Bolinas Community Public Utility District
A Special Meeting  Of  The Board  Of  Directors
June 9, 2010   270 Elm Road, Bolinas


1.  Call to Order

    7:33 p.m.

2.  Roll

    Directors Amoroso, Bender, Kimball, Siedman and Smith present; director Siedman presiding.
3.  Investment Strategy and Expenditure Protocol for Reserve Funds

Director Siedman noted that the BCPUD last year sold its Pine Gulch Creek property to the National Park Service for inclusion in the Point Reyes National Seashore for its fair market appraised value of $1,450,000.  The purpose of this meeting is to discuss the investment and/or use of these funds.  Discussion ensued about short-term vs. long-term strategies, security of funds, these funds vs. the district’s other reserve funds, and so forth.  Director Smith noted that the financial markets currently provide a very low rate of return on safe and secure investments; given the long-term trend of increasing construction costs, he queried whether it makes more financial sense to spend the funds now on needed projects.

Director Amoroso said that he feels the district should have an articulated strategy for the use of these funds and he proposed that the district set aside a set amount of funds for specific purposes that can then be approved by a majority vote of the Board – provided, however, that if the Board later seeks to use any funds thus designated for a different purpose, doing so should require a 4/5 vote of the Board.  .Director Amoroso also proposed that a set amount be set aside for an updated water supply study; he suggested $50,000.  Former director McClellan noted that the district first needs to solve the septic problems on the Mesa before more growth would be allowed there, even if the water supply were to be increased.  Director Amoroso also suggested that a large amount, perhaps $500,000 be set aside for projects to improve the water and sewer systems.  Finally, director Amoroso proposed that the remaining funds of about $500,000 be set aside for legal costs and $200,000 for other non-budgeted costs that may arise for the district, including potential projects to benefit the community at-large.  Director Siedman invited all of the directors to offer their thoughts on Director Amoroso’s proposal.

Director Kimball agreed that the Board should decide on several “specific purpose funds” and the amounts to dedicate to each, such as a study to increase the district’s water supply, funds for legal work, etc., as director Amoroso suggesting.  She said that the purposes of these funds should be well-defined and invested in safe instruments; each year the principle should be reinvested and she suggested that the district use the interest earned on each such fund in the following fiscal year to fund deferred maintenance and other operational projects.   She said that she views the property sales proceeds as an endowment that the Board should manage and invest carefully for the future.

Director Smith questioned the need to “cubby hole” the funds as it seems to constrain the district more than might be desirable;  he advocated more flexibility.  Director Bender expressed support for some unrestricted funds, but she favors the approach whereby the Board endorses a specific strategy for the funds so the public understands why the funds are in reserve and what longer-term projects the district is planning.  Director Smith said he favors using the interest earned on investments to avoid raising rates, if possible;  other directors noted that in the current economic environment, the interest earned will not be sufficient to avoid an increase in rates in the next fiscal year.  All agreed that the interest income can be used as a revenue source to keep the amount of any increase in rates below what it would be absent the interest income.

Director Siedman expressed support for designating $50,000 for a water supply study and also expressed support for director Kimball’s suggestion of “specific purpose funds”.  He noted that there are many projects that the district needs to do that cost money – he said the district should do these projects, particularly pipeline replacement work.  After a brief further discussion, the Board agreed that there is a general consensus for the Board to designate $50,000 for a water supply study.

Director Siedman followed up on Director Amoroso’s recommendation and suggested that a fund be established for projects essential to the water and sewer systems.  Director Amoroso suggested $500,000 for this purpose.  Director Bender questioned what the difference is between such a fund and the district’s designated water and sewer funds.  Director Amoroso said that the BCPUD’s customers are charged for the money put in to the district’s designated water and sewer funds and the district this year is financing projects it would do in due course in part with these funds;  in contrast, a portion of the proceeds from the sale to the National Park Service will be used to finance projects that the district could not do but for the existence of the sales proceeds. 

Director Kimball emphasized that the district should set up funds that it won’t use immediately so that the interest on these “endowed” funds can be used for system improvements.  Director Siedman said that at the current 1% interest rate available for safe, federally insured investments, the property sales proceeds will only generate about $10,000 annually in interest.  At this rate, the district could fund small projects, such as the annual hydrant replacement program, but not big, important projects.   After further discussion, the Board agreed that there is general consensus to establish a “capital improvement fund”.

Director Amoroso said his third recommendation is to set aside money for potential legal costs;  he acknowledged that it is the least developed of his ideas and that he essentially is recommending that the district hold these funds for investment.  The Board discussed possible other uses of the funds.  Former director McClellan said he would rather see customer rates increase rather than “whittle away” the property sales proceeds; he suggested that the district spend the funds only on projects for which it cannot get grant funding.  After further discussion the Board agreed there was consensus to hold the balance of the remaining funds as an endowment which is not to be spent other than in extraordinary circumstances (except that the interest may be used to fund a portion of annual operations).

The Board then discussed director Amoroso’s suggestion that a portion of funds be used for community projects.  Director Amoroso said he now wants to reverse himself and recommend instead that all these funds be set for capital improvement projects.  Director Siedman expressed support for a community improvement fund.  Director Amoroso said any such fund would need to specifically benefit the community so as not to be a gift of public funds, and the district would need to retain control over the funded project.  Director Kimball said that any such community projects should be water or wastewater related (such as the funding of low-flow toilets and waterless urinals in the Bolinas Community Center bathrooms).  Director Smith again expressed concern that the Board was being overly restrictive in its intended use of funds;  public utility districts have broad authority and the BCPUD can do more than just water and wastewater projects.  He suggested that potential projects could be put to a vote of the community.  After further discussion, director Siedman suggested that perhaps a discretionary fund could be established for purposes authorized by law for public utility districts.  Discussion ensued as to whether the funds should be still limited to projects at the core of the district’s functions of water, sewer, drainage and solid waste disposal – for example, if the Downtown Park Committee approaches the BCPUD for a contribution toward the public bathrooms vs. a contribution for a more general (non-water or wastewater-related) purpose – or could be spent more broadly.  Director Amoroso suggested that an community expenditure over $10,000 and not related to the district’s core functions should be subject to an advisory poll of the community.  After brief additional discussion, the Board agreed there was consensus to establish a discretionary fund for community purposes, with any expenditures over $10,000 and not related to the district’s core functions subject to community approval via an advisory poll.

Director Siedman summarized the Board’s consensus on the establishment of four funds; after further discussion about the propriety of each fund and the desired amount to be established in each fund, the Board was ready to vote. 

V. Amoroso/B. Kimball        all in favor    to designate $1,200,000 from the proceeds of the sale of the district’s Pine Gulch Creek property into four funds to be allocated and maintained by the district as follows:  (1) $50,000 for a water supply study; (2) $500,000 for a capital improvement fund; (3) $500,000 as an endowment fund; and (4) $200,000 as a discretionary fund for community projects (with any expenditure not related to the district’s core functions and over $10,000 in amount to be subject to an advisory vote of the community).

Director Siedman then directed discussion to how the Board will make decisions about spending the money.  He noted that director Amoroso’s proposal is that if the Board proposes to spend money from a particular fund as just approved, then a majority vote is required to approve the spending.  On the other hand, if the Board proposes to spend any of this money in a manner other than as designated, then a super-majority vote will be required.  Director Smith noted that the super-majority vote concept has not served the State of California very well and questioned why it would be necessary.  Director Amoroso noted that a 3/5 majority vote of the Board can reverse the 4/5 super majority requirement.  Director Kimball said she is not opposed to the super majority;  she noted that the current Board works well together to resolve issues and likely doesn’t need to safeguard of a supermajority, but it will protect the decision-making process into the future if funds are proposed to be spent for a different purpose.  Director Bender agreed that such a voting requirement sends a message that the Board wants to be careful about any decision to change the purpose of the funds it has designated.  Director Smith said he accepts the concept.  The Board agreed that there is consensus on requiring a supermajority vote to approve an expenditure of funds other than as designated.

Director Siedman suggested the Board discuss the actual investment of the funds, which currently are invested in federally insured one-year term CDs.  Director Kimball proposed that the district get professional advice with regard to selecting safe investment instruments with a good rate of return.  Director Smith noted that many advisors take a cut of the money invested annually as a fee.  Director Siedman said the district should look for someone who will accept a set fee for their advice, not a fee or commission.  After further discussion, the Board agreed it would like to delegate to the Finance Committee the task of recommending a financial consultant for the district.

4.    Community Expression


5.    Adjournment

    9:42 p.m.