The General Fund of the District shall consist of a general checking account, a bond principal and interest fund savings account, a petty cash and change fund, a legal account with State of California Local Agency Investment Fund and investments as may be authorized by the Board. All accounts are managed by the Finance Department of the City of Encinitas.
(Res. No. 2020-02, adopted 5/20/20)
A general interest-bearing savings (commercial) account shall be maintained at a local bank. All moneys received from water sales and services shall be deposited daily in this account. Funds shall be transferred from this account to special accounts as needed.
(Res. No. 2020-02, adopted 5/20/20)
A general checking account shall be maintained at a local bank. Except as provided in this section, no claim against the District shall be paid by the Treasurer until allowed by the Board. All warrants require two signatures; one of which must be a Board member and the second may be the Treasurer, Finance Manager, Secretary, General Manager, or a second Director. Warrants, authorized by the General Manager, shall be paid after receipt of goods or services or as authorized by agreements or contracts. The Board members present at the next Board meeting shall review the paid warrants and indicate their approval by motion or have entered in the minutes their dissatisfaction of any such dispersal and directions for such future expenses.
(Res. No. 2020-02, adopted 5/20/20)
A petty cash and change fund shall be maintained at the City Hall cashier station. The petty cash fund shall be reimbursed as required but shall not contain more than $150.00. The change fund at the cash register shall not exceed $150.00.
(Res. No. 2020-02, adopted 5/20/20)
The District’s cash management process will operate pursuant to the City of Encinitas Investment Policy as described in its Administrative Manual Admin Policy F019.
(Res. No. 2020-02, adopted 5/20/20)
Section 7.6.1. 
Purpose. A key element of prudent financial planning is to ensure that sufficient funding is available for current operating, capital, and debt service needs. Additionally, fiscal responsibility requires anticipating the likelihood of, and preparing for, unforeseen events. The San Dieguito Water District (District) will at all times strive to have sufficient funding available to meet its operating, capital, and debt service obligations. Funds will be accumulated and maintained to allow the District to fund expenses in a manner that is consistent with short- and long-term planning documents and to avoid significant rate fluctuations due to changes in cash flow requirements.
The Board of Directors (Board) may designate specific reserve accounts and maintain minimum reserve balances consistent with statutory obligations that it has determined to be in the best interest of the District. The Policy directives outlined in this document are intended to ensure the District has sufficient funds to meet current and future needs. The Board will review the level of reserves annually.
Section 7.6.2. 
General Provisions. The District will maintain reserves in designated accounts. The target reserves balances are considered the minimum necessary to maintain the District’s credit worthiness and adequately provide for:
(a) 
Compliance with applicable statutory requirements.
(b) 
Financing of future capital facilities.
(c) 
Repair or replacement of existing assets.
(d) 
Cash flow requirements.
(e) 
Immediate increases in commodity (water) costs.
(f) 
Sudden loss of revenue due to economic, regulatory, or weather conditions.
(g) 
Contingencies or unforeseen operating or capital needs.
(h) 
Economic uncertainties, local disasters, and other financial hardships or downturns in the local or national economy.
The minimum target levels established for each reserve represents the baseline financial condition that is acceptable to the District from a risk management and financial planning perspective. Maintaining reserves at appropriate levels is an ongoing business process that consists of periodic assessment of revenues and expense levels. This assessment includes (either alone or in combination with each other), but is not limited to, a review of fees and charges, water demands, capital appropriations and financing methods, rate of return on investments and levels of expenses. Assessments may be performed at any time, but are typically performed during the budget process or water rate studies.
Section 7.6.3. 
Reserves. The District shall maintain three reserves.
(a) 
Operating Reserve:
(1) 
Definition: The Operating Reserve provides working capital to pay for operating and maintenance expenses in the event of an emergency or unforeseen event.
(2) 
Minimum Target Reserve Level: The Operating Reserve target reserve level shall be a minimum of 90 days (25%) of future fiscal year operating expenses.
(3) 
Use: The Board may authorize the use of Operating Reserve funds upon request of staff in response to temporary cash flow deficiencies related to unplanned operations and maintenance expenses.
(b) 
Capital Replacement Reserve:
(1) 
Definition: The Capital Replacement Reserve provides working capital to ensure that funding is available for capital projects in the event of an emergency or sudden loss of funding.
(2) 
Target Reserve Levels: The Capital Replacement Reserve shall have minimum and maximum target reserve levels. The minimum target reserve level shall be one times the future five-year average of annual capital appropriations (expenses). The maximum target reserve level shall be two times the future five-year average of annual capital appropriations (expenses). If at any time the Capital Replacement Reserve exceeds the maximum target reserve level, funds from this reserve shall be transferred to either the Operating or Rate Stabilization Reserves.
(3) 
Use: The Board may authorize the use of Capital Replacement Reserve funds upon request of staff in response to emergency capital project needs or a sudden loss of funding for previously budgeted capital projects.
(c) 
Rate Stabilization Reserve:
(1) 
Definition: The Rate Stabilization Reserve provides working capital to help mitigate the need for immediate water rate increases due to sudden loss of revenues from water demand reductions or sudden increases in water purchase costs.
(2) 
Minimum Target Reserve Level: The Rate Stabilization Reserve target reserve level shall be a minimum of 15% of future fiscal year water rate (commodity) and service charge (fixed) revenue.
(3) 
Use: The Board may authorize the use of Rate Stabilization Reserve funds upon request of staff to allow for absorbing temporary rate fluctuations resulting from short-term reductions in revenues or increases in expenses.
Each of the above defined reserves shall be considered “unrestricted,” as follows:
Unrestricted reserves have no externally imposed use restrictions. The use of unrestricted reserves is at the discretion of the Board. Unrestricted reserves are designated for a specific purpose, which is determined by the Board. The Board also has the authority to redirect the use of these funds as the needs of the District change.
Section 7.6.4. 
Funding Sources and Review. At the end of each fiscal year, the District shall perform a year-end cash flow and working capital analysis as part of its year-end financial results reporting. This analysis provides the amount working capital, by Fund, that the District has available for use in its reserves at the end of the fiscal year.
Both the Operating Reserve and the Rate Stabilization Reserve shall be funded through cash accounts in the District’s Operating Fund. The Capital Replacement Fund shall be funded through cash accounts in the District’s Capital Replacement Fund.
The funding priority of the District’s reserves shall be as follows:
(a) 
Operating Reserve.
(b) 
Capital Replacement Reserve.
(c) 
Rate Stabilization Reserve.
In the event that at the end of the fiscal year, the District does not have enough available working capital to fully fund all three of its reserves to their respective minimum target levels, the Operating Reserve shall be funded first, the Capital Replacement Reserve funded to its minimum target level second, and the Rate Stabilization Reserve funded third. At such time that it is determined that reserves are funded below their minimum target levels, staff shall recommend a financial plan to the Board which shall replenish reserves to their minimum target levels, potentially through reductions in expenses or increases in revenues.
Transfers between funds may be necessary at the end of the fiscal year to fund the reserves to their minimum target levels (or in the event the Capital Replacement Reserve exceeds its maximum target level). Transfers shall be performed administratively as part of the District’s fiscal year-end process.
In the event that the District has working capital available in excess of the amount required to fund reserves at their minimum target levels, the District’s reserves may be funded at above their minimum target levels to further ensure the financial stability of the District. Alternatively, the Board, upon staff recommendation, may approve the use of excess reserve funds for purposes including, but not limited to, minimizing future water rate increases, funding capital projects or purchases, or paying down liabilities, which may result in strategic benefits for the District and its ratepayers.
Section 7.6.5. 
Delegation of Authority. The Board of the San Dieguito Water District has the sole authority to amend or revise the District’s Reserve Policy. Through approval of this policy, the Board has established written procedures for staff to follow in the management of the District’s reserve funds.
(Res. No. 2020-02, adopted 5/20/20)
This section sets forth policies to guide and support the development and implementation of the District’s annual budget.
Section 7.7.1. 
Balanced Budget. The District will maintain an annual balanced budget. This means that:
(a) 
Operating revenues are equal to or exceed operating expenses. User fees and charges will be evaluated and set via the Long Range Financial Plan.
(b) 
Capital expenses will be based on the District’s 7 Year Capital Improvement Program as well as its Long Range Financial Plan and will be funded through either internal funding or debt financing.
(c) 
Reserve fund balances must meet minimum policy levels.
Under this policy, operating revenues in certain years can fall short of operating expenses as long as there is sufficient beginning balance in the District’s reserve funds that can be utilized to avoid unacceptable rate increases and fund unanticipated operating and capital expenses, while ensuring that at the same time the ending fund balance will meet minimum policy levels. In the event that a budget shortfall is expected to continue beyond one year, the planned use of reserves must be developed as part of a corresponding strategic financial plan to close the gap through revenue increases and/ or expense decreases.
Any year end operating surpluses will revert to unappropriated balances for use in maintaining reserve levels set by policy and will be available for capital projects and/or “one-time only” expenses.
Maintaining a balanced budget will ensure that revenues are sufficient to cover operating and maintenance expenses, fund debt service, maintain liquidity reserve levels, and pay capital expenses.
Section 7.7.2. 
Budget Document. The budget will serve as the annual financial plan for the District. It will represent the annual policy document of the Board of Directors for implementing Board goals and objectives. The budget defines the resources necessary to accomplish Board-determined service levels.
The General Manager shall annually prepare and present a proposed budget to the Board of Directors no later than the regular Board meeting in May of each year; and the Board will adopt such budget no later than June 30 of each year. Funds may not be expended or encumbered for the following fiscal year until the budget has been adopted by the Board.
The District’s budget will be presented by department, with a logical breakdown of programs and proposed expenses. A budget document will be presented for discussion and review by the Board and the public. This document will focus on policy issues and will summarize expenses at the personnel, operating and maintenance, and capital levels.
Section 7.7.3. 
Budget Process. The District’s budget schedule consists of the following steps:
(a) 
Department budget development by managers.
(b) 
Review of economic, financial, and industry impacts.
(c) 
Review of capital projects based on Asset Management Master Plan.
(d) 
Coordination and review of joint facilities’ budgets with co-owner, Santa Fe Irrigation District.
Section 7.7.4. 
Budget Control and Accountability. Budget control is maintained at the departmental level. The General Manager has the authority to approve appropriation transfers between programs or departments. In no case may total expenses of the District exceed what is appropriated by the Board, without a budget adjustment. Budget accountability rests primarily with the General Manager of the District.
Section 7.7.5. 
Budget Adjustments. During the year, if projects or expenses are needed that fall outside the adopted budget, the item(s) will be placed on the next Board meeting agenda. The Board will consider the allocation of additional funds from the Operating Reserve Fund to cover the costs, if approved. Annually, staff prepares a quarterly budget status report for the Board. At this point, if there are any budget adjustments that merit consideration, they will be presented at the Board meeting to be approved by the Directors. Funds are then allocated from the Reserve Fund to be used for those specific requests for the remainder of the fiscal year.
Section 7.7.6. 
Capital Plant and Equipment. The annual budget will provide for adequate maintenance and replacement of capital assets. The District will develop an annual seven-year plan for capital expenses, including equipment and improvements. All capital improvements will be made in accordance with an adopted and funded capital improvement program. Cost tracking for components of the capital improvement program will be updated regularly to ensure project completion within budget and established timelines. The development of the capital improvement budget will be coordinated with the development of the operating budget. It is the District’s objective to maintain all of its assets at a level adequate to protect the District’s capital investments and minimize maintenance and replacement costs.
(Res. No. 2020-02, adopted 5/20/20)
Section 7.8.1. 
Policy Statement. This policy documents the District’s goals for the use of debt instruments and provides guidelines for the use of debt for financing the District infrastructure and project needs. The District’s overriding goal in issuing debt is to respond to and provide for the infrastructure and capital project needs of its customers while ensuring that debt is issued and managed prudently in order to maintain a sound fiscal position and protect credit quality. The District issues debt instruments, administers District-held debt proceeds and makes debt service payments, acting with prudence and diligence, and attention to prevailing economic conditions.
The District will endeavor to pay for all infrastructure and other projects from a combination of current revenues, available reserves, and prudently issued debt. The District believes that debt can provide an equitable means of financing projects for the District’s customers and provide access to new capital needed for infrastructure and project needs. Debt will be used to finance projects if it: (i) meets the District’s goal of equitable treatment of all customers, both current and future; (ii) is the most cost-effective means available to the District; and (iii) is fiscally prudent, responsible, and diligent under the prevailing economic conditions.
The District’s debt management policy is designed to:
(a) 
Establish parameters for issuing debt;
(b) 
Provide guidance to decision makers:
(1) 
With respect to all options available to finance infrastructure and other capital projects,
(2) 
So that the most prudent, equitable and cost effective method of financing can be chosen;
(c) 
Document the objectives to be achieved by staff both prior to issuance and subsequent to issuance;
(d) 
Promote objectivity in the decision-making process; and
(e) 
Facilitate the financing process by establishing important policy decisions in advance.
The District will adhere to the following legal requirements for the issuance of public debt;
(a)
The State law which authorizes the issuance of the debt;
(b)
The Federal and State laws which govern the eligibility of the debt for tax-exempt status;
(c)
The Federal and State laws which govern the issuance of taxable debt;
(d)
The Federal and State laws which govern disclosure, sale and trading of the debt.
Section 7.8.2. 
General Provisions. The District will provide for a periodic review of its financial performance, and review its performance relative to the financial policies outlined herein. These financial policies will be taken into account during the capital planning, budgeting, and rate setting process.
Necessary appropriations for annual debt service requirements will be routinely included in the District’s annual budget.
The District will maintain proactive communication with the investment community, including rating agencies, credit enhancers, and investors, to ensure future capital market access at the lowest possible rates.
The District utilizes an Asset Management Master Plan to determine its long-term infrastructure and other project needs for the next 10 years. The District evaluates each project in relation to established levels of reserves, current rate structure, expected asset life/replacement timeline, and available revenue sources to ensure that adequate financial resources are available to support the District’s financial obligations.
The District’s Debt Management Policy, Budget Policy, Reserve Policy and Investment Policy are integrated into the decision-making framework utilized in the budgeting and capital improvement planning process. As such the following principles outline the District’s approach to debt management.
(a) 
The District will evaluate funding for each capital project on a case-by-case basis. The District will assess whether to pay for such projects from current revenues and available reserves prior to or in combination with the use of debt.
(b) 
The District will issue debt only in the case where there is an identified source of repayment. Bonds will be issued to the extent that: (i) projected existing revenues are sufficient to pay for the proposed debt service together with all existing debt service covered by such existing revenues; or (ii) additional projected revenues have been identified as a source of repayment in an amount sufficient to pay for the proposed debt.
(c) 
Debt issuance for a capital project will not be considered unless such project has been incorporated into the Asset Management Master Plan.
(d) 
User fees and water rates will be set at adequate levels, which are fair and nondiscriminatory and comply with State law, to generate sufficient revenues to pay all operating and maintenance costs, to maintain sufficient operating reserves, and to pay debt service costs.
Section 7.8.3. 
Conditions for Debt Issuance. The following policies formally establish parameters for evaluating, issuing, and managing the District’s debt. The policies outlined below are not intended to serve as a list of rules to be applied to the District’s debt issuance process, but rather to serve as a set of guidelines to promote sound financial management.
Before issuing debt, the District will evaluate the availability of grants and low interest loans before accessing the capital markets.
In issuing debt, the District objectives will be to:
(1)
Achieve the lowest cost of capital.
(2)
Ensure ratepayer equity.
(3)
Maintain high credit ratings and access to credit enhancement.
(4)
Preserve financial flexibility.
(a) 
Standards for Use of Debt Financing. When appropriate, the District will use long-term debt financing to achieve an equitable allocation of capital costs/charges between current and future system users, to provide more manageable rates in the near and medium term, and to minimize rate volatility.
The District shall not construct or acquire a facility if it is unable to adequately provide for the subsequent annual operation and maintenance costs of the facility throughout its expected life.
Capital projects financed through debt issuance will not be financed for a term longer than the expected useful life of the project.
(b) 
Financing Criteria. Each debt issuance should be evaluated on an individual basis within the framework of the District’s long-term financial plan, as well as within the context of the District’s overall financing objectives and current market conditions.
The District will evaluate alternative debt structures (and timing considerations) to ensure the most cost-efficient financing under prevailing market conditions.
(1) 
Credit Enhancement. The District will consider the use of credit enhancement on a case-by-case basis. Only when clearly demonstrable savings can be realized shall credit enhancement be utilized.
(2) 
Cash-Funded Reserve vs. Surety. The District may purchase a surety policy or replace an existing cash-funded debt service reserve fund when deemed prudent and advantageous. The District may permit the use of guaranteed investment agreements for the investment of reserve funds pledged to the repayment of any District debt when it is approved by the Board of Directors.
(3) 
Call Provisions. In general, the District’s securities should include optional call provisions. The District will avoid the sale of non-callable, long-term fixed rate bonds, absent careful evaluation of the value of the call option.
(4) 
Additional Bonds Test/Rate Covenants. The amount and timing of debt will be planned to comply with the additional bonds tests and rate covenants outlined in the appropriate legal and financing documents, and these policies.
(5) 
Short-Term Debt. The District may utilize short-term borrowing to serve as a bridge for anticipated revenues, construction financing or future bonding capacity.
(6) 
Use of Variable Rate Debt. The District will not issue variable interest rate debt unless: (i) the proposed debt (a) can be converted to a fixed rate, or (b) is hedged (the District has an offsetting position, or investment to insulate itself from adverse interest rate changes either for an interim period, or to maturity) by use of a put-type mode, swap agreement or hedging mechanism (e.g., interest rate cap); or (ii) all outstanding (un-hedged) variable rate debt, including the proposed new variable debt, does not exceed 100% of the District’s “hedge position” in aggregate. For this purpose, the District’s hedge position will be calculated as the District’s unrestricted cash reserves multiplied by 150%.
(7) 
Investment of Bond Proceeds. Bond proceeds will be invested in accordance with the permitted investment language outlined in the bond documents for each transaction, unless further restricted or limited in the District’s Investment Policy. The District will seek to maximize investment earnings within the investment parameters set forth in the respective debt financing documentation. The reinvestment of bond proceeds will be incorporated into the evaluation of each financing decision; specifically addressing arbitrage/rebate position, and evaluating alternative debt structures and refunding savings on a “net” debt service basis, where appropriate.
(c) 
Refinancing Outstanding Debt. The Treasurer shall have the responsibility to evaluate potential refunding opportunities. The District will consider the following issues when analyzing potential refinancing opportunities:
(1) 
Debt Service Savings. The District shall establish a target savings level equal to three percent of the par of debt refunded on a net present value (NPV) basis. This figure will serve only as a guideline; the District shall evaluate each refunding opportunity on a case-by-case basis. In addition to the savings guideline, the following shall be taken into consideration:
(i) 
Remaining time to maturity.
(ii) 
Size of the issue.
(iii) 
Current interest rate environment.
(iv) 
Annual cash flow savings.
(v) 
Value of the call option.
The decision to take all savings upfront or on a deferred basis must be explicitly approved by the Board of Directors.
(2) 
Restructuring. The District may seek to refinance a bond issue on a non-economic basis, in order to restructure debt, to mitigate irregular debt service payments, accommodate revenue shortfalls, release reserve funds, or comply with and/or eliminate rate/bond covenants.
(3) 
Term/Final Maturity. The District may consider the extension of the final maturity of the refunding bonds in order to achieve a necessary outcome, provided that such extension is legal. The term of the bonds should not extend beyond the reasonably expected useful life of the asset being financed. The District may also consider shortening the final maturity of the bonds. The remaining useful life of the assets and the concept of inter-generational equity should guide these decisions.
(4) 
Economic vs. Legal Defeasance. When evaluating an economic versus legal defeasance, the District shall take into consideration both the financial impact on a net present value basis as well as the rating/credit impact. The District shall take all necessary steps to optimize the yield on its refunding escrows investments and avoid negative arbitrage.
(d) 
Outstanding Debt Limitations. Prior to issuance of new debt, the District shall consider and review the latest credit rating agency reports and guidelines to ensure the District’s credit ratings and financial flexibility remain at levels consistent with the most highly-rated comparable public agencies.
(e) 
Method of Issuance. The District will determine, on a case-by-case basis, whether to sell its bonds competitively or through negotiation.
(1) 
Competitive Sale. In a competitive sale, the District’s bonds shall be awarded to the bidder providing the lowest true interest cost (“TIC”), as long as the bid adheres to requirements set forth in the official notice of sale.
(2) 
Negotiated Sale. The District recognizes that some bond issues are best sold through negotiation with a selected underwriter. The District has identified the following circumstances below in which this would likely be the case:
(i) 
Issuance of variable rate or taxable bonds.
(ii) 
Complex structures or credit considerations (such as non-rated bonds), which require a strong pre-marketing effort. Significant par value, which may limit the number of potential bidders, unique/proprietary financing mechanism (such as a financing pool), or specialized knowledge of financing mechanism or process.
(iii) 
Market volatility, such that the District would be better served by flexibility in the timing of its sale in a changing interest rate environment.
(iv) 
When an underwriter has identified new financing opportunities or presented alternative structures that financially benefit the District.
(v) 
As a result of an underwriter’s familiarity with the project/financing, that enables the District to take advantage of efficiency and timing considerations.
(3) 
Private Placement. From time to time the District may elect to issue debt on a private placement basis. Such method shall be considered if it is demonstrated to result in cost savings or provide other advantages relative to other methods of debt issuance, or if it is determined that access to the public market is unavailable and timing considerations require that a financing be completed.
(f) 
Market Communication, Debt Administration and Reporting Requirements.
(1) 
Rating Agencies. The Treasurer shall be responsible for maintaining the District’s relationships with Standard & Poor’s Ratings Services, Fitch Ratings and Moody’s Investment Service. The District may, from time to time, choose to deal with one, two, or all of these agencies as circumstances dictate. In addition to general communication, the Treasurer shall: (1) meet with credit analysts at least once each fiscal year; and (2) prior to each competitive or negotiated sale, offer conference calls with agency analysts in connection with the planned sale.
(2) 
Observance of Debt Covenants. The Treasurer shall periodically, and at least annually, ensure the District is—and is expected to remain—in compliance with all legal covenants for each debt issue.
(3) 
Board Communication. The Treasurer shall include in an annual report to the Board of Directors feedback from rating agencies and/or investors regarding the District’s financial strengths and weaknesses and recommendations for addressing any weaknesses.
(4) 
Continuing Disclosure. The District shall remain in compliance with Rule 15c2-12(b)(5) by filing its annual financial statements and other financial and operating data for the benefit of its bondholders as covenanted in each debt issue’s Continuing Disclosure Agreement.
(5) 
Record-Keeping. A copy of all debt-related records shall be retained at the District’s offices. At minimum, these records shall include all official statements, bid documents, bond documents / transcripts, resolutions, trustee statements, leases, and title reports for each District financing (to the extent available). To the extent possible, the District shall retain an electronic copy of each document—preferably in pdf format.
(6) 
Arbitrage Rebate. The use of bond proceeds and their investments must be monitored to ensure compliance with all Internal Revenue Code Arbitrage Rebate Requirements. The Treasurer shall ensure that all bond proceeds and investments are tracked in a manner which facilitates accurate calculation; if a rebate payment is due such payment is made in a timely manner.
(Res. No. 2020-02, adopted 5/20/20)