1. Borrego Water District Revenue Workshop

2. Potential Revenue Sources  Background  Service Area Relatively Small  Largely Undeveloped  Absentee Owners  Low Growth Rate  Community Sensitivity to Rate Increases  Most Costs Fixed and Not Directly Related to Amount of Water Sold  Benefits Flow to Current Users as Well as Future Users 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 2

3. Current Situation Basin in Overdraft Recent Legislation SBX7-7 –Mandates a 20% reduction in urban per capita demand by 2020 Loss of Major Customer Funding Needs –Adequate funds for Operation and Maintenance –System replacement –Eventual augmentation of basin supply 2/11/2016Glenn M Reiter & Associates3

4. REVENUE SOURCES 2/11/2016Glenn M Reiter & Associates4

5. California Water Use By Percent 2/11/2016Glenn M Reiter & AssociatesSlide 5 Bul. No. 3 1957 Cal Water Plan 2005 Cal Water Plan 2009 Bul. No. 3 Bul.160-93 Bul. 160-98

6. California Water Use by Acre Feet 2/11/2016Glenn M Reiter & AssociatesSlide 6

7. Equitable Apportionment of Cost and Benefit There Are Two Major Beneficiaries –Current Water Users Residential M & I Recreational Agricultural –Future Water Users Residential M & I Recreational Agricultural 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 7

8. Identification of Amount of Benefit to All Users Existing Users –Benefit of receiving a reliable water supply –Maintain property value –Maintain business and income Vacant Property within Service Area –Maintain property value –Water available when needed 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 8

9. Identification of Costs There are two broad categories of costs –Operating Costs: (Day to Day Operations) Energy Labor Insurance Supplies Equipment Outside Services Non-Operating Costs: (Long Term Sustaining) –Capital Replacement (Pipe, Pumps, Wells, Tanks) –Capital Outlay (Vehicles, Tools, Computers) –Capital Improvement (System Enlargement, New Water Supplies) –Debt 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 9

10. Types of Cost Two Broad Categories –Fixed (Expense not driven by water delivered) Labor Insurance Communications Maintenance Equipment –Variable (Expense driven by water delivered) Energy Treatment 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 10

11. Who Benefits From A Reliable Water Supply? Current Users Future Users 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 11

12. How Can Non-Users Participate? Parcel Charges Special Taxes 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 12

13. Parcel Charge Features Ability to distribute cost and benefits to all property within service area Stable revenue sources not dependent upon water sales Nexus required Requires weighted vote of property owners May include exemptions for non-benefiting property 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 13

14. Special Tax Must be for specific purpose 2/3 of registered voters must approve District has approximately 1,440 registered voters Does not require a Nexus since it is a tax 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 14

15. Cost Allocation to Non-Users The District experiences costs that are related to future water users –Preservation of facilities –Maintenance of capacity for future users –Planning studies to address overdraft situation –Planning studies to examine potential new water supplies –Labor costs associated with the above 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 15

16. FY 10-11 Fixed versus Variable 2/11/2016 Board WorkshopSlide 16 Fixed Costs Variable Costs

17. The General Plan for Borrego Valley Number of Units County Plan - Build Out16,000 dwelling units (DUs) Existing as of March 20092,500 DUs Approved3,725 DUs In Review -599 DUs In Review - Condominiums122 Potential9,400 DUs Existing DUs represent15.6% of Build Out 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 17

18. Land Inventory TypeAcresAVNo. of ParcelsAccounts Improved8,510$400,836,4602,157 Unimproved23,675$272,781,4293,914 Water Service2,141 Sewer Service Totals32,185$673,617,8896,0712,141 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 18

19. Current Revenue Needs Annual Operating & Non-Operating Budget –Funded by rates and charges that provide a stable revenue stream –Address the issue of reduced per capita consumption –Identify that portion of the Budget that is of benefit to future users (Vacant Property) –Determine how much of the Operating Budget should be collected from the Service Charge versus the Commodity Charge 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 19

20. Future Cash Needs Replacement of Capital Facilities Expansion of delivery capability Fund studies for the development of future water supplies Examine what assets the District has that can be turned in cash or a revenue stream 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 20

21. Financial Policies Establish minimum operating coverage of 1.2 times Operating Expenses Develop emergency reserve sufficient to replace critical system facilities after a disaster Set rates and charges in each service area that reflects the cost to service that area Develop rates or charges for properties that benefit from the availability of a water supply Fund $_??__ per Year for facility replacement in accordance with GASBS State 34 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 21

22. Water Rates In complying with SBX7-7, need to develop rates that will be equitable to all customers, taking into consideration lot size Avoid rate shock by phasing increases over time Adjust rates annually to avoid large sudden rate increases 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 22

23. Financial Impacts of Conservation Fixed Costs are not reduced –Cost could increase implementing conservation Programs Only reduction is in variable portion of Operating Costs 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 23

24. Cost Per AF Based on Sales of 3,000 af 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 24

25. Recommended Approach Determine revenue requirements for: –Short Term 5 Years –Possibly Long Term 20 Years? Study and select appropriate revenue sources Develop Long Range cash flow Distribute Costs to appropriate benefitting properties Develop rates Public education Proceed with Prop 218 requirements 2/11/2016 Board WorkshopGlenn M Reiter & AssociatesSlide 25