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HomeMy WebLinkAbout2006-07-19 Agenda Packet _ -------- ------- - - - ----- . ... _..-_._.....,.-...-_-__.......... __.._......-.... Truckee Donner Public Utility District REGULAR MEETING 7:00 PM, Wednesday, July 19, 2006 TDPUD Board Room AGENDA 1. Call to order 2. Roll call 3. Public input — This is time set aside for the public to address the Board on any matter not on the agenda. Testimony related to any agendized matter should be addressed at the time that item is considered. ACTION ITEMS 4. Consideration of approving and a Request for Proposals for underwriter services for the proposed 2006 Certificates of participation issuance a) Staff report b) Public input c) Board discussion and action 5. Consideration of approving a transfer of funds from water facilities fees to reimburse the water general fund for expenses related to the Brockway Road Transmission Pipeline Project. a) Staff report b) Public input c) Board discussion and action 6. Consideration of a report on bids received and possible award of a contract for purchase of a generator for use at the District headquarters building. a) Staff report b) Public input c) Board discussion and action 7. Consideration of approving plans specifications and contract documents and issuing a call for bids for paving services related to reconstruction of the Donner Lake water system. a) Staff report b) Public input c) Board discussion and action 8. Consideration of approving the draft District Mission Statement, Goals and Objectives a) Staff report b) Public input c) Board discussion and action WORKSHOP ITEM 9. Discussion of a draft resolution formalizing a District capitalization policy a) Staff report b) Public input c) Board discussion Agenda Item # 4 Memorandum To: Board of Directors From: Mary Chapman, Administrative Services Manager Date: July 14, 2006 SUBJECT: Consideration of approving a Request for Proposals for underwriter services for the proposed 2006 Certificates of Participation Since the Board just authorized staff to proceed with the long term financing of the water system projects last night, we have just directed Sandra McDonald of McDonald partners to draft an RFP to seek proposals from underwriters. This is the first task on her list of tasks that was approved last night. We do not have a draft for this packet but will provide a copy to each of you as soon as we receive it. j __ _ _ _. .. .. .. . . ............ ........ ..... ........ .._._..... .. Agenda Item # 4 _ r Memorandum To: Board of Directors From: Mary Chapman, Administrative Services Manager Date: July 14, 2006 SUBJECT: Consideration of approving a Request for Proposals for underwriter services for the proposed 2006 Certificates of Participation Please find RFP attached. TRUCKEE DONNER PUBLIC UTILITY DISTRICT REQUEST FOR PROPOSALS UNDERWRITING SERVICES The Truckee Donner Public Utility District ("TDPUD" or "the District") anticipates issuing approximately $27 million of tax-exempt Certificates of Participation by late September, 2006. The COPs are expected to be secured solely by payments made from net revenues of TDPUD's water system. The District is accepting proposals from investment banking firms who are interested in serving as TDPUD's senior managing underwriter for the proposed transaction. The District The District was formed and operates under the State of California Public Utility District Act. The District provides electric and water service to portions of Nevada and Placer counties. TDPUD was established on August 9, 1927 and is comprised of approximately 44 square miles in eastern Nevada County and approximately 1.5 square miles in adjacent Placer County. The District is situated in the Sierra Nevada Mountains, 180 miles northeast of San Francisco, 32 miles west of Reno, Nevada and 12 miles north of Lake Tahoe. Truckee's close proximity to surrounding ski areas and Lake Tahoe resorts has made the area a growing center of tourism and vacation homes. The District derives its revenues primarily from electric and water system user charges and fees. With the exception of two Community Facilities Districts for which the District collects Mello Roos taxes, and a special assessment district,TDPUD does not levy any general taxes against real and personal property. The Water System The District serves approximately 12,000 water customers in the Truckee,Glenshire and Donner Lake areas. The District produces all of its water from 13 deep wells and distributes water through a system that currently includes 36 pump stations, 39 storage tanks and a piping network that includes more than 202 miles of transmission and distribution lines. The 2006 Project The District will use the proceeds of the Series 2006 COPS (i) to build new water transmission facilities, (ii) to repair and replace existing pipelines, (iii)to purchase pumping related equipment, (iv) to complete improvements in the Donner Lake portion of the service area, and (v) to reimburse the District for internal loans to the Water Enterprise that were used to finance a portion of the Donner Lake improvements. The cost of the project components are approximately: 24" Brockway Transmission Pipeline $4,000,000 Pipeline Replacement Projects 2006-2010 12,300.000 Generators and SCADA System 580,000 Donner Lake Completion& Internal Loan Take-out 1,479,272 Series 2006 Project Total $18,359,272 1996 COP Refunding&Outstanding Debt The District is also considering a refunding of some or all of the District's $8,465,000 of outstanding 1996 COPs. The 1996 COPS are the only outstanding COPS that are secured by net revenues of the Water Enterprise. The District has approximately$3,500,000 million outstanding under a loan provided by the State of California, Department of Water Resources pursuant to the Safe Drinking Water Bond Law of 1986 (the "DWR Loan"). The DWR loan is payable out of water system rates and charges and is considered to be on a parity lien with the 1996 COPS. The District has several capital lease transactions that are secured directly by the equipment or capital improvements financed. The District also has approximately $12,500,000 outstanding under a State of California Revolving Fund Loan (the "SRF" Loan). The SRF loan is secured solely by assessments on parcels in the Donner Lake Service area. Water Rates To prepare for the issuance of additional debt and to build unrestricted reserves, the District Board approved an increase in water rates of on July 13, 2006. The rate adjustments, which were imposed on all customers, represent a 6.0% increase effective on January 1, 2007 and a 6% increase effective on January 1,2008. In addition to the increase in general service rates,the District Board approved the imposition of a customer surcharge in the Donner Lake area of $6.65 per month. The surcharge is intended to offset the portion of the 2006 COP debt service that is related to the Donner Lake improvements. No additional rate increases are expected to be necessary to support the proposed transaction. 2006 Transaction It is contemplated that the District will issue fixed rate, certificates of participation as soon as the Certificates can be documented, rated and marketed. It is expected that the Certificates will be issued in a single series, however the amortization will match the useful life of the assets financed. Generally, the refunding component, if any, will be structured to produce level savings, the portion of the transaction used to construct system improvements will be structured to produce level debt service over thirty years, and the portion of the transaction used to finance equipment will be structured with level debt over five years. No derivative structures are currently being considered. A portion of the capital improvements are related to growth in the District's service area. In keeping with the District's policy that Facilities Fees paid by developers should pay for growth related projects, the District intends to use a portion of its Facilities Fees to pay debt service on the related portion of the COPS. The District has engaged McDonald Partners as financial advisor and Stradling Yoeca Carlson & Rauth as bond counsel for the proposed transaction. Additional information A copy of the District's Audit for the Fiscal Year ending December 31, 2005 is available on the District's website (www.tdpud.org). A copy of the Official Statement for the District's 1996 COP is available on the Muni Statements website (www.munistatements.com). Copies of the financial statements or the Official Statement may also be obtained by contacting the District's financial advisor. All questions related to the District, the proposed transaction or the form of the proposal should be directed to the District's Administrative Services Manager,Mary Chapman, at(530)582-3906 or the District's Financial Advisor, Sandra McDonald,at(925)743-8498. Proposal Content If your firm is interested in serving as the District's senior managing underwriter for the proposed transaction, please submit a response to the following questions: t) Please comment on whether you believe the District should pursue a refunding of the Series 1996 COPS. 2) Do you foresee any obstacles in the District's financing plan? Please comment on the use of multiple revenue streams to support the transaction and whether you believe bond insurance will be available and beneficial to the District. 3)Please describe your firm's experience in selling tax-exempt California revenue bonds. 4) Please provide a list of the individuals who will be assigned to work with the District. Describe the role of each individual and include the telephone and facsimile number of each member of the primary banking team. Include a brief resume of each individual's education, training and experience. 5) Please provide a fee quote that includes all components of the gross spread. Please indicate what portions of the quote may be considered fixed. Please assume that the Financial Advisor has developed a financial pro-forma and will take the lead in preparing the District's rating presentation. In estimating underwriter's counsel expenses, please note that Stadling Yocca will draft the preliminary and final official statements. Please indicate which firm you would consider using for underwriters' counsel. 6) Why should TDPUD select your firm to senior manage the proposed transaction? Please submit two copies of your proposal to: Ms. Mary Chapman Administration Services Manager Truckee Donner PUD 11570 Donner Pass Road Truckee,CA 96160 marychapman@tdpud.org Please submit one copy of your proposal to: Ms. Sandra McDonald Principal McDonald Partners 222 High Eagle Road Alamo,CA 94507 sandra@mcdonaldpartners.com. E-mail deliveries (PDF files) in lieu of hard copies are acceptable. All proposals must be received by the close of business on Monday,August 7. Selection Process The District currently plans to select a sole, senior manager. After the proposals are reviewed, TDPUD staff intends to make a recommendation to the District's Board of Directors at the Board's regular meeting on August 16, 2006. Agenda Item # � , itrr Memorandum To: Board of Directors From: Kim Szczurek, Finance & Accounting Manager Thru: Mary Chapman, Administrative Services Manager Peter Holzmeister, General Manager Date: July 14, 2006 CORRECTED MEMORANDUM Subject: TRANSFER OF FUNDS 1. HISTORY The Board approved a contract to Vulcan Construction for the installation of the 24" Brockway Transmission Pipeline on April 5, 2006 in the amount of$2,976,939. This project has been identified as eligible for facilities fees funding as it is expanding the capacity of the water system. At the time the contract was awarded, the Board had not determined the method for funding this project. As such, the contract payments are being made out of the Water General Fund. The payments for this project to date have totaled $1,042,097.90. Since the awarding of the contract to Vulcan, the Board has had several discussions in regards to funding this project with facilities fees, either on a cash basis or debt financed with the debt service paid from facilities fees. Since the Board has directed staff to proceed with pursuing long term financing which would include financing this project, I am now recommending that we temporarily move the contract payments for this project from the facilities fees fund until the long term financing funds are available at which time the facilities fees fund will be restored. If the expenditures are left in the Water General Fund, the estimated balance of that fund at July 31, 2006 will be approximately$(1,100,000). This may have an adverse effect on the District's ability to obtain financing. 2. RECOMMENDATION Staff is recommending that the Board authorize the temporary transfer of funds from the Water Facilities Fee Fund to the Water General Fund for the amounts paid to Vulcan Construction for the 24" Brockway Transmission Pipeline project up to an amount of$2,976,939. Staff is further directed to return the amount paid for this project out of facilities fees to the facilities fees fund upon receiving the loan proceeds. Agenda Item # TRUCKEE � . Public Utility District Memorandum To: Board of Directors From: Kim Szczurek, Finance & Accounting Manager Thru: Mary Chapman, Administrative Services Manager Peter Holzmeister, General Manager Date: July 14, 2006 Subject: TRANSFER OF FUNDS 1. HISTORY The Board approved a contract to Vulcan Construction for the installation of the 24" Brockway Transmission Pipeline on April 5, 2006 in the amount of $1,042,097.90. This project has been identified as eligible for facilities fees funding as it is expanding the capacity of the water system. At the time the contract was awarded, the Board had not determined the method for funding this project. As such, the contract payments are being made out of the Water General Fund. The payments for this project to date have totaled $1,042,097.90. Since the awarding of the contract to Vulcan, the Board has had several discussions in regards to funding this project with facilities fees, either on a cash basis or debt financed with the debt service paid from facilities fees. Since the Board has directed staff to proceed with pursuing long term financing which would include financing this project, I am now recommending that we temporarily move the contract payments for this project from the facilities fees fund until the long term financing funds are available at which time the facilities fees fund will be restored. If the expenditures are left in the Water General Fund, the estimated balance of that fund at July 31, 2006 will be approximately $(1,100,000). This may have an adverse effect on the District's ability to obtain financing. 2. RECOMMENDATION Staff is recommending that the Board authorize the temporary transfer of funds from the Water Facilities Fee Fund to the Water General Fund for the amounts paid to Vulcan Construction for the 24" Brockway Transmission Pipeline project up to an amount of $1,042,097.90. Staff is further directed to return the amount paid for this project out of facilities fees to the facilities fees fund upon receiving the loan proceeds. __ _ __ ..... _ .... ..._. _...._ . ..... _. . .. _ _ __ _. ..... Agenda Item # Memorandum To: Board of Directors From: Jim Wilson, Electric Superintendent Date: July 14, 2006 Date of Board Meeting: July 19, 2006 Subject: BID AWARD FOR PURCHASE OF AN EMERGENCY GENERATOR SERVING THE DISTRICT OFFICE BUILDING. 1. WHY THIS MATTER IS BEFORE THE BOARD Board approval is required for equipment purchases over $15,000. 2. HISTORY When the District headquarter building was designed and built there was much less staff and very few computers. The existing standby generator is 37.5 kw. and only handles emergency lighting, roll up doors, and a few critical loads. Over the years we have added many computers, an outage management system, water and electric SCADA systems, electronic phone system, computer system hubs and routers throughout the building. When power is lost to the building we are unable to operate our outage management system and our SCADA systems, thus crippling our ability to efficiently restore power and water to our customers. The standby generator in this bid is rated 150 kw and will be able to power up the entire building. Installation of this generator will enable the District to continue functioning during a power outage. 3. NEW INFORMATION Specifications were prepared, a request for bids was advertised and four bid packets were sent to suppliers for an Emergency Standby Power System (Generator Set). Bids were received and a bid opening was held on July 13, 2006. One Bid was received. The results of the Bid Opening are as follows. Bidder Location Amount Cashman Equipment Sparks, Nevada $41,245.00 This bid meets all of the specifications for the Emergency ( Standby Power System. - -------- ------ , .., ..... .. . . ... ..... .... . . ..... 4. RECOMMENDATION The Districts Building Fund currently has a balance of$273,423.27 Staff recommends that the Board award the purchase of an Emergency/ Standby Power System (Generator Set) to Cashman Equipment of Sparks, NV, in the amount of $41,245.00 (tax not included) and will be funded from the District's Building Fund. Agenda Item # 7 Memorandum To: Board of Directors From: Neil Kaufman Date: July 14, 2006 Subject: Pavement Restoration at Donner Lake 1. Why this matter is before the board: Board authorization is required for expenditures in excess of $15,000. 2. History: In 2001, the District conducted a joint project with Southwest Gas that installed water and natural gas pipelines along Southshore Drive, Red Mountain Road, Mt. Judah Drive and Devil's Peak Road on the south side of Donner Lake. These roads had been resurfaced in 1999. Based upon an arrangement with between Southwest Gas and the Town, the encroachment permit issued by the Town did not require that the roadways be repaved. However, the encroachment permit issued by Placer County did require a pavement overlay for Devil's Peak Road, Mt. Judah Drive and the Placer County portion of Red Mountain Road. This pavement restoration work was not included in the contract with Manuel Brothers and has not been performed. In 2004,the Town of Truckee issued an encroachment permit for the Donner Lake Pipelines—2004 project. This encroachment permit required the District to mill, and replace the pavement in the eastbound lane of Cedar Point Drive where the water pipeline was installed. This pavement restoration work was not included in the contract with Jurin Construction and has not been performed. These areas to be paved are shown on Figure 1. In the Summer of 2005, the Town of Truckee awarded a contract to Advanced Asphalt for paving at various locations in Truckee. One portion of that contract involved an overlay of Southshore Drive. I had a number of discussions with the Town and Advanced Asphalt. Both parties agreed to include the District's paving work in the Town contract. On September 7, 2005, 1 presented this approach to the Board and the Board approved using the Town contract to perform the paving work as shown on the attached minute order. 3. New information: During the Summer/Fall of 2005, Advanced Asphalt completed the paving on Southshore Drive. However, Advanced Asphalt failed to complete the District's paving work. Jerry Krug with Advanced indicated that temperatures in late September were not proper for placing the planned 1.5-inch overlay. The District has not paid any monies for this work. The 2005 contract between the Town and Advanced Asphalt has been closed. The Town advertised for a new paving and drainage contract in the Spring of 2006. This contract was also awarded to Advanced Asphalt. Advanced Asphalt, the Town and I have discussed the possibility of an arrangement similar to 2005 whereby this paving work would be performed under the Town's current contract. However, the Town is receiving reimbursement from FEMA for a portion of the Advanced Asphalt contract and the Town is concerned that including the District paving would jeopardize the FEMA funds. As described in recent Water Department staff reports, Jessica Wilson and I have prepared a set of Bid Documents covering this paving work at Donner Lake. These bid documents were sent to Placer County and the Town of Truckee for review and comment. At this time, it is necessary to advertise for bids in order that the work can be completed during a time period with proper temperatures. The planned project schedule is: July 19, 2006—Board Authorization to Begin Advertising for Bids August 8,2006—Bid Opening August 16, 2006—Award of Contract September 15, 2006—Completion of Paving Work The total cost of this work is estimated at $100,000. The cost of this project was included in the calculations used to develop the $6.65 surcharge approved by the Board at the July 13 Special Meeting. 4. Recommendation: I recommend that the Board: 1) Approve of the plans and specifications for the project. 2) Authorize staff to begin advertising for Bids with a Bid Opening Date of August 8, 2006. Attachments: Figure 1 Minute Order from September 7, 2005 s UCKEE • PublicDistrict PO Box 309, 11570 Donner Pass Road Truckee, Ca. 96160 Minute Order September 7, 2005 No. 2005-75 CONSIDERATION OF AN AGREEMENT AUTHORIZING THE DISTRICT TO UTILIZE THE PAVING CONTRACT OF THE TOWN OF TRUCKEE TO PERFORM NECESSARY PAVING WORK AT DONNER LAKE. Director Taylor moved and Director Thomason seconded, a motion to authorize staff to arrange for paving work to be performed through the existing contract between the Town of Truckee and Advanced Asphalt for an estimated cost to the District around $100,000 for roads along Southshore Drive, Red Mountain Road, Mt. Judah Drive and Devil's Peak Road on the south side of Donner Lake in Placer County. ROLL CALL: Director Sutton, no (did not go through public bid process); All other Directors, aye. SO MOVED. Post Office Box 309— 11570 Donner Pass Road—Truckee, CA 96160 Phone 530 587-3896—Fax 530 587.1189 CEDAR POINT DRIVE , 1 MOl)NTAIN ROAD DEVICS PEAK RQAD '.. MT.JUDAH DRIVE TRUC�NrjcER Figure 1 Publicstt Donner Lake Paving --- - .._..... ......_...,....... . ................... Agenda Item # 8 •Memorandum To: Board of Directors From: Peter Holzmeister Date: July 14, 2006 Subject: Mission Statement and Goals and Objectives Why this matter is before the Board: This matter involves adoption of a mission statement and related goals and objectives as drafted by the Board. The documents have not yet been formally adopted by the Board History: We have been discussing the general matter of mission statement and goals for some time now. On May 6, 2006 the Board conducted a workshop at which it agreed upon a District Mission Statement and related statement of Goals and Objectives. A workshop was then conducted on May 17, 2006 to discuss whether the directors wished to modify the statements in any way before formally adopting them. The workshop held on May 6 was our opportunity to dig into the subjects of mission, goals and objectives. You began by answering the following questions posed by facilitator Bob Rauch. • What do we do? o Provide certain utilities • Water • Electricity • (Broadband) o Manage resources (comply with regulations) • Water • Power • People • Assets • Finances • Whom do we serve? o All the residences and businesses in our service area o Visitors • Define excellence o Reliable services at lowest practical cost • High quality of water and power • High quality (product) service o Integrity- timely/responsive o Consistent- Courteous o Adequate to meet needs of customer o Responsible t • Concern for meeting customer needs • Environmentally responsible o Open to the public o Cooperative relationships New information: Following is the Mission Statement that you agreed to. The Mission of Truckee Donner Public Utility District is to provide adequate, reliable and high quality water and electrical power services, and to manage District resources in an open, responsible, environmentally sound manner at the lowest practical cost. Out of the Mission Statement, the following Objectives are established: 1. Provide an adequate, reliable and high quality water supply and distribution system to meet current and future needs. 2. Provide and adequate reliable and high quality electric supply and distribution system to meet current and future needs. 3. Manage the District in an open manner. 4. Manage the District in a responsible manner. 5. Manage the District in an environmentally sound manner 6. Manage the District in an effective, efficient and fiscally responsible manner. Out of the Objectives, the following Goals are established: 1. Provide an adequate reliable and high quality water supply and distribution system to meet current and future needs. 1.1 Maintain and implement a current Urban Water Management Plan which includes current and future projections of water quality, demand and supply. 1.2 Maintain and implement a current Water Master Plan, including the required facilities to meet current and future demand and supply. 1.3 Secure the necessary water rights and other legally required documentation. 1.4 Provide effective and efficient maintenance and replacement programs 1.5 Provide an effective and efficient operations program 2. Provide an adequate reliable and high quality electric supply and distribution system to meet current and future needs. 2.1 Maintain and implement a long-term energy and load forecast. 2.2 Maintain and implement an Electric System Master Plan, including the required facilities to meet the current and future demand and reliable supply. 2.3 Provide effective and efficient maintenance and replacement programs. 2.4 Provide an effective, efficient and safe operations program 2.5 Procure and contract for low cost electric power supplies to reliably meet current and future loads. 3. Manage the District in an open manner. 3.1 Conduct the District's business in a legal, open, transparent manner 3.2 Implement a proactive public outreach program 3.3 Promote communication and cooperation with other public and private agencies. 4. Manage the District in a responsible manner. 4.1 District will conduct its business in a lawful and ethical way 4.2 District will develop and implement high standards of customer service 4.3 District will develop and implement high operational standards, procedures and codes of conduct. s 5. Manage the District in an environmentally sound manner 5.1 District will conduct its business in an environmentally lawful manner 5.2 District will maintain a program of energy and water use efficiency. 5.3 District will seek to minimize any negative impact of its operations on the environment. # 6. Manage the District in an effective, efficient and fiscally responsible manner. 6.1 District will utilize modern, cost effective work methods and equipment j 6.2 District will employ a qualified and productive workforce. 6.3 District will provide work conditions and procedures that encourage employee growth, productivity and retention 6.4 District will conduct an active cost control program 6.5 Review and implement a Financial Goals policy to achieve a stable financial condition 6.6 Develop appropriate financial procedures to assure responsible financial management Early in August we will begin drafting a budget for 2007. The Mission Statement and statements of goals and objectives embraced by the Board would be helpful in focusing our thoughts as we prepare the budget Recommendation: I recommend that the board adopt the above statements of Mission, Goals and Objectives. 3 Agenda Item # TRUCKEE nL 1/ i s Public Utility District Workshop To: Board of Directors From: Kim Szczurek, Finance & Accounting Manager Through: Mary Chapman, Administrative Service Manager Peter Holzmeister, General Manager Date: July 13, 2006 Subject: CAPITALIZATION POLICY 1. WHY THIS MATTER IS BEFORE THE BOARD Accepted accounting policies and procedures for local government entities include the adoption and implementation of a Capitalization Policy for Fixed Assets. 2. HISTORY The Board has not adopted a policy regarding the capitalization limits for fixed asset purchase or construction. It is standard practice to adopt such a policy and to describe that policy in the footnotes to the financial statements in accordance with GASB 34. A capitalization policy is meant to clarify financial reporting issues so that the information presented in the District's financial statements is accurate and consistent with Generally Accepted Accounting Principles. It also helps, in some cases, to clarify and streamline the record keeping for District purchases. Our outside auditors, Virchow Krause noted to staff and in their verbal report to the Board on the 2005 financial statements that the District should consider the adoption of a capitalization policy. 3. NEW INFORMATION Attached is a draft policy establishing capitalization procedures for your review and discussion. The capitalization amounts set forth in the draft policy are somewhat higher than the amounts we are currently using. The idea is to make the dollar amount of items to be capitalized reflect an appropriate value. We suggest our current capitalization value is too low. I have also included as an attachment the Government Finance Officer's Recommended Practice concerning capitalization thresholds for your reference. 4. RECOMMENDATION This is a workshop item so no action is required. j R solu ion No. 2006 - XXX POLICY FOR CAPITALIZATION OF FIXED ASSETS WHEREAS, the Board of Directors of the Truckee Donner Public Utility District wishes to set forth the procedures to be followed in determining which purchases should be capitalized or expensed in the year purchased in accordance with generally accepted accounting practices. NOW, THEREFORE, IT IS HEREBY RESOLVED, that the following procedure be followed in determining if a purchase meets the necessary requirements for capitalization: ASSET CLASS MINIMUM COST Office Equipment $2500.00 Tools $2500.00 Equipment $5000.00 Structures and Land Improvements $7500.00 Construction and Remodel Projects $7500.00 All of the following criteria shall also be used: 1. The normal useful life of the item is at least two years from date of purchase. 2. The item has an acquisition cost(including freight and installation)of at least the amounts listed above in each asset class. 3. The item will not be substantially reduced in value by immediate use. 4. in case of repair, the outlay will substantially prolong the life of an existing fixed asset or increase its productivity significantly, rather than merely returning the asset to a functioning unit or making repairs of a routine nature. 5. Land purchases must always be capitalized. PASSED AND ADOPTED by the Board of Directors of the Truckee Donner Public Utility District in a meeting duly called and held within said District on the 1 g`h day of July, 2006. AYES: NOES: ABSTAIN: ABSENT: TRUCKEE DONNER PUBLIC UTILITY DISTRICT J. Ron Hemig, President ATTEST: Peter L. Holzmeister, District Clerk (D RECOMMENDED PRACTICE Establishing Appropriate Capitalization Thresholds for Capital Assets (1997,2001,and 2006)(CAAFR) Background.The term capital assets is used to describe assets that are used in operations and that have initial lives extending beyond a single reporting period.Capital assets may be either intangible (e.g.,easements, water rights)or tangible(e.g., land,buildings,building improvements,vehicles,machinery,equipment and infrastructure). It is incumbent upon public-sector managers to maintain adequate control over all of a government's resources, including capital assets,to minimize the risk of loss or misuse. As a practical application of the materiality principle,not all tangible capital-type items with useful lives extending beyond a single reporting period are required to be reported in a government's statement of position. Items with extremely short useful lives(e.g.,less than 2 years)or of small monetary value are properly reported as an"expense" or"expenditure" in the period in which they are acquired. When outlays for capital-type items are,in fact,reported on the statement of position,they are said to be capitalized.The monetary criterion used to determine whether a given capital asset should be reported on the balance sheet is known as the capitalization threshold. A government may establish a single capitalization threshold for all of its capital assets,or it may establish different capitalization thresholds for different classes of capital assets. Capitalization is,of its nature,primarily a financial reporting issue. That is,a government's principal concern in establishing specific capitalization thresholds ought to be the anticipated information needs of the users of the government's external financial reports.While it is essential to maintain control over all potentially capitalizabie items,there exist much more efficient means than capitalization for accomplishing this objective in the case of a government's smaller tangible capital-type items.' Furthermore,practice has demonstrated that capital asset management systems that attempt to incorporate data on numerous smaller items are often costly and difficult to maintain and operate. Recommendation.The Government Finance Officers Association(GFOA)recommends that state and local governments consider the following guidelines in establishing capitalization thresholds: • Potentially capitalizabie items should only be capitalized only if they have an estimated useful life of at least two years following the date of acquisition; • Capitalization thresholds are best applied to individual items rather than to groups of similar items(e.g., desks and tables), unless the effect of doing so would be to eliminate a significant portion of total capital assets(e.g.,books of a library district); • In no case should a government establish a capitalization threshold of less than $5,000 for any individual item; See GFOA's recommended practice on"Ensuring Control over Noncapitalized Items"(2006). In establishing capitalization thresholds, governments that are recipients of federal awards should be aware of federal requirements that prevent the use of capitalization thresholds in excess of certain specified maximum amounts(i.e.,currently$5,000) for purposes of federal reimbursement; and Governments should exercise control over potentially capitalizable items that fall under the operative capitalization threshold.' Approved by the GFOA's Executive Board,February 24, 2006. z See GFOA's recommended practice on"Ensuring Control over Noncapitalized Items"(2006).