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Home My WebLink About01/29/2009 AGENDA BACKUPAgenda Item 4) Board Meeting of January 29, 2009 Written Announcements: Meetings a.) Walnut Creek Pharmaceutical Collection Pilot Study On Tuesday, February 3, 2009, the Walnut Creek City Council will consider approval of a Memorandum of Understanding (MOU) with the District to conduct a 6- month pharmaceutical collection pilot program. The collection program will be similar to the program that the District is conducting with Contra Costa County. The collection program will take place at the Walnut Creek City Hall under the supervision of the Walnut Creek Police Department. Walnut Creek City Staff is recommending approval of the pilot program and the City Council will consider it under the consent calendar. If approved by Walnut Creek, the MOU will be approved by General Manager Jim Kelly through prior authorization at the September 18, 2008 Board meeting. Central Contra Costa Sanitary District Board Workshop Overview of Today's Workshop • Introduce Budget Policy Issues /Misc. • State of the District • Discuss Rate Setting Approach • Items That Impact Rates • Proposed Rates & Alternatives • Receive Board Direction: — 2009 -10 SSC rate Increase • Operating Expenses • Capital Improvement Program • Other rates, fees, and charges • Future actions on unfunded liabilities 1 Budget Policy Issues Set 2009 -10 SSC Rate increase of $13 — $15 /year. Have full cost recovery for all fees, charges, and services? How to address unfunded liabilities: — Other post employment benefits (OPEB or GASB 45) — Retirement Unfunded Actuarial Accrued Liability (UAAL) Role of Bond funding for Capital Program If SSC Rate not increased, where to cut spending /funding Recommendation • Publish Prop 218 Notice for $15 /yr SSC Increase for 2 years • Supports current goals of Excellent Customer Service, Regulatory Compliance, Responsible Rates, and Being a High Performance Organization • Support GASB -45 costs • Can set notice or rates for less if conditions change K Handy Facts $1 SSC Increase = $1709000 1 % Salary Increase - $2 SSC Ad Valorem Tax = $73 SSC Th reats • Property Tax shift or reduction • Income reduction from connection fees, other fees and interest income • Income reduction /increase costs due to drought • Much larger current unfunded liability for retirement • Poor economy and public reaction 3 Opportunities • Great bidding climate • Great hiring climate • Lower Natural gas prices STATE OF THE DISTRICT Financial Summary • District is in a strong financial position: - Cash reserves ($60 million) 6/30/08. - Revenue sources generally stable. • District expenses increase greater than the CPI, largely due to benefits. • District has some significant unfunded liabilities. • Low Bond Debt ($28.1 million). • Capital Program is generally pay -as- you -go. • Expenses projected to be "On Budget ". • Revenues expected to be less than budgeted. • Unprecedented economic condition. District Overview • Meeting Mission and Goals: - Excellent compliance record. - Excellent customer service. - Reasonable Rates. • Excellent Capital Program: - Infrastructure Renewal and Rehabilitation - Capacity • Workforce: - Negotiations underway - Transition /Succession • Positioned to meet future requirements and liabilities (not all in plan). k RATE SETTING APPROACH Rate Setting Approach Since 2000 • Use Financial Cash Flow Model to analyze policy issues and predict future rates: -10 Year Planning Horizon. - No short -term borrowing to meet cash flow needs (Funds Required). - Assumes use of Reserves to allow modest annual SSC increases. - Reserves Drawn down to Funds Required by the 10th year, if not sooner. 0 Rate - Setting Approach • Use Bonds only for future major capital projects. • SSC, Fees & Charges, and services should recover full cost. Model Assumptions • CI B /CI P as shown on 11 /13/08 workshop. • GASB 45 trust funded each year. • Property tax income held flat for 2 yrs — then 4% per year. • No new positions over next 10 years. • Medical, Dental, and Life Insurance increase match GASB 45 actuary assumptions. • Vacancy factor of 3% for salary and 4% for benefits. • Line item expenses increased based on past years experience (see Page D -13). • Salary increase at 4.33% /year — COLA — Increase staff 7 History of Central San Sewer Service Charge Rates Shown with Property Tax Component In Addition to the Rate $400 $ District Vs of`Ad Val�mT� $300 ict loss of Ad Valorem Tax $250 $200 $150 $100 $50 Property Tax Temporary Investment Balance /Funds Available Total Reduction in Funds Available -June 30 to Md- December Average drop is $26 million $0 - $5,000,000 s 6 le - $10,000,000 - $15,000,000 - $20,000,000 - $25,000,000 - $30,000,000 - $35,000,000 •$40,000,000 Items That Impact Rates Items that Impact Rates • Revenue - SSC (the one we can control) - Tax & Capacity Fees (limited control) - Concord (a reimbursement) • Expenses - O &M: Labor cost, benefits, Natural Gas - Capital • Liabilities • Regulatory Compliance • Are we on budget? • Past year's rates • Reserves 0 District Revenue 2008 -2009 Total Revenue & Reserve Draw From O &M and Revenue & Reserves Interest/Other Capital - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6% Reserves Debt Service 4 - - - - - - - - - - - - - - - - - - - - - - - (Mainly tax Sewer revenue) Service i ar�v„w` Charges Tax Reven 49 (after debt a Charges Service Capacity&PS Capital (after debt Revenue (tax �, serves cove red) I a% 0 2005 -2006 Actual 0 2006 -2007 Actual ■ 2007 -2008 Actual 0 2008 -2009 Projected icord Capital Charges 13% Capital Capacity & PS Fees 7% Concord 02 Service Charges 9% SSC Rate Controlled by District 10 Revenue & Reserves $50,000,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $40,000,000 ;; ,; --------------------------------------------- $30,000,000 \ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $20,000,000`'' $10,000,000 i v Sewer Service Concord O&M Capital Concord Tax Revenue Debt Service Interest/Other ^ yFrom Charges Service Capacity&PS Capital (after debt Revenue (tax �, serves $(10,000,000) Charges Fees Charges covered) revenue) M 2003 -2004 Actual ■ 2004 -2005 Actual 0 2005 -2006 Actual 0 2006 -2007 Actual ■ 2007 -2008 Actual 0 2008 -2009 Projected 10 S 85,000,000 SSC, Property Tax and Capacity Fee Trends $ 75, 000,000 $55.000,000 $40,000,000 $ 55,000, 000 $00,000,000 $45,000,000 $20.000,000 $ 35,000,000 $10,00o,000 $ 25,000,000 $15,000,000 $0 $ 5,000,000 $15,000 ^ ^ ^` $l Y3 e '1 YC Property Tax �S% Connection Fees $60,000,000 $50,000,000 10 Year Expenses 1993 -94 to 2008 -09 $40,000,000 $00,000,000 $20.000,000 $10,00o,000 $0 —0 &M Expense — Capital Expense Capital expenses more adjustable than 0 &M 11 History of Capital Expenditures $70,000 $60,000 $50,000 $40,000 $30,000 Noor $20,000 $10,000 $- 90- 91- 92- 93- 94. 95- 96- 97- 98- 99- 00- 01- 02- 03- 04- 05- 06- 07- 08- 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 — In Actual Dollars --- Adjusted by3 %Near 12 LIABILITIES Millions $ Liability Last Year Current GASB 45 — Other post Employment Benefits $48 -68 $48 -68 Retirement Unfunded Actuarial Accrued Liability (UAAL) $43 $36.5 -105 Debt $30.3 $28.1 Terminal Pay $5.3 $6.1 Total $126.6 -146.6 $118.7 — 207.20 13 Liability Status Liabilities Status GASB 45 Underway, in Rate Model; study again this year UAAL Biggest liability Debt Service Funds allocated, in Rate Model Terminal Pay Liability Booked. Should it be part of reserve? ,6.00°, ,4.00% ,2.00°, ,0.00°, 8.00°/ 6.00°/ 4.00% 2.00 0.00 X10 ry� rye, ry ry� 'V ry ry ry�� ry& Oil g ,A°� 9� ,9� l ' ryo� ry e Retirement Trend Analysis --- Retirement - Compounded Annual Growth Compared to 96 -97 — Salaries - Compounded Annual Growth Compared to 96 -97 14 Regulation Compliance Current Capital Program: — provide capacity /reliability — Infrastructure renewal and replacement —Address known Regulations Future Requirements /Initiatives — Not funded Regulatory Compliance 15 2008 -09 2009 -10 10 Year CIP $380 million $380 million Expenditures Bonds $28 million in $32 million in 2017 -18 2016 -17 Future Unknown Unknown Regulatory Compliance 15 Future Regulatory Compliance /Initiatives • Mercury Control • Enhanced Sanitary Sewer Overflow Prevention • Greenhouse Gas Reduction • Nutrient Removal /Nitrification • Emerging Contaminants • Water Recycling Are We On Budget? • 2004 -05 thru 2008 -09 Average —O &M $1.0 million under — Capital $1.3 million under — Within 1 -2% of total budget — Over /under budget becomes part of next years rate analysis • February 19th 6 -Month Review 16 Cash Reserves • No borrowing costs • Has allowed rate stabilization for year to year variation in Capital Program • Has been drawn down to subsidize /smooth rates • Reserve Safe Haven: — Fund UAAL for retirement — Place in Trust to fund GASB 45 OPEB's History of Reserves History and Projection of Cash Reserves (Funds Available @ June 30th) Deflated to 1993 -94 Dollars $70,000,000 Projections $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 ® 0 &M Funds Available ■ SIC (Capital) Funds Available 17 PROPOSED RATES & ALTERNATIVES Background • Modest annual rate increases since 2004. • Forecasts show needed projects can be funded and current level of service maintained with future moderate increases. • Two -year rate increase ordinance completed this year. • Need to publish Prop 218 notice for any increase. W Staff Recommendation • Publish Prop 218 notice for up to $15 per year increase for 2009 -10 from $311 to $326 /year (4.8% vs CPI of 3.1 %) and $15 /yr for 2010 -11 for $326 to $341, (4.6% increase). • Adopt annual increase to fees, rates, charges, and Administrative Overhead — Full Cost Pricing • GASB 45 — Continue funding Trust • UAAL — Analyze options /Liability • Finalize recommendation after 2/19 or 3/5 Board meeting • Come back with a tax take strategy 19 Summary of Rates for Various Scenarios January 2009 Scenario Rate Comparison .2009 -2010 Rate 2014 -2015 Rate 2018 -2019 Rate January 2008 Recommended $323 $383 N/A January 2009 Recommendation for Prop 218 $326 $399 $455 January 2009 Alternate with Lower Rates $324 $399 $461 Summary of Rates for Economic Scenarios January 2009 Scenario Rate Comparison 2009 -2010 Rate 2014 -2015 Rate 2018 -2019 Rate January 2009 Recommended $326 N/A $455 Quick Recovery $326 N/A $452 Slower Recovery $328 N/A $460 Summary of Rates for Tax Take Scenarios January 2009 Scenario Rate Comparison 2009 -2010 2014 -2015 2018 -2019 Rate Rate Rate January 2009 Recommendation for Prop 218 $326 $399 $455 11 % Loss of Tax Revenue 3 Year $326 N/A $473 50% Tax Take $326 N/A $508 100% Tax Take $326 N/A $549 Summary of Rates for No SSC Increase /NG Purchase Scenarios January 2009 Scenario Rate Comparison 2009 -2010 Rate 2014 -2015 Rate 2018 -2019 Rate January 2009 Recommendation for Prop 218 $326 $399 $455 No Increase 2009 -10 $311 $402 $458 NG Pre - Purchase $323 $383 $434 Review of Scenarios Recommended Prop 218 notice rate higher than 2008 projection Economic recovery may not impact rates Tax take would be a major impact No increase now results in slightly higher rates Lower NG cost could bring needed rates down to 2008 projection Why Raise Sewer Service Charge? • Support Current Operations and Capital Program — Customers still expect excellent customer service — Regulations have not changed — Fines are higher — Still need to protect against citizens lawsuit — Need to maintain and improve system 3 Why Raise Sewer Service Charge? • Modest Increase Now ($15 per year) — Lower SSC long -term — Funds capital program — More ability to fund unexpected needs — Current ratepayers pay cost of service — Could reduce future debt financing & unfunded liability — Reserves allow smoother rate increases in future — Allows continued funding of GASB 45 obligation No Increase Now Would: — Lower reserves — Higher SSC long -term — Less flexibility — Future ratepayers could bear more of burden — Could increase Debt Finance & unfunded liability — Respond to tough economic conditions El Current Sewer Service Charge Rankings for Bay Area Agencies Agency 08/09 SSC Rankfrom lowest AVR per connection, if known SSC plus AVR, if known Rank from lowest (with AVR) Crockett Sanitary District $563 22 $309 $872 22 Berkeley (EBMUD for treatment) $525 21 N/A $525 20 Benicia $496 20 N/A $496 19 Livermore $489 19 N/A $489 18 Oakland (EBMUD for treatment) $487 18 N/A $487 17 Mountain View Sanitary District $480 17 $56 $536 21 Richmond $469 16 N/A $469 16 Average for Contra Costa County" $445 CCC Average CCC Average Rodeo Sanitary District $443 15 N/A $443 15 Vallejo $429 14 N/A $429 14 Novato $422 13 N/A $422 13 Napa Sanitation District $416 12 N/A $416 12 Average for California" $406 CA Average CA Average Pleasanton $378 11 N/A $378 7 Stage SD (EBMUD for treatment) $370 10 $11 $381 8 Pittsburg (DDSD) $364 9 $34 $398 10 Fairfield $312 8 N/A $312 5 CCCSfy $311 7 $73 $384 9 Antioch (DDSD) $307 6 $51 $358 6 Bay Point (DDSD) $303 5 $109 $412 11 Concord (CCCSD for treatment) $294 4 $294 3 Dublin San Ramon SD $292 3 $15 $307 4 Union Sanitary District $259 2 N/A $259 2 West County Wastewater District $190 1 $30 $220 1 Recommendation of Staff • Authorize publication of Prop 218 notice for $15 /yr, and Implement a $15 /yr Sewer Service Charge Increase for FY 2009 -10 and 2010 -11 • Finalize staff recommendation at 2/19 or 3/5 Board meeting • Prepare and Adopt annual increase to Fees, Rates & Charges • Proceed with District Rate Setting Process — Announce in Pipeline? — Hold Public Hearing in June • Approve District Budget for 2009 -10 — Adopt Budget and rates in June • Continue Funding OPEB /Develop Options to fund UAAL • Develop Tax Take Strategy 5 Receive Board Direction Central Contra Costa Sanitary District Board Workshop Comments and Questions n