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HomeMy WebLinkAbout04.a.1) Approve minutes of Board meeting held April 11, 2013MINUTES OF THE SPECIAL MEETING . Q. OF THE DISTRICT BOARD OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT HELD ON APRIL 11, 2013 The Board of Directors of the Central Contra Costa Sanitary District convened in a special meeting in the Board Room, 5019 Imhoff Place, Martinez, County of Contra Costa, State of California, at 2:00 p.m. on Thursday, April 11, 2013. President Nejedly called the meeting to order and requested that the Secretary call roll. 1. ROLL CALL PRESENT: Members: Causey, McGill, Pilecki, Williams, Nejedly ABSENT: Members: None a. PLEDGE OF ALLEGIANCE TO THE FLAG The Board and staff joined in the Pledge of Allegiance. None. 2. PUBLIC COMMENTS 3. REPORTS AND ANNOUNCEMENTS a. GENERAL MANAGER No reports. b. COUNSEL FOR THE DISTRICT No reports. C. SECRETARY OF THE DISTRICT No reports. d. BOARD MEMBERS No reports. 1 CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 4. CAPITAL PROJECTS BOARD WORKSHOP a. RECEIVE PRESENTATION ON THE EFFECTS THAT VARIOUS ALTERNATIVE SCENARIOS FOR FUNDING THE DISTRICT'S UNFUNDED ACTUARIAL ACCRUED LIABILITY (UAAL) WOULD HAVE ON THE DRAFT 2013 TEN -YEAR CAPITAL IMPROVEMENT PLAN (CIP) PRESENTED AT THE JANUARY 24, 2013 FINANCIAL PLANNING AND POLICY BOARD WORKSHOP The Workshop materials were reviewed by the Capital Projects Committee at its April 2, 2013 meeting. Provisional General Manager Curt Swanson reviewed changes made to the Baseline Scenario presented at the January 24, 2013 Financial Planning Workshop. The primary changes included updating employee salaries (to reflect recent Memoranda of Understanding) and capital expenditure projections, and lowering medical premium increases for the next fiscal year. As a result of these changes, Operations and Maintenance (O &M) expenses will increase, leading to an increased Sewer Service Charge (SSC) allocation to the Running Expense Fund (for O &M expenses) and decreased SSC allocation to the Sewer Construction Fund (for capital projects). He presented a new scenario (Scenario No. 4) for the 2013 Ten - Year Plan that included commencing payments on the District's unfunded actuarial accrued liability (UAAL) two years earlier than in the Baseline Scenario. Both scenarios would pay down the UAAL by $75 million within the next ten years. He noted that the District's 2012 unfunded liability, totaling $186.7 million, consisted of $109.1 million in UAAL (pension obligations) and $77.6 million in Other Post - Employment Benefits (OPEB). Finance Administrator Todd Smithey responded to several questions from Board Members regarding how earlier payment of the UAAL would reduce interest charged by Contra Costa County Employees' Retirement Association (CCCERA) on the outstanding pension obligations, and how an improving economy may positively impact CCCERA's investment performance, ultimately reducing the District's UAAL. In terms of O &M expenses, Member Causey asked if the assumptions built into the scenarios included salaries and benefits as though the District were fully staffed at the currently authorized number of positions. Mr. Swanson said no; budgeted salaries in the first year of the plan are based on those positions that staff anticipates filling within the next year. It was noted that a total of 284 positions are authorized under the recently adopted Staffing Plan, with roughly 32 unfilled at this time, owing in large part to an unusually high number of retirements in recent years. Member Pilecki said it appeared to him that the ten -year financial model understates salaries for the second through tenth years, particularly if there are plans to eventually fill all 32 vacant positions. He also expressed concern that filling all vacant positions would effectively remove one of the only remaining opportunities for the Board to exercise control over the SSC, other than cutting back the capital program to non - existence. He did note, however, that he was not in favor of laying off any current employees. 2 CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 Mr. Smithey explained that the first year of the Ten -Year Plan represents the actual budget. Over the remaining nine years, salaries are escalated based on a multiplier (including a three percent cost of living adjustment, a one percent increase pursuant to the most recent MOUs, and a two and one -half percent increase to account for the higher than usual number of newer employees going through the salary step ranges), and then discounted starting in the second year using a two percent vacancy factor. He stated that the vacancy rate was recently reduced from three percent because newer employees are not expected to retire at the high rate experienced over the past several years. Mr. Smithey said he was comfortable that the assumptions built into the model would more than offset any possible understaffing estimates, particularly in the early years of the Ten -Year Plan. Member Causey said he remained concerned that the model understates salaries, particularly if most of the vacant positions were to be filled, leading to possible further cuts to the capital program to fund salaries. He believed the model should reflect full -time equivalent salaries at full staffing levels. After hearing Mr. Smithey's explanation, Member McGill said he was comfortable with the methodology used in the model. Member Williams expressed concern that using assumptions based on this transitional period in terms of staffing will most likely underfund salaries. President Nejedly commented that the District has not been fully staffed for a number of years and likely will continue to be understaffed in the future, noting that the number of authorized but unfilled positions over last five to ten years has been substantial. Mr. Swanson agreed and offered to provide substantiating data to the Board Members if desired. President Nejedly said that at some point a methodology must be selected for the model and he was comfortable with the assumptions staff has been using. In order to provide staff with clearer Board direction in terms of budgeting for staffing estimates, Member Williams proposed gradual annual increases from current staffing levels that would increase the staffing count from 252 to approximately 273 over the next two years, which would account for a vacancy factor and may be more realistic. In response to a question from Member Causey, Mr. Smithey explained that salary figures entered into the ten -year financial planning model are based on neither the entry level nor the top step of the salary step ranges. Rather, each department submits salary figures as part of the budget process. Those salary figures are combined and the consolidated figure is entered into the model and then inflated by the above - described multipliers. Mr. Smithey also explained the thought process behind the multiplier used in the model to account for the higher than usual number of newer employees going through the salary step process. Each step of the process results in a five percent increase. Since roughly half the employees will be going through the step process, a multiplier of half that amount was used in the 3 CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 model. Member McGill said that using the two and one -half percent multiplier made sense because the consolidated number used in the model was based on what employees are being paid today. Mr. Smithey also said it might be helpful to understand the distinction between the budget and the ten -year financial planning model. The first year of the model is the budget for the coming year, portraying a realistic estimate of the District's revenues and expenditures. The remaining nine years of the model are simply projections under various scenarios, intended to help guide the rate - setting process and designed to allow for smoothing of future SSC rate increases. Member Causey suggested this issue be discussed further at the upcoming Board Priorities Workshop, specifically to gain a better understanding of the financial model and the assumptions used, ensure it is aligned with the beliefs of the new Board, and provide direction for the future. Member McGill said that while it is always useful to have Board discussion, in this instance he believed the assumptions used by staff have been well modeled, taking into account the types of things the Board needs to know. They have an order of magnitude that is appropriate for rate setting insofar as how much will be allocated to the Sewer Construction Fund. With the background presented at this meeting, he said the Board can make decisions appropriately. Member Pilecki agreed from the perspective of rate setting that the numbers in the model are good. However, with the District's unfunded pension liability, escalating overhead rate, and underfunded capital program, he suggested the Board examine such issues from a big - picture perspective, rather than piecemeal. He also suggested setting three -, five -, and seven -year plans to reach the District's goals. If the District is budgeting to fill all authorized positions, the avenue for addressing these issues will be taken away. Hypothetically, he pointed out that the Board has the opportunity to choose not to fill up to 32 positions, which could have a significant impact on the SSC over a ten -year time frame. Member McGill said this discussion was important in terms of helping the Board understand how staffing costs are incorporated into the model; however, at present, staff can only work with the number of positions currently authorized by the Board. If the Board wishes to change the number of authorized positions, it should be done at a later date and in a thoughtful manner. Member Pilecki agreed. President Nejedly reiterated that he was comfortable with the assumptions presented by Mr. Smithey. Member Causey commented that the District's ten -year financial planning model is an excellent tool and one that very few agencies have. However, going forward, he said it was important that Board Members be given an opportunity to provide input in terms of the assumptions used in the model. 4 CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 Member Williams said that from a very large- picture perspective, no matter the scenario followed, the District will.be left with $112.6 million in total unfunded liability after paying $75 million as indicated in both scenarios. Mr. Swanson noted that the $75 million will be applied against the $109.1 unfunded pension liability (UAAL). The District has a separate trust for the $77.6 million in unfunded retiree benefits liability (OPEB), into which it has been putting approximately $3.7 million annually for a number of years. Finance Manager Thea Vassallo said the OPEB trust is currently valued at approximately $27 to $28 million and the unfunded balance is decreasing each year. Mr. Smithey noted that the District is also making regular annual payments to CCCERA over 18 years toward the UAAL. The $75 million payments would supplement those annual payments to CCCERA and would also reduce the 7.25 percent interest charged by CCCERA on the unfunded balance. President Nejedly said it is important to understand that the $109.1 million UAAL is a worst case scenario; the unfunded balance fluctuates and very likely could be erased in the next five or six years, depending on market performance. Member Pilecki pointed out that accelerating payments toward the UAAL during the first two years of the Ten -Year Plan (Scenario No. 4), versus commencing payments in the third year of the plan (Baseline Scenario), dramatically reduces the District's funds available in the first several years of the Plan. While the model takes into consideration interest savings from the accelerated UAAL payments, he noted that funds available will be reduced to $1.1 million at the end of next year and $2.6 million the following year. He also recalled Ms. Vassallo's remarks at the January 2013 Financial Planning Workshop that the cost of borrowing is very high after factoring in all applicable fees and interest. b. OVERVIEW OF THE FISCAL YEAR 2013 -14 DRAFT CAPITAL IMPROVEMENT BUDGET (CIB) AND DRAFT 2013 TEN -YEAR CIP Capital Projects Division Manager Andrew Antkowiak presented an overview of the planned Fiscal Year (FY) 2013 -14 Draft Capital Improvement Budget (CIB) and the proposed Draft 2013 Ten -Year CIP. He stated that estimated capital expenditures over the next ten years amount to $365 million. The recommended expenditures under each of the District's capital programs during the next fiscal year are as follows: Estimated FY 2013 -14 Program Program Expenditures Treatment Plant $ 9.0 million Collection System 12.4 million General Improvements 4.8 million Recycled Water 3.4 million TOTAL $29.6 million 5 CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 Treatment Plant Program Mr. Antkowiak stated that the $9.0 million Treatment Plant Program for FY 2013 -14 includes expenditures of $810,000 for Treatment Plant Planning, $850,000 for Pump and Blower Building seismic renovations, and one -time renovation costs of $5.4 million for Primary Treatment and $400,000 for Cogeneration Unit upgrades. Recurring project costs include $100,000 for design of Piping Renovations and $150,000 for Treatment Plant Asset Management. He stated that the Treatment Plant Planning Project, at a budgeted cost of $810,000 for FY 2013 -14, includes required District participation in collaborative studies and development of a Facilities Plan, leading to the District's National Pollutant Discharge Elimination System (NPDES) Permit reopening on April 1, 2015 to reassess the appropriateness of the total ammonia load limit. Collection System Program Mr. Antkowiak presented a breakdown by project of the $12.4 million Collection System Program. Piping renovations in North Orinda, Walnut Creek, Lafayette, Diablo, and Martinez in the amount of $5.1 million represent the largest component of the budget. Another $2.5 million is allocated to cured -in -place pipe (CIPP) renovations, which will take place near the Shell Oil Refinery in Martinez and in the South Main /Lancaster area of Walnut Creek, and $800,000 is allocated to ongoing TV inspections, which helps staff schedule pipe renovation projects by identifying problematic sewer lines. Costs in expansion and capacity renovation include $1.2 million in assessment districts and development sewerage and $800,000 for the Pleasant Hill /Grayson Creek Trunk Sewer. For the Buchanan South Pumping Station Abandonment, Fairview /Maltby Pumping Station Improvements, and the possibility of installing a grinder at the Moraga Pumping Station, an additional $600,000 is budgeted. General Improvements Program Mr. Antkowiak stated that the majority of the $4.8 million budgeted for the General Improvements Program is dedicated to seismic improvements in the Headquarters Office Building (HOB), at $1.8 million. Information Technology improvements are budgeted at $1.1 million, plus $450,000 for a GDI -SMMS replacement. He presented a map showing the proximity of the Concord Fault to the HOB and pictures of the construction progress, including the installation of recycled water piping in the restrooms. Recycled Water Program With regard to the Recycled Water Program, Mr. Antkowiak stated that the Concord Landscape Irrigation Project, budgeted at $3.1 million, represents the largest portion of the Recycled Water Budget for FY 2013 -14. The project will add 2.5 miles of reclaimed water pipe and more than 34 new customers, utilizing 200 acre -feet of recycled water per year. He noted that the District will be receiving a $1 million CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 Proposition 84 grant for the effort. The remaining balance of the $3.4 million budget includes the Martinez Refineries, Zone 1, and other Recycled Water Planning. Mr. Antkowiak also briefly discussed the Sewer Construction Fund projected revenues for FY 2013 -14, and projected the FY 2012 -13 Sewer Construction Fund balance will be $38.6 million, nearly $3 million above budget. Mr. Antkowiak concluded that a public hearing will be conducted by the Board in June to consider adopting the proposed FY 2013 -14 CIB and the Ten -Year CIP. C. DISCUSS INFORMATION TECHNOLOGY (IT) DEVELOPMENT PLAN Information Technology Administrator Roy Li described the components of the IT Capital Budget for FY 2013 -14 totaling approximately $1.1 million: $35,000 for Collection System Operations (CSO); $35,000 for Communication Services; $108,000 for Plant Operations Department, $112,000 for the Engineering Support Group; $250,000 for Administration; $487,000 for IT, and $50,000 for Miscellaneous. Mr. Li stated that the IT Plan covers the four -year life cycle replacement of computers, monitors, and printers; replacement of servers and end -of -life CISCO VPN and network security equipment; replication, backup and redundancy of the servers; and the Microsoft Enterprise Agreement (EA) software volume licensing. Engineering Support upgrades include replacement for GIS workstations, virtualization improvements, and software licensing. A potential MainSaver replacement or migration will cost upwards of $90,000. Communication Services costs include replacement of the community outreach laptop and the video studio computer, and a conversion and migration of the District's external website to another vendor. Also included is a pilot project for mobile devices to be used by pumping station crews and IT at $35,000. Mr. Li noted that, at its April 2, 2013 meeting, the Capital Projects Committee recommended that portions of the IT Plan be put on hold, including $90,000 for MainSaver, $250,000 for a document management and records retention system, $35,000 for Communication Services, and $50,000 for Miscellaneous, and use the money saved to develop a comprehensive IT master plan. d. DISCUSS VEHICLE AND EQUIPMENT BUDGET FOR FISCAL YEAR 2013 -14 Provisional General Manager Curt Swanson described components of the Vehicle and Equipment Budget, totaling $545,400. Vehicle costs include 11 trucks budgeted at a total cost of $407,000. General Equipment includes mini - camera systems, two Cushman trucks, a utility pickup, a surface grinder, and a professional camcorder for the incoming videographer. He added that, with the departure of Tri City Concrete, the District is purchasing its own hauler and mixer, to bring the Equipment Budget to a total of $138,400. President Nejedly inquired about the possibility of purchasing larger television screens for the CSO vehicles. He also noted that trade -in value drops, as well as 7 CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 the ability to finance, for any vehicle with over 100,000 miles on the odometer. He suggested that staff begin the process of transitioning the vehicles at 90,000 miles. e. DISCUSS PROS AND CONS OF PAYING DOWN THE DISTRICT'S UAAL THROUGH REDUCTIONS IN CAPITAL PROGRAM SPENDING Provisional General Manager Curt Swanson noted that this topic, while touched upon earlier in the meeting under Item 4.a., was agendized to give the Board Members an opportunity to discuss it in more depth. Member Causey said a discussion at the most recent Capital Projects Committee meeting centered on the merits of deferring various capital projects and utilizing any monies saved toward paying down the UAAL. He said that a close look at the individual capital projects in the budget revealed that roughly $5 to $6 million may be able to be deferred without significant consequence over time to the District's operation; similarly, he said it appeared that perhaps another $2 to $3 million could be garnered from the O &M program by the end of this fiscal year. He reiterated his belief that Scenario No. 4 was a step in the right direction because any monies paid toward the UAAL would yield a greater financial return than anywhere else they could be invested. He wondered, however, if Scenario No. 4 goes far enough, and offered for discussion the idea that the Board should be even more aggressive about funding the UAAL than currently envisioned. Member Pilecki, who sits on the Capital Projects Committee with Member Causey, acknowledged that the best financial return may be gained from early pay down of the UAAL. However, he said the other side of the discussion at the Committee meeting dealt with the issue of whether the District's mission to protect public health and the environment may be compromised if funds are withdrawn from the capital program. He said projects that reduce overflows should not be deferred and, since a number of capital projects are already underway, it would be three or four years before any cutbacks in the capital program would yield meaningful results. Because of his and Member Causey's varied viewpoints, he said they believed further discussion with the full Board was appropriate. Member Williams commented that the key to deferring capital projects is knowing which ones are deferrable without compromising the District's mission. If, as Member Causey mentioned, up to $6 million in capital projects may be deferred, that was worth considering. With respect to capital projects, Member McGill stated that the focus of the District's managed dollars always should be on items related to the District's mission and he agreed that some capital costs may be able to be deferred without affecting the District's ability to perform its mission. In the case of the UAAL, and from a fiduciary standpoint, he said the District is always making regular payments on the balance because such payments are required by CCCERA. The issue under discussion was one of making additional payments beyond those required, in order to reduce interest costs on the unfunded balance. The Budget and Finance Committee has explored the use of pension obligation bonds as a means of paying down the UAAL CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 more quickly, but that was deemed too risky. He said he was open to suggestions from staff on the merits of what was being suggested. President Nejedly stated that the problem with deferring capital projects is that it puts the burden on future ratepayers. He said he depends on staff for notification when capital items need replacing. Projects already in process must be completed, and he would want assurance from staff whether any particular project was deferrable. He said he would hesitate to defer projects for more than a year because the deferred projects will accumulate and SSC rates would have to be raised further. With regard to the UAAL, he said it is important to keep in mind that the unfunded amount at any one time essentially is a moving target. To illustrate, Finance Manager Thea Vassallo noted that last year's Ten -Year Plan estimated the UAAL at $122.5 million; now it is at $109.1 million. In the end, he said the Board's highest priority is to protect the health and welfare of the people of the District. Looking out over the next ten -year period, Member McGill made the following comments: (1) the Capital Projects Committee recently discussed development of a more structured asset management program which he believed may have a lot of merit; (2) he did not believe that staffing issues should be part of the Capital Projects Workshop - those issues should be examined by the Human Resources Committee with a recommendation to the full Board; (3) the California Special Districts Association (CSDA) recently has made recommendations on cash reserve policies, a topic that he felt should be referred to Budget and Finance Committee and then to the full Board; (4) the possible switch from CCCERA to California Public Employees' Retirement System (CaIPERS) is presently being evaluated by the Budget and Finance Committee; and (5) given that labor negotiations will reoccur in the span of the Ten -Year Plan, he asked whether the Board should be setting the stage to move to a defined contribution program instead of a defined benefit program. He stated that these matters can have a tremendous impact on the budget process and should be considered, without overwhelming staff, by their respective Committees and to the full Board for action. With respect to capital project deferment, Member Williams proposed using a risk - based asset management approach to fine tune the capital program. In the near term, Member Pilecki said there is very little that can be deferred in the capital program because many projects are already underway. For that reason, he suggested the Board direct staff to leave the CIB as presently drafted, but once a District -wide asset management plan is in place next year, staff should take a hard look at identifying which projects can or cannot be deferred. Member Causey said he could not support that course of action because he is not completely comfortable that a risk -based asset management plan can be developed by November 2013, when the next Capital Improvement Budget Workshop is scheduled. He said he was in favor of developing a District -wide asset management program and encouraged the Board to consider moving forward with Scenario No. 4 rather than the Baseline Scenario. N CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 With regard to the IT budget for next year, Member McGill asked what was the rationale for the Capital Projects Committee recommendation to put on hold roughly $425,000 of the IT budget pending development of an IT master plan. Mr. Swanson explained that the matter was originally raised by the Human Resources Committee last January in conjunction with considering the reclassification of a number of IT positions. Member Pilecki said the Committee discussed that a unified IT development plan would be beneficial in making staffing decisions. He noted that the District currently uses many different software programs and databases, a number of which are proprietary and no longer supported. In its review of the CIB, Mr. Swanson explained that the Capital Projects Committee recommended holding back on a portion of the budgeted funds until a comprehensive IT master plan could be developed, thus allowing for coordinated purchases of integrated software and hardware systems. None. President Nejedly expressed concern that the Committees' suggestions bordered on micromanagement of the IT Department when the Board should focus its concerns on policy setting. Member Williams commented that the Human Resources Committee recommendation to develop an IT master plan was not intended to micromanage staff, but it is not necessarily reasonable to expect that the District's IT Department has the time to evaluate all the different software systems currently utilized by the District in terms of how they could be integrated. He said he did not view the proposed IT budget as an IT master plan. Member Causey added that the Capital Projects Committee recommended that all $1.1 million of the proposed IT budget for next year remain in the CIB, but those portions that were suggested by the Committee to be put on hold (totaling $425,000) be used to develop an integrated, overall IT master plan, either prepared by staff or an outside consultant. He said it was a policy question in terms of taking a coordinated approach in advance of purchasing new technology to assure that any new programs are able to work together. In response to an inquiry from Member McGill, Member Pilecki pointed out that Scenario No. 4 does not utilize any funds from the capital program so, from a capital projects standpoint, both the Baseline Scenario and Scenario No. 4 are comparable; it is just a matter of how low the floor should be for funds available. That being the case, Member McGill suggested that consideration of Scenario No. 4 be referred to Budget and Finance Committee for further discussion and recommendation back to the full Board. Member Pilecki concurred with this suggestion, as did the remaining Board Members. 5. EMERGENCY SITUATIONS REQUIRING BOARD ACTION 10 CENTRAL CONTRA COSTA SANITARY DISTRICT Board Minutes of April 11, 2013 6. SUGGESTIONS FOR FUTURE AGENDA ITEMS Member Pilecki requested an update on the Concord Naval Weapons Station. 7. CLOSED SESSION The Board recessed at 4:13 p.m. to reconvene in closed session in the Caucus Room. a. Conference with Legal Counsel - Anticipated Litigation - significant exposure to litigation pursuant to Government Code Section 54956.9(b): • One Potential Case — California River Watch The Board recessed at 5:00 p.m. to reconvene in the Board Room in open session. 8. REPORT OUT OF CLOSED SESSION Acting District Counsel Rich Pio Roda reported that no reportable action was taken in Closed Session. 9. ADJOURNMENT There being no further business to come before the Board, President Nejedly adjourned the meeting at 5:00 p.m. James A. Nejedly President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California COUNTERSIGNED: Elaine R. Boehme, CMC Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California 11