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(Handout) Financial Planning and Policy Workshop 6 6.A Central Contra Costa Sanitary District Board Workshop Financial Planning and Sewer Service Charge Review For the Fiscal Year 2011 -2012 Budget Process March 3, 2011 Overview of Today's Workshop 1) Introduce Budget Policy Issues 2) Background 3) State of the District 4) Rate Analysis Approach 5) Items That Impact Rates 6) Proposed Rates & Alternatives 7) Staff Recommendation 8) Receive Board Direction 1 Introduction 2 - 0 Central Contra Costa Sanitary District Recommendation: Publish Prop 218 Notice $30 per year SSC increase for 2 years - Supports District goals of Excellent Customer Service, Regulatory Compliance, Responsible Rates, and Being a High Performance Organization - Addresses Capital Program needs and challenges over next decade - Addresses Unfunded Liabilities - Assumes cash flow payment of Nitrification 2 Budget Policy Issues ❑ Confirm District goals and Board strategic issues. ❑ Have full cost recovery for all fees, charges, and services. ❑ Confirm how to address liabilities: ❑ Other Post Employment Benefits (GASB45 /OPEB) ❑ Retirement Unfunded Actuarial Accrued Liability (UAAL) ❑ Outstanding Debt ❑ Accrued Compensated Absence ❑ Plan to pay -as- you -go for Nutrient project? ❑ How much to increase SSC Rates for. 2011 -12? ❑ If SSC Rate not increased, what programs should be modified? Background m SD Central Contra Costa Sanitary District AA A 3 Background - Financial ❑No SSC increase for 2 years ❑FY 2010-11 O&M Projected to be $2.5 under budget ❑0 &M Rising >CPI due to benefit costs 0$10 million fund draw on sewer construction ❑Unfunded liabilities up HISTORY OF CENTRAL SAN SEWER SERVICE CHARGE RATES Shown with Property Tax Component In Addition to the Rate Property Tax Reductions in FY 92 -93, 04-05, 05- 06, and the State Borrowed in 2009-10 $450 \ \ \ \lx $400 \ 11 �� $350 $300 - —Iu 1 - _ —' $250 $zoo _ _ _ — — -1' — �'1'1- ®_ ® _ ! � — 11 I E — 11 - — 1 1 $150 — _ $100 —- s- — — ° -__ Itui i_ 111 - 90'91 9592 92/93 9194 94195 95196 9597 97/98 9599 9900 00'01 0502 02/03 0104 04/05 0906 0507 07 /08 08/09 090 1911 00 o PropM552x 556 561 143 140 540 540 541 542 144 147 149 553 556 159 526 531 573 571 574 568 174 173 o C894800684 1- $ 55 125 528 $31 131 531 531 131 15 520 541 $54 176 546 576 558 151 55 50 $39 a05M 506 551 160 5160 560 551 $67 $57 557 167 5135 5204 1207 1213 5204 1234 120 1242 1260 1292 5300 1302 4 Background - Financial Pluses and Minuses Pluses ❑ Lower O&M Expense ❑ Lower Capital Expense ❑ Good Bid Climate ❑ Lower Energy Prices ❑ Lower Than Projected Revenue Draw ❑ AAA Rating Minuses ❑ Revenues Down ❑ Lower Property Tax ❑ Higher GASB45 ❑ Higher CCERA ❑ More Debt ❑ Less Interest Income ❑ Lower Connection Fee & Permit Revenue Background Labor Agreement Settled in June 2009 =3% 2010 = 2.0% 2011= =2.0 %? — Tier 3 for New Employees - GASB45 /OPEB — CCCERA Tier 3 "A" for those hired after January 1, 2011 5 Background District's Year • 13th Consecutive Platinum Awards • 43 Sewer Service Overflows • Engineering Awards: A -Line, Control System, Aeration Basin Repair • Collaborative Operator Training Program • Pharmaceutical Drop -Off Program - 7 tons to -date • Household Hazardous Waste Expanded Service • Comprehensive Annual Financial Report 9th Consecutive Award • Clean Audit • CCCSD Now a Green Business • Staff and Board Participation in Professional Organizations Background Continuing Issues • Property Tax Shift? • The Economy: Lower fees and interest income • Poor economy and public reaction • Future regulations: Toxicity, Nutrients • Succession • Regulations: enforcement /$ • Unfunded Liabilities • Consolidation 6 1 Background Local Economy December 31, 2010 Unemployment Rate in Service Area = 6.6% California Unemployment = 12.5% Contra Costa = 11.5% 1 in every 160 Contra Costa homes in foreclosure in 2010 Best guess: Recovery will take until end of 2015 East Bay still recovering more slowly than rest of Bay Area Background Service Area Unemployment Rate Contra Costa County 11.2% CCCSD Service Area 6.6% Clayton 2.8% Concord 12.1% Danville 5.9% Lafayette 4.1% Martinez 9.0% Moraga 6.7% Orinda 4.3% Pleasant Hill 9.1% San Ramon 4.7% Walnut Ck 7.6% 7 Background Handy Facts $1 SSC Increase = $170,000 1% Salary Increase = $2 SSC Property Tax = $73 SSC STATE OF THE DISTRICT Central Contra Costa Sanitary District ,-,: ... •. :- •. _ ... VroteelinO and me lnNrmrntiiK: .. 8 State of the District Financial Summary ❑ District is in a strong financial position: ❑ Cash reserves ($73.5) 6/30/10 ❑ Cash reserves ($63.1 million) projected at 6/30/11 ❑ District O &M expenses increase greater than the CPI, largely due to benefits, but projected to be $2.5 million under budget. ❑ CIB Projected to be on budget. ❑ District has some significant liabilities: ❑ Bond Debt ❑ GASB45 ❑ UAAL (CCCERA) ❑ Revenues expected to be less than budgeted. State of the District Overview • Confirmed Focus on Board's Strategic Issues: - Recycled Water - Cultural Diversity - Industry Leader - Outreach - Responsible Rates - Benefits • Meeting Mission and Goals: - Excellent Compliance Record - Excellent Customer Service - Responsible Rates - High Performance Organization 9 State of the District Overview (Continued) • Excellent Capital Program: - Infrastructure Renewal and Rehabilitation - Capacity • Workforce: - Agreements Through April 2012 - Retirements/Transition /Succession • Tracking/Planning for Future Regulatory Requirements (most $ in plan) • Tracking/Planning/Paying for Major Liabilities • Impact of Economic Downturn Unfunded Liabilities $250,000,000 $200,000,000 $150,000,000 . $10o,00o,000 :. $50,000,000 - — - - —, so ry ° °ti ,� �'� ,� �^ e e #\ y �� e ry a ryo .,o o Accrued Compensated Absence D GASB 45 D CCCERA UAAL ❑ Outstanding Debt 10 Retirements • 8 CCCSD retirements in 2009 and 26 retirements in 2010, and 7 in 2011 thus far • Public Opinion vs. Public Workers • Pension Reform • - Measures on June ballot? • SB 27 - Anti-spiking - No "Double Dipping" • CCCERA and De-pooling Retirement Trend Analysis , • , 4, II L r g ) + 11 RATE ANALYSIS APPROACH Central Contra Costa Sanitary District FINDS AVAILABLE Unrestricted Cash and Investments Adjusted for Receivables and Payables 0 June 30th Sta000.000 Darker Blue Bars Indicate there was no SSC rate Increase that year 590.000004 Ins $67mllioninAd VAoranies Ina asprox 562 nillioninpropaly tax of G 580.000.00a 2002flwaxe BO DIM lose Ad VabrenTa \ ��,� MS 1815 '7,' � $70.910000 mlibnrgi 444h) D9DatCapra ROIHIS — — $91.000.000 _ �— t .. 8500]0000 — � — I SW 000091 a — r — — — 1 J $30.003.600 h -- _ - — Sa1000000 — — FJM1 DS SE]DI iE3 — — — SIOW0000 — — B S. —T Y6 . . —�� 93 -94 9495 95-96 96-97 97-98 98-99 99 -00 00 -01 01-02 02 -03 03 -04 04 -05 05-06 06/07 07108 08/09,09110 10/11 12 Rate- Setting Approach Since 2001 Use Financial Cash Flow Model to analyze policy issues and predict future rates: 010 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 Model Assumptions • CIB /CIP as shown on 12/16/10 Workshop - minus section 129 (=$50 million) • GASB45 Trust funded each year (ARC) • CCCERA depooled, includes full UAAL Bond Reserve maintained • Property tax income held flat for 3 yrs - then 4% per year • No new positions over next 10 years • Medical, Dental, and Life Insurance increase match GASB45 actuary assumptions (new study this year) • Vacancy factor of 3% for salary and 4% for benefits. • Line item expenses increased based on past years experience 13 • • Items That Impact Rates jko tt S Central Contra Costa Sanitary District sProleebna Public Health and the Environment - - -1 Items that Impact Rates • Revenue Rate Setting - SSC (the one we can control) - Tax & Capacity Fees (limited control) - Concord (a reimbursement) • Expenses - O &M: Labor cost, benefits - Capital - Services provided • Liabilities • Regulatory Compliance • Are we on budget? • Past years' rates • Reserves 14 Revenue - 10 -year History 550,000,000 - - -- 540.000.000 — - i 1 9 . sa000000o 5200000 1 00 t 4 510.000 000 Sewer Service Concord O&M Capital Capacity Concord Capital Tax Revenue Debt Service Intaree/Other Charges Service Charges & P5 Fees Charges (atter debt Revenue (tax covered) revenue) 02001 -2002 anal 020022003 aural 02003.2004 AchmI 02004 -2005 Actual a 2005.2006 Actual 02006 -2007 Pow Items that Impact Rates Major Expense Increases 2011 -12 Percentage Dollars Increase Labor 3.5% $0.8 Million Benefits 9.6% $2.1 Million Outside Services 42.2% $0.9 Million 15 Items that Impact Rate Regulatory Compliance Current Capital Program: ❑Addresses Known Regulations ❑Provide Capacity /Reliability ❑Infrastructure Renewal and Replacement Future Requirements /Initiatives: ❑Nutrient - included ❑No Recycled Water Projects Funded ❑Minimal Incinerator Work '. Recent Regulatory Actions Agency Fine Comment Amount ($) Southern $1.6 Million SSO's Marin SEP of $0.6 Million for Private Sewer Lateral Sausalito- $0.3 Million SSO's Marin Partly Treated Sewage Pacifica $2.3 Million SSO's Treatment Plant Bypass Proposed; Economic Benefit = $1.3 Million EBMUD Consent Decree 16 Future Regulatory Compliance Funding Improved from 2010 -11 CIP 2010 -11 CIP 2011 -12 CIP (draft) 10 Year CIP $306 million $346 million Total Budgeted (2010 dollars) (2011 dollars) Expenditures Future Regulatory $32 million generated $70 million generated Projects Included in with bond funds for with sewer service charge 10 - Year Plan undesignated projects for nitrification • Potential Regulatory $205 -220 million $80 -95 million • Projects (incinerator emissions, (nutrient removal and Unbudgeted in nitrification, nutrient alternative energy) 10 - Year Plan removal, and alternative energy) Are We On Budget? • 2010 -11 Expense Projections - O &M $2.5 Million Under - Capital - on budget at $28.6 million • 2010 -11 Revenue Projections - O &M $1.4 Million Under - Capital $2.8 Million Under - Over /under budget becomes part of next year's rate analysis 17 Cash Reserves Has allowed rate stabilization for year -to -year variation in Capital Program DHave been drawn down $3.6 Million per year over last 5 years vs. a budgeted draw of $6.1 Million ❑Bond Issuance of 2009 increased reserve DReserve Safe Haven: ❑ Fund UAAL for retirement ❑ Place in Trust to fund GASB45 /OPEB PROPOSED RATES & ALTERNATIVES GOAL: MEET MISSION AND REDUCE LIABILITIES Central Contra Costa Sanitary District 18 Review of Scenarios Baseline Scenario - Same as last year Add AB 32 and Depooling Add Nitrification Add $75 Million to reduce liabilities Sewer Service Charge Rate Increase Alternates Fiscal Year 11 -12 12 -13 13-14 14-15 15-16 16-17 17 -18 18-19 19-20 20-21 Base 516 516 516 516 $16 516 515 515 515 515 Scenario Add AB 32 519 $19 518 518 518 518 515 515 515 515 and Depooling Add 525 525 525 525 525 $25 525 516 50 50 Nitrification Add Additional 530 530 530 $31 531 531 531 531 531 55 $75M Unfunded Payments - Staff Recommenda Lon 19 The Big 4 • Liabilties Including Debt $250,000,000 - $200,000,000 $150,000,000 1 1 — --- $100,000,000 — — .- $50,000,000 1 - 1 FF I So ry 000 0000.: <0000 0 �� ti ti \. ti ti ti� . :h ti ti 1 \ ti 'I ti ti ti ti ti ti ti � 16 r c ti o Outstandng Debt - $56 million New Debt Service in 2012-13 CCCSD's Portion of CCCERA UAAL (Includes Paydown of $75 million 2015.16- 202021) o GASB 45/OPEB Liability o Accrued Compensated Absence Other SSC Alternatives Fiscal Year 11-12 12-13 13-14 14-15 15-16 16-17 17-18 15-19 19-20 20-21 Staff Recommendation • $ 30 $ 30 $ 30 $ 31 $ 31 $ 31 $ 31 $ 31 $ 31 $ 5 $30/$30 Alternative • $01$40 $ - $. 40 $ 40 $ 40 $ 40 $ 40 $ 35 $ 25 $ 20 $ - Alternative • $ 45 $ 15 $ 31 $ 30 $ 30 $ 30 $ 30 $ 30 $ 30 $ 5 $451$15 Alternative- $ 54 $ 54 $ • $ - $ 31 $ 31 $ 31 $ 31 $ 31 $ - $541$541$01$0 Alternative • Lose Property Tax in $ 45 $ 45 $ 45 $ 45 $ 45 $ 45 $ 45 $ 40 $ 10 $ - 2012.13 20 Current Sewer Service Charge Rankings for Bay Area Agencies Aare per Sw NM wl+wm 1401 Rank lmm mmKtM511 Ally lowest Mtn *55507 SSC" lowest known known AYR) Cnnmear Petaluma 5889 24 5889 24 54072 Sofa 5855 23 5855 22 5055 Sanitary 059C1 1666 22 557 5723 21 Crockett 5. 5632 21 5227 5855 23 05555(750351158420X40511 5561 25 Nm 5535 18 WOMB Sanity Pare 5574 511 5565 20 5eb Cate and hay m &Retrain 3905404-0 1547 NA 5547 teat 5 oiliest n604151540006 Oekelry(ESMW 19 34.1199111 5454 NM 5496 Bmw 5495 Nd 5496 Increase beady approve] for 2011.12 Mw0Nn View Swlay(MIRI 5451 527 5515 Yew 3 01 autXnaoe C PI 44455 815584407 5489 010 5589 . Liorof re 5485 500 5459 Vallejo 5465 NA 5465 Increase to 5863 tor 2011 -12 arses) appmued Novato 5462 WA 5462 2515-11 Mean Rata 5458 Also Ire 2015-11 median rile 55.5enck6 sun-eyed I Napa SaNtaocs Mont 6429 NA 5425 AnnaI CPI iroeasesappsole] la Ylun year. Pastel 135555 5407 527 5434 '5050507 10 $414 NOV 2511;54215042012 Siege 50 1556815 60 044000e50 5395 120 5416 • ICCC564012.13 Stan Recommended 9.te 5371 4 m 5444 5 • I 664041009 5368 NA 536 5551655 595551 5343 NP 0343 13045 0 701172 Ste 4WmmM5K Rm. 1341 74 513 1414 - 9. 455545(00001 5336 527 5363 Bay Po'm02D561 5333 5e 2413 04019305 65507 Servic 51 D4441 5314 512 5326 555641061 1 000500 approve la We yeere 1CC6DC4rrem 20104 1 Pete 5311 513 5384 I Concord 1 00054 tor 55055575 5306 5306 Pays e4007/Sew2 garbage 1242 OW 1425 20565505*49 0155555 550 54 5290 WestCwny N2slewater Lbtral 5256 120 5276 . Om Loma Sanity 062061 5178 bxel NA 5175 6west 6 8 5 0 0 40 05 4 0 5 2 0 8 4 0 04 2 5 dams 6414411144 "4 1, X54• Rill. om454 Ol55M 4 , 11 4444454.40 555804 444145 2055.54 5395 915555 911 retry. wl ton Crt auateKs55 55 RmnenPgII Pmam lot 94.s 0nOon Pw.w I19n05 XM lone SkXw iX5105645,s 5550 Recommended Scenario $30 Per Year SSC Increase e m 1 s ~, — - 2500 2010 2011 2512 2013 1014 2016 2015 2011 20111 2010 2.0 2021 1- 1m,IFr.,rw...n.5m0.6em15 • .wdm,wrr., - , . ball Ana 1944s196 2m249,2 999229222 222222882 222,2,422 >11115511 1)1111111 111111.1 .1.11. 1511)1151 11111)111 84&2010 =Di ' 1t Imo(' 711 513 115aN2 61 1 016401 2m1�2 2 $Img gig= rgkigi (ooajgprs: .S.4Cw60 016559115E 166953 164441 164441 1$741 1E0937 170,97 1712437 172,437 173,417 174.437 175437 176137 177.2 178.49 40 15 6. aNeRCaneclots N51Yek/ 847 I,071 700 607 920 1.000 IpD 1,400 1.020 1340 1,200 two ono - 5655594 . - - .069 220 292 300 302 322 335 349 401 411 418 433 464 525 calm' Upgra4eltt7Mmmenl 15 3 _J1 _� _4§ _la .—@ —121 1531 Tail 311 311 311 341 371 441 432 443 494 515 556 531 592 - IMaem'bayed 11 • 30 30 -304.' 35... 35 • Penni 6bm5e 44020 yea 551\ -' 0015 2. 405 3120 __ 51T 5 T )m 1515 am - 4155 55 544X. - SL5 .0120 "meCMn6n -G9sey t a e r - 1202) 520 1451 595 5521. SSN 'S156' 5919 6069 --...-“ 6.320 6.543 U4 21 • Staff Recommended Supports District Meeting Its Mission ❑Customers still expect excellent customer service ['Regulations have not changed ❑Still need to protect against citizen lawsuits :Need to maintain and improve system ❑Reduces long -term liability Why Raise Sewer Service Charge? DLower SSC long -term ❑More ability to fund unexpected needs DReduce future debt financing & unfunded liability ❑Allows lower uniform rate increases in future 22 No Increase Now Would /could: ❑Respond to tough economic conditions DRequire higher increases in the future ❑Lower reserves faster ❑Result in Higher SSC long -term ❑Cause Tess flexibility ❑Make future ratepayers bear more of burden & today ❑Require more cuts Staff Recommendation _ • CD Central Contra Costa Sanitary District ,t �uj'uA:>v:AdrlWWi& ;kkRra3Y'c .+?FeAkw..g9t&Wti PUblic HeaINnntl.We Envlronmeiit F:cOfii�+:= !uc.. 23 Staff Recommendation 1) Confirm District goals and Board strategic issues. 2) Have full cost recovery for all fees, charges, and services. 3) Confirm how currently addressing liabilities: ❑ Other Post Employment Benefits (GASB45 /OPEB) ❑ Retirement Unfunded Actuarial Accrued Liability (UAAL) ❑ Outstanding Debt ❑ Accrued Compensated Absence 4) Set 2011 -12 SSC rate increase of $30 per year for 2 years. Recommendation: Publish Prop 218 Notice $30 per year SSC increase for 2 years - Supports District goals of Excellent Customer Service, Regulatory Compliance, Responsible Rates, and Being a High Performance Organization - Addresses Capital Program needs and challenges over next decade - Addresses Unfunded Liabilities - Assumes cash flow payment of Nitrification 24 Receive Board Direction Central Contra Costa Sanitary District Central Contra Costa Sanitary District Board Workshop Comments and Questions 25 Background Cash Flow Analysis - Assumes • Focus on Board's Strategic Issues: Recycled Water, Cultural Diversity, Industry Leader, Outreach, Responsible Rates, Benefits • Excellent Customer Service • Regulatory Compliance • Responsible Rates • High Performance • Confirmed at February 3, 2011 Meeting Review of Scenarios No Rate increases since 2008 -2009 No increase now equals $3.4 million in needed cuts AB 32 - GHG Nitrification (SacRegional) Increased 0 &M costs (Benefits) $200 million in UAAL Seismic upgrades Less flexibility to fund unexpected needs 26