Council approves restricted reserve within wastewater enterprise to meet state loan requirement

The Brawley City Council on March 4 unanimously approved establishing a restricted reserve in the wastewater enterprise fund to satisfy a California State Water Resources Control Board loan requirement.

Finance Director Sylvia Luna explained the city entered the Clean Water State Revolving Fund loan in February 2008 for wastewater treatment plant improvements and subsequently received $10 million in loan forgiveness, leaving an outstanding balance of approximately $5,460,000 as of fiscal-year-end June 30, 2024. Under the loan terms, the city must maintain a restricted reserve equal to one year of debt service; Luna said the required reserve equals $811,000.85.

Luna told council the reserve will be restricted from an existing $27 million enterprise reserve (approximately 3% of that balance) and will not affect the city’s general fund. She described the action as a formal accounting step required by the State Water Resources Control Board’s finance division, which recently requested proof that the reserve had been established in the city’s books; staff said the reserve was not formally recorded in 2008 when the loan was executed.

Luna said the reserve will remain in place until the city satisfies the loan obligations, currently scheduled to end June 30, 2032, and that annual audits, submission of audited financial statements and the annually approved budget are among ongoing compliance items. If the city failed to comply, the finance division warned, it could demand repayment of the outstanding loan balance.

Motion to establish the restricted reserve passed unanimously.

Council did not identify additional policy changes tied to the reserve; Luna said she will monitor the enterprise fund’s revenues and capital needs as ongoing work is planned for wastewater system improvements.