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BUDGET & FINANCE AGENDA 06-29-09
~~ Central Contra Costa Sanitary District Protecting. public health and~the,environment ~ 5079 Imhoff Place~UMartinez, CA 94553-4392 ` BOARD OF DIREC'l'ORS: BUDGET AND FINANCE COMMITTEE .~-I~,11:~~. h~l~ll:~)l.Y Prc.eidenr a91C1%.4%i!. R. ,14cG//.!. Chair Lucey `'r"'`'""''r° `"" ' Member Nejedly B.IXHaRAD.lIOCK8%l GIiRAI.t)R. I.UCEY ,bl-I RIO A~. ;t4EN6'S/N/ Monday, June 29, 2009 PHO)VE: (92.i) 228-900 3:00 p.t71. F.=1,Y: (925) 676-721 / www. centralsnn. o)g Executive Conference Room 5019 Imhoff Place Martinez, California INFORMATION FOR THE PUBLIC ADDRESSING THE COMMITTEE ON AN ITEM ON THE AGENDA Anyone wishing to address the Committee on an item listed on the agenda will be heard when the Committee Chair calls for comments from the audience. The Chair may specify the number of minutes each person will be permitted to speak based on the number of persons wishing to speak and the time available. After the public has commented, the item is closed to further public comment and brought to the Committee for discussion. There is no further comment permitted from the audience unless. invited by the Committee. ' ADDRESSING THE COMMITTEE ON AN ITEM NOT ON THE AGENDA [n accordance with state law, the Committee is prohibited from discussing items not calendared on the agenda.. You may address the Committee on any items not listed on the agenda, and which are within their jurisdiction, under PUBLIC COMMENTS. Matters brought up which are not on the agenda may be referred to staff for action or calendared on a future agenda. AGENDA REPORTS Supporting materials on Committee agenda items are available for public review at the Reception, 5019 Imhoff Place, Martinez. Reports or information relating to agenda items distributed within 72 hours of the meeting to a majority of the Committee are also available for public inspection at the Reception. During the meeting, information and supporting materials are available in the Conference Room. AMERICANS WITH DISABILITIES ACT In accordance with the Americans With Disabilities Act and California Law, it is the policy of the Central Contra Costa Sanitary District to offer its public meetings in a manner that is readily accessible. to everyone, including those with disabilities. If you are disabled and require special accommodations to participate, please contact the Secretary of the District at least a8 hours in advance of the meeting at (925) 229-7303. ® Recycled Paper Budget and Finance Committee June 29, 2009 Page 2 1. CALL MEETING TO ORDER 2. PUBLIC COMMENTS 3. OLD, BUSINESS *a. Review Outstanding Questions 4. CLAIMS MANAGEMENT *a. Review Outstanding Claims 5. REPORTS/ANNOUNCEMENTS *a. Green Purchasing Policy b. State Financial Crisis *c. Medicare withholding for Board Members 6. REVIEW EXPENDITURES (Item 4.a. in Board Binder) a. Review expenditures *b. Review P-card expenditures 7. REVIEW MAY 2009 FINANCIAL STATEMENTS (Item 4.b. in Board Binder) 8. ADJOURNMENT * Attachment ~.a. Central Contra Costa Sanitary District June 26, 2009 TO: BOARD BUDGET AND FINANCE COMMITTEE FROM: RANDALL MUSGRAVES D~M DEBBIE RATCLIFF ~~ SUBJECT: June 15, 2009 Finance Committee Meeting There were four outstanding questions from the last Board Budget and Finance Committee meeting which required additional staff research. The questions and answers are provided below: 1. 10091 Slide4Less -Would it be more cost effective to purchase two segways instead of renting them every month? The base price for this model of segway is $5,850. If two units were purchased including a vendor discount, the quoted cost would be $10,988. Two are needed as two employees work together to inspect force mains. The estimated life for a segway is seven to eight years. During that time, the batteries would need to be replaced. The cost of battery replacement is approximately $3,200 for both. The total cost of purchasing and maintaining two segways is $14,188. Rental costs for two segways over the next seven years would be approximately $33,600. By purchasing the segways instead of renting for the next seven years, the District would save $19,412. Based on the savings, staff concurs with the Finance Committee suggestion to buy the segways. 2. '31960 Whitley, Burchett and Associates -What was this $7,438 payment . for? The District hired Whitley, Burchett and Associates to complete a thirty page Federal grant funding application for the Concord Recycled Water Project: This application is referred to as a feasibility study by the Bureau of Reclamation and includes detailed information on all aspects of the project. The application is required prior to grant consideration. The grant program allows up to 25% of the project costs which is $1.8 million of the $7.2 million recycled water project. The District has not received grant approval to date. 3. 31980 PG&E -What was this $10,000 payment for? This was a deposit for engineering review and field verification for the new CSO building gas and electric services. This deposit may roll over to construction services for temporary power and demolition of existing utility service. If the District does not proceed into construction, the remaining amount will be paid back to the District. 4. What is included in the terminal compensation amount reported to CCCERA and how does that compare to the General Enhanced Retirement Group? Staff has almost completed the research and will bring the information back to the next Budget and Finance Committee meeting. 0 0 N N C d L ~_ W J 4J IN N' C U ~ ~ ~ co U -~ Q N ~ o c CB ~ E Y ~ ~ Y C7 > > ~ a> U ~ ~ ~ O ~ U = m ~ U ~ ~ J ~ ~ U " o ~ r~ rn O ~ l1') 67 ~; O N O d' ~ ~ O r ~ O r N GH M '.U EA EA Ef} Q ~- ~ ~ N N N N N '~ ~ ~ '~ !~ r r T ~- M ~ M ~ ~ ~ 67 ~ O O O O V 0 0 0 O Q O O O O O O O O M M M M O O O O O O O O N ~ C N Y O E ~ ~ v ` Z ~ + ~ V) L 0 C O / U z U i ~ ~ L cc G C G ~ ~ ~ ~ ~ U ~ ~ ~ Y O O ~ £ ~ U' r N Z W U Z _Z J W a~ i~ a 0 U N O ~ C .. rQ ~ ~ O N C O ~ N , . ~. ~ .~ I. ~ C .~ ,fl o ~ Z ~~ y, ~ rn - m cn Z ~ cn ~ ~ c ~ ~ c o ~ c o ~ ~ ~ N E ~ ~' _ ~ -a U ~ 'cv '~ v ~ ~' cv a> m Z ~ Z c ~ _ ~ U a i o ' U ~ ~_ ~ ~ a> ' c ~ c ~ o •? ~ tB ~ cv N ~ O N U ~ ~ ` ~ (6 ~ ~ Q (6 O ~ ~ ~ y ' . 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C Yt O U U N a N L ~_ Q] ~ '( C i U O N ~ 1 a i U ~ U ~ i N~ ~ I N I J O m 0 N m N OI d w a~ o~ n a W v A O D a S v N O M 0 U Z 0 N O C~ V O Q N ~ ~ ~ ~ ~ ~ ~ U U ~ U U m cn o ~ ~ o o rn m ~ ~ r r ~ u7 ~n ~ t+1 fA 'EA fA S O N ~ ~ ~ d d d 0 E a 0 U U m 0 O R 0 v -OC ~c E 0 0 ~~ E E v a c 0 0 0 0 ° U U U U rt U U i ~ U U F- t L ~ O 0 0 ~ U 0 0 ~ ~ 2 2 m ~ o O 0 0 ~ v o,o old 0 N 1 5. a. Central Contra Costa Sanitary District June 25, 2009 TO: Budget & Finance Committee ~, -. ~ ,. FROM: Stephanie King, Purchasing & Materials Manager`~2~~-~ SUBJECT: Environmentally Preferable Purchasing (EPP) Policy Attached is a copy of the Environmentally Preferable Purchasing (EPP) Policy which will replace Chapter 6 Recycled Product Procurement of the current Purchasing Policies and Procedures-. This EPP Policy has been modeled after similar policies in other local government agencies. It has been reviewed by Management Staff and it has been presented at the Department Directors meeting where District Legal Counsel reviewed as well. Suggestions made have been incorporated into the policy. An Environmentally Preferable Purchasing (EPP) Policy will reinforce the District's commitment to promote environmentally sustainable business practices, conserve natural resources, and support strong recycling markets. The EPP Policy focuses on the procurement of products or services that have a lesser or reduced effect on human health and the environment when compared with competing products or services that serve the same purpose. This policy calls upon all District purchasers to use environmentally preferable products or services whenever possible, while recognizing that their principal requirements must be product performance, availability and fiscal responsibility. Adoption of the proposed EPP Policy will enable the Purchasing and Materials Services Division to expand on environmentally preferable business practices and procurement opportunities. r Chapter 6 `Environmentally Preferable Purchasing Policy 6.1 Purpose This Policy is adopted in order to: • protect and conserve natural resources, • minimize environmental impacts such as pollution and use of water and energy, • eliminate or reduce toxics that create hazards to workers and our community, • promote practices that improve public and worker health, • support strong recycling markets, • reduce materials that are land filled, • increase the use and availability of environmentally preferable products that protect the environment, • identify environmentally preferable products and distribution systems, • reward manufacturers and vendors that reduce environmental impacts in their production and distribution systems or services, • create a model for successfully purchasing environmentally preferable products that encourages other purchasers in our community to adopt similar goals. 6.2 Policy In support of Central Contra Costa Sanitary District's mission to protect public health and the environment, it is the policy of the District to: • institute practices that reduce waste by increasing product efficiency and effectiveness, • purchase environmentally preferable products and services that minimize environmental and health impacts, toxics, pollution, and hazards to worker and community safety and to the larger global community to the greatest extent practicable, • where practicable, purchase products that include, recycled content, are durable and long-lasting, conserve energy and water, use agricultural fibers and residues, reduce greenhouse gas emissions, use unbleached or chlorine free manufacturing processes, are lead-free and mercury-free, and use wood from sustainably harvested forests, and • Consider environmental factors as early as possible in the acquisition planning and decision-making process. It is not the intent of this policy to require a department, buyer or contractor to take any action that conflicts with local, state or federal requirements or to procure products that do not perform adequately for their intended use, exclude adequate competition, or are not available at a reasonable price in a reasonable period of time. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-1 of 6-11 6.3 Specifications 6.3.1 Source Reduction 6.3.1.1 The District shall institute practices that reduce waste and result in the purchase of fewer products whenever practicable and cost-effective, but without reducing safety or workplace quality. 6.3.1.2 The District shall purchase remanufactured products such as toner cartridges, tires, furniture, equipment and automotive parts whenever practicable, but without reducing safety, quality or effectiveness. 6.3.1.3 All District buyers shall consider short-term and long-term costs in comparing product alternatives, when practicable. This includes evaluation of total costs expected during the time a product is owned, including, but not limited to, acquisition, extended warranties, operation, supplies, maintenance, disposal costs and expected lifetime compared to other alternatives. 6.3.1.4 Products that are durable, long lasting, reusable, refillable, recyclable or otherwise create less waste are preferred whenever practicable. 6.3.1.5 District RFP's will contain language requesting that vendors eliminate packaging or use the minimum amount necessary for product protection whenever practicable. Packaging that is reusable, recyclable or compostable is preferred, when suitable uses and programs exist. Vendors shall be encouraged to take back and reuse pallets and other shipping and packaging materials whenever Spracticable. 6.3.1.6 The District shall consider provisions in contracts with suppliers that require suppliers to take back, products for reuse or environmentally safe recycling when the District discards or replaces such equipment, whenever practicable. 6.3.1.7 Rechargeable and recyclable batteries shall be purchased and used whenever practicable. 6.3.1.8 All documents shall be printed and copied on both sides to reduce the use and purchase of paper, whenever practicable. 6.3.2 Recycled Content Products 6.3.2.1 Equipment purchased or rented by the District, such as copiers and printers, shall be compatible with the use of recycled content and remanufactured products, whenever practicable. 6.3.2.2 In accordance with California Public Contract Code, Sec. 10409, the District shall purchase re- refined lubricating and industrial oil for use in its vehicles and other equipment, as long as it is certified Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-2 of 6-11 by the American Petroleum Institute (API) as appropriate for use in such equipment, whenever practicable. 6.3.2.3 When specifying asphalt concrete, aggregate base or portland cement concrete for road construction projects, the District shall use recycled, reusable or reground materials when practicable and available at a competitive price including travel time. 6.3.2.4 Whenever practicable, the District may specify and purchase recycled content transportation products, including signs, cones, parking stops, delineators, channelizers and barricades, which shall contain the highest post consumer content practicable, and are priced competitively with other like items and meet Caltrans and, OSHA specifications. 6.3.2.5 All pre-printed recycled content papers intended for distribution that are purchased or produced shall contain a statement that the paper has recycled content. Whenever practicable, the statement should indicate the percentage of post consumer recycled content it contains. 6.3.3 Energy and Water Savings 6.3.3.1 When practicable, energy-efficient equipment shall be purchased with the most up to date energy efficiency functions. This includes, but is not limited to, high efficiency space heating systems and high efficiency space cooling equipment. ".6.3.3.2 When practicable, the District shall replace inefficient interior lighting with energy-efficient equipment. 6.3.3.3 When practicable, the District shall replace inefficient exterior lighting, street lighting and traffic signal lights with energy-efficient equipment. Exterior lighting shall be minimized where possible to avoid unnecessary lighting of architectural and landscape features while providing adequate illumination for safety and accessibility. 6.3.3.4 When considering electronic products, the District will include in its specifications that for products where U.S. EPA Energy Star certification is available, the products must meet the latest Energy Star certification standards, whenever practicable. The District shall specify that desktop computers, notebooks and monitors purchased meet, at a minimum, all Electronic Product Environmental Assessment Tool (EPEAT) environmental criteria designated as "required" as contained in the IEEE 1680 Standard for the Environmental Assessment of Personal Computer Products, whenever practicable. 6.3.3.5 The District shall purchase water-saving products whenever practicable. This includes, but is not limited to, high-performance fixtures like toilets, urinals, low-flow faucets and aerators, and upgraded irrigation systems when potable water is used for irrigation. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-3 of 6-11 6.3.4 Green Building 6.3.4.1 All building and renovations undertaken by the District shall follow Green Building Practices for design, construction, and operation, whenever practicable, as described in the LEEDT"^ Rating System. 6.3.5 Landscaping 6.3.5.1 All landscape renovations, construction and maintenance performed by the District, including workers and contractors providing landscaping services for the District, shall employ Bay-Friendly Landscaping or sustainable landscape management techniques for design, construction and maintenance whenever practicable, including, but not limited to, integrated pest management, grass cycling, drip irrigation, composting, and procurement and use of mulch and compost that give preference to those produced from regionally generated plant debris and/or food waste programs. 6.3.5.2 Plants should be selected to minimize waste by choosing species for purchase that are appropriate to the microclimate, species that can grow to their natural size in the space allotted them, and perennials rather than annuals for color, whenever practicable. Native and drought-tolerant plants that require no or minimal watering once established are preferred, except in cases where recycled water is available. 6.3.5.3 Hardscapes and landscape structures constructed of recycled content materials are encouraged. The District shall limit the amount of impervious surfaces in the landscape, wherever ;practicable. Permeable substitutes, such as permeable asphalt or pavers, are encouraged for walkways, patios and driveways. 6.3.6 Toxics and Pollution 6.3.6.1 The District shall purchase and use, and require janitorial contractors to supply and use, industrial and institutional cleaning products that meet Green Seal or EcoLogo certification standards for environmental preferability and performance whenever practicable. 6.3.6.2 To the extent practicable, the District shall purchase, or require janitorial contractors to supply, vacuum cleaners that meet the requirements of the Carpet and Rug Institute "Green Label" Testing Program -Vacuum Cleaner Criteria, are capable of capturing 96% of particulates 0.3 microns in size, and operate with a sound level less than 70dBA. Where practicable, other janitorial cleaning equipment shall be capable of capturing fine particulates, removing sufficient moisture so as to dry within 24 hours, operate with a sound level less than 70dBA, and use high-efficiency, low-emissions engines. 6.3.6.3 The use of micro fiber cleaning cloths that capture fine particulates using fewer wetting agents shall be phased in whenever practicable. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-4 of 6-11 6.3.6.4 Whenever practicable, the use of chlorofluorocarbon and halon-containing refrigerants, solvents and other products known to contribute to the depletion of the ozone layer shall be phased out and new purchases of heating/ventilating/air conditioning, refrigeration, insulation and fire suppression systems shall not contain them. 6.3.6.5 All surfactants and detergents shall be readily biodegradable and shall not contain phosphates, whenever practicable. 6.3.6.6 When maintaining buildings and landscapes, the District shall manage pest problems through prevention and physical, mechanical and biological controls, whenever practicable. The District may either adopt and implement an organic pest management policy and practices or adopt and implement an Integrated Pest Management (IPM) policy and practices using the least toxic pest control as a last resort only after safer approaches or products have been determined to be ineffective. 6.3.6.7 When maintaining buildings, the District shall use products with the lowest amount of volatile organic compounds (VOCs), highest recycled content, and low or no formaldehyde when practicable when purchasing materials such as paint, carpeting, flooring, adhesives, furniture and casework. 6.3.6.8 The District shall reduce or eliminate its use of products that contribute to the formation of dioxins and furans, whenever practicable. This includes, but is not limited to: • Purchasing paper, paper products, and janitorial paper products that are unbleached or that are processed without chlorine or chlorine derivatives, whenever practicable. Prohibiting purchase of products that use polyvinyl chloride (PVC) such as, but not limited to, office binders, furniture, flooring, and medical supplies, whenever practicable. 6.3.6.9 The District shall purchase products and equipment with no lead or mercury whenever practicable. For products that contain lead or mercury, the District shall give preference to those products with lower quantities of these metals and to vendors with established lead and mercury recovery programs. The District shall also seek to replace existing products that contain mercury whenever practicable. 6.3.6.10 When replacing vehicles, the District shall consider less-polluting alternatives to diesel such as compressed natural gas, bio-based fuels, hybrids, electric batteries, and fuel cells, whenever practicable. 6.3.7 Forest Conservation 6.3.7.1 To the greatest extent practicable, the District shall not procure wood products such as lumber, paper, furniture and fixtures that originate from forests harvested in an environmentally unsustainable manner. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-5 of 6-11 6.3.7.2 The District encourages the purchase or use of previously used or salvaged wood and wood products whenever practicable. 6.3.8 Bio-Based Products 6.3.8.1 Vehicle fuels made from non-wood, plant-based contents such as vegetable oils are encouraged whenever practicable. 6.3.8.2 Paper, paper products and construction products made from non-wood, plant-based contents such as agricultural crops and residues are encouraged whenever practicable. 6.3.8.3 Bio-based plastic products that are biodegradable and compostable, such as bags, film, food and beverage containers, and cutlery, are encouraged whenever practicable. 6.3.8.4 compostable plastic products purchased shall meet American Society for Testing and Materials (ASTM) standards as found in ASTM D6400-04. Biodegradable plastics used as coatings on paper and other compostable substrates shall meet ASTM D6868-03 standards. 6.3.8.5 Proof of compliance with ASTM standards for compostable, biodegradable and degradable plastic products shall be provided by vendors of such products, upon request. One acceptable proof of compliance for compostable plastic products will be certification by the Biodegradable Products Institute (BPI). 6.4 Priorities 6.4.1 The health and safety of workers and citizens is of utmost importance and takes precedence over all other policies. 6.4.2 The District has developed a successful recycling system and recognizes that recycled content products are essential to the continuing viability of that recycling system and for the foundation of an environmentally sound production system. Therefore, to the greatest extent practicable, recycled content shall be included in products that also meet other specifications, such as chlorine free or biobased. 6.4.3 Nothing contained in this policy shall be construed as requiring a department, purchaser or contractor to procure products that do not perform adequately for their intended use, exclude adequate competition, or are not available at a reasonable price in a reasonable period of time. 6.4.4 Nothing contained in this policy shall be construed as requiring the District, department, purchaser or contractor to take any action that conflicts with local, state or federal requirements. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-6 of 6-11 6.5 Implementation 6.5.1 The Purchasing & Materials Manager, or designee, shall implement this policy in coordination with the General Manager and appropriate District personnel. 6.5.2 Implementation of this policy will be phased based on available resources and District priorities. 6.5.3 The District shall ensure that wherever practicable, specifications are developed or amended to provide for. the expanded use of environmentally preferred products such as: durable products, reusable products, energy efficient products, low pollution products, products (including those used in services) that contain the maximum level of post-consumer waste and/or recyclable content, and products that provide minimal impact to the environment. 6.5.4 The District's Green Team is composed of members from across the organization. They will assist to implement this policy within their departments and recommend ways and means of improving environmentally preferable procurement. 6.5.5 Every department is responsible for ensuring that any of its employees who have been issued credit cards are fully aware of their responsibilities under this policy. No purchase, including those made on the District's credit cards, is exempt from this policy. 6.5.6 As applicable, successful bidders shall certify in writing that the environmental attributes claimed in competitive bids are accurate. In compliance with State law, vendors shall be required to specify the ,minimum or actual percentage of recovered and post consumer material in their products, even when such percentages are zero. 6.5.7 If the buyer making the selection from competitive bids or the requesting department seek to purchase products that do not meet the environmentally preferable purchasing criteria in this policy, the buyer or department shall provide written justification for these .product choices upon request. 6.5.8 If a vendor that is under contract with the District for providing products and/or services that have environmentally preferable specifications and is no longer able to provide these products and/or services, the vendor shall notify the Purchasing and Materials Manager and provide written justification explaining why compliance is not practical. Prior consent from the Purchasing and Materials Manager, or authorized District representative, shall be required before substituting any alternative product/service to any District employee. 6.5.9 Purchasers shall include businesses certified by the Bay Area Green Business Program in requests for products and services where practicable. 6.5.10 Vendors, contractors and grantees shall comply with-applicable sections of this policy for products and services provided to the District, where practicable. Central Contra Costa Sanitary District -Purchasing Policies and Procedures . Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-7 of 6-i l 6.6 Program Evaluation 6.6.1 The Purchasing & Materials Manager, or designee, shall periodically evaluate the success of this policy's implementation. 6.7 Definitions 6.7.1 "American Society for Testing and Materials" means ASTM International, an open forum for the development of high quality, market relevant international standards use around the globe. 6.7.2 "Bay Area Green Business Program" is a partnership of governments and businesses that certifies the environmental performance of government agencies and businesses. 6.7.3 "Bay-Friendly Landscaping" means working with the natural ecosystems of the San~Francisco Bay Area to foster soil health, to reduce runoff and pollution, prevent and reuse plant waste, conserve water and other natural resources. Bay-Friendly Landscaping practices are described in the Bay-Friendly Landscape Guidelines, by StopWaste.Org. 6.7.4 "Bio-Based Products" means commercial or industrial products (other than food or feed) that utilize agricultural crops or residues but does not include products made from forestry materials. 6.7.5 "Biodegradable plastic" means the degradation of the plastic must occur as a result of the action of naturally occurring microorganisms. 6.7.6 "Biodegradable Products Institute" (BPI) is amulti-stakeholder association of key individuals and groups from government, industry and academia, which promotes the use, and recycling of biodegradable polymeric materials (via composting). BPI does not create standards but certifies products that demonstrate they meet the requirements in ASTM D6400 or D6868, based on testing in an approved laboratory. 6.7.7 "Buyer" means anyone authorized to purchase or contract for purchases on behalf of the District or its subdivisions. 6.7.8 "The Carpet and Rug Institute" (CRI) is the national trade association representing the carpet and rug industry. CRI has developed and administered the "Green Label" indoor air quality testing and labeling program for carpet, adhesives, cushion materials and vacuum cleaners. The "Green Label Plus" testing program incorporates additional requirements to meet California's Collaborative for High Performance Schools low emitting materials criteria. 6.7.9 "Chlorine free" means products processed without chlorine or chlorine derivatives. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-8 of 6-11 6.7.10 "Compostable plastic" means plastic that is biodegradable during composting to yield carbon dioxide, water and inorganic compounds and biomass, at a rate consistent with other known compostable materials and leaves no visually distinguishable or toxic residues. 6.7.11 "Contractor" means any person, group of persons, business, consultant, designing architect, association, partnership, corporation, supplier, vendor or other entity that has a contract with the District or serves in a subcontracting capacity with an entity having a contract with the District for the provision of goods or services. 6.7.12 "Degradable plastic" means plastic that undergoes significant changes in its chemical structure under specific environmental conditions. 6.7.13 "Dioxins and furans" are a group of chemical compounds that are classified as persistent, bioaccumulative, and toxic by the U.S. Environmental Protection Agency (EPA). 6.7.14 "Electronic Product Environmental Assessment Tool" (EPEAT) is a procurement tool to help institutional purchasers in the public and private sectors evaluate, compare and select desktop computers, notebooks and monitors based on their environmental attributes. Under EPEAT, manufacturers declare their products' conformance to a comprehensive set of environmental criteria in eight environmental performance categories. The operation of EPEAT and the environmental criteria are contained in the public standard IEEE 1680. 6.7.15 "Energy Efficient Product" means a product that is in the upper 25% of energy efficiency for all similar products, or that is at least 10% more efficient than the minimum level that meets State of California efficiency standards and State Title 24. 6.7.16 "Energy Star" means the U.S. EPA's energy efficiency product labeling program. 6.7.17 "Environmentally Preferable Products and Services" means products and services that have a lesser or reduced effect on human health and the environment when compared to other products and services that serve the same purpose. This comparison may consider raw materials acquisition, production, manufacturing, packaging, distribution, reuse operation, maintenance, or disposal of the product or service. 6.7.18 "Federal Energy Management Program" (FEMP) is a program of the Department of Energy that issues a series of Product Energy Efficiency Recommendations that identify recommended efficiency levels for energy-using products. , 6.7.19 The "Forest Stewardship Council" is a global organization that certifies responsible, on-the- ground forest management according to rigorous standards developed by a broad variety of stakeholder groups. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-9 of 6-11 6.7.20 "Green Building Practices" means awhole-systems approach to the design, construction, and operation of buildings and structures that helps mitigate the environmental, economic, and social impacts of construction, demolition, and renovation. Green Building Practices such as those described in the LEEDT"' Rating System, recognize the relationship between natural and built environments and seeks to minimize the use of energy, water, and other natural resources and provide a healthy productive environment. 6.7.21 "Green Seal" is an independent, non-profit environmental labeling organization. Green Seal standards for products and services meet the U.S. EPA's criteria for third-party certifiers. The Green Seal is a registered certification mark that may appear only on certified products. 6.7.22 "Integrated Pest Management (IPM)" is an ecosystem-based strategy that focuses'on long-term prevention of pests or their damage through a combination of techniques such as biological control, habitat manipulation, modification of cultural practices, and use of resistant varieties. Pesticides are used only after monitoring indicates they are needed according to established guidelines, and treatments are made with the goal of removing only the target organism. Pest control materials are selected and applied in a manner that minimizes risks to human health, beneficial and nontarget organisms, and the environment. 6.7.23 "LEEDT"' Rating System" means the most recent version of the Leadership in Energy and Environmental Design (LEEDT"^) Commercial Green Building Rating System, or other related LEEDT"' Rating System, approved by the U.S. Green Building Council and designed for rating new and existing .commercial, institutional, and high-rise residential buildings. 6.7.24 "Organic Pest Management" prohibits the use and application of toxic chemical pesticides and strives to prevent pest problems through the application of natural, organic horticultural and maintenance practices. All pest control products shall be in keeping with, but not limited to, those products on the approved list of California Certified Organic Foods (CCOF). 6.7.25 "Post Consumer Material" means a finished material which would normally be disposed of as a solid waste, having reached its intended end-use and completed its life cycle as a consumer item, and. does not include manufacturing or converting wastes. 6.7.26 "Practicable" and "Practical" mean whenever possible and compatible with local, state and federal law, without reducing safety, quality, .or effectiveness and where the product or service is available at a reasonable cost in a reasonable period of time. 6.7.27 "Preconsumer Material" means material or by-products generated after manufacture of a product is completed but before the product reaches the end-use consumer. Preconsumer material does not include mill and manufacturing trim, scrap, or broke which is generated at a manufacturing site and commonly reused on-site in the same or another manufacturing process. Central Contra Costa Sanitary District -Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-] 0 of 6-I 1 6.7.28 "Recovered Material" means fragments of products or finished products of a manufacturing process, which has converted a resource into a commodity of real economic value, and includes preconsumer and post consumer material but does not include excess resources of the manufacturing process. 6.7.29 "Recycled Content" means the percentage of recovered material, including preconsumer and post consumer materials, in a product. 6.7.30 "Recycled Content Standard" means the minimum level of recovered material and/or post consumer material necessary for products to qualify as "recycled products." 6.7.31 "Recycled Product" means a product that meets the District's recycled content policy objectives for post consumer and recovered material. 6.7.32 "Remanufactured Product" means any product diverted from the supply of discarded materials by refurbishing and marketing said product without substantial change to its original form. 6.7.33 "Reused Product" means any product designed to be used many times for the same or other purposes without additional processing except for specific requirements such as cleaning, painting or minor repairs. 6.7.34 "Source Reduction" refers to products that result in a net reduction in the generation of waste .compared to their previous or alternate version and includes durable, reusable and remanufactured ,products; products with no, or reduced, toxic constituents; and products marketed with no, or reduced, packaging. 6.7.35 "U.S. EPA Guidelines" means the Comprehensive Procurement Guidelines established by the U.S. Environmental Protection Agency for federal agency purchases as of May 2002 and any subsequent versions adopted. 6.7.36 "Water-Saving Products" are those that are in the upper 25% of water conservation for all similar products, or at least 10% more water-conserving than the minimum level that meets the Federal standards. Central Contra Costa Sanitary District- Purchasing Policies and Procedures Chapter 6 -Environmentally Preferable Purchasing Policy Page 6-11 of 6-11 5.c. Central Contra Costa Sanitary District June 12, 2009 TO: Finance Committee VIA: James Kelly, General Manager C~'(~`~ FROM: Randall Musgraves, Director of Administration ~~~' Debbie Ratcliff, Controller ~~ SUBJECT: Medicare Withholding for Board Members Issue The District currently does not withhold Medicare taxes on compensation earned by the Board. At a recent conference, the Human Resources Manager attended a lecture where the presenter indicated that Medicare taxes should be withheld from Board member compensation. Staff asked the law firm, Hanson Bridgett, to review the issue. Their legal response is attached which indicates that Medicare taxes should be withheld from Board member compensation. The letter also indicates that the District should consider remitting Medicare tax payments for calendar years 2006, 2007 and 2008. HiStOry In 1974, the District Board adopted a Deferred Compensation Plan which exempted the District from the payment of Social Security taxes for full time employees. In 1989, staff asked the law firm of Corbett & Kane if Board member compensation should be treated as salary (not fees) and reported on W-2 forms as opposed to the then current practice of reporting on 1099 forms. If Board members were not employees for payroll tax purposes, then payments to them would not be subject to Social Security and Medicare tax. It was confirmed that Board member compensation should be considered salary and W-2s were issued from that time forward. Also, Corbett & Kane indicated that if a Board member was elected before March 31, 1986, no Medicare tax was required to be withheld. Since all then current Board members were elected prior to March 31, 1986, , no Medicare tax deductions were implemented. In 1991, the District adopted a separate Deferred Compensation Plan for part-time, temporary and seasonal employees in response to new IRS regulations regarding Social Security Tax. At that time, the Secretary of the District asked Corbett & Kane to answer questions regarding the application of the new Social Security requirements for government employers. The response letter indicated that participation in the salary H:\Medicare withholding for Board Members.doc deferral plan provided an exemption from Social Security taxes. The term Social Security taxes is often used when referring to both components of the tax; Social Security tax and Medicare tax. Staff interpreted the language in the legal response to mean all Social Security taxes including Medicare. This was a misinterpretation and Medicare tax was not withheld on new Board members that were hired after March 31, 1986. O tions Medicare taxes for both the employee portion and the employer portion should be remitted going back three calendar years. Compounded interest at 4% could potentially be charged by the IRS should they decide that the District knowingly did not withhold Medicare taxes. O tp ion 1 The District would pay the back Medicare taxes for both the employer and the Board members for calendar years 2006, 2007 and 2008 and for the current year through May 31. Starting with the June paycheck and going forward, Medicare would be withheld on a monthly basis. Per the District's attorney, Kent Alm, this option would require the Board to amend the current Ordinance regarding Board Compensation to include this additional amount paid on their behalf. Financial Impact This option would require the District to remit a total of $2,519.77 in back Medicare taxes to cover the employer portion, and an additional $2,519.77 for the Board members' portion. This amount does not include interest. The amount paid on behalf of the Board members (approximately $500 each) would be added to Gross wages in the W2 for the current year. This additional amount would be subject to federal income tax withholding as well as additional Medicare taxes. Corrected Form W-2s would be issued to each Board member for calendar years 2006, 2007 and 2008. The letter from the attorney states that because the corrected Form W-2 only changes the amount of compensation reported for Medicare purposes, the IRS does not require the filing of an amended individual tax return. Option 2 Board members would pay the back Medicare taxes and the District would only pay the employer portion for calendar years 2006, 2007 and 2008 and for the current year through May 31. Starting with the June paycheck and going forward, Medicare would be withheld from Board member compensation on a monthly basis, and the District would pay the employer portion. H:\Medicare withholding for Board Members.doc Financial Impact This option would require the Board members to remit their share of back Medicare taxes (approximately $500 each) and the District would pay the employer portion of $2,519.77. The remittance back to the District could be a lump sum taken out of the Board members' compensation check, or six monthly deductions through the end of the calendar year. This would eliminate any additional wages to be added to Board member W2s for the current year. Corrected Form W-2:s would be issued to each Board member for calendar years 2006, 2007 and 2008. Staff is asking for Board input and direction regarding this issue. Should there be any addition information that the Board needs to make a decision between the options, please call Debbie Ratcliff at 229-7326 or Randall Musgraves at 229-7305. H:\Medicare withholding for Board Members.doc HansonBridgett Memorandum TO: Debbie Ratcliff, Controller FROM: Carol Malenka Collins DATE: June 11, 2009 RE: Medicare Taxes and the Board of Directors I. INTRODUCTION ~. C The Central Contra Costa Sanitary District does not currently remit Medicare taxes for Board members. You asked us whether the District should remit Medicare taxes for Board members and whether the District should pay Medicare taxes retroactively. II. BRIEF OVERVIEW 1. The District should remit Medicare taxes for members of its Board of Directors. The current Medicare tax is 2.9% of compensation. The District should withhold 1.45% from the compensation of Board members prospectively and remit an additional 1.45% of compensation, :so that the total Medicare tax payment is 2.9% of compensation. 2. The statute of limitations for Medicare tax payments is three years. The District should consider remitting Medicare tax payments for 2006, 2007 and 2008. The District should not be subject to additional failure-to-deposit and failure-to-pay penalties, but the District may be subject to interest on the failure to remit the Medicare taxes on a timely basis if the IRS finds that the District knowingly underreported its employment tax liability. III. ANALYSIS A. BASIC EXPLANATION OF THE MEDICARE TAX RULES There are two components of the taxes known as "FICA" or "payroll" taxes: (1) Medicare taxes (aka Hospital Insurance or HI taxes) and (2) Social Security taxes (aka OASDI taxes) . Unfortunately, the rules for the remittance of Medicare taxes and Social Security taxes are not the same. One key difference between the two taxes for governmental employers is that governmental employers can be exempt from the remittance of Social Security taxes. This exemption does not extend to the remittance of Medicare taxes and this difference in the rules can create confusion and errors in tax payments. The potential for confusion is exacerbated because both taxes are provided pursuant to the "Social Security Act" and the term "Social Security tax" is sometimes used to refer to both components of the tax. Hanson Bridgett LLP 425 Market Street, 26th Floor, San Francisco, CA 94105 hansonbridgctt.coni 1944209.1 Memorandum To: Debbie Ratcliff June 11, 2009 Page 2 A. Social Security Taxes "Social Security" or "OASDI" tax is a tax on both the employee and the employer. The employee contributes an amount at the OASDI tax rate (currently 6.2% of compensation up to the social security wage base) and the employer contributes the same amount.2 The total OASDI tax is 12.4% of compensation up to the social security wage base. The employer is responsible for remittance of both the employee and the employer portions of the OASDI tax. Public employees are subject to the OASDI tax if the employer enters into a "218 agreement" or if an employee is not covered by a "retirement plan" that provides sufficient benefits. In other words, OASDI taxes are not remitted for an employee who is not covered by a "218 agreement" so long as the employee is covered by a "retirement plan" that provides "sufficient benefits". B. Medicare Taxes "Medicare" or "HI" tax is also a tax on both the employee and the employer: The employee contributes an amount at the Medicare tax rate (currently 1.45% of compensation) and the employer contributes the same amount. The total Medicare tax is 2.9% of compensation. The employer is responsible for remittance of both the employee and the employer portions of the HI or Medicare tax. Public employers are obligated to remit Medicare taxes for every employee who was first hired on or after April 1, 1986.3 Coverage by a "retirement plan", which may exempt public employers and employees from the remittance of OASDI taxes, does not exempt public employers and .employees from the remittance of Medicare taxes. Medicare taxes are based on the employee's compensation including amounts that are contributed to a deferred compensation plan. Payments under an "accountable plan" are not subject to Medicare taxes, so mileage reimbursement is not subject to Medicare taxes if the mileage expenses are substantiated.4 B. SOCIAL SECURITY AND THE CENTRAL CONTRA COSTA SANITARY DISTRICT DEFERRED COMPENSATION PLANS Between October 7, 1959 and December 31, 1974, the Sanitary District appears to have participated in a "218 Agreement". Social Security and Medicare would have been provided pursuant to that 218 Agreement and Social Security and Medicare taxes would not have been In this memorandum the term "Social Security taxes" refers to only the OASDI tax portion of the FICA taxes. 2 Code § 3101 and 3111. 3 We understand that no current Board member was elected before April 1, 1986, nor has any current Board member worked continuously for the District since before April 1, 1986. For this reason, we have not discussed the rules applicable to employees who worked continuously since before April 1, 1986, in this memorandum. We note, however, that in December 1989 when the remittance of Medicare taxes was previously considered, all then-current Board members had been elected prior to April 1, 1986. Their earnings, therefore, were not subject to Medicare taxes. 4 Treas. Reg. § 31.3121(a)-3. 1944209.1 Memorandum To: Debbie Ratcliff June 11, 2009 Page 3 remitted for employees covered by the 218 Agreement. The Sanitary District terminated its participation in the 218 Agreement, effective December 31, 1974. The Sanitary District then adopted the "Contra Costa Sanitary District Deferred Compensation Plan". This plan was designed to be a "retirement plan" which provides "sufficient benefits" to covered employees to exempt the District from the payment of Social Security (OASDI) taxes for those employees.5 In 1991, the Internal Revenue Service issued regulations which clarified the treatment of part- time, temporary and seasonal employees for Social Security Tax purposes. The District then adopted a separate Deferred Compensation Plan for those employees. The separate Deferred Compensation Plan was designed to be a "retirement plan" that provides "sufficient benefits" to covered employees to exempt the District from the payment of Social Security (OASDI) taxes for those employees.fi Although the short name of the Deferred Compensation Plan' is the "FICA-Substitute Plan or OBRA Plan", the adoption of this Plan did not affect the District's obligation to remit the Medicare portion of the FICA taxes for the covered employees. C. ELECTED OFFICIALS AND THE NOTICE OF DETERMINATION OF WORKER CLASSIFICATION FOR BOARD MEMBERS At one point, the status of the Board members for payroll tax (OASDI and Medicare) purposes was the subject of debate. If Board members were not employees for payroll tax purposes, then payments to them would not be subject to OASDI and Medicare taxes. The District was aware of this issue and in 1989 or 1990 the District requested a ruling from the Internal Revenue Service on whether John B. Clausen, a member of the Board of Directors, was an employee for FICA tax purposes. The IRS issued a Notice of Determination of Worker Classification and concluded that Mr. Clausen was an employee for FICA.purposes. This Notice of Determination of Worker Classification specifically states: "For those government employees who began performing services for the state or local government on or after April 1, 1986, only the hospital insurance (medicare) portion of the FICA will apply." The receipt of this determination letter may negatively affect the District's ability to correct the underpayment without interest charges. (See the discussion under Correcting Errors in Remitting Medicare Taxes below.) We note that there has been no change in the law since 1990 which would change the IRS conclusion about the status of Board members for FICA purposes. " We do not have a copy of that plan and have reached no conclusions about whether it provides "sufficient benefits" to satisfy the exemption requirements. e We have not reviewed this deferred compensation plan in detail and have assumed, for purposes of this memorandum, that is provides "sufficient benefits" to satisfy the exemption requirements. The full name of this deferred compensation plan is the "Nationwide Retirement Solutions, Inc. Deferred Compensation Plan and Trust Agreement for Part-Time, Seasonal, and Temporary Employees" 1944209.1 Memorandum To: Debbie Ratcliff June 11, 2009 Page 4 D. CORRECTING ERRORS IN REMITTING MEDICARE TAXES There is an established process for correcting errors in remitting Medicare taxes.8 The District can file an adjusted quarterly federal tax return (Form 941-X) for each quarter in which Medicare taxes were not withheld. The details of the corrective filing are spelled out in the Instructions for Form 941-X, but we note the following points. • The Form 941-X should be filed and the Medicare taxes paid no later than the due date of the Form 941 for the quarter in which the error is discovered. For example, if,the error was discovered in May, 2009, the Form 941-X should be filed and any additional taxes paid by July 31, 2009.9 • If the. District makes corrective remittances, the District must also issue a corrected Form W-2 to employees (Form W-2c) and file the corrected Form W-2 using Form W-3c. The Form W-2 is used to report Medicare-covered wages and withholding to the Social Security administration.10 •. Because the corrected Form W-2 only changes the amount of compensation reported for Medicare purposes, the IRS does not require the filing of an amended individual tax return for this reason. • The statute of limitations for the collection of back taxes is generally three years from the later of the due date of the tax return or the.date of the actual filing." The return for Medicare taxes is the Employer's Quarterly Federal Tax Return (Form 941). For statute of limitation purposes, the Form 941 is considered filed on April 15th of the year after the close of the tax year,12 i.e., the Forms 941 for 2005 are considered filed as of April 15; 2006. Assuming all Quarterly Federal Tax Returns were filed on time, the open tax years are 2006, 2007 and 2008, and the IRS could collect back taxes for those years. E. PENALTIES AND INTEREST Underpayments generally are not subject to failure-to-pay penalties, failure-to-deposit penalties, or interest, if the District files the Form 941-X in a timely manner and pays the underpayment. The Form 941-X must include an explanation of the error. However, interest may be assessed if the IRS finds that the District knowingly understated its employment tax liabilities or received a Notice of Determination of Worker Classification. The District received a Notice of Determination of Worker Classification for one Board member, Mr. Clausen, in 1990. There is a risk that the IRS would conclude that this Determination of Worker Classification put the District on notice that all Board members should have been ° Treas. Reg. § 31.6205-1. 9 Instructions to Form 941-X, page 2. 10 The corrected W-2 is required even if only Medicare taxes are corrected. " Code § 6501. 12 Code § 6501(b)(2); Treas. Reg. § 301.6501 (b)-1(b). 1944209.1 Memorandum To: Debbie Ratcliff June 11, 2009 Page 5 treated as employees for Medicare tax purposes and that the .District knowingly understated its employment tax liabilities. If the IRS concludes that the District owes interest, interest will be assessed at the Federal short-term interest rate rounded to the nearest full percent plus 3%.13 This amount is 4% for June 2009. Interest is assessed and compounded daily14 and is calculated from the due date of the original return for the period in which the. error occurred. For example, interest on the unpaid Medicare taxes for 2007 would be assessed from April 15, 2008 to the date paid. F. PAYMENT OF THE BOARD MEMBER'S PORTION OF THE MEDICARE TAXES Normally, the employee's portion of the Medicare tax is automatically withheld from his or her compensation. If an employer files corrective returns and pays the Medicare tax retroactively, the employer remits the employee's portion of the Medicare tax as well as the employer's portion. The IRS takes the position that any reimbursement of the employer is between the employer and the employee. The District could agree to remit the Board Member's portion of the Medicare taxes for the past three years. However, if the district does so and it does not collect that amount from the Board Member, then that amount is considered compensation to the Board member and is subject to federal income tax withholding and Medicare taxes.15 *** To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. 13 IRC § 6621(a)(2)/ 14 Treas. Reg. § 301.6622-1(a). 15 Treas. Reg. § 31.3401(a)-1(b)(7). 1944209.1 m e y e r s (nave riback silver & Wilson professional law corporation . CONFIDENTIAL -ATTORNEY/CLIENT PRIVILEGED MEMORANDUM DATE: June 24, 2009 T0: Board of Directors, Central Contra Costa Sanitary District FROM: Kenton L. Alm BY: Jennifer Faught RE: Correction of Unpaid Medicare Tax I. Introduction and Executive Summary Kenton L. Alm Attorney at Law 510.808.2000 5.c,. District Staff recently received an opinion from its tax counsel concluding that the District was not, but should have been, remitting payments for Medicare taxes for Board members to the IRS, and that the District should now remit Medicare tax payments for the past three years (the "unpaid Medicare taxes"). (Three years is the statute of limitations for such payments.) Half of the unpaid Medicare taxes were to be paid by the District, the other half by each individual Board member. Each Board member's share totals approximately $500 for the three-year period. District staff consulted us for assistance to determine whether the District can simply cover the Board members' share of unpaid Medicare taxes along with the District's share. The question for our consideration is whether such payment by the District would be an impermissible gift of public funds or would violate board member compensation laws. We conclude that, unless the Board members make an arrangement to repay the District for the Board members' share of the unpaid Medicare taxes, the payment would be considered income to the Board member and that income would be in excess of our compensation ordinance and statutory compensation limits. Because of this conclusion, we have not researched the issue of whether such payment would be an illegal gift of public funds. II. Discussion The tax counsel's opinion states that the District may pay the Board members' share of the unpaid Medicare taxes, but that "if the district does so and it does not collect that amount from the Board member, then that amount is considered compensation to the Board member and is subject to federal income tax withholding and Medicare taxes." Although we do not provide tax advice, the tax counsel's opinion is consistent both with the information staff received from the IRS and our independent review of some of the relevant regulations. We therefore adopt the basic assumptions in the opinion. Based on this information, if the District pays $500 for each Board member's share of Medicare taxes with no arrangement to be repaid the same amount by the individuals, that payment to the IRS would be considered additional "compensation." As you know, Health and Safety Code section 6489 limits the 555 t2th Street, Suite 1500 I Oakland, California 94607 I te1510.808.2000 I fax 510.444.1108 I www.meyersnave.com LOS ANGELES OAKLAND SACRAMENTO SAN FRANCISCO m SANTA ROSA amount of compensation each Board member may receive and the sets out the procedure for increasing the limit. In addition, Board members may receive compensation for no more than six days per calendar month. Unlike the private sector, compensation and reimbursement of expenses to public agency employees are carefully regulated by statute and District policies. If each Board member received an additional $500 of compensation for anon-compensable activity, the Board members would technically be violating these statutes and the District's compensation Ordinance. As set forth in the Treasury regulations, copied below, the employer is the entity responsible for repayment of the unpaid Medicare taxes for both the,employer and the affected employees, and the regulation assumes the employer will then withhold the employees' share unless other arrangements are made with the employee. District staff has been informed that the District must pay the unpaid Medicare taxes by the end of July. In making the remittance, the District will complete all necessary paperwork and file any required documents, including issuing and filing adjusted W-2s for each employee. Board members are not required to complete any additional paperwork or to file amended individual tax returns. Once the correction is completed, the District will have remitted to the IRS the Medicare tax amounts that should have been withheld from Board member compensation. There are two general options available to address the additional $500 that will be paid on behalf of each Board member. The District could consider not seeking repayment from the member for his or her share of the unpaid Medicare taxes. As mentioned above, though, payment on behalf of individual Board members. would be considered additional income to those members under IRS rules, and would probably thus violate compensation law. Alternatively, the District could recover the $500 from each Board member by any means agreed upon between the Board member and the District. The means of recovery would not have to be uniform between the several Board members affected and the alternatives could include: • The District could deduct $500 from the Board members' compensation payment(s), either in lump sum or at a fixed rate per month, until the $500 is repaid in full; • The Board could authorize a 10% increase in compensation under current law to offset the $500 that would be deducted from future compensation; • Board members could write a $500 check to the District rather than using a payroll type deduction; or • Any combination of the above. Assuming the Board agrees on one or more of the potential repayment arrangements, we understand that it is staff's preference to resolve this issue before the end of this calendar year, although that is not legally required if a repayment method is in place. Because we have concluded that payment of the unpaid Medicare taxes on behalf of the Board members without some arrangement for repayment by the Board members is impermissible under compensation laws and the District compensation Ordinance, we have not researched the issue of whether the payment may be considered an illegal gift of public funds. KLA:jef Relevant Federal Treasury Regulations Treasury regulation 31.3401 (a)-1(b)(6) states: "Payment by an employer of employee's tax, or employee's contributions under a State law. The term "wages" includes the amount paid by an employer on behalf of an employee (without deduction from the remuneration of, or other reimbursement from, the employee) on account of any payment required from an employee under a State unemployment compensation law, or on account of any tax imposed upon the employee by any taxing authority, including the taxes imposed by sections 3101, and 3201." Treasury Regulation 31.6205-1(b)(3) states: "Deductions from employees. If an employer collects no employee tax or less than the correct amount of employee tax from an employee with respect to a payment of wages as defined in the Federal Insurance Contributions Act or corresponding provisions of prior law, or compensation as defined in the Railroad Retirement Tax Act or corresponding provisions of prior law, the employer shall collect the amount of the undercollection by deductirig such amount from remuneration of the employee, if any, under his control after he ascertains the error. Such deductions may be made even though the remuneration, for any reason, does not constitute wages or compensation. The amount of an undercollection of employee tax from an employee shall be reported and paid, as provided in paragraph (b)(1) or (2) of this section, whether or not the undercollection is corrected by a deduction made as prescribed in the foregoing provisions of this subparagraph. If such a deduction is not made, the obligation of the employee to the employer with respect to the undercollection is a matter for settlement between the employee and the employer. If any employer makes an erroneous collection of employee tax from two or more of his employees, a separate settlement must be made with respect to each employee. Thus, an overcollection of employee tax from one employee may not be used to offset an undercollection of such tax from another employee." 1255475.1 - -- - _ _ 0 0 N' W c' Q Q a ~ > 03 O S U O O Z O ~' a a U C (9 c c m N O a~ n O c m a z _o _~ o_ F Z W a w O rn 0 0 N O I ~ C o Y O w 2 a: ~ Q W ul O r p Z O ~ U o . w a . 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