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Home My WebLink About08.a. Receive FY 2013-14 O&M Budget and Debt Service Fund BudgetCentral Contra Costa Sanitary District 9.4. BOARD OF DIRECTORS POSITION PAPER Board Meeting Date: May 16, 2013 Subject: RECEIVE THE PROPOSED FISCAL YEAR 2013 -14 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE PROPOSED FISCAL YEAR 2013 -14 DEBT SERVICE FUND BUDGET Submitted By: Initiating Dept. /Div.: Thea Vassallo CPA, Finance Manager Administration /Finance & Accounting REVIEWED AND RECOMMENDED FOR BOARD ACTION: �la K. Alm C. Swanson Counsel for the District Provisional General Manager ISSUE: The proposed Fiscal Year (FY) 2013 -14 Operations & Maintenance (O &M) Budget and Debt Service Fund Budget are being submitted for review at the May 16, 2013 Board Meeting, and are scheduled for approval and adoption at the June 20, 2013 Board Meeting. The budget document was provided to the Board under separate cover dated May 2, 2013. RECOMMENDATION: Review the proposed FY 2013 -14 O &M Budget and Debt Service Fund Budget and provide District staff with comments and guidance leading to the public hearing, approval, and adoption of the Budgets at the June 20, 2013 Board Meeting. FINANCIAL IMPACTS: The proposed FY 2013 -14 O &M Budget was prepared using an assumption that a $34 Sewer Service Charge (SSC) rate increase will be approved by the Board. The $405 SSC in FY 2013 -14 is allocated as follows: O &M $365; Capital $40 per Residential Unit Equivalent (RUE). The FY 2013 -14 SSC O &M allocation is $21 /RUE higher than in FY 2012 -13 which produces $3.4 million in additional O &M SSC revenue. The proposed FY 2013 -14 O &M Budget results in a decrease of $2.7 million to O &M reserves, and total O &M reserves are projected to be $6.7 million at the end of FY 2013 -14. The $6.7 million projected O &M reserves are $1.1 million below the prudent reserve fund balance which is 10% of FY 2013 -14 annual expenses of $77.8 million. ALTERNATIVES /CONSIDERATIONS: At a Board Workshop in January, staff recommended a scenario with a SSC rate increase of $34 /RUE that considered the impact on District revenues as well as the fiscal year -end reserve balance. Staff requested the Board provide direction should they wish to pursue other options. At a Board workshop in April, the Board indicated they wished to start an accelerated pay down of the District's unfunded retirement liabilities in FY 2013 -14 instead of the planned starting period of FY 2015 -16. This proposed budget includes a $5 million dollar payment towards the unfunded retirement liability. C:\ Users \d andersonWppData \Local \Microsoft \Windows \Temporary Internet Files \Con tent. 0utlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc Page 1 of 6 POSITION PAPER Board Meeting Date: May 16, 2013 Subject: RECEIVE THE FISCAL YEAR 2013 -14 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2013 -14 DEBT SERVICE FUND BUDGET The Board may choose to implement a lower SSC rate increase for FY 2013 -14. Finally, the Board may choose an alternative that was not presented. The O &M and Capital draft budgets will need to be revised, as necessary, to reflect any Board action. BACKGROUND: Staff has developed a 10 -year financial model for forecasting revenues, expenses and fund balance. The model assists the District in setting and projecting SSC rates. The model funds in the following order: Debt Service, O &M /Self- Insurance and lastly, the Sewer Construction Fund. In May, 2013, the District ratepayers will receive a NOTICE OF A PUBLIC HEARING /COMPLIANCE WITH PROPOSITION 218 stating a rate increase of up to $34 for FY 2013 -14 for a total up to $405 per year effective July 1, 2013, and up to an additional $34 increase for FY 2014- 15, effective July 1, 2014, for a total of up to $439 per year. The proposed FY 2013 -14 budget includes the allocation of $8.1 million from the O &M Fund towards the unfunded liability associated with GASB 45 post - employment benefits and current year retiree premiums. This amount is based on the draft of the most recently completed two -year actuarial study by Bartel Associates. The $8.1 million includes an approximate payment of $4.7 million for retiree medical, dental and life insurance premiums annually and $3.4 million to be deposited in a GASB 45 PARS investment trust to fund future retiree benefit costs. This position paper focuses on variances between projected FY 2012 -13 expenses and the proposed FY 2013 -14 Budget. The position paper also notes any significant variances between the FY 2012 -13 and FY 2013 -14 Budgets. Attachment 1 summarizes the Debt Service Fund Budget. Attachment II summarizes the O &M revenues, expenses, and reserve balances for seven years - FY 2007 -08 through FY 2013 -14 (five years of actual expenses plus FY 2012 -13 projected and FY 2013 -14 proposed budget numbers). C:\ Users \danderson\AppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc POSITION PAPER Board Meeting Date: May 16, 2013 subject: RECEIVE THE FISCAL YEAR 2013 -14 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2013 -14 DEBT SERVICE FUND BUDGET O &M Revenue: The following table compares Projected FY 2012 -13 to Budget FY 2013 -14 O &M Revenue: Total District O &M Revenue for FY 2012 -13 is projected to be $70.4 million compared to the FY 2013 -14 Budget amount of $75.2 million, resulting in an increase of $4.7 million, or 6.7 %. This is due to: • The O &M SSC allocation increases from $344 to $365, the SSC allocation to the Sewer Construction Fund increases from $27 to $40. The increased O &M allocation of $3.4 million results in an increase to O &M SSC revenue of $3.0 million compared to Projected FY 2012 -13. Concord primarily shares a flow portion of Treatment Plant and Source Control expenses and is charged administrative overhead and a finance charge. City of Concord revenue is expected to be $2 million, or 18.5 %, more than Projected FY 2012 -13, mainly due to higher treatment plant operating expenses in FY 2013 -14 and an increase in the administrative overhead rate (based on the contract, not the standard overhead rate) compared to FY 2012 -13. C:\ Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc Projected Budget Increase /Decrease ( -) FY 2012 -13 FY 2013 -14 Variance $ Variance % Sewer Service Charge $ 56,509,700 $ 59,531,700 $ 3,022,000 5.3% City of Concord 10,800,000 12,800,000 2,000,000 18.5% 11 Other 3,120,200 2,820,300 (299,900) (9.6 %) Total $ 70,429,900 $ 75,152,000 4,722,100 6.7% Total District O &M Revenue for FY 2012 -13 is projected to be $70.4 million compared to the FY 2013 -14 Budget amount of $75.2 million, resulting in an increase of $4.7 million, or 6.7 %. This is due to: • The O &M SSC allocation increases from $344 to $365, the SSC allocation to the Sewer Construction Fund increases from $27 to $40. The increased O &M allocation of $3.4 million results in an increase to O &M SSC revenue of $3.0 million compared to Projected FY 2012 -13. Concord primarily shares a flow portion of Treatment Plant and Source Control expenses and is charged administrative overhead and a finance charge. City of Concord revenue is expected to be $2 million, or 18.5 %, more than Projected FY 2012 -13, mainly due to higher treatment plant operating expenses in FY 2013 -14 and an increase in the administrative overhead rate (based on the contract, not the standard overhead rate) compared to FY 2012 -13. C:\ Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc POSITION PAPER Board Meeting Date: May 16, 2013 Subject: RECEIVE THE FISCAL YEAR 2013 -14 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2013 -14 DEBT SERVICE FUND BUDGET O &M Expense: The following table compares Projected FY 2012 -13 to Budget FY 2013 -14 O &M Expense: Total District O &M Expenses are projected to be $69.8 million in FY 2012 -13 compared to a FY 2013 -14 O &M budget of $77.8 million. This reflects an $8.0 million, or 11.5 %, increase in expenses. Variances are discussed in detail below: O &M Salaries: District O &M salaries are projected to be $24.5 million in FY 2012 -13 compared to a budget of $26.7 million in FY 2012 -13 resulting in an increase of $2.2 million, or 9.1 %. This increase is due to many factors: there is a 4% assumed cost -of- living increase (inclusive of the additional 1% per contracts), there are a large number of merit increases and personnel advancements for newly- hired, current employees, and several positions that are currently open and budgeted in FY 2013 -14. Benefits Including Capitalized Administrative Overhead Credit: District O &M benefits including the capitalized administrative overhead credit for FY 2012 -13, are projected to be $26.2 million compared to a budget of $32.6 million in FY 2013 -14 resulting in an increase of $6.4 million, or 24.3 %. This is mainly due to the additional $5 million payment towards the unfunded retirement liability, the overhead rate increasing from 123% to 135% in FY 2013 -14 and the increase in salaries. C:\ Users \danderson\AppData \Locai \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc Projected Budget Increase /Decrease ( -) FY 2012 -13 FY 2013 -14 Variance $ Variance % Salaries $ 24,485,613 26,722,021 2,236,408 9.1% Benefits & Cap O/H Credit 26,210,452 32,570,146 6,359,694 24.3% Chemicals 1,492,180 1,561,000 68,820 4.6% Utilities 4,626,162 4,117,650 (508,512) (11.0 %) Repairs & Maintenance 3,690,429 3,765,527 75,098 2.0% Hauling & Disposal 1,050,300 1,100,500 50,200 4.8% Professional & Legal 591,850 477,350 (114,500) (19.3 %) Outside Services 2,906,808 2,801,621 (105,187) (3.6 %) Self- Insurance 850,000 600,000 (250,000) (9.4 %) Materials & Supplies 1,885,026 2,016,715 131,689 7.0% All Other 2,022,349 2,092,422 70,073 3.5% Total $ 69,811,169 77,824,952 8,013,783 11.5% Total District O &M Expenses are projected to be $69.8 million in FY 2012 -13 compared to a FY 2013 -14 O &M budget of $77.8 million. This reflects an $8.0 million, or 11.5 %, increase in expenses. Variances are discussed in detail below: O &M Salaries: District O &M salaries are projected to be $24.5 million in FY 2012 -13 compared to a budget of $26.7 million in FY 2012 -13 resulting in an increase of $2.2 million, or 9.1 %. This increase is due to many factors: there is a 4% assumed cost -of- living increase (inclusive of the additional 1% per contracts), there are a large number of merit increases and personnel advancements for newly- hired, current employees, and several positions that are currently open and budgeted in FY 2013 -14. Benefits Including Capitalized Administrative Overhead Credit: District O &M benefits including the capitalized administrative overhead credit for FY 2012 -13, are projected to be $26.2 million compared to a budget of $32.6 million in FY 2013 -14 resulting in an increase of $6.4 million, or 24.3 %. This is mainly due to the additional $5 million payment towards the unfunded retirement liability, the overhead rate increasing from 123% to 135% in FY 2013 -14 and the increase in salaries. C:\ Users \danderson\AppData \Locai \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc POSITION PAPER Board Meeting Date: May 16, 2013 subject: RECEIVE THE FISCAL YEAR 2013 -14 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2013 -14 DEBT SERVICE FUND BUDGET The GASB 45 OPEB contribution for FY 2013 -14 is $8.1 million, down from $8.3 million in FY 2012 -13. The amount budgeted for contribution to the PARS trust is $3.4 million, a decrease of $383,000 from FY 2012 -13. The decrease is due to lower GASB 45 OPEB contribution requirement and an increase in both the number of retirees receiving post - employment benefits and a rise in health care premiums. Benefit rate assumptions are provided in the following bulleted list: • Kaiser — 2.88% rate increase for active ; 2.11 % weighted average retiree rate increase • HealthNet — 9.2% rate increase for actives employees; 6.06% weighted average retiree rate increase • CCCERA — Additional $5 million payment towards the unfunded retirement liability; 3.5% rate increase due to CCCERA de- pooling, five -year smoothing of 2008 market losses and for normal operating costs • Delta Dental — No rate increases • Long -Term Disability (LTD) — No rate increases • Employee Assistance Program (EAP) — 2.1 % rate increase • Workers' Compensation — estimated 10% rate increase; rates are not yet final • Life Insurance — No rate increase All Other O &M Expenses: The remaining O &M non -labor and benefit expenses total a projected $19.1 million in FY 2012 -13 compared to a budgeted $18.5 million in FY 2013 -14 resulting in an decrease of $582,000, or -3.1%. Expense category variance explanations are provided in the budget document at a District and Department level. The two largest offsetting expense category variances between Projected FY 2012 -13 and Budgeted FY 2013 -14 are noted below: • Utilities are $509,000 lower in Budgeted FY 2013 -14 than Projected FY 2012 -13, largely due to the high cost of importing electricity in FY 2012 -13 due to the Cogen incident. • Materials & Supplies are $132,000 higher in Budgeted FY 2013 -14 compared to Projected FY 2012 -13. This is largely due to lower- than - anticipated Operating Supplies and Operating fuel in FY 2012 -13. C:\ Users \dan derson\HppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc POSITION PAPER Board Meeting Date: May 16, 2013 Subject-* RECEIVE THE FISCAL YEAR 2013 -14 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2013 -14 DEBT SERVICE FUND BUDGET Any revisions to the proposed FY 2013 -14 O &M Budget determined at the May 16, 2013 Board Meeting will be incorporated in the Budget submitted for approval at the June 20, 2013 Board Meeting, at which the following actions are scheduled for Board consideration: • Conduct a public hearing to receive comments on the FY 2013 -14 O &M Budget, Self- Insurance Fund Budget, and Debt Service Fund Budget. • Approve and adopt the FY 2013 -14 O &M Budget, Self- Insurance Fund Budget, and Debt Service Fund Budget. COMMITTEE RECOMMENDATION: The Budget and Finance Committee will review the FY 2013 -14 O &M Budget and Debt Service Fund Budget on May 14, 2013. RECOMMENDED BOARD ACTION: Review the FY 2013 -14 O &M Budget and Debt Service Fund Budget and provide District staff with comments and guidance leading to the approval and adoption of the Budgets at the June 20, 2013 Board Meeting. Attached Supporting Documents: 1. Debt Service Fund FY 2013 -14 2. O &M Revenues, Expenses and Reserves FY 2007 -08 Through 2013 -14 C:\ Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Receive Budget Review OM and DS 13 -14 PP 5 -16 -13 final.doc CENTRAL CONTRA COSTA SANITARY DISTRICT DEBT SERVICE FUND FY 2013 -14 Debt Service Revenue: Sewer Service Charge Reserve Account Bond Interest Income Ad Valorem Tax (portion allocated to Debt Service) Total Debt Service Revenue Debt Service Expense: Attachment I 25,000 5,563,816 $ 5,588,816 2009 Bond Interest Payment and Amortized Costs, less Tax Subsidy on BAB $ 1,645,435 Possible 8.7% reduction of tax subsidy due to congressional sequestration 36,261 Recycled Water Loan Interest Payment 22,538 Total Interest Payment and Amortization Costs $ 1,704,234 2009 Bond Principal Payment Recycled Water Loan Principal Payment Total Principal Payments Total Debt Service Interest, Amortized Costs and Principal Payments Fund Balance - Beginning of Year Revenue over Expense Transfer from /(to) O &M or Capital Fund Balance - End of Year $ 3,720,000 164,582 $ 3,884,582 $ 5,588,816 Ej N: \ACCOUNTING\GMTEMPI \BUDGET\2013 -2014 BUDGET \Debt Service Fund - Attachment 1 O &M Revenues: Sewer Service Charge (O &M Only) City of Concord Other Total Revenues O &M Expenses: Administrative Engineering Collection System Operations Plant Operations Pumping Stations Total Net Expenses (1) Revenues Over (Under) Expenses O &M Fund Balance - Beginning of Year Revenues Over (Under) Expenses O &M Fund Balance - End of Year (2) FY 2007 -08 Actual 40, 207,157 8,206,860 3,722,807 52,136, 824 15,828,966 6,332,834 8,219,757 22,054,206 2,685,703 55,121,466 (2,984,642) 9,767,747 (2,984,642) 6,783,105 CENTRAL CONTRA COSTA SANITARY DISTRICT O & M REVENUES, EXPENSES AND RESERVES FISCAL YEARS 2007 -08 THROUGH 2013 -14 FY 2008 -09 Actual 43,087,454 8,755,857 3,414,478 55,257,789 16,304,462 6,834,323 9,064,672 22, 927, 971 2,752,950 57,884,378 (2,626,589) 6,783,105 (2,626,589) 4,156,516 FY 2009 -10 Actual W: •• 1 8,664,664, :•• 60,256,673 16,468,495 6,898,357 8,949,125 21,467,827 2,773,800 56,557,604 3,699,069 4,156,516 3,699,069 7,855,585 FY 2010 -11 Actual 49,095,869 9,224,952 1,858,977 60,179,798 18,432,632 6,855,747 8,529,492 21, 360, 057 2,938,697 58,116,625 2,063,173 7,855,585 2,063,173 9,918,758 FY 2011 -12 Actual 49,123,847 10,647,389 3,367,309 63,138,545 20,631,971 8,023,225 9,281,886 23,708,322 2,705,489 64,350,893 (1,212,348) 9,918,758 (1,212,348) 8,706,410 FY 2012 -13 Projected 56,509,700 10,800,000 3,120,200 70,429,900 21,122, 917 9,193,638 11,267,779 25,269,147 2,957,688 69,811,169 618,731 8,706,410 618,731 9,325,141 FY 2012 -13 Budget 56,205,500 10,800,000 3,230,800 70,236,300 21,123,745 8,186,764 10,905,445 25,272,977 2,817,533 68,306,464 1,929,836 Attachment II FY 2013 -14 Budget 59,531,700 12,800,000 2,820,300 75,152,000 22,048,046 10,582,751 13,088,979 28,619,007 3,486,169 77, 824, 952 (2,672,952) 9,325,141 (2,672,952) 6,652,189 Sewer Service Charge Rate - O &M 242 260 292 300 302 344 365 Sewer Service Charge Rate - Capital /Debt 58 51 19 11 39 27 40 Sewer Service Equivalent Units 166,145 165,721 166,755 163,653 162,662 164,272 163,101 Notes: (1) Net Expenses include Operating and Maintenance expenses only and do not include any capital salaries or benefits. (2) Prudent fund balance assumed to be approximately 10% of annual expense. gmtemp 2012 -13 Attachmentll