Tuesday, April 28, 1998

MINUTES OF A REGULAR MEETING
of the
BOARD OF DIRECTORS OF THE MONTECITO WATER DISTRICT
held at the
DISTRICT BOARD ROOM
583 SAN YSIDRO ROAD, MONTECITO, CALIFORNIA
at 3:00 p.m. on TUESDAY, APRIL 28, 1998

The meeting was called to order by President Puddicombe at 3:00 p.m.
Those in attendance were:

Present:	Directors Abel, Campbell, Puddicombe Wilson
Absent:	Jones
Also Present:	C. Charles Evans, General Manager/Secretary Chip Wullbrandt, District Counsel Evalyn Kerman, Business Manager Cathy Muneio, Secretary Fred Lemere, Carpinteria VWD Joan Wells Arve Sjovold Brad Patterson Doug Brown, Stradling, Yocca, Carlson & Rauth Sally Kinsell Carolee Krieger, Scenic Shore Preservation Committee Eleanor Wright Hank Kinsell

During public forum Arve Sjovold asked questions regarding the District’s budget and loans. He said that he had trouble understanding the budget and that the amount due to DWR shown on various reports did not seem to be the same amounts. Carolee Krieger presented a list of questions regarding the cost of the State Water Project. President Puddicombe asked that this item be placed on the next agenda at which time these questions will be answered. Sally Kinsell expressed uneasiness on borrowing additional money for capital improvement projects. Joan Wells said that the customers would like to know exactly what the is the financial situation of the District. Director Campbell stated that the District does not have a financial problem and that the District is audited annually to review the District’s financial status.

Doug Brown stated that the municipal bond insurers have rated the District A+ rating, which happens to be the highest rating a small District may receive. Arve Sjovold asked how the bank feels about the $33,000,000 debt. Carolee Krieger asked if this borrowing would pay for the State Water Project. Director Campbell stated that the capital program is for specific projects. Carolee Krieger asked if these funds are placed in a separate account so that they only pay for the pipeline replacement projects. Director Wilson hopes we will be able to answer questions at the public meeting on May 11, 1998 at 2:00 p.m. at the Montecito Fire District. Joan Wells suggested that the District inform its customers by placing a message on monthly bills that are sent. Director Abel encouraged the public to attend the public meeting on May 11, 1998. Eleanor Wright asked about the Water Availability Charge that she said was supposed to have taken care of all pipeline replacement projects. She also asked why the District had not replaced these pipes in the past. Director Campbell said one of the things this Board has been doing with management is evaluating the age the system should be before replacement. Counsel Wullbrandt said funds only will be issued for projects that were approved.

Fred Lemere, President of the Santa Barbara Water Purveyors Agency presented to President Puddicombe a resolution for his dedicated service to the agency.

Doug Brown of Stradling, Yocca, Carlson & Rauth, reviewed with the Board the Preliminary Official Statement and legal documents and resolutions that will need to be adopted. He said the Board will be asked to approve these legal documents and authorize an agent to approve the maximum amount of bonds at a maximum of interest rates level. The Board will also be asked to approve the formation of the Montecito Water District Financing Corporation. He said that on May 12 there will be a Corporation Board meeting. He said that the Preliminary Official Statement (POS) has two purposes. One is to disclose any facts that might be material to investors and also to be used as a marketing tool. He said the final official statement will be delivered to all the purchasers of the bonds. Doug Brown went through the POS page by page with the Board. He said that a financing corporation needs to be in existence in advance of approving the Articles of Incorporation and bylaws. The Board will be required on May 12th to elect a Chair and have an annual meeting and will be subject to the Brown Act. After the Corporation meeting ends, the Board will return to its regular meeting. The Corporation needs to be in existence as long as the bonds exist. During the meeting on May 12, the Financing Corporation will approve the resolutions. He also indicated that the Corporation directors will not be paid in any way from the Corporation. Mr. Brown said that the maximum the District may need should be borrowed.

Note: The agenda for this meeting was posted at the front counter and
on the front wall at the Montecito Water District on April 24, 1998.

MINUTES OF AN ADJOURNED MEETING
of the
BOARD OF DIRECTORS OF THE MONTECITO WATER DISTRICT
held at the
DISTRICT BOARD ROOM
583 SAN YSIDRO ROAD, MONTECITO, CALIFORNIA
at 10:00 a.m. on THURSDAY, April 30, 1998

The meeting was called to order by President Muller at 3:00 p.m. Those in attendance were:

Present:	Directors Abel, Campbell, (by teleconference), Puddicombe, & Wilson
Absent:	Director Jones
Also Present:	C. Charles Evans, General Manager/Secretary Chip Wullbrandt, District Counsel Evalyn Kerman, Business Manager Cathy Muneio, Secretary Fred Lemere, Carpinteria VWD Joan Wells Linda Cable, SBB&T Steve Mihalek, SBB&T Donald Laffler, SBB&T

President Puddicombe introduced the Directors and staff. He noted that Director Campbell was participating in the meeting by teleconferencing. It was noted that the teleconference meeting had been properly noticed and that any votes taken would need to be by roll call.

A presentation was given by Glen Reiter, a financial consultant from Reiter, Lowry Consultants. He gave a brief history of his qualifications. He said that he was a registered civil engineer for 13 years and had worked in several capacities for several large water districts.

In the District’s decision on financing he said that every detail should be closely watched. He said the District’s A+ credit rating will have a lot to do with obtaining good financing. He said the District should avoid borrowing whenever possible and that the District should try to match its revenues with its expenses in order to minimize the amount of borrowing. He also recommended that loans be paid off as quickly as possible.

Mr. Reiter said that in analyzing the proposal from Salomon Smith Barney he had looked at the District’s revenue streams. He said that he had not seen Capital Appreciation Bonds (CABs) used very frequently. He said that the District is under no obligation for this borrowing until the day of closure. The Board will need to authorize the General Manager to make some last minute decisions on the amount to borrow and the interest rate on the date of closure. Mr. Reiter said that the District may want to accelerate rate increases from the proposed every five years to annually with modest increases. This will save money in the future. Director Abel asked if it might be possible for the District to receive any federal or state funding for the covering of the Ortega Reservoir. He said that it was unlikely since this is a wealthy area and the state would most likely lend money to less effluent areas.

Steve Mahalek, Chief Loan Officer for Santa Barbara Bank and Trust, gave a presentation on the loan that they were proposing for the District. He said that this loan would provide the District with more flexibility than the bond issue offers. This would also allow the District to keep the amount of borrowing to a minimum. The only restriction would be that the District could not borrow more than $10,000,000 in any given year. SBB&T would provide a commitment up to $14,000,000. It would cost the District 1/2 point upon commitment. During the period of construction, interest rates would be variable and once construction was complete this could be converted to a variable or fixed 15 year permanent loan any time on the amount borrowed at that point. He said that this proposal was firm, simple and flexible and that there were no prepayment penalties on this loan. This loan could be paid off and accelerated at any time. President Puddicombe asked if the bank was currently doing financing for any other districts. He said they were but that this was the biggest proposal they had put together to date for a district. Mr. Reiter was asked to comment on this proposal.

Mr. Reiter said it was nice to see a bank that is so aggressive. He had concern with where interest rates may be in future years. He estimates they will probably be much higher and that he does not feel it is wise for the District to gamble on where interest rates will be when they are very low right now. Director Campbell said that he agreed with Mr. Reiter. The District is not in the business of speculating on interest rates or capital costs. President Puddicombe asked Mr. Reiter if he would attend the public meeting on May 11 and the Special Board meeting on May 12. Mr. Reiter stated that he would need approximately 15 hours additional work between now and May 11 to review and make recommendations on the two proposals. Mr. Reiter suggested that the District provide SBB&T with a spending schedule on the proposed financing in order to make his comparison. Director Wilson made a motion to authorize Glen Reiter to attend the May 11 and May 12 meeting, with a total of $2,000 authorized to prepare materials for these meetings and for the General Manager to authorize additional hours as needed. It was seconded by Director Abel. The motion carried with the following roll call vote.

Note: The agenda for this meeting was posted at the front counter and on the front wall at the Montecito Water District on April 21 and April 28, 1998.