HomeMy WebLinkAboutResolution 2010-114 N.C.S. 06/21/2010Resolution No. 2010-114 N.C.S.
of the City of Petaluma, California
ADOPTING A RESERVE POLICY AND CREATING A
RATE STABILIZATION FUND FOR THE
WASTEWATER ENTERPRISE FUND AND AUTHORIZING
THE INCLUSION OF THE NECESSARY BUDGET
ADJUSTMENT IN THE FY 2009-10 END OF THE YEAR
BUDGET ADJUSTMENT
WHEREAS, prudent financial management requires that there be adopted a reserve
policy for the Wastewater Fund; and,
WHEREAS, the City has covenanted with the bondholders of the 2000 bonds and with
subsequent creditors to maintain certain debt coverage ratios; and,
WHEREAS, the creation of a Rate Stabilization Fund is necessary to smooth the impact
of rate increases which would otherwise be required to satisfy the debt coverage ratios which the
City has covenanted to maintain; and,
WHEREAS, an initial transfer of $3,500,000 from the reserve of the Wastewater
Enterprise .Fund in FY 2009-10 is needed to establish the fund; and,
WHEREAS, an adjustment to appropriations will therefore need to be included in the
end of the year budget adjustment ordinance.
NOW, THEREFORE, BE IT RESOLVED that the Council of the City of Petaluma
hereby resolves as follows:
Section 1. All of the recitals set forth above are true and correct, and this City Council
hereby so finds and determines.
Section 2. The City hereby adopts the Reserve Policy for the Wastewater Enterprise
Fund which is incorporated herein as Exhibit A.
Resolution No. 2010-114 N.C.S. Page 1
Section 3. The City Council authorizes: the establishment of a Rate Stabilization Fund,
the transfer of $3,500,000 from the reserve of the Wastewater Enterprise Fund in FY
2009-10 and the inclusion of the necessary budget adjustment in the end of the year
budget adjustment to FY 2009-10.
Section 4. This Resolution. shall take effect from and after its adoption and approval.
Under the power and authority conferred upon this Council by the Charter of said City.
REFERENCE: I hereby certify the foregoing Resolution was introduced and adopted by the ~ ', ~~p~roved as to
Council of the City of Petaluma at a Regular meeting on the 21St day of June, 2010, c ''^n~,t~(\/J form:
by the following vote:
AYES: Barrett, Vice Mayor Glass, Harris, Rabbitt, Renee, Mayor Torliatt
NOES: None
ABSENT: Healy
ABSTAIN: None
ATTEST: ~/~-`L/ ~~L/ C~ ~J
City Clerk
Attorney
Resolution No. 2010-114 N.C.S. Page 2
EXHIBIT A
Wastewater Enterprise Reserve Fund Policy
Working Capital and Capital Reserve Fund Policy: During the course of the year, the exact
timing of Wastewater Fund revenues does not always coincide with the exact timing of
Wastewater Fund expenditures. Therefore, a ready source of financial liquidity is needed to fund
outlays until revenues are received. The purpose of the working capital is to provide such
financial liquidity.
Annual Wastewater Fund operating revenues may be less than expected, and/or annual
Wastewater Fund operating expenditures may be greater than expected, due to weather
conditions, economic conditions, natural disasters, unforeseen emergencies, and/or other
factors beyond the control of the City. Therefore, it is prudent to maintain a Reserve to mitigate
the impact of unforeseen budgetary shortfalls.
In addition, there needs to enough of a reserve to cover the emergency capital replacement to
provide immediately available funding for unexpected emergency repairs to the Wastewater
System in the event of a disaster.
Based on the size and seasonal cash flow characteristics of the Wastewater Fund, the size and
composition of the wastewater system rate base, historical variation in revenues and
expenditures, and the size and potential vulnerabilities of the Wastewater System it is the
recommendation of Staff that the Working Capital and Capital Reserve equal 180-days of
budgeted operating expenditures. However this may not always be possible to achieve without
raising the rates, therefore this level of reserve will not always be obtained. For FY 201 1 this would
mean a reserve of $5,111,550.
Pay as You Go Capital Replacement: The remaining working capital balance needs to sufficient
to cover future pay as you go capital needs which cannot be met from operating revenues in
order to avoid burdening the rate payers with further debt.
Rate Stabilization Fund: In order to issue debt which must be issued to pay off the $15 million
letter of credit debt and possibly fund another $10 million in debt, a coverage ratio of at least
125% must be maintained. Coverage ratios are also required for the 2000 bonds and the State
Revolving Loan Fund. Failure to maintain the required coverage ratios would constitute a
technical default. The only way to do this without raising rates is to transfer some of'the working
capital into a Rate Stabilization Fund.
A Five Year Budget Projection recently completed by staff shows that pay as you go capital
needs and the Rate Stabilization Fund transfers required to maintain the necessary debt
coverage ratio are greater than can be funded while still maintaining the 180 day reserve.
• A budget adjustment will be necessary to FY 2009-2010 in order to appropriate $3,500,000 to
establish a Rate Stabilization Fund.
• The appropriations for FY 2010-2011 will need to be increased by $2,400,000 in order to
achieve the necessary debt coverage ratios.
Resolution No. 2010-114 N.C.S. Page 3