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HomeMy WebLinkAboutBOARD MINUTES 10-12-00 186 MINUTES OF THE ADJOURNED REGULAR BOARD MEETING OF THE DISTRICT BOARD OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT HELD ON OCTOBER 12, 2000 The District Board of the Central Contra Costa Sanitary District convened in an adjourned regular meeting in the District Offices Second Floor Conference Room, 5019 Imhoff Place, Martinez, County of Contra Costa, State of California, at 2:30 p.m. President Lucey called the meeting to order and the Secretary of the District noted the attendance of the following Board Members. 1. ATTENDANCE PRESENT: Members: Menesini, Hockett, Boneysteele, Lucey ABSENT: Members: Nejedly Member Nejedly had advised that he would be late and requested that the meeting begin without him. Member Nejedly entered the meeting at the hour of 2:37 p.m. 2. PUBLIC COMMENTS None 3. CAPITAL PROJECTS COMMITTEE MEETING/BOARD WORKSHOP a. RECEIVE PRESENTATION AND DISCUSS DEVELOPMENT OF DRAFT 2Ò01-2003 CAPITAL IMPROVEMENT BUDGET AND 2001 CAPITAL IMPROVEMENT PLAN Mr. Charles W. Batts, General Manager, stated that this is the second workshop on the District's budgeting and rate setting process. In January 2000, a workshop on the Operations and Maintenance (O&M) Budget was conducted. The workshop today will focus on the 2001-2003 Capital Improvement Budget (CIB) and 2001 Ten-Year Capital Improvement Plan (CIP). The Capital Program is funded primarily through connection fees, ad valorem taxes, and a portion of the Sewer Service Charge. The stewardship of this budgeting process lies in the Engineering Department. The Sewer Construction Fund is the fund used to finance capital projects; the balance has been reduced from approximately $80 million in 1986 to the current balance of approximately $44 million. When Ms. Ann Farrell was hired as Director of Engineering, one of the first things she was asked to do was to take a fresh look at how the District does projects and funds them. She has taken an innovative approach. This workshop is to provide the Board with insights and a big picture look the Capital budgeting process. With regard to the decrease in the Sewer Construction Fund from $80 million to $44 million, Member Menesini requested an income and expenditure matrix. Mr. Batts indicated that a historical graph of spending and income for this fund will be provided to the Board as part of the Capital Improvement Budget. 1 ) CURRENT STATUS OF CAPITAL PROGRAM FUNDING Mr. Batts introduced Ms. Ann E. Farrell, Director of Engineering, who stated that during this workshop the discussion will focus on the current status of Capital Program funding, what a Capital Program is, what will drive the District's Capital Program in the future, and how large the Capital Program should be. The Capital Program is partially funded by the Sewer Service Charge. The District and its ratepayers I,ave had the benefit of about ten years of stabilization of these rates. This stabilization vIas achieved through O&M savings and by spending down the Sewer Construction Fund balance. The 2000-2001 O&M Budget approved by the Board in June 2000, projected a $28 per connection rate increase. The Board supported a $ 1 2 Sewer Service Charge increase, and the Sewer Service Charge contribution to Capital was reduced by $ 1 6 to make up the difference. 10 l~~ 00 187 Approximately $25-$30 million has been determined to be a prudent Capital reserve to cover variation in O&M revenue. Ms. Farrell stated that as the Sewer Construction Fund is declining, it is important to define the future level of capital expenditures and their impact on that fund. Sewer Construction Fund balance projections were reviewed, based on four scenarios of a $31 and $ 1 5 increase in the Sewer Service Charge funding level, and on retaining and losing ad valorem tax revenue. In three of the four scenarios, the Sewer Construction Fund balance falls below zero by the end of the ten-year period. Ms. Farrell reviewed Capital Program jargon to clarify the terms authorization, allocation, expenditure, and credibility gap. Authorization is the total amount the Board authorizes each year based on the projects that may be needed that year. This is done by Board approval of the Capital Improvement Budget. Allocation is the total amount the General Manager authorizes each year based on requests from staff to fund projects they plan to execute. This allocation is done through individual Capital Improvement Budget Project forms. Expenditure is the total amount the staff actually spends each year on projects. The credibility gOap is the difference between what the Board authorizes and what the staff spends. Reasons to authorize more than staff can spend include: . Provides flexibility to staff to reprioritize work load based on external forces . Avoids going to the Board to reprioritize numerous projects . Board retains control of projects through CIB/CIP approval . Board authorizes capital project contracts over $50,000 Ms. Farrell reviewed an example of this difference between what was authorized in a given year and what was actually spent. As an example, Pleasant Hill Relief Interceptor Phase 4 was moved forward this year to take the place of the Dougherty Tunnel and Trunk Sewer Project which has been delayed. The Pleasant Hill Project is a $5 million project compared to the $17 million Dougherty Project. This created a $12 million expenditure gap. Ms. Farrell stated that the downside of authorizing more than staff can spend is that it is: . Difficult to accurately predict needed capital revenues . Difficult to build a sense of credibility and accountability with the Board and public. The Capital budgeting process should address the need for Board control of expenditures, the staff need for flexibility in prioritizing projects, and the management need for better annual expenditure data to generate rate and connection fee projects. Ms. Farrell reviewed the following suggestions to adjust the process and address the credibility gap while meeting the needs of the Board and staff. . Continue the historical authorization procedure . More projects than can be done with this approach . Authorized amount is usually about 25 % higher than spending . Set annual spending limit on what the General Manager can allocate . Require Board approval to exceed spending limit 2. WHAT IS A CAPITAL PROGRAM? Ms. Farrell stated that a Capital Program is the planned expenditure of funds to build new facilities and to maintain existing facilities through major (capital) repair, replacement, and upgrade. The District's first Capital Improvement Plan was a five-year plan adopted by the Board of Directors in 1981. In 1988, the District's first ten-year plan was adopted, and that is the same format used today. In 1988 there were three budget programs: the 10 12 00 188 Collection System Program, the Treatment Plant Program, and the General Improvements Program. In 1996-1997, the Recycled Water Program was added to the Capital Improvement Plan. Member Boneysteele stated that he believes the description of the development of the Capital Improvement Plan contained in the Capital Improvement Program workshop document distributed to the Board gives an overly simplistic view of how that happened. Ms. Farrell stated that staff will revise that. Member Nejedly entered the meeting at the hour of 2:58 p.m. Ms. Farrell reviewed un-inflated planned ten-year Capital expenditures by year for the period from 1986 through 1999. During this period the planned ten-year capital expenditures were typically in the $200 million to $250 million range. This past year the planned. ten-year Capital expenditures dropped to $ 1 78 million, and staff looked at whether it was prudent to continue to divert funds in the future from Capital to O&M expenditure. Ms. Farrell stated that the Collection System Program, combined with an excellent operations and maintenance program provided by the District Collection System Operations and Plant Operations Departments, has reduced collection system overflows from about 400 per year in 1972 to less than 100 per year in 1999. Ms. Farrell reviewed some of the significant and interesting projects from each of the four Capital Program areas including the Martinez Eastside Trunk Sewer, Pleasant Hill Relief Interceptor, Headworks Expansion, Ultraviolet Disinfection, Household Hazardous Waste Collection Facility, and Diablo Valley College Recycled Water Projects. President Lucey stated that he has concerns with the amount of money being spent on recycled water. President Lucey stated that he understands that the District has made the decision to provide recycled water and that the Regional Water Quality Control Board supports that, but the overall program still costs a significant amount of money. President Lucey requested thàt during the coming year staff pursue industry use of recycled water as a way to try to protect the environment, use recycled water in a cost effective way, and save taking fresh water out of the Delta. 3. WHAT WILL DRIVE OUR CAPITAL PROGRAM IN THE FUTURE? Ms. Farrell stated that capacity, regulations, and asset management will drive the District's Capital Program in the future. The Collection System Master Plan was completed earlier this year. This looked at the District's entire collection system. A hydraulic computer model was made which predicted where system capacity would be exceeded. Staff believes that approximately $40 million should be invested in the next ten years to address those capacity issues. President Lucey asked that staff look at planning assumptions to the year 2035 to be sure they are not overly optimistic and include current urban limit lines and related issues. Ms. Farrell stated that a Treatment Plant Capacity Study was also done. This analysis was the justification in asking for increased capacity in the District's National Pollutant Discharge Elimination System (NPDES) permit limit from 45 MGD to approximately 55 MGD. Ms. Farrell stated that although regulations are difficult to predict, they will continue to drive much of the District's Capital Program. In the past, potential regulatory reqùirements have been included in the Ten Year Capital Improvement Plan as parturient projects and a broad cost range has been estimated (but not included in project spending) to give the Board and the public some feeling for the potential rate impacts if any of the parturient projects were to be required during the ten-year period. Pending regulations which could impact the District include California Senate Bill 7.09, the mandatory fine bill, which now applies only to treatment plant discharge, but 10 12; 00 189 environmental groups would like to have such a law apply to collection systems and receiving waters as well. If that happens, discharger fines would increase. CMOM (Capacity, Management, Operations, and Maintenance) program is another pending regulation. CMOM is an Environmental Protection Agency (EPA) program that would mandate each agency to assess the value of its system, as an asse.t and develop a program to maintain and replace it as needed. Funds will be budgeted in this year's Capital Improvement Budget to start a TV program for the District system. The Board is also aware of the pending Total Maximum Daily Loads (TMDL's) requirement. TMDL requirements are out there but nothing has been included in the District's budget. The District is in good shape with regard to air emissions and is in compliance with Title V air regulations, but there is a possibility that we will have to do something in the next five to ten years for incinerator scrubber emissions. Nothing has been budgeted for that purpose. Ms. Farrell stated that asset management is the third thing that drives the District's Capital Program. A Small Sewer Study was done in the last two-year period in an effort to predict what it would take to keep our small sewers serviceable. This would also apply to the District's large sewers and treatment plant. As things age, we will need to invest more money in renovation than we have in the past. 4. HOW LARGE SHOULD THE CAPITAL PROGRAM BE? Ms. Farrell stated that the Capital Program should be large enough to continue to fund capacity needs, to continue to fund using a "just in time" approach for regulatory needs, and to allow a shift of the primary budget focus to renovation and replacement of aging infrastructure in the collection system and treatment plant. President Lucey stated that it would be helpful in the future to know what would happen if the District took the approach of some other agencies and spent nothing on Capital renovation in the future. Ms. Farrell stated that a risk analysis can be done to show what would happen if nothing is invested in Capital in the future. President Lucey stated that what he is really after is learning what the thinking is in those other districts that have a dramatically different approach to capital spending. Ms. Farrell displayed a graph comparing funds budgeted in the last ten years for collection system projects. Most of the money budgeted for collection system projects was to meet projected capacity needs. Smaller amounts, $3 million to $4 million per year, were for system renovation. Ms. Farrell reviewed various benchmarks for collection system annual renovation and replacement costs. Approximately $5 million per year will be proposed for renovation in the next Capital Improvement Plan. Ms. Farrell stated that this is less than some of the other benchmarks, but more than the District has spent in the past. This will include televising all the District lines over time to determine condition. The Collection System Program will increase about $20 million ($2 million/year) from the last Ten-Year Capital Improvement Plan to the coming Ten-Year Plan, but also the cost of other programs will go down. Preliminary numbers indicaté that the Collection System Program will increase from $1 1.6 million per year to approximately $ 13 million per year. Staff will be co~ing back to the Board after the first of the year with better numbers and additional recommendations. Ms. Farrell stated that the Treatment Plant Program is more difficult to benchmark. Benchmarking is complicated by the fact that the District Treatment Plant has incinerators and most other agencies use other solids disposal methods. Approximately $6 million per year was budgeted in the Treatment Plant Program in the last Ten-Year Capital Improvement Plan. In the current Ten-Year Plan, this amount was decreased to about $.3 million per year. The District must consider whether that is the prudent thing to do as facilities get older. It is fairly clear that the District's path is a prudent approach but the possibility exists that costs will go up. The wastewater industry uses about 1 to 2 percent for budgeting replacement programs. Private industry uses as high as a five percent figure, so the 1 percent District amount could be considered on the low side. The District is looking at decreasing the amount spent on Treatment Plant capacity projects from about $1 6 million to about $10 million, while the spending for Treatment Plant renovation projects increases from about $30 million to about $50 million over the same ten-year period. 10 1" l' ;,of" ~ I. "~~. .ì U',. '.' Ii r~ J '. \J¡ 1 190 Ms. Farrell reviewed the Capital Improvement Plan program totals and changes from the previous Capital Improvement Plan. The 1999 Ten-Year Capital Improvement Plan total was $ 1 78,000,000 for a total annual average of $ 1 7,800,000. The 2001 Ten-Year Capital Improvement Plan total is $210,000,000 for a total annual average of $21,000,000. Ms. Farrell presented the following staff recommendations for the Capital Improvement Program for Board consideration and input. No decision is requested at this time. . Continue to fund the Capital Improvement Program at historicallèvels . Refine expenditure needs: . TV inspection of sewers . Flow verification on limited capacity sewers . Condition assessment of major mechanical equipment . Consider new revenue source to mitigate capital program rate impacts . Connection fees Ms. Farrell displayed a chart showing the connection fees charged by other local agencies, and noted that the District has one of the lowest connection fees in the Bay Area. Staff would like to bring District connection fees back to the Board, probably in December, to review options for connection fee increases and the revenues they would generate. Member Nejedly stated that it would be helpful to know which agencies, if any, have pumped zone and gravity zone differentials. It would 'also be helpful to know how many hook ups there have been for the last ten years and business fees, and their relationships to these other districts. Ms. Farrell stated that staff will try to provide that information. President Lucey declared a recess at the hour of 4:05 p.m., reconvening at the hour of 4: 12 p.m., with all parties present as previously designated. ' Ms. Farrell requested any reactions, questions, or comments from the Board on the presentation. Ms. Farrell asked the Board if a $200 million Capital Improvement Plan seems reasonable? President Lucey stated that first it should be decided how connection fees and capital spending will be calculated and then the Board should be asked if it is a reasonable . number. Member Hockett stated that areas that are high priority should be identified and projects to address those areas should be done first. Ms. Farrell asked the Board for the best way to convey this information. Is there a better way to present the information on the Capital Budget to the Board than has been done in the past? Member Hockett suggested that it would be helpful to have an overlay showing a section of pipe and the urgency to replace it. Ms. Farrell stated that staff has been working for the past year to have overflow history identified on all of our maps. This could be provided to the Board. President Lucey stated that something must be done by staff about the front loading of the budget that makes it more realistic in light of actual spending. We need to validate our estimates on what will be actual District build out and what the District's future capital needs will be. Sometimes multi unit buildings might replace old single family connections. President Lucey stated that he wants to know the assumptions used to 10 1 c~ ~ 00 191 justify spending all of this. money. Some agencies don't spend anything. What would happen if the District spent nothing is a question staff should answer. Mr. Batts stated that efforts are underway to TV lines, verify condition, and prioritize the necessary work to look at various spending scenarios needed for such an analysis. Member Menesini commended staff for this workshop process, stating that it was helpful to understand the terms and ensure that there was mutual understanding. There are a lot of variables that must be understood. Member Menesini stated that he does not know if there are answers to some of the questions being asked. Much of this is speculation at this time and the answers won't be known until a certain point when things begin to gel. President Lucey stated that the workshop was very helpful. Mr. Batts stated that the use of a spending limit concept has been discussed. In reality little changes in the overall amount of the Capital Improvement Program are being discussed, even though the planning numbers may be different. The focus of future budgets will change from capacity to renovation, projects will be prioritized and justified, and a risk/reward type analysis will be presented. Staff will come back to the Board with future connection fee options and potential impacts on overall revenues to the District. The Board may wish to consider connection fees that as a Sewer Service Charge rate relief alternative, freeing up the remaining capital component. Member Boneysteele requested that the Board be provided with information on all the fees associated with a contractor building a home. The Board should not consider connection fees in a vacuum. Mr. Batts stated that a lot of those costs are hidden, and that there are also site specific and community specific costs. Mr. Batts stated that he will try to get examples of various fees that housing contractors pay. Lastly, Mr. Batts stated that he heard that the Board would like a future update on both the landscape and industrial recycled water programs. The Board thanked staff for the informative workshop. 4. REPORTS/ANNOUNCEMENTS None 5. ADJOURNMENT There being no further business to come before the Board, the meeting was adjourned at the hour of 4:32 p.m. . ' President of the Board of irectors, Central Contra Costa Sanitary District, County of Contra Costa, State of California COUNTERSIGNED: Se e ar of the Central ont~ Costa Sam ry District, County of Contra Costa, State of California 10 12 Or ..~'-\ (, U ., . . A