BOARD AGENDA MEMORANDUM
SUBJECT:Title
Receive Update on Impacts of a Potential Recession and Recent High Inflation Trends on Santa Clara Valley Water District's Finances.
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RECOMMENDATION:Recommendation
A. Receive information on impacts of a potential recession as well as recent high inflation trends on Santa Clara Valley Water District's finances; and
B. Provide feedback and direction to staff as necessary.
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SUMMARY:
On June 28, 2022, the Board expressed a desire to have a discussion on Santa Valley Water District's (Valley Water) economic outlook as it relates to a potential economic recession in the near future. At its July 12, 2022 meeting, the Board referred a discussion of the Valley Water economic outlook and planning for a potential recession to the Capital Improvement Program (CIP) Committee. On September 1, 2022, the CIP Committee discussed the topic and provided feedback for staff to incorporate in its September 27, 2022 discussion with the full Board.
Staff has prepared a PowerPoint presentation (Attachment 1) that details the likely impacts of a potential recession as well as the impact of the recent high inflation trend on the upcoming financial planning cycle. The potential impacts can be summarized as follows:
* Revenue - Staff expects a negligible impact on Water Utility and Safe Clean Water revenues, but Watershed Stream Stewardship Fund revenues could be affected and should be watched.
* Debt Financing - Staff anticipates that rising borrowing rates will impact debt service costs for the Water Utility and Safe Clean Water Funds in a few years, partially offset by higher investment portfolio earnings.
* O&M Costs - Staff expects higher supplies and services, as well as employee benefits costs, but recession may ease the high inflation trend.
* Capital Costs - Staff anticipates that the proposed FY 2024-28 CIP will be higher than Board adopted FY 2023-27 CIP due to recent high inflation trends, but recession may ease inflat...
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