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Home My WebLink About15 Reserve Funds Internal Loans Agenda Item # 15 Public Utility District WORKSHOP To: Board of Directors From: Bob Mescher Date: March 04, 2009 Subject: Review of Proposed Changes to the District's Reserve Funds and Internal Loans 1. WHY THIS MATTER IS BEFORE THE BOARD Making changes to the structure of the District's reserve funds is solely within the purview of the Board. 2. HISTORY Cash and investment funds can be classified as "Restricted", "Board Designated", and "Unrestricted". Restricted Funds are funds that are mandated by an outside agency to be set aside for a specific purpose. Examples of this type would be the District's debt reserve funds for its 2006 COP and 2003 COP. The District is in compliance with all of its Restricted Fund requirements and there are no proposed changes relating to Restricted Funds. Board Designated Funds are funds voluntarily established by the Board to be used for specific purposes. These funds could be also grouped as Operating Reserves or Capital Reserves. There are currently ten board designated funds that have been established over the years. Several of these funds have overlapping purposes and could now be consolidated into fewer funds. Since Board Designated Funds are established voluntarily, and situations change throughout time, the Board can modify or reallocate these funds as needed. Unrestricted Funds are all other funds and can be used for general operations or capital improvements. Unrestricted Funds are synonymous with "General Fund - Cash and Investments" and "Operating Cash," and can be considered as part of the District's Operating Cash Reserves. Title 3 of the District Code defines goals for Operating Cash Reserves and Capital Reserves and were discussed in the last board meeting. It is important for the District to maintain an adequate level of reserves to cover unanticipated expenditures or disruptions in cash flow. As an example, the District presently has several internal loans that were created because it had insufficient reserves available to pay for unanticipated expenditures at the time. 3. NEW INFORMATION Consolidating the board designated reserve funds and extinguishing the internal loans will benefit the District by: 1. Simplifying the District's reserve reporting; making the reports more easily understandable and transparent; 2. Reducing the complexity of the District's reserves; reducing staffs accounting time; and 3. Bringing the overall reserve structure into better alignment with Board goals. Attachment 1 lists the current balances of the District's internal loans. Staff recommends that these internal loans serves andnguished$1,233,,180 utilizing57 of the68,010.74 of the Electric Water Department's Land Sables Fund. Operating Cash Re Attachment 2 shows the proposed transfers necessary to eliminate the internal loans. Attachment 3 illustrates proposed changes in the reserve funds including: the extinguishment the internal loans; of certain reserve funds; anand Electric as already included in thelishment of a new approved FY09 Budget le R both Water Reserve Fund for Attachment 4 projects the resulting balances, reflecting the proposed extinguishment of internal loans and funding of the new Vehicle Reserve Funds, and how those balances compare to the e 3 Opofatconsol dati Cash ng serve certa certain Capital funds nve thatgoals. havet overlapping staff s recommendations ourooses. 4. FISCAL IMPACT There is no direct overall fiscal impact associated with this workshop. However, the balances in individual funds would be changed as follows: The fiscal impact of the proposed changes would increase the Storm Damage Reserve Fund by $84,005.37 and reduce Operating Cash by $168,010.74, and would reduce the Electric Department's total Operating Reserves by $84,005.37. The fiscal impact of the proposed changes would increase the Reserve for Future Water Meters by $823,843.64 and decrease the Land Sales Fund by $739,838.27, and would increase the total Water Department Capital Reserves by $84,005.37. The FY09 budget provided for $144,000 to be transferred from the Water Department's General Fund to certain reserve funds as payment towards principle and interest of the internal loans. If the internal loans are extinguished, this transfer would become unnecessary. Staff proposes that the $144,000 remain in the General Fund until the Board approves the 2009 year-end adjustments. 5. RECOMMENDATION Staff recommends(for approval at a future board meeting): A. The $84,005.37 internal loan against the Storm Damage Reserve for 2006 broadband expenditures to be extinguished using the Electric Department's General Fund. B. The $410,147.34 internal loan against the Reserve for Future Water Meters Fund for the 2002 deficit to be extinguished using the Land Sales Fund. C. The $329,690.93 internal loan against the Reserve for Future Water Meter for water system improvement projects to be extinguished using the Land Sales Fund. D. The $84,005.37 internal loan against the Reserve for Future Water Meters for 2006 broadband expenditures to be extinguished using the Electric Department's General Fund. E. The $329,140.50 internal loan against the Land Sales Fund for the Steele Property purchase to be extinguished by the same fund. F. The $164,201.80 internal loan against the Land Sales Fund for the 2002 deficit to be extinguished by the same fund. G. $160,000.00 to be transferred from the Electric Department's General Fund to the new Vehicle Reserve Fund. (This funding is included in the department's approved FY09 Budget.) H. $140,000.00 to be transferred from the Water Department's General Fund to the new Vehicle Reserve Fund. (This funding is included in the department's approved FY09 Budget.) I. To merge the Electric Department's Storm Damage Fund with the Electric Operating Reserves. J. To merge the Electric Department's Building Fund with the Electric Capital Replacement Fund. K. To merge the Water Department's Land Sales Fund with the Water Capital Replacement Fund. � Michael D. Holley Mary Cha a General Manager Administrative Services Manager ATTACHMENT 2 Truckee Donner Public Utility District Proposed Internal Loan Elimination Balances as of February 26, 2008 (in thousands) 12/31/08 Proposed Proposed Balance Transfer Balance ELECTRIC DEPARTMENT $ 288 $ 84 $ 372 Storm Damage Reserve Proposed use of 2009 Electric Operating Cash Reserves 4,484 $ ((84) 4,316 WATER DEPARTMENT $ 660 $ 824 $ 1,484 Reserve for Future Water Meters 4,302 (740) 3,562 Land Sales Fund $ 84 i 4 I I ATTACHMENT 3 Truckee Donner Public Utility District Proposed Changes to Reserves and Internal Loans As of February 25, 2009 Existing Structure Proposed Structure ELECTRIC O eratin Cash Reserve Operating Cash Reserve Storm Dama a Reserve Internal Loan Against the Storm Dama a Reserve Electric Rate Reserve Electric Rate Reserve Building Vehicle Re lacement (New)l Capital Replacement Capital Re lacement WATER Operatina Cash Reserve O eratin Cash Reserve Debt Service Coverage Debt Service Covera e Ca ital Re lacement Ca ital Re lacement Future Water Meters Future Water Meters Broadband Internal Loan Against the Future Water Meters Other Internal Loan Against the Future Water Meters Vehicle Replacement New Land Sales Internal Loan Against the Land Sales Reserve ATTACHMENT 4 Truckee Donner Public Utility District 2009 Projected Reserve Status and Reserve Goals As of February 25, 2009 (in thousands) ELECTRIC Balance* FY09 Goal Variance Operating (A) $ 4,316 $ 7,049 $ (2,733) Operating Cash 372 - 372 Storm Damage Reserve (A) 1,600 3,000 1( 400) Electric Rate Reserve $ 6 288 $ 10,049 $ (3,761) Total operating reserves Capital (B) $ 236 $ - $ 236 Building 160 - 160 Vehicle Replacement ($160K in FY09 Budget)(B) 1,000 (1,000 Capital Replacement 1,000 $ (604) Total capital reserves $ 396 $ Total Reserves $ 6,684 $ 11,049 $ (4,365) WATER Balance* FY09 Goal Variance Operating $ 100 $ 2,705 $ (2,605) Operating Cash 838 - 838 Debt Service Coverage (voluntary) $ 938 $ 2,705 $ (1,767) Total operating reserves Capital 476 $ 4,000 $ (3,524) Capital Replacement (C) $ 1,484 - 1,484 Future Water Meters 140 - 140 Vehicle Replacement ($140K in FY09 Budget)(C) 3,562 - 3,562 Land Sales $ 5,662 $ 4,000 $ 1,662 Total capital reserves Total Reserves $ 6,600 $ 6,705 $ (105) Staff recommends the following reserve funds be consolidated: (A) The Storm Damage Reserve should be consolidated with the Operating Cash Reserve. (B)The Building Reserve should be consolidated with the Capital Replacement Reserve. (C)The Land Sales Reserve should be consolidated with the Capital Replacement Reserve Staff also recommends that funds be transferred from Operating Cash Reserves to the Vehicle Replacement Reserves in accordance with the FY09 Budget *The 02/25/2009 balances reflect the proposed extinguishment of internal loans and transfers to the Vehicle Replacement Reserves.