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HomeMy WebLinkAboutBOARD MINUTES 01-27-05 I I I 131 MINUTES OF THE ADJOURNED REGULAR BOARD MEETING OF THE DISTRICT BOARD OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT HELD ON JANUARY 27,2005 The District Board of the Central Contra Costa Sanitary District convened in an adjourned regular session at its regular place of meeting, 5019 Imhoff Place, Martinez, County of Contra Costa, State of California, at 2:00 p.m. on January 27,2005. President Hockett called the meeting to order and requested that the Secretary call roll. 1. ROLL CALL PRESENT: Members: Boneysteele, Lucey, Hockett ABSENT: Members: Menesini, Nejedly Members Menesini and Nejedly had advised staff that they would be unable to attend this meeting and had requested to be excused. a. PLEDGE OF ALLEGIANCE TO THE FLAG Board and staff joined in the Pledge of Allegiance to the Flag. 2. PUBLIC COMMENTS None 3. MATTERS OF PUBLIC INTEREST None other than those items listed on the agenda. 4. CALL FOR REQUESTS TO CONSIDER ITEMS OUT OF ORDER None 5. OPERATIONS a. BOARD ACCEPTANCE OF THE 2004 NATIONAL POLLUTANT DISCHARGE ELIMINATION SYSTEM AND COLLECTION SYSTEM OVERFLOW MONITORING PROGRAM REPORTS Mr. Charles W. Batts, General Manager, introduced Mr. Douglas J. Craig, Plant Operations Division Manager, who stated that the Annual National Pollutant Discharge Elimination System (NPDES) and Collection System Overflow Monitoring Program Reports are a summary of the calendar year performance. Data from the twelve monthly reports submitted to the Regional Water Quality Control Board (RWQCB) is compiled into the annual report. The RWQCB Annual Report NPDES section contains information on treatment plant waste characteristics and loading for influent, treated effluent and the receiving water (Suisun Bay near the District's outfall), and sludge disposal practices. The Collection System Overflow Monitoring Program section contains information on the site, volume, and cause of sewer system overflows. Mr. Craig reported that in calendar year 2004, the total flow treated was 16.4 billion gallons. The average daily flow was 44.8 million gallons. The peak hourly flow was 168 million gallons. Approximately 5,307 tons (wet weight) of ash was disposed of for soil amendment. Approximately 15,000 analytical tests requiring approximately 11,000 hours of laboratory work were completed. The District was in 1oO percent compliance with all NPDES permit requirements for the seventh consecutive year. In calendar year 2004 there were a total of 27 sewer overflows. Six overflows were greater than 1,000 gallons. The most common cause of overflows was root intrusion. 1-27-05 --------------. -- -..-------....------ ....-..,,-- ------ 132 Mr. Craig noted that during calendar year 2004, there were events near the permit limits in the areas of copper, mercury, and enterococcus. The special studies required by the District's NPDES permit, including the Ambient Monitoring Study, the Cyanide Site- Specific Study, and the Dioxins Method Development Study, are all essentially complete. The District's current NPDES permit expires May 31, 2006, and the application for renewal is due six months before that date. An initial meeting with the permit writer has been scheduled for March 14,2005. Mr. Craig stated that there appear to be fewer issues than during the pervious NPDES permit renewal process. In the coming months, the Board may be asked to approve the use of consultants and specialized tests to support the NPDES permit renewal process. In closing, Mr. Craig thanked the Board for the financial resources and their support, and acknowledged the contributions of all the employees that made this possible. On behalf of the Board of Directors, President Hockett commended staff on the outstanding job that resulted in 100 percent compliance with NPDES permit requirements. It was moved by Member Boneysteele and seconded by Member Lucey, that the 2004 National Pollutant Discharge Elimination System and Collection System Overflow Monitoring Program Reports be accepted, and submitted to the Regional Water Quality Control Board. There being no objection, the motion was approved with Members Menesini and Nejedly being absent. 6. BUDGET AND FINANCE a. FINANCIAL PLANNING AND POLICY WORKSHOP Mr. Batts, General Manager, stated that the purpose of the presentation today is to review the Sewer Service Charge increase scenarios, to respond to Board input, to receive Board direction with regard to the 2005-2006 Sewer Service Charge and consider annual adjustments to District fees and charges, to update the Board on ad valorem tax revenue issues, and to incorporate Board concerns into development of the budgets. Mr. Batts stated that a theme of "the sun will come out tomorrow" has been chosen for this workshop. Mr. Batts stated that was chosen particularly because of the foresight of the Board, the District has an excellent workforce, smooth transition within the organization, an exceptional regulatory record, long-term labor contracts, developing local partnerships, reasonable rates and fees, adequate reserves, and after two years the District will retain its property tax revenue. Mr. Batts noted that there are some clouds on the horizon: the reputation of the District and its competitive salaries and benefits must be maintained to ensure that the District continues to be an employer of choice; the State budget crisis is having an impact on special districts; there has been a general economic upturn but long-term recovery has not yet been achieved; and the cost of future regulatory requirements continues to be of concern to the District. Mr. Batts stated that the District's Mission and Vision Statements, along with the District goals of full regulatory compliance, exceptional customer service, responsible rates, and being a high-performance organization, have provided the context for evaluating multiple scenarios to assess the financial impacts of key variables of rate increase, cost reduction, deferral of capital projects, and debt financing. Mr. Batts stated that the methodology that has been used is the funds available/funds required model. The District began using this conceptual model at the 1999 Board Financial Planning and Policy Workshop. The methodology is simply that "funds available" should never fall below "funds required" and the rate-setting process is to determine future rates so that assumption remains true. The approach has been to create a "soft landing" for short- term rate stabilization. Funds required represents the minimum amount of reserves so that annual borrowing is not required. Mr. Batts stated that it is important to note that this is not a reserve requirement, but an estimate of the cash that will be needed to pay the District's bills between mid-April and mid-December until the District's Sewer Service Charge and property tax installments are received. Funds required in the rate 1-27 -05 I I I ------------'-_U"" '_____M' _'M___'__-----,---- .o_----------_. - ..-..--.----- -----------.--..----.----- I I I 133 scenarios has been in the range of $30 million to $35 million. In 2004, the combination of retaining ad valorem tax revenue, reducing operating expenses, deferring capital projects, and using bond financing for the San Ramon projects, has increased the District's reserve account sufficient to deal with the current loss of ad valorem tax revenue for the next two years. The amount of funds available is now $61 million. Mr. Batts stated that in 2003, the State of California Auditor performed a review of randomly selected independent water districts. The audit found that five of the eight water districts visited had no reserve policies, or the policies they had were weak. Based on this finding, District staff reviewed the District's reserve guidelines. It was found that the District conforms to the recommendations set forth in the State of California Auditor's review; however the District does not have a formal policy in place. Historically the following guidelines have been used to determine the District's reserve requirement: Operations and Maintenance Prudent Reserve: 10 percent of the next year's budgeted O&M expenses; . Debt Service: 100 percent of next year's principal and interest; . Capital: 75 percent of the next year's budgeted Capital Project expenditures; and . Self Insurance: as determined by outside actuarial review for Sub-Fund A (Actuarial Reserves), and internal District discussion of what reserve limit is appropriate for Sub-Fund B (Non-Actuarial Reserves). Sub-Fund C has no reserve requirement as this fund is used to record any remaining funds. Mr. Batts stated that there may be business reasons for the District to increase reserves, including the Board policy on the O&M reserve, prepayment of retiree benefits, self insurance liability, large future capital expenditures, and anticipated debt service. Government Accounting Standards Board (GASB) 45 requires that agencies account for their obligation for employees' post-employment benefits focusing primarily on healthcare. Agencies must either carry an unfunded liability on their balance sheet or set aside the required funding in a trust dedicated solely to retiree health benefits which is then reported on the financial statements in a footnote. District staff proposes to establish a trust fund to cover this obligation and fund it at the $5 million level until an actuarial study can be done to better estimate the correct annual liability to set aside. In addition, there is a future concern about other unfunded liabilities such as the pension fund and Self Insurance Fund. In the recommended scenario, it is projected the reserves will gradually be drawn down from $61 million in 2004-2005 to $41.4 million in 2012-2013, or approximately to the total funds required of $41.2 million. Mr. Batts reviewed the assumptions used in development of the recommended scenario as follows: . The State will take most of the ad valorem tax revenue from the District for two years; . The three-year Board approved Sewer Service Charge increase is still appropriate; . Staff's goal of a "soft landing" results in rate stabilization; . Prudent use of District reserves is preserved; and . The Board does not want to increase Sewer Service Charge rates before the need is evident. With regard to the ad valorem tax proposal, Mr. Batts stated that the State believes that enterprise districts should not receive tax funding. Proposition 1A shifted $1.3 billion of 1-27 -05 134 local government property taxes to the Education Relief Augmentation Fund (ERAF). The future of property tax revenue for local government is uncertain. Mr. Batts stated that 2004-2005 O&M expenses total $42.7 million. Labor and benefits account for 66 percent of that total and were the focus of near-term savings but there are still uncertainties with regard to long-term hea/thcare and pension fund costs. Utilities and Chemicals comprise 13 percent of the total and are the subject of long-term conservation efforts. Future uncertainties exist with regard to long-term natural gas cost projections, and repair and maintenance of the District's aging infrastructure. Total District revenue for 2004-2005 is projected to be $68.2 million, drawing $5.0 million from reserves. Of the total District revenue for 2004-2005, 7 percent is drawn from reserves, the Sewer Service Charge makes up 59 percent, capacity fees, mainly from the Dougherty Valley construction, make up 9 percent, revenue from the City of Concord contract makes up 13 percent, and interest income and other makes up approximately 7 percent. As reserves are drawn down in the future, interest income will decrease. Using a graph, Mr. Batts reviewed the total District O&M, Capital and Debt revenue and expense for the period 1993-1994 through 2004-2005, noting that in nine of the last twelve years expenses have exceeded revenues and as a result, reserves have been drawn down. Reserves have increased in the last two years due to the retention of property tax revenue and near-term savings measures implemented to mitigate the impact of the anticipated loss of property tax revenue. Mr. Batts stated that a Capital Improvement Budget (CIB) Board Workshop was held in November 2004, and a second CIB Workshop will be held in April. The CIB for both 2003-2004 and 2004-2005 was underspent because spending was curtailed as the loss of ad valorem tax revenue was anticipated. In accordance with discussions at the November 2004 CIB Workshop, it is proposed to return to normally budgeted capital expenditures based on the increase in the Sewer Construction Fund and the need for infrastructure rehabilitation. The baseline Capital Improvement Budget (CIB) amount based on previous CIB workshop calculations is $24.3 million. In light of the capital projects deferred in recent years and an increase in the capital reserve, an additional $3 million in needed projects is recommended, bringing the total CIB as outlined in the November 2005 CIB Workshop to $27.3 million. Mr. Batts stated that this level of capital spending is realistic, if not conservative, based on asset management principles. Mr. Batts noted that only a portion of the Sewer Construction Fund can be used to augment rates, as funds collected for a specific purpose must be used for that purpose. Mr. Batts reviewed scenarios for future years as set forth in the binder provided to the Board, describing the impact for fiscal years beyond 2004-2005. Scenario 1 (prior year) contains last year's assumptions of no loss of ad valorem tax revenue and a 3 percent or $8 Sewer ServIce Charge rate increase. There were also reduced operating costs, and deferred budget capital projects. This scenario projects a 3 percent rate increase into fiscal year 2006-2007 followed by modest rate increases in future years. These rate increases would place the District in a strong financial position to deal with operating costs, capital spending, and limited loss of ad valorem tax revenue. This scenario does not account for any anticipated increased in capital spending due to regulatory concerns, and it anticipates a moderate economic recovery, low inflation, and moderate wage concessions to employees. A "hard landing" is projected to occur in 2009-2010. This scenario does not account for the increased loss of ad valorem tax as initiated by the State now or in future years should such an occurrence transpire. Scenario 2 (recommended scenario) builds on last year's scenario with the projected loss of ad valorem tax revenue for two years, and a second year (2005-2006) Sewer Service Charge increase of $8 based on the adopted 3 percent, three year rate increase assumptions. This scenario uses the current Capital and O&M projected spending that has also been adjusted for more recent changes in operating expenses, includes a $5 million retiree benefits trust fund, and uses the proposed Capita/Improvement Plan as outlined in the November 2004 Board Workshop. This scenario also assumes an increase in the number of future connections from 1,300 to 1,800 and a corresponding increase in connections fees. The increases in reserves due to the retention of ad valorem tax revenue over the last several years and "near-term" savings allow the District to implement modest Sewer Service Charge rate increases for the next several 1-27 -05 I I I I I I 135 years. Staff believes that the proposed rate increase will be adequate for the near term even with the two-year loss of 65 percent of the District's ad valorem tax revenue initiated by the State this year. The 3 percent increases will still be needed in future years as O&M expenses inflate, labor costs increase, and capital expenditures follow the projected Capital Improvement Plan. This scenario creates a "hard landing" in 2012-2013. Scenario 3 (worst case) is based on the recommended scenario discussed above with the State taking all the District's ad valorem tax revenue in 2007-2008. This scenario addresses staffs concern that the Board may be forced to consider implementation of a Sewer Service Charge increase to replace ad valorem tax revenue, if taken by the State, in fiscal year 2007-2008 and all future years. It is not expected that the loss of the District's ad valorem tax revenue will occur beyond the mandated two years, but in light of a continuing State deficit problem this scenario with the loss of all ad valorem tax revenue, could arise in a future year. Staff will continue to implement cost saving measures and could defer large future capital projects, but a $60 Sewer Service Charge increase would be needed to replace lost revenue from the property tax stream. This scenario uses the Capital and O&M projected spending from the recommended scenario, and uses the current Capital Improvement Plan outlined in the November 2004 Board Workshop. This scenario creates a "hard landing" in 2012-2013. Mr. Batts presented the staff recommendation that the District implement a 3 percent Sewer Service Charge increase for 2005-2006, that the District consider annual rate adjustments to the District fees and charges, that the District consider a "Reserve Policy," that the District implement the current Capital Improvement Budget based on the long-term Capital Improvement Plan; and that the District anticipate possible loss of future tax revenues. Mr. Batts provided a comparison of the District's annual Sewer Service Charge of $280 and Connection Fee of $3,983 with other agencies annual charges ranging from $153 to $451 and corresponding Connection Fees, noting that if the recommended 3 percent ($8) increase were implemented, the District would still be below the median. Member Lucey stated that some of these local agencies receive ad valorem tax revenue and some do not Mr. Batts displayed and reviewed a chart showing the agencies that receive ad valorem tax revenue and those that do not, and the amount of ad valorem tax for those that receive it Member Lucey asked what percentage of total revenue the ad valorem tax is for the agencies that receive it President Hockett noted that some agencies also franchise solid waste and may receive revenue from that source. In response to questions from Member Boneysteele with regard to the Sewer Service Charges in areas receiving service from two agencies, it was noted that it is not uncommon for one agency to provide wastewater collection services and another to provide wastewater treatment services for the same area. Following discussion, it was agreed that staff will look into this issue to verify the rates for the areas in questions. Mr. Batts presented the staff recommendation that the Board to affirm the 3 percent ($8) Sewer Service Charge rate increase approved last year, based on existing reserves, the current Capital Improvement Plan, and the current State property tax shift for local government, and updating the six categories of fees, rates, and charges on an annual basis. Future actions would be for the Board to affirm the adopted 3 percent Sewer Service Charge increase, for staff to proceed with development of the District budgets based on Board input, to update the Board on State budget developments that may impact the District, to provide rate and budget information in the spring issue of the Pipeline newsletter, and to develop an appropriate process for adjusting District fees and charges. In closing, Mr. Batts quoted Governor Schwarzenegger's January 10th message to the Legislature of California, stating "Last year we stopped the bleeding. This year we must begin to heal the patient" 1-27-05 136 Following discussion of the dollar amount of the proposed 3 percent Sewer Service Charge increase, Member Lucey requested that in the next month or two, a Board discussion be calendared regarding spending down the reserves rather than increasing the Sewer Service Charge. Member Lucey voiced concern that the reserve level may make the District an attractive target for take over by another agency such as Contra Costa County. Mr. Batts stated that projections indicate that the reserves will be drawn down to the funds required level in approximately eight years. The Board may also want to consider other options, such as establishing a restricted fund balance account or outside trust to cover post-retirement medical expenses per a new Government Accounting Standards Board (GASB) requirement, and implementation of a proactive asset management program to ensure there are adequate renovation and replacement funds for District assets and needed future facilities. Mr. Batts requested that the Board ask District Counsel to look at the powers of the State and County in these instances, to determine the extent of the danger to the District of losing its reserves to the County. Members Boneysteele and Lucey agreed that District Counsel should investigate this issue. There being no further discussion, President Hockett and the Board of Directors commended staff on the excellent presentation and work that went into preparing the informational material distributed in advance of the workshop. 7. REPORTS a. GENERAL MANAGER Mr. Batts, General Manager, announced that the presentation to the Orinda City Council has been put off until March at the request of the City Council. b. COUNSEL FOR THE DISTRICT None c. SECRETARY OF THE DISTRICT None d. BOARD MEMBERS None 8. EMERGENCY SITUATIONS REQUIRING BOARD ACTION None 9. ANNOUNCEMENTS/SUGGESTIONS FOR FUTURE AGENDA ITEMS None 10. CLOSED SESSION a. PERSONNEL MA TIERS The closed session was held pursuant to Government Code Section 54957 to discuss personnel matters - public employment. The title of the position to be discussed is Secretary of the District. At 3:03 p.m., President Hockett declared the closed session to discuss personnel matters pursuant to Government Code Section 54957 as noted above. At 3:13 p.m., 1-27-05 I I I -------------_._--_._--_._--~--------_.__..,'_.... -_....,,-----------, I I I 137 President Hockett concluded the closed session and reconvened the meeting into open session. 11. REPORT OF DISCUSSIONS IN CLOSED SESSION No decisions were made or votes taken in closed session which require reporting at this time. 12. ADJOURNMENT There being no further business to come before the Board, President Hockett adjourned the meeting at the hour of 3:13 p.m. ~ i«::-l ~(i1Þ Central Contra Costa Sanitary District, County of Contra Costa, State of California COUNTERSIGNED: 1-27 -05 --------------------------