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HomeMy WebLinkAboutBOARD MINUTES 01-31-08 MINUTES OF THE SPECIAL MEETING OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT BOARD OF DIRECTORS HELD ON JANUARY 31,2008 The District Board of the Central Contra Costa Sanitary District convened in a special meeting at its regular place of business, 5019 Imhoff Place, Martinez, County of Contra Costa, State of California, at 2:00 p.m. on Thursday, January 31, 2008. President Lucey called the meeting to order and requested that the Secretary call roll. 1. ROLL CALL PRESENT: Members: Hockett, McGill, Mene~ini, Nejedly, Lucey ABSENT: Membe~: None a. PLEDGE OF ALLEGIANCE TO THE FLAG Board and staff joined in the Pledge of Allegiance to the Flag. 2. PUBLIC COMMENTS There were no public comments. 3. BUDGET AND FINANCE a. FINANCIAL PLANNING AND POLICY WORKSHOP General Manager James Kelly provided an overview of the workshop, which will cover the State of the District, rate-setting approach, items that impact rates and proposed rates and alternatives. He stated that the 2008-09 sewer service charge rate increase can be set at between $0 to a maximum of $13 based on last year's Proposition 218 Notice. Budget policy issues that need to be addressed include how to address unfunded liabilities, such as GASB 45 and Retirement Unfunded Actuarial Accrued Liability (UAAL). Other policy issues include the role of bond funding for the Capital Program and the development of reserve guidelines and strategies. The District is in a strong financial position, with cash reserves of $62.2 million as of June 30,2007. Expenses are projected to be "on budget." Mr. Kelly described the rate-setting approach, which uses a financial cash flow model to analyze policy issues and predict future rates. He stated that the model assumptions are Book 57 - Page 86 Board Minutes of January 31, 2008 that a trust will be set up for GASe 45; property tax income will escalate at 4% per year; six new positions will be added over the next ten years; medical, dental and life insurance increases will match GASe 45 actuary assumptions; there will be a vacancy factor of 4% for benefits and 3% for salary; and connection fee income over the next 10 years will be $5 million less than 2007-08. He showed charts illustrating the history of sewer service charge rates and available funds, and temporary investment balances. He stated that items that impact rates include revenues and expenses, liabilities, regulatory compliance, and the prior year's rates. The District has control over the sewer service charge but has limited control over tax and capacity fees. The sewer service charge currently makes up 49% of District revenue. He displayed additional charts showing historical revenue and reserves; sewer service charge, property tax and capacity fee trends; ten-year expenses; and the history of capital expenditures. Current liabilities for GASB 45 are estimated to be $48-$68 million, compared with $65 million the prior year. UAAlliability is estimated to be $43 million, compared with $40.5 million the prior year. Total estimated liability is $126.6-$146.6 million, compared with $143.1 million last year. Future regulatory compliance will include continuing to address mercury control, sanitary sewer overflows, greenhouse gas reduction, nutrient removal, emerging contaminants and water recycling. Mr. Kelly recommended that staff develop guidelines for addressing cash reserves, focusing on addressing unfunded liabilities and protecting the reserves. He showed a chart of historical reserve levels. With regard to rates, modest annual rate increases have been adopted since 2004. Forecasts show needed projects can be funded and the current level of service maintained with continued moderate increases in the future. In 2007, the public notice announced a two-year rate increase of up to $13 per year. An increase of $11 was approved in 2007-08, which increased the rate from $289 per year to $300 per year. Staff is recommending authorizing an increase of $11 for 2008-09, which would increase the rate to $311. This is an increase of 3.7%. Mr. Kelly also recommended adopting an annual increase to other fees, rates, charges and the administrative overhead. He recommended that the Board consider establishing a trust for GASB 45, and continuing to analyze options for addressing UAAL. He also recommended developing guidelines to address and protect District reserves. Policy issues the Board needs to address are what is an appropriate reserve balance; should the rates be increased modestly each year, or have larger periodic increases; and should future large projects be bond funded or use the pay-as-you-go approach. Currently, the District's sewer service charge ranks 8th from the bottom out of 23 rated, and if ad valorem revenue is included it ranks 10th from the bottom. Book 57 - Page 87 Board Minutes of January 31,2008 Mr. Kelly concluded his presentation, stating that staff recommends implementation of the $11 sewer service charge increase; prepare and adopt annual increases to fees, rates and charges; proceed with the District rate-setting process; approve the District budget for 2008-09; consider funding options for OPES; develop options to fund UAAL; and develop reserve guidelines. Member Menesini stated that he would like additional information regarding how the money will be spent. He stated that it is important to retain sufficient funds in reserves to address unexpected events and emergencies. Member McGill stated that the District should avoid paying interest whenever possible, preferring the sinking fund approach. He also expressed a preference for avoiding bond financing, and concurred with comments made by Member Nejedly at a prior meeting that staff should look at expediting the rehabbing of the sewer system if possible. He stated that the Budget and Finance Committee could look at possible reserve policies. Member McGill questioned whether, in light of recent interest rate cuts, assumptions of 5% and 8% for trust interest are realistic. President Lucey stated that he did not feel it necessary to retain $60 million in reserves. He questioned the need for a formal reserve policy when it has not been necessary so far. He stated that he will defer to the Budget and Finance Committee to recommend the appropriate level of reserves. He stated that benefits and health care for future employees may not always remain as they are now, although he has no desire to reduce benefits for current employees. He expressed concern regarding establishing a trust for GASS 45 liabilities and stated that determining who should be the trustee may be an issue. He recommended that the sewer service charge not be increased, but the funds be taken out of the District's reserves. He also suggested that the Board review the District's benefit package. Member Hockett stressed the value of individuals managing their health care costs and educating employees on how to do that. She supported regular, smaller rate increases rather than larger, less frequent increases. Board Members thanked Mr. Kelly for his presentation and thanked staff for their work in putting the information together. Mr. Kelly summarized by saying that this represents the start of the rate-setting process. The resolution adopted last year calls for consideration of the District's proposed budget, its financial condition, projected capital and operations and maintenance costs, as well as other significant factors. Accordingly, the need to recommend an $11 increase will be evaluated throughout the budget-setting process. Book 57 - Page 88 Board Minutes of January 31, 2008 4. ANNOUNCEMENTS Secretary of the District Elaine Boehme announced that the agenda packets for the upcoming Capital Projects Committee meeting were at Board Member places. 5. EMERGENCY SITUATIONS REQUIRING BOARD ACTION None. 6. ANNOUNCEMENTS/SUGGESTIONS FOR FUTURE AGENDA ITEMS None. 7. ADJOURNMENT There being no further business to come before the Board, President Lucey adjourned the meeting at 2:55 p.m. Ge~/1:L; President of the Board of Directors, Central Contra Costa Sanitary District, County of Contra Costa, State _of California COUNTERSIGNED: ~~~ Elaine R Boehme Secretary of the Central Contra Costa Sanitary District, County of Contra Costa, State of California Book 57 - Page 89