VIRGIN VALLEY WATER DISTRICT
BOARD OF DIRECTORS
WORK SESSION
VIRGIN VALLEY WATER DISTRICT OFFICE
AUGUST 30, 2010

Minutes of a Work Session of the Virgin Valley Water District Board held on August 30, 2010, at the Virgin Valley Water District Office at 3:00 p.m. Attending were President John Paul, Vice-President Karl Gustaveson, Secretary-Treasurer Kenyon Leavitt and Board Members Ted Miller and Mark McEwen. Also present were Kenneth Rock General Manager, John Gleave District CFO, Ken Spiers and Mike Chandler with Bowen, Collins & Associates, Inc., Marty Johnson with JNA Consulting and Mary Johnson taking minutes and other interested parties of agenda items.

John Paul opened the meeting at 3:00 p.m.

1. Discussion & Possible Action – A workshop to receive a presentation from the General Manager with contributions from consultants; the workshop will overview all major budget issues and endeavors to set goals and actions to balance future budgets consistent with Board priorities

John Paul turned the meeting over to Ken. Ken welcomed everyone and had everyone move so that they could see the presentation.

Mark McEwen stated that he was on-call and if he gets a call he would have to answer it.

Ken began by stating that a manager is only as good as his or her team and that the District has a lot of good contributors. Ken stated that in recent weeks, we’ve assessed the District’s physical assets, water, equipment and personnel and feels that it is very important to know that we have a functioning utility that is healthy in those respects. However, times have changed and our economy, philosophy and previous fiscal behaviors don’t work well for us now and we need to reassess things.

Ken began the slide presentation asking if it was time for a fiscal strategy shift looking at where we were headed and where we should go now; defining the short, medium and long term strategies; determining what to stop, start and keep; and implementing the plan. Ken spoke of the District’s previous strategy and today’s realities. Ken continued with the new short, medium and long terms with suggestions of what to stop, start and keep.

Karl stated that he agreed 100% with stopping capital improvement projects (CIPs), but he had a question on well #34 and questioned if we would lose substantial funding for this well if we didn’t move ahead and drill at this time. Ken informed Karl that fortunately we will receive 75% of what has been spent to date on well #34 from the ACOE and would not have to move forward and drill at this time. Ted questioned where the casing was currently being stored and if it was secure and was informed that it was being stored at well #32 site and should be secure, but Ken stated that we may look at some overhead protection from the elements.

There was further comments and discussion regarding the Virgin River water and the need, the expense and the feasibility.

Ken introduced Ken Spiers and Mike Chandler with Bowen, Collins & Associates, Inc. (BCA) Mike Chandler began by suggesting some short term actions; updating the rate study; updating the impact fee study; possible total water resource evaluation assignment; and revising and up-dating the draft 2009 Master Plan to incorporate new strategies and directives. Mike then went into more detail regarding the Master Plan update and inclusions. Mike stated that BCA were concerned with the Ranney Collector and stated that they do not feel comfortable moving forward with this project. There was some discussion on the District’s water rights and the water available in the basin. Mike’s medium term recommendations included incorporating a depreciation fund for aging capital assets and he went into further explanation of why the District should have this fund. Mike stated that the District needs to go from a crisis management approach to an asset management approach. Mike stated that the District’s budget and CIP projects were all growth driven and this needs to change since growth has all but stopped. Karl stated that he believed we needed to revise the budget and make sure the District was within legal compliance with the State.

At this point in the presentation, a short break was taken, and at 4:10 p.m. the work session resumed.

Marty Johnson with JNA Consulting began stating that he would talk about the District’s outstanding debt and where the District was at in relationship to the District’s annual bond payments. Marty reviewed the District’s debt overview and stated that the District has $42.2 million of debt. Marty reviewed the District bond details; the District’s annual debt service; the bond requirements; and the impact of the District’s current situation. Marty explained the District’s debt service gaps and how to increase the debt service coverage. Marty stated that only a legal defeasance (an irrevocable decision) will help increase the debt service coverage ratio since “cash” is not a pledged revenue. Marty further stated that the 2008 Bond can only be used to pay the 2008 Bond. Marty reviewed considerations and some additional ideas to lower the District’s debt.

Kenyon questioned what if we only used a portion for defeasance and keep some of the 2008 bond monies and Marty stated that we would still have to show where we were going to use the remaining money.

Marty then discussed the refunding of the 2001 bond that could be called on June 1, 2011; defeasance options and the annual debt service after defeasance of the 2008 bond with the different options; and the proposed coverage assumptions. There was a lengthy discussion regarding the defeasance options.

Marty turned the presentation back over to Ken and he further reviewed the defeasance options and how this would save the District money. Ken then explained how the District could begin a repair and replacement “depreciation” fund and why this is so important. After further discussion, Marty commented that his recommendation would be to legally defease the entire 10.8 million dollars of the 2008 bond unless someone could show him that there was CIP out there that the District needed to do. Ken talked about CIPs and stated that BCA felt secure in saying that the District did not need to move forward with any CIPs at this time. Karl
stated that with the District’s reserve funds he didn’t feel that we needed to keep $1.3 million from the 2008 bond. Ken presented financial stability adjustments and would like the board to decide a path on CIPs, a depreciation fund, and the master plan. Ken stated that even if the District would have to increase rates perhaps 50%, the District would still look favorably compared to other communities in the area regarding water quality, stability, service and the rate.

A break was taken at 5:33 p.m. and the work session resumed at 5:53 p.m.

Ken began by stating that the board needed to decide if they want to earmark any monies for CIPs and if not, we could legally defease the entire $10.8 million remaining on the 2008 bond; the depreciation program; and BCA continuing with the master plan. Kenyon stated that he feels that the District’s CIPs would be zero and that we could defease the entire 2008 bond and to do so as soon as possible, Mark agreed, and Karl asked if this was his motion.

Kenyon Leavitt made a motion that the District’s CIP costs be zero for the next five years. Mark McEwen seconded the motion.

Ken stated as the general manager he would like to see the flexibility of when things come up or when Bowen, Collins & Associates make recommendations that he would bring these to the board for approval. John Paul questioned if everyone was comfortable with no CIPs for five years. Kenyon further stated that he felt we should use the entire 10.8 to defease. Karl asked if Kenyon could modify his motion to say no capital projects funded by the bond.

Kenyon Leavitt amended his motion to say that the District legally defease the 10.8 million dollars of the 2008 bond.

There was further discussion regarding the wording of the motion and whether it needed to include anything regarding CIPs and a rate increase. Ken stated that defeasing the 10.8 was good, but Marty would need to know the District’s direction and how to shape the curve for defeasing the bond and this would bring the rate study into play. Ken further stated that he was thinking, and that the first step would be to defease the $10.8 million; second, to agree on the shape of the curve; and then the third one, would be to ask for a rate study from Bowen, Collins & Associates. Marty Johnson suggested that the shape of the curve would govern the rate increase and the rate increase will govern the shape of the curve. Marty further suggested that the motion be to use the $10.8 million and direction to Marty and Bowen, Collins to work together to accomplish the goals of the board.

Kenyon Leavitt reiterated his motion to legally defease the entire 10.8 million dollars of the 2008 bond. Mark McEwen seconded this motion and it was unanimously carried. 5-0

There continued to be discussion regarding the rate increase and how to phase the increase. Marty stated that he had used a two phase increase in his presentation and felt that people around the state are very sensitive to rate increases and that the District should phase in the rate increases in steps. Ken Spiers stated that they, along with Marty, could bring back to the board various scenarios on rate increases for the board’s review and approval. There continued to be discussion on a rate increase and how the District should move forward and how much time would be required. Ken stated that we would need to make an assignment to Bowen, Collins & Associates and Marty to come back with alternatives to the defeasement program and rates to accomplish those different defeasement moves.

Karl Gustaveson made a motion directing Bowen, Collins & Associates and Marty Johnson to prepare various scenarios outlining, using the red line, outlining the different options using a two, three year rate increase, and what the actual rate increase would be; also looking at the possible assure payoff time for the full $10.8 million and have that information available for board consideration and possible action on September 7, 2010. Kenyon Leavitt seconded the motion and it carried unanimously. 5-0

Ken then stated that he felt this merited some opinion, and the board would be setting in place a repair and replacement depreciation program and the board would be directing the District’s accountant to start developing that program and setting money aside. Ken gave different options as when to begin and how much money to begin with, but stating that just establishing it as a board priority and intention has merit and sense and we see this as valuable. There continued to be a discussion on depreciation and when and how much to begin with. Ken stated he was looking basically for a board commitment in creating a depreciation fund at some point where it becomes economically feasible.

Mark McEwen made a motion to establish a depreciation fund and to create a budget line item for it and it will be funded by reduction is debt services. Karl Gustaveson seconded the motion and it was unanimously carried. 5-0

Karl questioned if we needed a motion on refinancing the 2001 bond. Marty stated that we needed to allow this process to play out a little bit and if they came back in October this would allow a timeframe that would fit.

Karl Gustaveson made a motion directing Marty Johnson to come back in October, 2010 to begin process to call in the 2001 bond in June 2011. Kenyon Leavitt seconded the motion and it was unanimously carried. 5-0

Ken stated that he wanted to reassure everyone that all of our actions were not being based on just reducing the defeasement costs and raising the rates; but that he had outlined other economizing strategies for the District to lower costs and went into detail on these strategies and there continued to be a discussion on these strategies.

Karl made a statement that after attending meetings for the past year, what a different atmosphere it was to see five people working together, regardless what side of the river you were on, to do the right thing and that it was a pleasure being here.

2. Public Comment

Sandra Raymaker stated that she agreed with Karl’s statement and that the last meetings have been so much more informative.

3. Adjournment

President John Paul adjourned the meeting at 7:03 p.m.
NOTE): The minutes of this meeting have been tape-recorded and will remain on file in the District office for a one-year period for public examination.

•   Work Session Minutes: 2010-08-30 (.pdf 20.K)