HomeMy WebLinkAbout03-10-2010 Administration Committee AgendaAGENDA
REGULAR MEETING OF THE
ADMINISTRATION COMMITTEE
ORANGE COUNTY SANITATION DISTRICT
WEDNESDAY, MARCH 10, 2010, AT 5:00 P.M.
ADMINISTRATIVE OFFICE
10844 Ellis Avenue
Fountain Valley, California 92708
www.ocsd.com
PLEDGE OF ALLEGIANCE
DECLARATION OF QUORUM
PUBLIC COMMENTS
REPORT OF COMMITTEE CHAIR
REPORT OF GENERAL MANAGER
REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES
CONSENT CALENDAR ITEMS (1)
1. Approve minutes of the February 10, 2010, meeting of the Administration Committee.
ACTION ITEMS (2)
2. Authorize the General Manager to issue up to $80 million in new fixed-rate
Certificates of Participation (COP) debt, in one or more series.
INFORMATIONAL ITEMS (3 - 4)
3. Status of renewal quotes on the District’s major operational insurance programs for
FY 2010-11.
March 10, 2010 Page 2
4. 2010-11 and 2011-12 District Budget Update (Capital Improvement Program and
District Revenues).
CLOSED SESSION
During the course of conducting the business set forth on this agenda as a regular meeting of the Committee,
the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, 54957 or 54957.6, as noted.
Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure
under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these subjects, the minutes will reflect all required disclosures of information.
A. Convene in closed session.
CONFER WITH DISTRICT LABOR NEGOTIATORS
(Government Code Section 54954.5(f))
1. Agency Designated Representatives: James D. Ruth, General Manager; Robert Ghirelli, Assistant General Manager; Lorenzo Tyner, Director of Finance and Administrative Services; Jeff Reed, Human Resources and Employee Relations
Manager; and Paul Loehr, Human Resources Supervisor.
2. Employee Organization: a) Peace Officers Council of California representing
employees in the Professional Group and Supervisor Group.
B. Reconvene in regular session.
C. Consideration of action, if any, on matters considered in closed session.
Other business and communications or supplemental agenda items, if any.
Adjournment: The next regular Administration Committee meeting is scheduled for Wednesday,
April 14, 2010, at 5 p.m.
March 10, 2010 Page 3
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Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda
has been posted in the main lobby of the District’s Administrative offices not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less
than 72 hours prior to the meeting to all, or a majority of all, of the members of District’s Board, are available for public inspection in the office of the Clerk of the Board, located at 10844 Ellis Avenue, Fountain Valley, California.
Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee for
discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or because there is a need to take immediate action, which need came to the attention of the Committee subsequent to the
posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 72 hours prior to the meeting date.
Public Comments: Any member of the public may address the Administration Committee on specific agenda items or
matters of general interest. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to three minutes.
Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by
the Committee except as authorized by Section 54954.2(b).
Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further explanation, and unless a particular item is requested to be removed from the consent calendar by a Director of staff
member, there will be no separate discussion of these items. All items on the consent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar.
All items removed from the consent calendar shall be considered in the regular order of business.
The Committee Chair will determine if any items are to be deleted from the consent calendar.
Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held within five (5) days of this meeting per Government Code Section 54954.2(b)(3).
Meeting Adjournment: This meeting may be adjourned to a later time and items of business from this agenda may be
considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955 (posted within 24 hours).
Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board‘s office at (714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature
of the disability and the type of accommodation requested.
Notice to Committee Members: For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair
or Clerk of the Board ten days in advance of the Committee meeting.
Committee Chair: Phil Luebben (714) 686-1426 pluebben@ci.cypress.ca.us Committee Secretary: Lilia Kovac (714) 593-7124 lkovac@ocsd.com General Manager: Jim Ruth (714) 593-7110 jruth@ocsd.com
Assistant General Manager Bob Ghirelli (714) 593-7400 rghirelli@ocsd.com Director of Finance and Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Administrative Services
Human Resources and Employee Jeff Reed (714) 593-7144 jreed@ocsd.com Relations Manager
Page 1
ADMINISTRATION COMMITTEE Meeting Date 03/10/10 To Bd. of Dir. 03/24/10
AGENDA REPORT Item Number 2 Item Number
Orange County Sanitation District FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
GENERAL MANAGER'S RECOMMENDATION
Authorize the General Manager to issue up to $80 million in new fixed-rate Certificates of Participation (COP) debt, in one or more series.
SUMMARY
Approval of the recommended action above will direct staff to begin the $80 million fixed
rate competitive debt issuance process utilizing the assistance the financial advisory
firm of Public Resources Advisory Group, and the bond counsel firm of Fulbright &
Jaworski. Depending on market conditions and the associated cost savings, a portion of the debt issuance may be offered as Build America Bonds (“BABs”).
In accordance with the Sanitation District’s Board-adopted Debt Policy, The District will
restrict long-term borrowing to capital improvements that cannot be financed from
current revenue. This policy will assist in the leveling out of user fee rates over time and avoid any spiked increases in the short-term.
PRIOR COMMITTEE/BOARD ACTIONS
November 19, 2008: Board approved the issuance of $200 million of new Certificates of Participation (COP) debt within the FY 2008-09 Adopted
Budget, in support of the Sanitation District’s Strategic Plan
capital improvement program.
ADDITIONAL INFORMATION
Existing COP Financing Program
The District currently has eight series of non-subordinate COPs outstanding comprising a total par amount of $1.2 billion. The following table describes each COP in detail.
Page 2
Outstanding Par Amount* Interest Rate Mode
Series 2009B
Refunding (1)
$ 165,865,000 Fixed Rate
(one-year)
Series 2009A(2) 197,770,000 Fixed Rate
Series 2008B
Refunding (3)
27,390,000 Fixed Rate
Series 2008A
Refunding (3)
46,430,000 Fixed Rate
Series 2007B(2) 290,130,000 Fixed Rate
Series 2007A(4)
Refunding
93,265,000 Fixed Rate
Series 2003(2) 191,500,000 Fixed Rate
Series 2000(5)
Refunding
194,900,000 Daily Variable Rate
Total $1,207,250,000
*As of February 28, 2010.
(1) Series 2009B are fixed one-year certificate of anticipation notes (CANS) that refunded the Series 2008C CANS that were issued to refund the remainder of Series 2006 Daily Variable Rate that
were supported by a weak liquidity facility bank. (2) New money debt issue.
(3) Series 2008B and Series 2008A refunded the Series 1993 and Series 1992 Synthetic Variable-to-Fixed Rate Debt issues that were supported by a failing insurance provider. Series 1993 and 1992
refunded the Series 1986 and a portion of the Series “B” COPs. (4) Series 2007A refunded a portion of COP Series 2003 for debt service savings. (5) Series 2000 COPs refunded the Series A, B, and C issued between 1990 and 1992.
The Series 2000 refunded the $179.7 million outstanding principal balance of the
1990-92 Series A, B, and C COP’s and reimbursed the District for improvements made to the wastewater treatment system. The 2007A Refunding COPs was issued to refund
$95.1 million of the Series 2003 COPs. The Series 2008A refunded $77.2 million of the
Refunding Series 1992 and Series 2008B refunded $27.8 million of the Refunding
Series 1993. Both Refunding Series 1992 and 1993 synthetic variable-to-fixed rate
issues had begun to demand high interest rate payments due to failing insurance providers. Series 2009B fixed one-year certificate of anticipation notes (CANS) were
issued to refund the Series 2008C CANS. The Series 2008C CANS had been issued to
refund the remaining $176 million outstanding on Series 2006 Variable Rate Debt that
also began to generate high interest rate payments due to the weak liquidity facility
bank that was supporting the issue. Series 2003, Series 2007B, and Series 2009A were all new money debt issuances.
Page 3
The following table displays the combined gross debt service cash flows for the District’s eight COPs through final maturity in 2039.
0
20
40
60
80
100
120
20
1
0
20
1
1
20
1
2
20
1
3
20
1
4
20
1
5
20
1
6
20
1
7
20
1
8
20
1
9
20
2
0
20
2
1
20
2
2
20
2
3
20
2
4
20
2
5
20
2
6
20
2
7
20
2
8
20
2
9
20
3
0
20
3
1
20
3
2
20
3
3
20
3
4
20
3
5
20
3
6
20
3
7
20
3
8
20
3
9
Mi
l
l
i
o
n
s
$
Fiscal Year End
Debt Service Structure*
Variable Rate
Fixed Rate
*Series 2009B one-year Certificate Anticipation Notes is assumed to be amortized from 2022 to 2036. All variable rate obligations are assumed to have a per annum interest rate of 3.75%.
Proposed Debt Issuance
As shown above and in accordance with the District’s debt policy, the District currently
has $194.9 million in variable rate debt outstanding and $1.012 billion in fixed rate debt
outstanding. However, due to the continued tight bank market environment and high
fees requested by bank liquidity providers, staff believes that this new money debt issue should be again issued as fixed rate COPs. Staff is also proposing to issue this $80
million fixed rate debt by competitive sale, in one or more series, as opposed to a
negotiated sale due to PRAG’s opinion that a competitive fixed rate sale will be less
costly to the District. The American Recovery and Reinvestment Act of 2009 created a new financing
product, BABs, for the municipal issuer. BABs are issued as higher interest taxable
bonds; however, the U.S. Treasury provides a 35 percent subsidy on interest payments.
The net cost, after accounting for the 35 percent subsidy payment, frequently results in lower net costs to the issuer, specifically in the maturity years beyond ten years. Based on current market conditions, a hybrid tax-exempt and BABs sale (tax-exempt for the
short maturities and BABs for the long maturities), would save the District approximately
$7.0 million on a present value base (or approximately 10.75% of the BABs par amount)
which is well in excess of the savings the District would ever expect to achieve from a future refunding. If the District would refund and restructure the BABs, it could be very costly; however, staff believes the future need to restructure the BABs is extremely
remote. Effectively, by issuing BABs, the District should consider to debt to be non-
callable as it would otherwise be very expensive to optionally redeem.
Page 4
Although a relatively new financial product, over $75 million of BABs have been sold by municipal issuers since the first issuance in April 2009. In addition, over 15% of the
municipal bond volume was comprised of BABs in 2009. A number of California issuers
have already sold over a billion dollars of BABs, including the State of California, Los
Angeles Unified School District, Bay Area Toll Authority, and University of California. California utility issuers that have issued BABs include the Metropolitan Water District of Southern California, Los Angeles Department of Water and Power, San Diego County
Water Authority, East Bay Municipal Utility District, and the San Francisco Public
Utilities Commission.
CEQA
N/A
BUDGET / DELEGATION OF AUTHORITY COMPLIANCE
The FY 2009-10 Approved Budget included new money debt issuance of $70 million.
JDR:LT:MW
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ADMINISTRATION COMMITTEE Meeting Date
03/10/10
To Bd. of Dir.
AGENDA REPORT Item Number 3 Item Number
Orange County Sanitation District
FROM: James D. Ruth, General Manager
Originator: Lorenzo Tyner, Director of Finance and Administrative Services
GENERAL MANAGER'S RECOMMENDATION
Informational item re status of renewal quotes on the District’s major operational
insurance programs for FY 2010-11.
SUMMARY
The District budget provides funds for the renewal of four major insurances connected with the District’s operations:
1) Excess General Liability Insurance
2) All-Risk Property and Flood insurance
3) Excess Workers’ Compensation 4) Boiler & Machinery insurance
The District tends to have relatively few claims and as a result, the general trend in
the last few years has been toward lower rates.
These policy renewals are scheduled to be presented to the Committee at its May Committee meeting. The District’s Insurance Broker of Record will first present a
short status report in March and then will be in attendance in May to provide
quotations.
The District also carries other types of insurance: pollution liability insurance, crime insurance, travel accident insurance, watercraft insurance and construction
insurance, but those items are either very inexpensive or not up for renewal this
year, and so will not be discussed as part of the renewal of the major insurances.
PRIOR COMMITTEE/BOARD ACTIONS
June 2009: Board approved renewals of the major insurance coverages for
FY 2009-10.
Page 2
ADDITIONAL INFORMATION Each winter and spring, the District’s Risk Manager works with the District’s Broker
(Alliant Insurance Services) to prepare a strategy for renewal of the District’s
operational insurance. In previous years, the Administration Committee had asked
for a status report as to how the renewals were developing. Here are details about the four major types of insurance:
1) Excess General Liability Insurance Program The District’s Excess General Liability Insurance Program is currently provided
through the California Municipal Excess Liability Program (“CAMEL”) and its sister program, the Alliant National Municipal Liability Program (“ANIMAL”). The District has participated in the CAMEL program since FY 1996-97.
This program currently provides the District with a $30 million policy of
comprehensive coverage for municipal liability, bodily injury, property damage, and personal injury. The program was structured to also include Employment Practices Liability and Public Officials Errors & Omissions coverage. The $30 million coverage
is per occurrence, with a self-insured deductible of $250,000 per occurrence
($500,000 deductible for Employment Practices Liability). Since 1997, the
Employment Practices portion of coverage has enhanced from a $2 million sub-limit to the full $30 million policy limit.
The actual insurance coverage currently consists of two separate layers. The first
layer is the “Basic” $10 million program. The second layer consists of $20 million of
coverage in excess of the first layer of $10 million. The premium for 2008-09 was $360,456.
2) Excess Workers’ Compensation Insurance
The District’s Excess Workers’ Compensation insurance coverage is with the California State Association of Counties Excess Insurance Authority (“CSAC EIA”),
the country’s largest risk pool for this type of insurance. This is the seventh year the
District has participated in this program or its predecessor. The coverage expires on
June 30, 2010. The District’s Excess Workers’ Compensation Program currently provides “statutory” (unlimited) coverage with a self-insured retention (SIR), or deductible, of $500,000.
The District’s use of Excess Workers’ Compensation insurance dates back to 1989-
90. At that time, the Fiscal Policy Committee approved a self-insured retention (SIR), or deductible, of $250,000, for such coverage. Due to the hardening of the workers’ compensation market, this deductible was raised to $500,000 beginning in
Page 3
FY 2002-03 through a policy with Employers Reinsurance Corporation (ERC) that
provided coverage to $25 million with a self-insured retention (SIR), or deductible of $500,000.
Staff has reviewed the District’s most recent five-year workers’ compensation loss
history with Intercare, the District’s third-party workers’ compensation administrator
(“TPA”) and in 2009 had the self-insurance program reviewed by actuary Bickmore. For 2010-11 staff is seeking workers’ compensation insurance renewal with coverages and deductibles at statutory limits.
Some additional risk is associated with the CSAC EIA joint powers authority in that a
premium surcharge can be assessed to individual members based on an unusually large number of losses occurring outside of the actuarial evaluation estimates. However, historically the CSAC EIA premiums for excess workers compensation
have been so much less than competing quotes that even if there were a surcharge,
the cost might still continue to be cheaper.
The premium for 2009-10 was $171,374 (based on estimated payroll for the year).
3) All-Risk Property and Flood Insurance
The District’s All-Risk Property and Flood Insurance Program (“Property Insurance”)
expires June 30, 2010, and is now up for renewal for FY 2010-11. The All-Risk insurance program provides for comprehensive coverage for the District’s real and personal property regarding virtually all perils including fire, flood, and business
interruption.
The District previously carried earthquake insurance as part of its Property Insurance, but in the last few years earthquake insurance has been impossible to obtain or not cost-effective. Currently, the District has earthquake insurance only in
connection with some of its buildings under construction.
The District’s current Property Insurance limits are $1 billion for most perils other than flood and earthquakes, and $300 million for flood, with many sub-limits for various situations. In order to reach $1 billion in limits, the District’s broker had to
arrange for more than a dozen different layers of insurers. The Self-Insured
Retention (“SIR”) is $250,000 per occurrence for most types of losses.
For eleven years, the District’s Property Insurance has been with a nationwide joint purchase property insurance program called Public Entity Property Insurance
Program (PEPIP); one of the world’s largest property programs. It is important to
note that this joint purchase property insurance program offers the purchasing power
of numerous large public entities without the pooling or sharing of coverages or losses.
The District’s broker, Alliant Insurance Services, is also acquiring quotes for
Earthquake Insurance, and will know by the May meeting if the quotes are cost-
effective.
Page 4
The premium for 2008-09 was $463,630.
4) Boiler & Machinery insurance
It is also time for the annual renewal of Boiler & Machinery insurance coverage for
the District covering the period from July 1, 2010 through June 30, 2011. The Boiler
& Machinery insurance program provides comprehensive coverage for loss caused by machinery breakdown and explosion of steam boilers or other covered process equipment, including damage to the equipment itself and damage to other property
caused by covered accident.
The District’s current Boiler & Machinery insurance program provides coverage ($100 million per occurrence with deductibles ranging from $25,000 to $350,000) for losses caused by covered machinery breakdown (e.g., motors, steam turbines,
digesters, co-gen engines). Damages to the equipment, as well as damages to
other property and improvements caused by the machinery breakdown, are covered
by the Boiler & Machinery insurance. This program augments the District’s all-risk property insurance that covers perils such as fire and flood.
The premium for 2010-11 was $15,551.
CEQA
N/A
BUDGET / DELEGATION OF AUTHORITY COMPLIANCE
This request complies with authority levels of the Sanitation District’s Delegation of
Authority. This item has been budgeted.
JDR:LT:MW:RK
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ADMINISTRATION COMMITTEE Meeting Date 03/10/10 To Bd. of Dir.
AGENDA REPORT Item Number 4 Item Number
Orange County Sanitation District
FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services
GENERAL MANAGER'S RECOMMENDATION
Informational item re 2010-11 and 2011-12 District Budget Update (Capital
Improvement Program and District Revenues).
SUMMARY
For continued discussion on the development of the District’s Proposed 2010-11 and
2011-12 Budget, detail of the District’s revenues has been provided below.
The budget will be presented for adoption at the June 23, 2010 Board meeting.
PRIOR COMMITTEE/BOARD ACTIONS
N/A
ADDITIONAL INFORMATION
N/A
CEQA
N/A
BUDGET / DELEGATION OF AUTHORITY COMPLIANCE
N/A
ATTACHMENTS
1. FY 2010-11 and FY 2011-12 Budget Development Revenue Detail
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Page 2
FY 2010-11 and 2011-12 Budget Development Detail
Revenue Summary (in millions)
Category 2008-09
Actual
2009-10
Adopted
2009-10
Projected
2010-11
Proposed
2011-12
Proposed
Beginning Reserves $ 532.7 $551.7 $ 534.3 $455.8 $476.8
Revenues:
Service Fees 184.0 220.4 201.7 232.5 254.6
Permit User Fees 10.4 9.1 11.1 12.3 13.4
CFCC 9.9 10.6 9.7 9.5 10.0
Property Taxes 64.2 65.2 58.2 58.2 58.2
Interest 14.6 15.2 20.3 14.9 16.7
Other Revenue 44.6 30.1 35.8 34.6 27.6
Debt Proceeds 200.0 70.0 80.0 110.0 25.0
Total Revenue $ 527.7 $420.5 $ 483.9 $472.0 $405.5
Total Available $1,060.4 $972.3 $1,018.2 $927.8 $882.3
The District has a variety of revenue sources available for operating and capital expenses. The major revenue sources are as follows:
• Beginning Balances • General Sewer Service Fees
• Industrial Waste Permit User Fees
• Capital Facilities Capacity Charges (CFCC) • Property Taxes
• Interest Earnings
• Other Miscellaneous Revenue • Debt Proceeds
2010-11 2011-12
Beginning Balances –
As result of its Reserve and Investment Policies, the District will
begin the year with an estimated balance carried forward from the previous year.
$455.8M $476.8M
General Service Fees –
User fees are ongoing fees for service paid by customers connected to the sewer system. A property owner, or user, does
not pay user fees until connected to the sewer system and
receiving services. Once connected, a user is responsible for his share of the system’s costs, both fixed and variable, in proportion
to his demand on the system. These fees are for both Single
Family Residences (SFR) and Multiple Family Residences (MFR).
$232.5M $254.6M
Attachment 1
Page 3
2010-11 2011-12
Sewer Service Fee Increases –
The Board approved 2010-11 and 2011-12 single family residential
rates (the underlying basis for all sewer rates) are $244 and $267, respectively. These rates are still well below the average annual
sewer rate of $406 currently being charged throughout the state
according to a 2008 survey of 920 agencies encompassing all counties within California.
Industrial Waste Permit User Fees –
Fees paid by large industrial and commercial properties owners connected to the sewer system. These fees are for the owner’s
share of the system’s costs, both fixed and variable, in proportion
to his demand on the system.
Since the inception of the Permit User Fee program in 1970, users
of the District’s system that discharge high volumes or high strength wastewater have been required to obtain a discharge
permit and pay extra fees for the costs of service.
$12.3M $13.4M
Capital Facilities Capacity Charges (CFCC) – Capital Facilities Capacity Charge is a one-time, non-discriminatory
charge imposed at the time a building or structure is newly
connected to the District’s system, directly or indirectly, or an existing structure or category of use is expanded or increased.
This charge pays for District facilities in existence at the time the
charge is imposed, or to pay for new facilities to be constructed in the future, that are of benefit to the property being charged.
$9.5M $10.0M
Property Taxes –
The County is permitted by State law (Proposition 13) to levy taxes at 1% of full market value (at time of purchase) and can increase
the assessed value no more than 2% per year. The District
receives a share of the basic levy proportionate to what was received in the 1976 to 1978 period less $3.5 million, the amount
that represents the State’s permanent annual diversion from
special districts to school districts that began in 1992-93. The District’s share of this revenue is dedicated for the payment of debt
service.
$58.2M $58.2M
Interest Earnings – Interest earnings are generated from the investment of
accumulated reserves consisting of a cash flow/contingency, a
capital improvement, a renewal/replacement, and a self-insurance reserve.
$14.9M $16.7M
Page 4
2010-11 2011-12
Other Revenue –
Other revenue also includes $20.5 million and $14.0 from the Irvine
Ranch Water District (IRWD) for capital and equity charges and $5.2 million and $5.7 million for sewer services provided to the
Santa Ana Watershed Protection Authority (SAWPA) and the
Sunset Beach Sanitary District for FY 2010-11 and 2011-12, respectively.
$34.6M $27.6M
Debt Proceeds –
Certificates of Participation (COPs) are the District primary mechanism for financing capital projects. COPs are repayment
obligations based on a lease or installment sale agreement. COPs
are not viewed as “debt” by the State of California, but rather a share in an installment arrangement where the District serves as
the purchaser.
$110.0M $25.0M
Debt Financing
Due to the magnitude of identified future annual capital and operations and maintenance
expenditures, it is necessary that the District utilize debt financing to meet its total obligations. Debt financing allows the District to meet projected construction schedules while achieving the
lowest possible user fees, as well as long-term stability for the user fees. Financing
The District uses long-term borrowing (Certificates of Participation (COP)) for capital
improvements that cannot be financed from current revenue. Before any new debt is issued, the impact of debt service payments on total annual fixed costs is analyzed. Including the $80
million debt issue expected to incur in May 2010, debt financing of $315 million is forecasted
over the next four years to assist in the funding of the $2 billion in capital improvements required over the next ten years. A new debt issuance of $110 million is planned for FY 2010-11.
Certificate of Participation (COP)
The primary debt mechanism used is Certificate of Participation (COP). COPs are repayment
obligations based on a lease or installment sale agreement. The COP structure was selected over other structures because COPs are not viewed as debt by the State of California, as the
purchaser does not actually receive a "bond," but rather a share in an installment sale
arrangement where the District serves as the purchaser. COPs can be issued with fixed or variable interest rates.
Fixed-rate debt can be either traditional or synthetic in form:
• Fixed-Rate Debt traditionally has a final maturity between 20 and 30 years from the date of
issuance. Generally, principal is amortized annually. Principal maturing in early years typically has a lower interest rate ("coupon") than later maturities. This structure typically
produces a level debt service.
• Synthetic Fixed-Rate Debt: Long-term, variable-rate debt can be issued and then the
interest component can be swapped to a fixed rate. This form of fixed-rate debt achieves a balance between short and long-term interest costs and is frequently a less expensive form of debt. In some markets, this form of fixed-rate debt is less expensive to issue than the
more traditional form of fixed-rate debt described above.
Variable-rate debt can be traditional or synthetic:
Page 5
• Variable-Rate Debt traditionally has either a long or short nominal maturity, but the
interest rate resets periodically. Typically, the intervals for interest rate resets are daily,
weekly or monthly, but any period is possible.
• Synthetic Variable-Rate Debt as described above for fixed-rate debt, variable-rate debt can be created from a fixed-rate issue by means of a floating-rate swap.
The maximum level of variable rate obligations incurred by any District should not exceed the level of invested reserves available to that District.
The District currently has no outstanding synthetic fixed-rate. The total fixed-rate COPs and variable-rate COPs outstanding is $1.012 billion and $194.9 million, respectively, for an
approximate ratio of 80:20.
The District Maintains its AAA Rating
The District maintains ratings of “AAA” from Standards and Poor and “AA” from Fitch. A triple A
rating is the highest obtainable for any governmental agency. In order to maintain this rating, the District adheres to its 2001 Debt Policy and coverage ratios requirements. This Board-
adopted policy serves as the agency’s guide in the management of existing debt and in the issuance of future debt.
OCSD Has No Legal Debt Limits. The District does have contractual covenants within the existing COP agreements which require minimum coverage ratios of 1.25. The minimum coverage ratio is the ratio of net annual
revenues available for debt service requirements to total annual debt service requirements for all senior lien COP debt. The coverage ratio for senior lien COP debt is being proposed at 2.21 and 2.19 for FY 2010-11 and 2011-12, respectively.