HomeMy WebLinkAbout2013/12/17 Item 09 -� _ - -
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December 17, 2013, Item_q
ITEM TITLE: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
ESTABLISHING A SEWER SERVICE REVENUE FUND RESERVE POLICY
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
CLOSING OUT THE SPECIAL SEWER FUND AND TRANSFERRING
AVAILABLE FUNDS TO THE TRUNK SEWE CAPITAL RESERVE FUND
SUBMITTED BY: DIRECTOR OF PUBLIC WORKS
DIRECTOR OF FINANCE/TREASURE� ��� '
ASSISTANT DIRECTOR OF ENGINEERING �
REVIEWED BY: CITY MANAGER
ASSISTANT CI ANAGER�
� 415THS VOTE: YES � NO ❑
SUMMARY
On January 20, 2012, the City Council endorsed the City's Fiscal Recovery and Progress Plan. The Plan
was created to address the City's immediate financial emergency as well as its long-term fiscal
sustainability. In alignment with the Recovery Plan,. a reserve policy for the Sewer Service Revenue
Enterprise fund is proposed to provide guidelines for the level and use of reserves.
ENVIRONMENTAL REVIEW
The Environmental Review Coordinator has reviewed the proposed action for compliance with the
Califomia Environmental Quality Act (CEQA) and has determined that the activity is not a °Project° as
defined under Section 15378 of the State CEQ.4 Guidelines because the action only involves fiscal issues
which do not invoive any commitment to any specific project which may result in a potentially significant
physical impact on the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA
Guidelines the activity is not subject to CEQA.
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December 17, 2013, item �
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RECOMMENDATION
That Council adopt the resolution.
BOARDSICOMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
Reserve policies are established to protect the fiscal solvency of General and Enterprise Funds. Staff is
recommending establishing a Sewer Service Revenue Reserve Policy to help mitigate the impact of
economic fluctuations on revenues, fund unforeseen expenditure requirements, provide minimum levels of
cash balances, and avoid the need to borrow for cash management purposes.
The proposed Reserve Policy will help ensure both financial stability and the continued ability to provide
sewer services. Sufficient reserves create fnancial stability resulting in increased credit quality and will
allow the enterprise fund to weather times of uncertainty and the impacts of negative events, both major
and minor. Properly funded reserves allow for the continued maintenance of the sewer collection system
and payment of expenses beyond the amount of the funds available for a single fiscal year. The policy will
ensure that the fund's fnances are managed in a manner which will meet known and unknown future
obligations providing the ability to respontl to unexpected opportunities.
Wastewater enterprise reserves are accumulations of unrestricted cash associated with a utility enterprise.
When funtls are allowed to accumulate or erode without oversight or deliberate decision making, and when
set without a numerical target or range of benchmarks, cash accumulations may be viewed as slush funds
or worse: over collections out of balance with costs of service. This is critical as the City's wastewater rates
are legally bound not to exceetl the cost of providing the service.
However, cash accumulations can be designated and justified as proper reserves, structuretl with a clear
nexus to the current or future costs of the utility, as well as their financial behavior, risks, or long term
liabilifies. Properly structured and managed cash reserves are in fact a prudent tool in achieving overall
fiscal health and integrity of the utility. Without any cushion, without a proactive approach to dealing with
long term needs, and without a means to address unforeseen events, reliance solely on current revenues
jeopartlizes the safety and reliability of service rendered to the community.
Sewer Service Revenue Fund (Fund 414� CVMC 3.20.010)
The Sewer Service Revenue Fund is used to account for all monies collected from the monthly sewer
service charge. Monies in this fund may be used for any and all sewer related activities. The primary use
of these funds is the payment of the City's annual San Diego Metropolitan Sewer Capacity and
Maintenance fees and to pay the maintenance and operational costs of the 'in-city' sewer collection system.
The recommended policy will include four reserve categories within the Sewer Service Revenue Fund:
1) Workinq Capital and Rate Stabilization Reserve
The Working Capital and Rate Stabilization reserve is intended to accommodate any natural
variability in revenues and expenditures, including potential disruptions of cash flows due to varied
billing methodology, short term fluctuations and annual cycles in the Sewer Service Revenue fund.
The -Sewer Service Revenue Working Capital and Rate Stabilization reserves represent
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December 17, 2013, Item�
Page 3 of 7
unrestricted resources available for appropriations addressing unforeseen expenses associated
with sewer system emergencies.
The Sewer Service Revenue Working Capital and Rate Stabilization Reserves may be used for the
following:
. Rate Stabilization — the reserves will allow the City the flexibility to °smooth" rates and phase
increases in over muitiple years, which is prudent given the. potential variability in the City's
payments to Metro.
. Revenue Collection Fluctuations- the reserves will be used to protect the City from natural
fluctuations in revenue and expenditures cycles which is prudent given that the City bills
customers at different points in time but incurs expenses continuously throughout the year.
• Rates of delinquencies—delays in collection of outstanding revenues.
• Payroll cycles — the timing of a fixed cash requirement for payroll, as related to the timing of
revenue cycles. - �
• Unanticipated expenses- expenses whose characteristics make accurate estimation difficult,
such as increases in wastewater treatment services provided by the City of San Diego, energy
costs, labor costs and other consumption based goods and services.
Maintaining adequate reserves is critical to the successful financial operation of the Sewer Service
Revenue fund. The recommended reserve level for Working Capital is 90 days of operating
expenditures end Rate Stabilization reserve equivalent to 90 days of operating expenditures for a
minimum combined total of 180 days and a maximum reserve balance of 125% of the minimum
balance.
The Sewer Service Revenue Working Capital and Rate Stabilization reserves would provide long-
term financial stability to the Sewer Service Revenue fund and its ability to provide services during
economic downtums andlor in the event of unexpected events.
2) Emerqencv Reserve
The Sewer Service Revenue Fund Emergency Reserve is necessary to secure funding for
insurance deductibles, unforeseen liabilitiesllitigation and settlement costs related to the City's
wastewater system. The minimum recommended Sewer Service Revenue Fund Emergency
Reserve target is 5%of the operating and maintenance budget and a maximum reseroe balance of
125% of the minimum balance.
3) Sewer Revenue Vehicle Replacement Allocation
The Sewer Service Revenue Fund Vehicle Replacement Reserves represents monies set aside to
fund the replacement of aging vehicles. The allocation is funded from revenues accumulated in the
Sewer Service Revenue Fund.
The City shall maintain Sewer Service Revenue Fund Vehicle Replacement Reserves to ensure
that vehicles utilized for sewer operations are replaced as scheduled. This will ensure that sewer
related vehicles are available to depioy as needed and that the rates charged to the customers are
not significantly increased in the years the replacement cost is incurred.
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December 17, 2013, Item 9
Page 4 of 7
To achieve a minimum impact to cost of services and rates, funds will be included in the proposed
butlget on an annual basis based on the City's replacement schedule. The cost of replacing all the
vehicles will be averaged over the lifespan of the existing fleet. This will generate a more
normalized cost of services by evenly distributing revenue requirements on a year-to-year basis
offsetting temporary cash flow deficiencies.
4) U S Environmental Protection Aqencv (USEPA Permit Renewal Liability Reserve
The Sewer Service Revenue Fund USEPA Permit Renewal Liability would account for monies set
aside to funtl the City of San Diego Metropolitan Wastewater costs related to the potential upgrade
of the Point Loma Wastewater Treatment Plant (PLWTP) or other alternative. The reserve will be
funtled from revenues accumulated in the Sewer Service Revenue Fund.
Metro's USEPA waiver expires in FY 2015 and may not be renewed. If denied, Metro would need
to tlevelop and implement improvements to achieve secondary treatment level at PLWTP. Current
cost estimates to establish full secondary treatment at PLWTP as well as possible alternatives are
all significant (>S16illion). As a contributing member to the regional treatment plant, the City of
Chula Vista's share in the cost of any upgrade would be approximately 10 percent for the capital
improvements and any increase in the overall treatment cost. It is expected that Metro will have 10
years after the expiration of the USEPA waiver to institute secondary treatment or alternative. This
reserve establishes a dedicated fund that will offset a portion of the City's share of any obligation
related to the PLWTP USEPA waiver. By actively planning for the PLWTP upgrade or alternative,
the City will be in a stronger fnancial position to afford such costs while mitigating impacts to
ratepayers
The USEPA Permit Renewal Liability reserve will be funded through annual contributions with the
intent to reach a target balance of 20% of Chula Vista's share of the upgrade cost by FY 2024/25
(10 years after the expiration of the waiver). If substantial increases in Metro-related costs occur
sooner than expected, the City may draw down reserve levels prior to FY 2024/25 to manage
impacts to ratepayers. To be consistent with the City's policy for managing balances for its other
utility reserves, if funds are appropriated from the reserve before its intended use, the funds should
be replenished in subsequent fiscal years. If the magnitude of the withdrawal is material, the
Finance Director shall provide the City Council with a plan to incrementally replenish the reserves
Summarv of Recommended Reserves in the Sewer Service Revenue Fund (Fund 414)
The following table provides a summary of the recommended reserves, minimum/maximum levels of
reserves and their uses.
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December 17, 2013, Item�
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i __' �.�?FC�-, .Sx,.,., .: �1"�'c;. :�L-T 2:y.=`=-�,:K:=��-,�`�= �' =MinRes'erve;=�� `='Mzz.Reserie_
.��Y o: --��G� ='�'-r`' '�- �'4_=t�_ � " . "j�i r °FY2013Est;,'-= �FY.2073Estr,..-
=;TYPe of Reserve'�" _�,_---_ -=-, :sUsesa._ _ c��_r:__ =�s=�+ --s
Varia6on in revenue between collection cycles. Delays in 180 days of the 125°�of
collection of necessary revenue.Payroll cycles-the timing operafing and minimum
of a fixed cash requirement for payroll, as related to the maintenance budgei. balance
Working Capital and timing of revenue cycles. Any delay between payments
Rate Slabilization due for services and revenue collecfions that may be due Goal:513.8 million (5172 million)
Reserve on a different cycle lhan the City's receipt of customer
billings. Individual expenses difficult to es6mate, such as
inaezses in wastewater treatment services provided by
San Diego Metro Wastewater, energy costs, labor costs
and other consumplion based oods and services.
Insurance deduc6bles,litiga5on or settlemeni cosls or an 5%of the operating 125% of
unexpecled liability will be covered under the Emergency and maintenance minimum
Emergency Reserve Reserve. budget. balance
Goal:S1.4 million (S1.7 million)
Fund the replacement of aging vehides. Set by Replacement Set by
Schedule. Equipment
Vehicle Replacement Replacement
Allocation Current 6oal: Schedule.
S560,000 or 2%of
o era6n bud et
USEPA Permit Fund the City of San Diego MeVopolitan Wastewater costs Current Goal: N/A
related to the potential upgrade of the Point Loma 520 million
Renewal Liability yyastewater Treatment Plant(PLVJTP)or other altemative
Other Sewer Enterprise Funds (Wastewater Funds)
In addition to the Sewer Service Revenue Fund (Fund 414) the Wastewater system has other funds which
account for capital programs and are restricted for specific uses. They are as follows:
Sewer Income Fund (Fund 411 CVMC 3.16.010)
This fund is used to account for all revenues collected to recover the City's costs incurred constructing the
public wastewater system. The funds are collected from new properties receiving a permit to connect to
the City's wastewater collection system. The owner or person making the application for connection pays
fees to the City as designated in the master fee schedule. All funds received are restricted and may only
be used for the acquisition, construction, reconstruction, maintenance and operation of sanitation or
sewerage facilities, or to reimburse a subdivider or any person who has constructed sewer facilities
benefiting other properties. The fund may also be used to reimburse the City for any expense incurred in
connection with the construction and installation of any sewer facility including engineering work and
acquisition of rights-of-way.
Special Sewer Fund (Fund 4121
The Special Sewer Fund is used to account for the sale of the City's excess Metropolitan Sewerage
capacity which occurred in the 1980's. It is recommended that the remaining balance in the fund, which is
was approximately S450,000 as of June 30, 2013, be transferred to the Trunk Sewer Capital Reserve Fund
(Fund 413)which is where capacity charges will be incurred.
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December 17, 2013, Item 9
Page 6 of 7
Trunk Sewer Capital Reserve Funtl (Fund 413 CVMC 3.14.010)
The Trunk Sewer Capital Reserve Fund is used to account for sewerage facility participation fees received
from the owner or person applying for a permit to develop or motlify the use of any residential, commercial,
industrial or other property, which is projected to increase the volume of flow in the City's sewer system, as
determined by the City Engineer. All revenue derived from the sewerage facility participation fee shall be
used solely for:
o Paying the cost antl expense to repair, replace or enlarge trunk sewer facilities of the City
so as to enhance efficiency of utilization and/or adequacy of capacity to serve the needs of
the City, or;
o Paying the cost and expense to plan and/or evaluate any future proposals for area-wide
sewage treatment and/or water reclamation systems or facilities.
The City Council can appropriate the funds for another purpose, provided such purpose shall be for the
planning, design, construction or treatment or water reclamation purposes.
Sewer Facilitv Replacement Fund (Fund 428 CVMC3.18.010)
A portion of the revenues derived from the monthly sewer service charge is deposited into the Sewerage
Facilities Replacement Fund. Monies in this fund are used solely for the purpose of paying the cost of
refurbishment and/or replacement of structurally deficient sewerage facilities including related evaluation,
engineering, and utility modification costs. The City Council can appropriate the funds for another purpose
provided such purpose is for the construction, maintenance, or operation of sewers or incidental thereto,
inclutling any charge for its collection.
Teleqraph Canvon Poqqi Canvon and Salt Creek Sewer Basin Development Impact Fee (DIF) Funds
(Fund 431 432 and 433 respectivelVl These DIF Funds were established to account for development
impact fees collected to facilitate the construction of trunk lines which were needed to serve properties
within the respective developments. These monies collecied are restricted and can only be used for
construction of public improvements designed to increase the capacity of the subject facilities, allowing the
City to maintain service levels with increased demands.
DECISION MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site specific
and consequently the 500 foot rule found in California Cotle of Regulations section 18704.2(a)(1) is not
applicable to this decision.
RELATIONSHIP TO CITY STRATEGIC PLAN
The City's Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy
Community, Strong and Secure Neighborhoods, and a Connected Community. The proposed action is an
identifed.task for this fiscal year in the Strategic Plan under Operational Excellence as well as a next step
item identified in the City's Fiscal Recovery and Progress Plan issued in January 2012.
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December 17, 2013, Item �
Page 7 of 7
CURRENT YEAR FISCAL IMPACT
The recommendation to close out the Special Sewer Fund (Fund 412) and transfer available funds to the
Trunk Sewer Capital Reserve Fund would result in no net impact to the overall funds available tor the
purchase of capacity rights.
In addition, there is no current year fiscal impact related to adopting the Sewer Service Revenue Fund
Reserve Policy. The policy is establishing the targeted reserve levels which have already been met for the
Working Capital & Rate Stabilization reserves, Emergency reserves and Vehicle Replacement reserves.
The USEPA Permit Renewal Liability reserves are currently at 9.6% with a recommended level of 20%. •
The proposed rate adjustments needed to increase these reserves to the targeted levels are addressed in
the sewer rate study which is a separate acfion item. This item would establish the City Council policy
regarding the reserve levels and authorized uses.
Funded Status of Reserves based on available funds as of June 30, 2013
<°_:.T�._.`':r `^-�---�-,;;��,:�_ ,w,�.r-,;.-�,-� - 'Reserve�':.Reserde�
'_� -� v.� ���� `°t:- � '- ..c: ;°,.;�:�. .,3- � ResenieL�:=^;
� ���y�Reservea;-�_._^�,-v�'r._,.?,-,Reserve Goal?� -:..t�: �r}s��-�� f__�--:.
..�•�=3� :c��y��; -*.:x.�=�„>"' �.�,;'�':s,�'_'?"Balance;3���_;;Target,' =Goal,Met
Working Capital&Rate Stabiliza5on Reserve 5 13,800,000 S 73,800,000 6 mths Op Exp. F%�
Emergency Reserve 5 1,400,000 5 1,400,000 5% �
Vehicle ReplacementReserve S 560,000 S 560,000 2% ✓J
USEPA Permit Renewal Liabiliy S 20,000,000 S 9,596,627 20°/a 9.6%
Total��-�„,:.�;��i1'=_�r.'�=�:_=�5;35,760;000,.:525;356;627)
The USEPA Pertnit Reserve goal is recommended at 20%oi fhe Gry's es6mated cos6 to fund secondary treatrnent options.
Based on the most recent projections,the City's share vrould be appmx.5100 million(not including financing cost)which
establishes the reserve goal at 520 million.
ONGOING FISCAL IMPACT
Due to the funded status of the Working Capital & Rate Stebilization reserves, Emergency reserves and
Vehicle Replacement reserves, no impacts to the sewer rates are anticipated at this time for these
reserves. The sewer rate impacts related to increasing reserves for the EPA Permit Renewal Liability
Reserve to the targeted level are discussed in the sewer rate study which is a separate item.
Prepared by: Luis Pelayo,Associate Civil Engineer, Public Works Department
Maria Kachadoorian, Director of Finance, Finance Department
9-7
SUB.T�CT: Sc�ver Scrvice Rc��enue Fund Reserve POLICP EFFECTIVE
Policv NUMBER DATE PAGE
220-XX 1 of
ADOPTED BY: (Resolution No.) DATED: December 17, 2013
AMENDED BY: Resolution No. (date of resolution)
PURPOSE:
Public entities accumulate and maintain adequate reserves levels to help ensure both financial
stability and the ability to provide core services during difficult times. Adequately funded reserves
allow for: 1) funding infrastructure replacement, 2) economic uncertainties and other financial
hardships 3) future debt and capital obligations, 4) cash flow requirements, 6) improved credit,
ratings 5) unfunded mandates including costly regulatory requirements.
BACKGROUND:
The City's Sewer Enterprise Funds account for specific services funded directly by fees and charges
users of the City's sewer system. These funds are intended to be self-supporting as well as
restricted and cannot be used for other City services. They account for revenues and expenses
related to the City's sewer programs, including maintenance and expansion of the City's
conveyance system and payment of San Diego Metro wastewater treatment costs.
The Sewer Service Revenue Enterprise Fund accounts for revenue collected from monthly sewer
service charges for all properties that are connected to the City's sewer system. These funds
only be used for sewer related operations and maintenance. The primary use of these func.
payment for the City's annual San Diego Metropolitan Sewer Capacity and to fund maintenance and
operational costs associated with the sewer collection system.
The Government Finance Officers Association (GFOA), an international organization that promotes
the professional financial management of governments for the public interest, recommends
maintaining minimum reserve balances. A government's particular situation may require levels of
reserves significantly in excess of their recommended minimum levels. Cities with higher reserve
levels are better positioned to protect public services during economic downturns.
GFOA recommends that in establishing a policy governing the level of reserves or �vorkine capital
in enterprise funds, a government should consider a variety of factors, including but not limited to
the following:
• The predictability of its revenues and the volatility of its expenditures (i.e. higher levels of
reserves may be needed if significant revenue sources are subject to unpredictable
fluctuations or if operating expenditures are highly volatile.)
• Liquidity (i.e., a dispariry between when financial resources actually become available to
make payments and the average mamrity of related liabilities may require that a hieher level
of resources be maintained).
• Designations (i.e. governments may wish to maintain higher levels of reserve�
compensate for any portion of available fund balance already designated for a specific
purpose).
9-8
SL-BJECT: Sewer Service Re��enue Fund Resen•e POLICP EFFECTIV"E
Policv NU�IBER DATE PAGE
220-�{ � of 4
ADOPTED BI': (Resolution?�'o.) DATED: December 17, 2013
AA�IE\'DED BI': Resolution\TO. (date of resolution)
POLICY:
This Policy establishes four distinct reserves within the Sewer Service Revenue Fund :
1. �T�'orkine Capital and Rate Stabilization Reserve
2. Emereency Reserve
3. Vehicie Replacemen[ Reserve
4. U.S Environmental Protection Agency (USEPA) Permit Renewal Liability Reserve
Norkina Capital and Rate Stabilization Reserve
VI'orkine Capital and Rate Stabilization reserves in the Sewer Service Revenue Fund will be
restricted ro maintainine and operating the waste�vater collection system and paying treatment
charges to Ciry of San Diego Metropolitan �'�'astewater ("A4etro"). The resen�e will be funded from
revenues accumulated in the Se„�er Service Re��enue Fund. It is intended to accommodate any
iatural variability in revenues and expenditures, including potential disruptions of cash flows due ro
varied billine methodoloey, short term flucmations and annual cycles. The reserve will also assist
in addressing shortfalls which may occur due to unanticipated cost increases in labor or enerey
and other consumption based eoods and services, such as wastewater treaunent sen�ices provided by
Metro. The reserves represent unrestricted resources available for appropriation by the Ciry
CouncIl addressine unforeseen needs for sewer services.
The ��orking Capital and Rate Stabilization Reserves H�ill assist the City in addressine the follo�vine
i[ems:
• Rate Stabilization - the reserves ���ill allow the Ciry the flexibiliry to "smooth" rates and
phase increases in over multiple years, which is prudent given the potential variabilitv in the
City's payments to I�4etro.
• Revenue Collection Flucruations- the reserves will be used to protect the City from namral
flucmations in revenue and expendimre c}'cles �vhich is prudent given that the City bills
customers at different points in tune bu[ incurs expenses continuously [hrouehout the year.
• Rates of delinquencies - delays in collection of outstanding revenues.
• Pa}'roll cycles - the tunine of a fixed cash requirement for payroll, as related ro the tunine
of revenue cycles.
• Unanticipated expenses- expenses whose characteristics make accurate estimation difficult,
such as increases in waste�;�ater treatment services provided by the City of San DieQo,
enerey costs, labor benefits and other consumption based goods and services.
The Ciry shall maintain a Sewer Revenue reserve equivalent ro 90 days of operating expendirures
and a Rate Stabilization reserve equivalent ro 90 da}'s of operating expenditures for a minimum
combined total of 180 da��s and a maximum reserve balance of 125% of che minunum balance.
9-9
SUBJECT: Se�cer Service Re��enue Fund Resen•e POLICY EFFECTIVE
Polic}' NUAIBER DATE PAGE
220-XX 3 of'
ADOPTED BY: (Resolution No.) DATED: December 17, 2013
AMENDED BY: Resolution No. (date of resolution)
If funds are appropriated from the Sewer Revenue Working Capital and Rate Stabilization Reserves,
the funds should be replenished in the budget process during subsequent fiscal years to the
minimum reserve balance. If the magnitude of the event caused the Sewer Revenue Working
Capital and a Stabilization Reserves to be less than 30 days of the operating and maintenance.
budget, the Finance Director shall provide the City Council with a plan to incrementally replenish
the reserves ro the 1S0 days minimum reserve balance.
Emergency Reserve _
The Sewer Service Revenue Fund Emergency Reserve is necessary to secure funding for insurance
deductibles, unforeseen liabilities/litigation and setdement costs related to the City's �;�astewater
system.
The City shall maintain a minimum Sewer Service Revenue Fund Emergency Reserve target level
of 5% of the operating and maintenance budget and a maximum reserve balance of 125% of the
minimum balance. If funds are appropriated from the Sewer Revenue Emergency Reserves du
unanticipated needs, the Finance Director shall provide the City Council with a pla�.
incrementally replenish the reserves to the minimum reserve balance.
Vehicle Replacement Reserve
� The Sewer Service Revenue Fund Vehicle Replacement Reserves represents monies set aside to
fund the replacement of aging vehides. The allocation is funded from revenues accumulated in the
Sewer Service Revenue Fund.
The City shall maintain a minimum Sewer Service Fund Vehicle Replacement Reserve target of 2%
of the operating and maintenance budget. This reserve will ensure that vehicles utilized for sewer
operations are replaced as scheduled and available to deploy as needed.
To achieve a minunum unpact to cost of services and rates, funds will be included in the proposed
budget on an annual basis as identified in the City's Vehicle Replacement schedule. The cost of
replacing all the vehicles �vill be averaged over tl�e lifespan of the existing fleet. This will generate
a more normalized cost of services by evenly distributing revenue requirements on a year-to-year
basis offsetting temporary cash flow deficiencies and avoid significant increases in rates charges to
customers in the years the replacement cost are incurred.
USEPA Permit Rene�i�al Liability Reserve
The Se�ver Service Revenue Fund USEPA Permit Rene���a] Liabilitv Reserve ���ill account for mo
set aside to fund the Citti� of San Diego Metropolitan Waste�vater costs related to the potential upgrade
of the Point Loma \��aste���ater Treatment Plant (PLWTP) or other alternati��e for secondary treatment.
9-10
�
SUBJECT: Se�ver Service Re��enue Fund Resen•e P LI � EFFECTI�'E
Policy NLTn'IBER DATE PAGE
220-1� 4 of 4
ADOPTED BY: (Resolution\'o.) DATED: December 17, 2013
rL�7ENDED BY: Resolution No. (date of resolution)
The reserve ���ill be funded from revenues accumulated in the Sewer Sen-ice Revenue Fund.
\4etro's USEPA ���aiver expires in FY 201� and ma}� not be rene���ed. If denied, Metro would need to
develop and implement impro��ements to achieve secondan- treatment level at PL\'�'TP. Current cost
estimates to establish full secondarv treatment at PL\4'TP as �vell as possible altemati��es are all
sianificant (>S1Billion). As a contributina member to the reeional treatment plant, the Ciri� of Chula
Vista's shaze in the cost of an}� uperade �ould be approsimately 10 percent for the capital
impro��ements and anv increase in the overall treatment cost It is espected that Metro will have 10
��eazs after the eapiration of the USEPA �vaiver to institute secondary treatment or altemative. This
reserve establishes a dedicated fund that will offset a portion of the Ciri� s shaze of an}� oblieation
related to the PL�VTP USEPA waiver. By actively planning for the PL\VTP uperade or altemative; the
Cih����ill be in a stronger financial position to afford such costs while mitigating impacts to ratepayers.
The Pemut Rene�val Liabilirv Resen�e will be funded throueh annual contributions with the intent to
reach a tazeet balance of 20% of Chula Vista's shaze of the uperade cost bv FI' 2024/2� (10 vears
afrer the expiration of the �vaiver). If substantial increases in Metro-related costs occur sooner than
�pected, the Cit}� ma}� dra��� do�en reserve le��els prior to FY 2024/2� to manage impacts to
ratepa}�ers. To be consistent ���ith the Ciri�'s policv for managing balances for its other utilin� reserves,
if funds are appropriated from the reserve before its intended use; the funds should be replenished in
subsequent fiscal yeazs. If the magnitude of the ���ithdrawal is material; the Finance Director shall
provide the City Council �vith a plan to incrementalh� replenish the reserves.
If the acrual costs for the PL«'TP upgrade or alternative are less than anticipated, any unspen[
reserves will be rolled into the �'Vorking Capital and Rate stabilization reserve and utilized to fund
Ciq� sewer proerams, including maintenance and expansion of the Ciry's conveyance system and
paymen[ of San Dieeo A4etro wastewater treatment costs.
9-11
RESOLUTION NO. 2013-
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA ESTABLISHING A SEWER SERVICE
REVENUE FUND RESERVE POLICY
WHEREAS, in January 2012 the City Council endorsed the Citys Fiscal Recovery and
Progress Plan, which was created to address the City's immediate financial emergency as well as
its long-term fiscal sustainability; and
WHEREAS, in alignment with the Fiscal Recovery and Progress Plan, a reserve policy
for the Sewer Service Revenue Enterprise fund is proposed to provide guidelines for the level
and use of reserves; and
WHEREAS, establishing a carefully considered policy will help mitigate the impact of
economic fluctuations on revenues, fund unforeseen expenditure requirements, provide
minimum levels of cash balances, and avoid the need to borrow for cash management purposes;
and
WHEREAS, the proposed policy will help to provide sufficient reserves to create
financial stability resuiting in increased credit quality and allows the public entity to weather
times of uncertainty and the impacts oF negative events, both major and minor; and
WHEREAS, properly-funded reserves allow for continued abiliTy to provide sewer
services and provide the ability to respond to unespected opportunities; and
WHEREAS, the proposed policy recommends four reserve categories to provide for
greater distinction and increased security and accountability in the use of reserves, induding (1)
Working Capital and Rate Stabilization Reserve; (2) Emergency Reserve; (i) Se�ver Revenue
Vehicle Replacement Allocation; and (4) U.S. Environmental Protection Agency (USEPA)
Permit Renewal Liability Reserve; and '
WHEREAS, the Working Capital and Rate Stabilization Reserve (minimum 180 days of
the operating budget and ma�imum of 125% of the minimum balance) is intended to
accommodate any natural variability in revenues and expenditures including potential disruptions
of cash flows due to vazied billing methodology, short-term fluctuations and annual cycles in the
Sewer Service Revenue Fund; and
WHEREAS; the Emergency Reserve (5% of operating and maintenance budget and a
maximum of 125% of the minimum balance) are monies set aside to secure funding for insurance
deductibles, unforeseen liabilities/litigation and settlement costs related to the City's wastewater
system; and
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Resolution No.
Pase 2
VJHEREAS, the Se�+�er Revenue Vehicle Replacement Allocation Reserve (established b}�
Replacement Schedule) represents monies set aside to fund the scheduled replacement of vehicles
utilized for se��er operations; and
WIIEREAS. the USEPA Permit Renewal Liability Reseme (20% of the Cin� of Chula
Vista share of the uparade costs) �vould account for monies set aside to fund the City of San
Diego Metropolitan Vdaste��ater costs related to the potential upgrade of the Point Loma
\�astewater Treatment Plan (PLWTP) or other altemative; and
RTHEREAS, the resen�e levels to be established by this Sewer Sen�ice Revenue Fund
Reserve Policy are eoals that aze intended to be achieved over the long-term and that the Cin�
Council is adopting this Policy on that basis.
NOW. THEREFORE, BE IT RESOLVED that the City Council of the Ciry of Chula Vista
does hereby adopt the City of Chula Vista Sewer Sen�ice Revenue Fund Reserve Polic��; as
presented, a copy of�ti�hich is on file in the Office of the City Clerk.
Presented by Approved as to form by
�,� ` ���/1.��
Mazia Kachadoorian �Gl}etu�R. � oo 'ns
Director of Finance/Treasurer �C�.�ity Attomey
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RESOLUTION NO. 2013-
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA CLOSING OUT THE SPECIAL SEWER FUND
AND TRANSFERRING AVAILABLE FUNDS TO THE TRUNK
SEWER CAPITAL RESERVE FUND
WHEREAS; the Special Sewer Fund (Fund 412) was established to account for monies
received in the sale of the City's excess Metropolitan Sewerage capacit}; and
WHEREAS, the funds received in the sale of the City's excess Metropolitan Sewerage
capacity were to be utilized for capacity related expenditures; and
WHEREAS, the City established the Trunl: Sewer Capital Resen�e Fund (Fund 4li) to
account for sewerage facility participation fees received; and
WHEREAS, the Trunk Sewer Capital Reserve Fund (Fund 413) is where sewerage
capacity charges will be incurred; and
WHEREAS, staff recommends that the Special Sewer Fund (Fund 412) be closed and the
remaining balance in be transferred to the Trunk Sewer Capital Reserve Fund (Fund 413).
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Chula Vista
does hereby close the Special Sewer Fund (Fund 412) and transfer available funds to the Trunk
Sewer Capital Reserve Fund (Fund 413).
Presented by Approved as to form by
; ��� . ` ��i�`�
Maria Kachadoorian `Gl�nh2. o ' ins
Director of Finance/Treasurer ��City'Attorney
` i/
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