serving current customers (rates), and debt serving a special assessment district (assessments). These categories of debt should be separately identified in the budget. • One-half the debt service for all long-term debt in the aggregate is due in the first ten years • No more than one half the projected annual facilities fee revenue committed to debt service • No more than twenty-five percent of general fund revenues committed to debt service • No debt more than 25 years maturity • No debt longer than useful life of the project Cash Reserve Goals - Operations • Water general fund should have a reserve equal twice the highest month budgeted expenditure (this will probably be the month in which principal and interest on debt is due) • Electric general fund should have a cash reserve equal to twice the highest month budgeted expenditure (This will be the month in which the highest wholesale electric bill is due plus the highest debt service payment) • Electric rate stabilization fund should maintain a balance of$1,000,000 Capital Reserve Goals • There should be a revolving water capital reserve fund in the amount of$4,000,000 to permit projects to be initiated and funded prior to arrangement of long-term debt or other financing. • There should bean electric capital reserve fund in the amount of$1,000,000. Debt Reserve Goals • There should be a reserve fund for each debt instrument equal to one year's principal and interest NOW, THEREFORE, BE IT RESOLVED by the Board of Directors as follows: PASSED AND ADOPTED by the Board of Directors at a meeting duly called and held within the District on the day of , 2004 by the following roll call vote: AYES: NOES: ABSTAIN: ABSENT: TRUCKEE DONNER PUBLIC UTILITY DISTRICT James A. Maass, President ATTEST: Peter L. Holzmeister, District Clerk