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Ord 2000-34ORDINANCE NO. 34 AN ORDINANCE OF THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY DISTRICT AMENDING THE DISTRICT'S OPERATIONS CODE TO INCORPORATE ITS FINANCIAL POLICIES WHEREAS, the Board of Directors has adopted a comprehensive Operations Code to provide a ready source of updated information on the District's laws; and WHEREAS, the Board has determined to incorporate its financial policies into the Operations Code for convenience and to ensure that updates are observed; NOW, THEREFORE, the Board of Directors of the Costa Mesa Sanitary District does hereby ORDAIN as follows: Section 1: That Chapter 4.04 of the District's Operations Code is hereby added to read: "Chapter 4.04 - Financial Policies Section 4.04.010. Summary. A summary of the District's Financial Policies includes the following principles: (a) Operating Reserves: The District will maintain a minimum designated Reserve for Working Capital equal to 25% of its operating budget within its Operating Funds (Trash and Sewer Funds). (b) Fairness and Equity: All customers of the District will pay their fair, equitable, and proportionate cost of the services provided by the District. (c) Recurring Revenue Growth: Recurring expenditure increases should not be approved which exceed recurring revenue growth. Any new or expanded programs will be required to identify new funding sources and /or off - setting reductions in expenditures. (d) Risk Management/Retention: The District will maintain appropriate reserves for general liability claims and other programs or self insured risk retention levels to meet statutory requirements and actuarially projected needs. (e) Long Range Fiscal Perspective (Capital Expenditure Policy): The District will maintain a long -range fiscal perspective through the use of an Annual Operating Budget, Long Range Capital Improvement Program, and multi -year revenue and expenditure forecasting. 1 (f) Capital Improvements: Major capital improvement projects will be funded using the most financially prudent method available. Such methods include: 1) Traditional long -term financing (bond issues); 2) "Pay As You Go" financing (using recurring revenues only); 3) Combination of debt financing and "Pay As You Go" financing; and, 4) Using accumulated cash reserves in excess of policy requirements. (g) Generally Accepted Accounting Principles: District staff shall comply with all generally accepted accounting principles promulgated by the state and federal government, regulatory agencies such as the Government Accounting Standards Board (GASB) and relevant professional associations such as the Government Finance Officers' Association (GFOA). Section 4.04.020. Operating Reserves. This policy establishes a minimum level of Reserves for Working Capital within Operating Funds of the District. (a) Policy: The District will maintain a minimum designated Reserve for Working Capital equal to 25% of its operating budget within its Operating Funds (Trash and Sewer Funds). (b) Operating Reserves Required: The Reserves for Working Capital for Operating Funds will be maintained at a level equal to 25% of its operating budget for the fiscal year. This level of operating reserves represents three months of operating expenditures. Under optimum conditions, the Reserves for Working Capital should be maintained at 25% of the current year's operating budget. This reserve amount represents the ideal level of reserves that oversightory bodies, professional organizations, bond rating agencies and bond insurance companies recommend governmental entities maintain to deal with local disasters, emergencies, and /or unexpected appropriation needs. Such unforeseen expenditures can, and do, occur at any time. Examples of such expenditures incurred by the District or which may be incurred by the District are as follows: 1. Federal /State budget cuts resulting in loss of grant funding; 2. Local revenue shortfalls due to a downturn in the local economy (i.e. recession of the early 1990s and its impact on local units); 3. Increase in demand for specific services; 4. Legislative or judicial mandates to provide new or expanded services or programs without new or fully off - setting revenues; 5. One -time Board approved expenditures; 6. Unexpected increases in inflation (Consumer Price Index); and, 2 Natural disasters (earthquakes, fires, or other general infrastructure failures). Staff will incorporate a plan to maintain the Reserves for Working Capital at 25% of the respective operating budget in the subsequent year's proposed budgets. (c) Effective Date: The effective date of this policy is July 1, 2000. (d) Date Adopted: July 13, 2000. Section 4.04.030. Fairness and Equity. This policy establishes District policy with regard to the calculation of rates and charges to District customers. It is the intention of this policy to ensure that all classes of users are equitably charged for the services rendered. (a) Policy: All customers of the District will pay their fair and proportionate cost of the services provided by the District. (b) Effective Date: The effective date of this policy is July 1, 2000. (c) Date Adopted: July 13, 2000. Section 4.04.040. Recurring Revenue Growth. This policy sets forth that recurring revenue growth (inflation) will be used to pay for recurring expenditures. (a) Policy: Recurring expenditure increases should not be approved which exceed recurring revenue growth. Any new or expanded programs will be required to identify new funding sources and /or offsetting reductions in expenditures. (b) Matching Revenue to Expenditures: Recurring revenue growth may not always increase at a rate equal to or faster than the recurring expenditures it supports. As a result, the District will avoid using such growth as start -up revenue for new projects or programs that have ongoing costs. Increases in service levels should be supported by new or increased revenue sources or reallocation of existing resources. If normal revenue inflation and /or growth does not keep up with expenditures inflation, the District will decrease expenditures or seek new revenue sources. If long -term revenues grow at a rate faster than expenditures inflation, the Board can consider expanding service levels accordingly or reducing rates, fees, charges, etc. (c) Effective Date: The effective date of this policy is July 1, 2000. (d) Date Adopted: July 13, 2000. 3 Section 4.04.050. Risk Management /Retention. The District will maintain adequate levels of reserves for self- insured risk retention levels. (a) Policy: The District will maintain appropriate reserves for general liability claims and other programs or self- insured risk retention levels to meet statutory requirements and actuarially projected needs. (b) Risk Management /Liability Reserves: General liability insurance reserves are maintained in a sufficient manner to fund the District's recorded liabilities for lawsuits and other claims arising out of the ordinary course of business. These reserves should also be maintained in such a manner to fund estimated losses for claims and judgments, levels of self- insurance or other retained risks. Losses for claims incurred but not reported may be pre- funded in the reserves or may be funded when the probable amount of loss can be reasonably estimated. Such reserves will also meet all applicable statutory requirements. The minimum level of the reserves will be determined on an annual basis. If the reserves drop below levels prescribed by this policy and cannot be readily replenished, staff will bring the matter to the Board's attention. In discussing the inadequacy of the reserves with the Board, staff will make every effort to give the Board viable options in choosing the best course of corrective action. (c) Effective Date: The effective date of this policy is July 1, 2000 (d) Date Adopted: July 13, 2000. Section 4.04.060. Long Range Fiscal Perspective (Capital Expenditure Policy). A long range fiscal perspective will be maintained to provide a more comprehensive overview of the District's needs. (a) Policy: The District will maintain a long -range fiscal perspective through the use of an Annual Operating Budget, Long Range Capital Improvement Program, and multi -year revenue and expenditure forecasting. The General Manager shall develop and annually update a long range projection of capital expenditures. The first year of the projection will be incorporated into the annual budget of non - operating funds. The Board of Directors will consider projects based on necessity and availability of financing and establish project priorities based upon staff recommendations. The Capital Expenditure Program shall be reviewed and updated annually. It is recognized that with time, certain factors will change and influence specific projects requiring acceleration, deferment, termination or adjustment in the scope of a project. The annual update will provide a review to consider such changes. Prior to commencement of any design or construction work on any project covered in the Capital Improvement Program, the project shall be submitted to the Board of Directors for authorization to proceed. M (b) Long Range Planning: A long -range financial perspective is essential to provide a more comprehensive and thorough overview of the District's long -term financial needs. Components of this action plan include the use of an Annual Operating Budget and multi -year revenue and expenditure projections. This approach will be supported by staff's use of historical data and comparative data as appropriate. In addition, a Long Range Capital Improvement Program will be maintained and annually updated to help the Board better understand the potential long -term funding sources and cost impacts on the District's operating budget. (c) Effective Date: The effective date of this policy is July 1, 2000. (d) Date Adopted: July 13, 2000. Section 4.04.070. Capital Improvements. The District will develop appropriate funding mechanisms for long -term capital improvements. (a) Policy: Major capital improvement projects will be funded using the most financially prudent method available. Such methods include: 1) Traditional long -term financing (bond issues); 2) "Pay As You Go" financing (using recurring revenues only); 3) Combination of debt financing and "Pay As You Go" financing; and, 4) Using accumulated cash reserves in excess of policy requirements. (b) Capital Improvement Funding: The traditional method to obtain funds for major capital improvement projects has been to issue long -term debt instruments such as bonds, Certificates of Participation (CoPs), etc., which mature 15 to 30 years from the date if issuance. In general, a bond issue's maturity should approximate the useful life of the asset being financed. Long -term capital improvement financing needs should be financed, as much as possible, with long -term debt (bonds). Short -term capital improvement financing needs should be financed with short -term debt (short -term lease purchase, revenue anticipation notes, etc.). However, it is also acceptable to use cash which has been accumulated in excess of policy requirements to pay for either long- term and /or short term capital improvements. The actual use of accumulated cash for such projects will be determined by the District Board on a case -by -case basis. It is the District's practice to use whatever financing mechanism(s) that best meets the goals and objectives of the applicable capital improvement project(s). Specifically, the following general rules will be used in determining what to finance and how: 1. Capital improvement projects of less than $100,000 should be financed out of operating revenues (or accumulated cash). Such projects may be included in the Long Range Capital Improvement Program (CIP). 2. Capital improvement projects in excess of $100,000, or inter - related projects in excess of $100,000, will be made a part of the Long Range CIP, and all such 5 projects should be grouped to allow effective use of financing mechanisms or other funding sources. 3. On -going expenses related to Capital Improvement Program projects (e.g. maintenance and staffing costs) must be identified and the source of on -going revenues to support those costs must be identified. Debt financing will not be used to support on -going operating costs. 4. Prior to commencement of any design or construction work on any project covered in the Capital Improvement Program, the project shall be submitted to the Board of Directors for authorization to proceed. (c) Effective Date: The effective date of this policy is July 1, 2000. (d) Date Adopted: July 13, 2000. Section 4.04.080. Generally Accepted Accounting Principles. The District will comply with all generally accepted accounting principles promulgated by the state and federal government, regulatory agencies, and relevant professional associations. (a) Policy: District staff shall comply with all generally accepted accounting principles promulgated by the state and federal government, regulatory agencies such as the Government Accounting Standards Board (GASB) and relevant professional associations such as the Government Finance Officers' Association (GFOA). (b) Standard: All books and records shall be maintained in accordance with such standards promulgated by the aforementioned agencies. Financial statements shall be prepared and presented to the Board on a periodic basis as determined by the Board and in such a format so as to conform to professional reporting standards and in sufficient detail to provide the Board with information necessary for management decision - making purposes. In full compliance with California Government Code Section 53646, the Director of Finance/ City Treasurer, will prepare a formal set of Investment Policies for City Council adoption. This is to be done on an annual basis. (c) Effective Date: The effective date of this policy is July 1, 2000. (d) Date Adopted: July 13, 2000." Section 2. Should any part, clause or section of this Ordinance be declared by any Court of competent jurisdiction to be invalid, the remaining provisions of this Ordinance shall nevertheless be and remain in full force and effect and the Board of rel Directors of the Costa Mesa Sanitary District of ; Orange County, California, hereby declares that each and every section, clause, provision or part of this Ordinance would have been adopted and made a part of this Ordinance without the adoption of any portion thereof and that the invalidity of any part or provision hereof shall not in any way affect the validity or enforcement of the remaining provisions of this Ordinance that may stand on their own. Section 3. Pursuant to Health and Safety Code Sections 6490 and 6491.3, the Clerk shall cause this ordinance or a summary thereof to be published in a newspaper of general circulation printed and published in the District according to law and it shall take effect upon the expiration of one week, after publication. PASSED and ADOPTED this 12th day of October 2000. aecr I ry Me "sa Sahitary District ` Board of Directors 7 cujs�" Lpa-x�- President Costa Mesa Sanitary District Board of Directors e STATE OF CALIFORNIA) COUNTY OF ORANGE ) SS CITY OF COSTA MESA ) I, JOAN REVAK, Clerk of the Costa Mesa Sanitary District, hereby certify that the above and foregoing Ordinance No. 34 was duly and regularly passed and adopted by said Board of Directors at a regular meeting thereof, held on the 1_7_ day of _ &� 2000, by the following vote. AYES: Arthur Perry, Arlene Schafer, Greg Woodside, James Ferryman, Dan Worthington NOES: None ABSENT: None ABSTAIN: None IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Costa Mesa Sanitary District, this /a.0'- day of c!9�' 2000. Clerk of the osta Mega Sanitary District E: