Rancho Water to refund bonds and cover loss from shelved rate increases

The Rancho California Water District finance and audit committee and board of directors meets Thursday, Sept. 3, via a Zoom teleconference call. Valley News/Courtesy photo

During a joint regular meeting of the Rancho California Water District finance and audit committee and a special meeting of the board of directors, Thursday, Sept. 3, the district committee agreed to implement the 2020 Plan of Finance and authorize RCWD’s general manager to negotiate and enter into agreements for proposed bond issuances to save the district an estimated $1.3 million.

The savings will help cover the loss expected when the board agreed to halt rate increases during the COVID-19 pandemic last month.

Richard Aragon, assistant general manager of Rancho Water, kicked off the staff presentation saying that the proposal represents a silver lining for the district.

“(Item) No. 1 is really a major item that we’ve been discussing for the last about six months, since March, when COVID-19 first hit,” he said. “And it has everything to do with taking advantage of a market opportunity that’s really come from all of the negative developments with COVID-19.

“The Federal Reserve responded very quickly by lowering rates to near zero, which, had a dramatic effect on overall interest rates, certainly impacted municipal rates, which we deal with when we issue bonds. And so an opportunity has come up taking advantage of historic low rates, to take a portion of our bonds in 2016 and to refund them.

“This is kind of an odd thing to be able to take tax-exempt bonds, which typically have the lowest rates, refund them with taxable bonds which is usually a higher rate, and in this case, still get a savings. Substantial savings,” Aragon said.

The board also approved a one-time waiver dropping the district’s minimum target of 5% NPV savings for advance refunding to allow refunding to take place with a revised minimum of 3.5%.

“The 3.5% really aligns with what we’ve done recently on rate actions,” Aragon said. “The amount of savings, about $1.3 million on the 3.5% transaction as a minimum, will in essence cover the remaining deficit from the rate deferral. So, they go hand in hand there. If we were able to do a 3.5% transaction, we would be able to fully replenish our reserves from the savings from not doing the rate increase this year.”

The board also heard a Vail Lake/KOA property update, which indicated that the campgrounds were exceeding predictions and advanced reservations were up over the numbers of 2019.

However, because of COVID-19, the campground was forced to shut its bar, cafe and store and has refunded almost $150,000 in reservation deposits as a gesture of goodwill.

Clint Bell of KEI said that the campground had to deal with the cancellation of some major events, including homebrewing and mountain biking events. He said there’s also been staffing challenges and projects have been put on hold.

He said the entire tourism industry is in shambles. Bell did give an update on some updates happening at the campground to upgrade the property.

The board also reviewed the investment report and portfolio and reviewed the treasurer’s report as of June 30.

The board heard a report on the district’s California Municipal Treasurers Association investment policy certification and reviewed a draft of an interagency agreement between RCWD and Western Municipal Water District for wheeling of water to Tract Map No. 36385.

They also heard a presentation of the fiscal year 2019-2020 operating results summary and review of financial statements, reviewed financial statements, a treasurer’s report and certification of the district’s cash sufficiency and related investment data, reviewed and ratified the register of audited demands for May 22 to Aug. 26.

The board also heard and approved a quarterly review of per diems and reimbursements paid to RCWD board members and reviewed outside contracts, capital projects and purchasing reports.

Jeff Pack can be reached by email at jpack@reedermedia.com.