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BACKGROUND DSRSD and the City entered into the Financing Administration Agreement (FAA) in December 2000. The purpose of this agreement was to establish parameters and procedures to be used in managing the Regional Expansion /Rate Stabilization Fund (Fund) held by the District. The Fund is where the DSRSD regional sewer connection fees and the LAVWMA sewer connection fees from both Pleasanton and DSRSD jurisdictions are deposited. The funding for regional capital improvement projects (CIP) and the payment of debt service attributable to the LAVWMA bonds and the DSRSD bonds (collectively the "Bonds ") issued to fund the expansion to the Wastewater Treatment Plant and the LAVWMA pipeline are paid from the Fund. The contractual relationship between the two agencies is overseen by the DSRSD /Pleasanton Liaison Committee (Committee). The Committee is comprised of two representatives from the DSRSD and two City Council members. Currently, Council members McGovern and Thorne sit on the Committee. The City Manager, Director of Finance, Director of Operations Service Center are the Pleasanton staff members to the Committee and the General Manager, Financial Services Manager and the District Engineer are the DSRSD staff to the Committee (collectively the "Staff'). DISCUSSION At the Committee meeting in December 2008, Staff recommended that the FAA be amended. The Committee gave their support and provided the following parameters for amending the agreement: • Protect rate payers • Retire debt based upon a business decision rather than a formula • Remove the provision for formula driven automatic increases to connection fees • Provide specific and reasonable criteria for joint review of capital projects Staff was further directed by the Committee at their October 2009 meeting to review and modify the FAA specifically as it pertains to the following three sections of the existing agreement: • Paragraph 6 regarding the approval of capital improvement projects • Paragraph 7(e) regarding increases in the regional connection fees • Paragraph 7(f) regarding the disposition of any excess funds over and above the Administrative Target Level of 5 times maximum annual debt service (5X). Staff from the two agencies worked closely to develop an amendment to the FAA to incorporate the needed changes to the above sections of the FAA. Attachment 1 herein is a copy of the Second Amendment to the Financing Administration Agreement. Page 2 of 3