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policy:financial_management_policy_statement [2015/08/28 21:57] – external edit 127.0.0.1policy:financial_management_policy_statement [2017/02/01 19:59] (current) dustin
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 =====  Financial Management Policy Statement ===== =====  Financial Management Policy Statement =====
    
-The following policies are intended to give direction to planning decisions and help ensure that the District provides for adequate wastewater and potable water services to all customers efficiently, reliably and at the lowest possible cost consistent with prudent utility management. +The following policies are intended to give direction to planning decisions and help ensure that the District provides for adequate wastewater and potable water services to all customers reliably and in a cost efficient manner consistent with prudent utility management. 
   -   -
     - **General Rate and Financial Management Policies**     - **General Rate and Financial Management Policies**
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       - The Rate Stabilization Fund is a subordinate fund of the Maintenance Fund.  The District may make transfers into the Rate Stabilization Fund from the Maintenance Fund or from the Rate Stabilization Fund to the Maintenance Fund at any time.  Transfers to the Rate Stabilization Fund from the Maintenance Fund shall be segregated and excluded from operating revenues of the Maintenance Fund as reported in the District’s annual income statement.   Transfers from the Rate Stabilization Fund to the Maintenance Fund shall be added to and included in operating revenues of the Maintenance Fund as reported in the District’s annual income statement.        - The Rate Stabilization Fund is a subordinate fund of the Maintenance Fund.  The District may make transfers into the Rate Stabilization Fund from the Maintenance Fund or from the Rate Stabilization Fund to the Maintenance Fund at any time.  Transfers to the Rate Stabilization Fund from the Maintenance Fund shall be segregated and excluded from operating revenues of the Maintenance Fund as reported in the District’s annual income statement.   Transfers from the Rate Stabilization Fund to the Maintenance Fund shall be added to and included in operating revenues of the Maintenance Fund as reported in the District’s annual income statement. 
       - The Rate Stabilization Reserve requirement will be evaluated each year in conjunction with the annual Budget and CIP adoption.  Adjustments to address significant deficits or surpluses may take place gradually over several rate periods, consistent with sound principles of financial management while maintaining reasonable rate stability.  The Rate Stabilization  Reserve is classified as an unrestricted reserve that can be used for any valid District purpose.       - The Rate Stabilization Reserve requirement will be evaluated each year in conjunction with the annual Budget and CIP adoption.  Adjustments to address significant deficits or surpluses may take place gradually over several rate periods, consistent with sound principles of financial management while maintaining reasonable rate stability.  The Rate Stabilization  Reserve is classified as an unrestricted reserve that can be used for any valid District purpose.
-      -  Generally, rates charged for each class of customer will be set to reflect the cost of supplying service to that class. Rates that are out of balance with respect to costs may be adjusted over a multiyear period to avoid disruption to any class of ratepayers.+      -  Generally, rates charged for each class of customer will be set to reflect the cost of supplying service to that class. Rates that are out of balance with respect to costs may be adjusted over a multi-year period to avoid disruption to any class of ratepayers.
       - The operating and maintenance budget will be set at a level sufficient to maintain facilities in good condition, provide sufficient staffing to ensure safe and continuous operation, and carry out the operations and programs necessary to meet all permit requirements.        - The operating and maintenance budget will be set at a level sufficient to maintain facilities in good condition, provide sufficient staffing to ensure safe and continuous operation, and carry out the operations and programs necessary to meet all permit requirements. 
       - Necessary appropriations for annual debt service requirements will be included in the annual budget.       - Necessary appropriations for annual debt service requirements will be included in the annual budget.
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       - The District requires development projects to complete the infrastructure improvements necessary for new connections, both local facilities and general system upgrades, at the developer's expense and risk.        - The District requires development projects to complete the infrastructure improvements necessary for new connections, both local facilities and general system upgrades, at the developer's expense and risk. 
       - Under state law, the District is allowed to collect a connection or general facilities charge from new connections. The District's policy is to develop this charge based on the value of the existing system less contributions and grants, including 10 years of interest, plus the estimated cost of capacity-related projects planned within 10 years. In addition, the District periodically updates the charge (annually at least) to reflect recent trends in growth and construction cost and changes to the 10-year capital improvement plan.        - Under state law, the District is allowed to collect a connection or general facilities charge from new connections. The District's policy is to develop this charge based on the value of the existing system less contributions and grants, including 10 years of interest, plus the estimated cost of capacity-related projects planned within 10 years. In addition, the District periodically updates the charge (annually at least) to reflect recent trends in growth and construction cost and changes to the 10-year capital improvement plan. 
-      - The District will not approve any construction contract unless it has sufficient monies in its payasyougo construction fund or bond funded construction fund, which together with approved grants or loans, is sufficient to pay for the amounts expected to become due under the contract.  +      - The District will not approve any construction contract unless it has sufficient monies in its pay-as-you-go construction fund or bond funded construction fund, which together with approved grants or loans, is sufficient to pay for the amounts expected to become due under the contract.  
-      - When a capital project is funded from both rates and bond proceeds, the District will maintain records to allow a separate accounting of the expenditure of bond proceeds. Bond proceeds will be spent before drawing upon other available cash. The acquisition of grants or loans will not be assumed in the rate planning process.  +      - When a capital project is funded from both rates and bond proceeds, the District will maintain records to allow a separate accounting of the expenditure of bond proceeds. Bond proceeds will be spent before drawing upon other available cash. The acquisition of grants or loans will not be assumed in the rate planning process. 
-      - Debt will not be used to finance operating and maintenance requirements. +      - While both debt and pay-as-you-go financing may be used to finance utility capital needs, the debt-financing component will be managed to minimize annual volatility in rate requirements.
-    - **Management Policies for Debt Obligations**  +
-      - Capital projects financed through debt issuance will not be financed for a term longer than the expected useful life of the project assets. +
-      - Capital financings will be designed to minimize the cost of funds, ensure equity over time among ratepayers, and provide for the timely completion of capital facilities.  +
-      - While both debt and pay-as-you-go financing may be used to finance utility capital needs, the debt-financing component will be managed to minimize annual volatility in rate requirements. +
       - The District has a goal of paying for a minimum of 20 percent of the capital program with cash from rates and charges over the long run. As a rule, the District’s baseline level of capital expense for routine replacements, refurbishments, and capital outlay will be funded with cash.        - The District has a goal of paying for a minimum of 20 percent of the capital program with cash from rates and charges over the long run. As a rule, the District’s baseline level of capital expense for routine replacements, refurbishments, and capital outlay will be funded with cash. 
-      - With respect to any issuance of debt, alternative issuance timing and amortization structures will be analyzed to ensure the most cost—efficient financing, given prevailing market conditions at the time of sale.  
       - The District will set rates sufficient to provide debt service coverage in excess of the legal minimums. Rates will be set so that the debt service coverage ratio on the Utilities’ senior lien debt, not including connection charge revenue, shall be at least 1.25.        - The District will set rates sufficient to provide debt service coverage in excess of the legal minimums. Rates will be set so that the debt service coverage ratio on the Utilities’ senior lien debt, not including connection charge revenue, shall be at least 1.25. 
-      The amount and timing of any future debt offerings will be planned to comply with the additional bonds test and rate covenants for its senior lien bonds, as well as with these financial policies.  +    **Management Policies for Debt Obligations**  
-      - The District will maintain regular communication with rating agencies that rate the bonds and will update the agencies in the event of material adverse changes in its business position.+      -  Debt will not be used to finance operating and maintenance requirements. (See {{:policy:bbwsd_debt_policy.pdf|Debt Policy}})
     - **Management Policies for District Funds**      - **Management Policies for District Funds** 
-      - To accommodate periodic unanticipated or unforeseen needs, the District will maintain at all times an Operating Reserve equal to at least 21 days of utility operating costs.  The District’s goal is to increase the Operating Reserve to at least 37 days of utility operating costs. The transition to a higher level of Operating Reserve will take place gradually until the year 2020, consistent with sound principles of financial management while maintaining reasonable rate stability.  The Operating Reserve requirement will be evaluated each year in conjunction with the annual Budget and CIP adoption.  The Operating Reserve is classified as an unrestricted reserve that can be used for any valid District purpose.      - The District will set rates as described in 1A above, primarily as a means of managing potential volatility in rates. The ”level rate increase" projected by the "model” is intended to stabilize rates and mitigate the need for large changes in rates from one budget year to the next. +      - To accommodate periodic unanticipated or unforeseen needs, the District will maintain at all times an Operating Reserve equal to at least 21 days of utility operating costs.  The District’s goal is to increase the Operating Reserve to at least 37 days of utility operating costs. The transition to a higher level of Operating Reserve will take place gradually until the year 2020, consistent with sound principles of financial management while maintaining reasonable rate stability.  The Operating Reserve requirement will be evaluated each year in conjunction with the annual Budget and CIP adoption.  The Operating Reserve is classified as an unrestricted reserve that can be used for any valid District purpose.       
 +      - The District will set rates as described in 1A above, primarily as a means of managing potential volatility in rates. The ”level rate increase" projected by the "model” is intended to stabilize rates and mitigate the need for large changes in rates from one budget year to the next. 
       - It is the policy of the District to plan capital needs through a 10-year Capital Improvement Program (CIP) and to plan the revenues to fund those capital needs using a 10-year rate revenue forecasting model comprising all expenses and revenues of the system. To provide financial reserves for unplanned capital outlays, the District shall maintain  a Capital Facilities Operating Reserve equal to one percent of the original cost of District Fixed Assets.  The Capital Facilities Contingency Reserve requirement will be evaluated each year in conjunction with the annual Budget and CIP adoption.  Adjustments to address significant deficits or surpluses may take place gradually over several rate periods, consistent with sound principles of financial management while maintaining reasonable rate stability.  The Capital Facilities Contingency Reserve is classified as an unrestricted reserve that can be used for any valid District purpose.       - It is the policy of the District to plan capital needs through a 10-year Capital Improvement Program (CIP) and to plan the revenues to fund those capital needs using a 10-year rate revenue forecasting model comprising all expenses and revenues of the system. To provide financial reserves for unplanned capital outlays, the District shall maintain  a Capital Facilities Operating Reserve equal to one percent of the original cost of District Fixed Assets.  The Capital Facilities Contingency Reserve requirement will be evaluated each year in conjunction with the annual Budget and CIP adoption.  Adjustments to address significant deficits or surpluses may take place gradually over several rate periods, consistent with sound principles of financial management while maintaining reasonable rate stability.  The Capital Facilities Contingency Reserve is classified as an unrestricted reserve that can be used for any valid District purpose.
       - District funds, including all reserve funds established by this policy statement and any bond proceeds, will be invested according to the following. The District will invest its funds in a manner that preserves capital and ensures the protection of investment principal, allows for its liquidity needs, and achieves the highest investment return consistent with the primary objectives of safety and liquidity.       - District funds, including all reserve funds established by this policy statement and any bond proceeds, will be invested according to the following. The District will invest its funds in a manner that preserves capital and ensures the protection of investment principal, allows for its liquidity needs, and achieves the highest investment return consistent with the primary objectives of safety and liquidity.
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 Approved: April 7, 2008 Approved: April 7, 2008
  
-**Revised: ** October 9, 2014+**Revised: ** October 9, 2014; September 21, 2016
  
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