FINANCE AND ADMINISTRATION COMMITTEE
ITEM:		ACTION ITEM
3.	CONSIDER RECOMMENDATION TO ADOPT PROPOSED FINANCIAL POLICIES
Meeting Date:			September 8, 2025	Budgeted:	N/A
From:			David J. Stoldt,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Nishil Bali	Cost Estimate:	N/A
General Counsel Review: August 28, 2025
Committee Recommendation: The Finance and Administration Committee reviewed this item on September 8, 2025.
CEQA Compliance: This action does not constitute a project as defined by the California Environmental Quality Act Guidelines Section 15378.

SUMMARY: As part of the District’s strategic priority to protect, enhance, and maintain financial health, the Board identified the development of a reserve policy and review strategies to tackle the District’s Pension and Other Post-Employment Benefits (OPEB) liabilities. This staff report addresses these priorities and proposes policies to ensure financial stability and sustainability to meet the District’s long-term needs, anticipated liabilities, and risks by proposing the following policies:

a. Reserves Policy: This policy proposes types and prudent levels of financial reserves required to mitigate revenue shortfalls, unpredictable one-time expenses, and foreseeable capital and other expenses to protect against reductions in service levels and/or the need to increase revenues in the short-term.

b. Pension and OPEB Benefit Strategies: This policy provides strategies to meet and reduce the District’s long-term liabilities related to Pension and OPEB.

c. Unclaimed Monies Policy: This policy establishes the District’s escheatment guidelines while recognizing associated State requirements.

d. Budget Policy: This policy reviews, clarifies, and formalizes most elements of the budget strategy formally adopted by the Board previously and provides guidelines for budgeting financial resources. 

e. Debt Policy: This policy provides guidelines for managing the District’s debt obligations and ensures responsible debt management practices that support the District's long-term financial health and creditworthiness.

RECOMMENDATION: The Finance and Administration Committee may recommend that the Board adopt the proposed Financial Policy subject to any approved changes.

BACKGROUND: The California Special District Association recognizes that District Reserves are the foundation of the sustainable delivery of core services. The District has limited ability to raise funds by increasing tax rates or raising fees in the short term. Through prudent reserves, the District offers taxpayers and ratepayers significant benefits, including savings to balance budgets, prepare for emergencies, stabilize rates, maintain well-maintained infrastructure, and invest in the future. Further, the rating agencies associate the level of ratings with reserve levels. For example, Moody’s associates an "AAA" rating with fund balances in excess of 35% of revenues, the “Aa” rating with fund balances between 35% and 25% and the “A” rating with 25% to 15%; although factors other than fund balance, such as economic conditions, debt management policies, management quality, and financial performance also contribute to ratings.

The District is proposing a reserve policy to promulgate a shared understanding of the proper level and use of reserves, increase objectivity in the use of reserves, promote long-term planning, and keep the public informed. In the same vein, a policy on pension and OPEB strategies proposes guidelines to manage long-term liabilities for the District’s pension and OPEB plans. While the District’s pension plan is administered by the California Public Employees’ Retirement System as a cost-sharing multiple-employer defined benefit pension plan, the District self-administers its OPEB liabilities arising from healthcare retiree expenses using a pay-as-you-go basis. At less than 15% of projected liabilities, the District’s current OPEB reserves are insufficient to manage its future healthcare liabilities. The proposed Pension/OPEB strategies will assist in reducing Pension/OPEB liabilities over time.

The Unclaimed Monies Policy establishes escheatment guidelines for outstanding payments for District vendors and rebate payees. The District has recorded unclaimed payments since 2012, which may be potentially reclaimed after the adoption of this policy. The Budget Policy formalizes budget strategies adopted earlier and clarifies key elements, including proposing balanced budgets, establishing the level of budgetary control, and general guidelines for when developing District budgets, among other areas.

Finally, a Debt Management Policy is being proposed as a precursor to the District’s potential acquisition of the local water distribution system, which would require the use of substantial Debt funding. Senate Bill No. 1029, effective January 1, 2017, amended the California Government Code, requiring California public agencies that issue debt to adopt debt management policies that meet certain criteria. The proposed policy is designed to meet those criteria and will be crucial in determining the District’s credit rating, which will influence the cost of borrowing.

The proposed policies will be reviewed periodically and updated, as necessary, to reflect any changing requirements.

EXHIBITS

3-A Statement of Policy

3-B Reserves Policy

3-C Pension and OPEB Policy

3-D Unclaimed Monies Policy

3-E Budget Policy

3-F Debt Policy

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