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HomeMy WebLinkAbout09.a. Receive overview of Capital ProgramVia. Central Contra Costa Sanitary District January 31, 2014 TO: HONORABLE BOARD OF DIRECTORS VIA: ROGER BAILEY, GENERAL MANAGER j FROM: ANDREW ANTKOWIAK, CAPITAL PROJECTS DIVISION MANAGE EARLENE MILLIER, ENGINEERING ASSISTANT III &1 SUBJECT: CAPITAL IMPROVEMENT BUDGET FINANCIAL PROCESS In order to provide context for a discussion of capital budget authorization limits, the attached summary of the CIB financial process was prepared. This document provides an overview of the main components of the District's financial process as it relates to capital improvement projects, from preparation of the Capital Improvement Budget to the closeout of completed capital projects. The last page of this document is a graphical depiction of the financial process and has been included to help clarify the process and illustrate how authorizations and allocations move money from the Sewer Construction Fund into programs and finally, into individual project budgets. /sdh CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 Introduction Each year, the District updates the Capital Improvement Budget (CIB) and Capital Improvement Plan (CIP). The CIB covers capital improvement projects and expenditures anticipated for the following fiscal year. The CIP includes the CIB year and nine additional future years, for a total of ten years. The CIP is sometimes referred to as the Ten Year Capital Plan. The capital program is divided into four programs (Treatment Plant, Collection System, General Improvements, and Recycled Water), each of which is further divided into several sub - programs. Each project is assigned to a sub - program within one of the four programs. The Board adopts the CIB /CIP before the new fiscal year starts, and in so doing, authorizes not expenditures, but a total authorization for each of the four capital programs. The program authorization is the total of the anticipated allocations for projects in the program for the fiscal year. The General Manager then approves project - specific allocations from the four program authorizations, within approval limits set by the Board. The question of why the Board approves program authorizations rather than project expenditures has been discussed at length. Approving program authorizations and delegating project- specific allocation and expenditure approval to the General Manager gives staff the flexibility to adjust the scope and expenditures of current projects within limits set by the Board. It also gives staff the ability to respond to conditions that arise as projects progress without going back to the Board for approval each time. Each project in the CIB /CIP is assigned to a Project Manager who has overall responsibility for completion of the project and approving expenditures, within limits set by the Board. Each program in the CIB /CIP is overseen by a senior staff member, who has overall responsibility for planning which projects are to be included in the CIB /CIP for the program. The Capital Projects Division Manager has overall responsibility for the capital program. Prepared by E. Millier and A. Antkowiak Page 1 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 A. How Projects are Included in the CIB /CIP Projects are identified and included in the CIB /CIP for one or more of the following reasons: 1. The District's asset management plan calls for renovation or replacement of an asset; 2. The project is included for planning purposes, from which individual projects will be developed; 3. The project is determined to be necessary due to regulatory, environmental or customer service requirements; 4. Engineering judgment or maintenance considerations call for renovation or replacement; 5. Purchase of vehicles, computers and other equipment; 6. A necessary asset has failed or is about to fail (may be a contingency project and therefore not in the CIB); 7. The project is a mechanism for capitalization of expenditures such as planning studies, the purchase of easements, etc. B. Capital Budget/Plan Preparation The first preliminary estimate of capital expenditures for the next fiscal year is typically done in November. Individual project expenditure estimates are updated, and the list of projects is refined. The Board meets in December for a high -level overview of estimated capital program expenditures. Total expenditure estimates for the four programs (Treatment Plant, Collection System, General Improvements, and Recycled Water) are calculated and are used by management to develop the District's Ten -Year Financial Projections for Rate Setting. Various financial scenarios are developed and presented to the Board in January, based on the capital program expenditure estimates and O &M expenditure estimates. The rate setting process and development of the CIB /CIP are done in parallel. As the CIB /CIP is developed a draft is presented to the Board in March, and project scopes and expenditure estimates are further refined. By this point, making large changes to the four programs' expenditure estimates is problematic because those numbers have been used to develop sewer service charge rate scenarios. Because of the long lead time needed to meet Proposition 218 requirements for sewer service charge rate setting, capital project expenditure estimates for the following fiscal year must be set fairly early in the process, even as multi -year projects are moving Prepared by E. Millier and A. Antkowiak Page 2 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 forward, existing projects are undergoing changes, and new projects are under development. The Board holds a workshop in April to review the draft CIB /CIP. Changes are incorporated, and the final CIB /CIP is adopted by the Board in June. C. Initial and Supplemental Authorizations Initial authorization: Each year, the Board adopts the CIB /CIP, thereby approving the Total Proposed Authorization for each of the four capital programs. The Total Proposed Authorization includes the estimated carryover (allocated but unspent) amounts plus the estimated new allocation total for each program. The new allocation total is the sum of allocations planned for all projects in the program for the fiscal year. The estimated new program allocation total is the initial authorization to each program from the Sewer Construction Fund and becomes the beginning balance of funds available to be allocated in the new fiscal year. This amount is divided between two accounts for each program: Unallocated (95% of the approved new allocation amount) and Program Contingency (5% of the approved new allocation amount.) Individual projects allocate money from the program balance on Capital Improvement Budget Allocation Requests, or CIBAs. As projects allocate money from the program, the amounts are deducted from either the Unallocated or Program Contingency beginning balance. If the project is in the CIB, it allocates from the Unallocated account. If the project was not in the CIB, it allocates from the Program Contingency account. Program balances are monitored by staff in Engineering as allocations occur. As allocations are later entered into the Sungard system by Accounting staff, the available balance in the system is reflected on an Account Activity Listing. The Engineering log of allocations and the Account Acitivity Listing are reconciled several times during the year to make sure all allocations are accounted for. The log acts as an early warning of a low program balance so that appropriate steps can be taken, i.e., halt allocations or request a supplemental authorization. Because of project changes and delays, there is usually a difference between the amounts planned to be allocated and what is actually allocated during the fiscal year, but the program cannot be allocated down to below a zero balance. Any remaining balance in the Unallocated account is returned to the Sewer Construction Fund at the end of the fiscal year. Prepared by E. Millier and A. Antkowiak Page 3 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 Supplemental authorization: The estimated allocation for each project is determined well before the allocation will actually happen. Occasionally, a project for which no allocation was planned in the fiscal year must have an allocation. Perhaps the project is ahead of schedule, or it might have spent more money than anticipated due to a change in scope or costs. When this happens, staff might ask the Board for a supplemental authorization to the program. The supplemental authorization is needed when projects need to move forward and must allocate funds so that work can continue, but the balance in the program fund is depleted. The alternative to approving a supplemental authorization is to slow down or halt work on the project. The supplemental authorization language is usually included in the contract award position paper. If the Board approves a supplemental authorization, the amount is added to the remaining balance in the program's Unallocated account. On rare occasions, a program balance might approach zero as a result of multiple projects moving ahead of schedule, changed timing of allocations, added scope and cost, or other need for an unanticipated allocation, and staff might prepare a position paper for a supplemental authorization that is not tied to a particular project's contract approval. D. Allocation Carryover (adjustment in September to reflect actual carryover amount) At the adoption of the CIB /CIP (usually in June or July) the Board approves the Total Proposed Authorization for each of the four programs, which includes an estimate of carryover (allocated but unspent funds.) The actual amount of carryover is not known until the fiscal year closes out. When the actual carryover is known, staff goes back to the Board with a report of the actual carryover and a position paper requesting approval of the revised Table 1 from the CIB /CIP. This position paper is usually included in an agenda for a Board meeting in September. Prepared by E. Millier and A. Antkowiak Page 4 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 E. Expenditures The Expenditure Estimates shown in the CIB /CIP are preliminary estimates. Because the planning and design phases of projects typically have not been completed, and bids have not been obtained, the cost estimates are preliminary. These estimates do not include project contingency. The contingency is excluded to reduce over - inflating and under - spending program budgets (the contingency may or may not be needed or used). As project designs are completed, a final construction cost estimate and total project cost is prepared. Depending on project criticality and the status of remaining program allocations and expenditures available, the project may proceed and /or be delayed to the following fiscal year. See item H: Project Budget Overrun. F. Program Contingency and Project Contingency The Program Contingency is 5% of the total of new planned allocations for each program, which is approved by the Board when the CIB /CIP is adopted. The 5% is set aside in a separate account and is used solely for allocations for projects that are not in the CIB. The 95% is used for allocations for projects in the CIB. The General Manager has authority from the Board to approve allocations of contingency funds up to $100,000 per project. Each of the four programs has a contingency beginning balance, and these amounts are generally not spent in their entirety. Any amount not allocated by the close of the fiscal year is returned to the Sewer Construction Fund. Project contingencies are not included in estimated expenditures in the CIB in order to avoid over - estimating and under - spending. The Board has given the General Manager the authority to allocate up to 15% over the final project budget (as authorized in the contract award position paper). However, this is limited by the remaining balance in the applicable program account. The General Manager cannot approve allocations for more than the remaining balance in the program account. If allocations in excess of the allocation total in the CIB are needed, staff has to return to the Board to ask for a supplemental authorization. Prepared by E. Millier and A. Antkowiak Page 5 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 G. New Projects Not in the CIB New projects are occasionally created during the fiscal year that were not included in the CIB because they were not anticipated, or they have arisen suddenly in response to an emergency or other unanticipated factor. These projects can allocate up to $100,000 out of the Program Contingency balance. To allocate more than $100,000 or to allocate an amount less than $100,000 but exceeding the available contingency balance for a project not in the CIB, staff has to ask the Board to approve a supplemental authorization to the Program Contingency balance. It is fairly unusual for unanticipated projects to be created during the fiscal year, but it does happen. More frequently, a project that is planned to begin in the following year moves forward. For example, a project included in the FY 2013 -14 CIB might be ready to start in February, 2013. With the approval of the General Manager, and if funds remain in the Program Contingency account, that project can allocate money and can start spending before July 1, 2013. The maximum amount that can be allocated from the Program Contingency balance by a project is $100,000. If a project not in the CIB has to allocate more than that, Board approval is required. H. Project Budget Overrun Preliminary project budgets are typically set at the end of the calendar year when projects are identified for inclusion in the next fiscal year's CIB. Project cost estimates exclude the project contingency. At that time, project scope and expenditure estimates are very preliminary. As designs advance, the project scope of work and cost estimates become more precise. At the 100% design phase, the project engineer prepares a final Engineer's Estimate and total project cost. The project is put out to bid, and once the winning bid is selected, the project budget is refined to reflect actual construction bid costs. Because of the substantial project development that typically takes place after the CIB /CIP numbers are determined, the final project budget may differ significantly from the numbers in the CIB /CIP. Before a project is advertised for bid, staff reviews the remaining available program balance and expenditures and proceeds with one of the following options: 1. Budget and allocations are adequate for bid and award — project may proceed to bid phase. 2. Project budget exceeds remaining program balance: a. Request supplemental authorization from the Board and proceed to bid phase Prepared by E. Millier and A. Antkowiak Page 6 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 b. Slow down and /or delay the project to the following fiscal year (non - critical projects) After the bid opening, staff evaluates the bids, checks the apparent low bid against the available program balance and makes a recommendation to the Board for award or rejection of the bids. The award position paper includes the current and needed allocation to complete the project and shows the estimated expenditures including a construction contingency. See item F. Program Contingency and Project Contingency. I. Project Close -Outs At the end of the fiscal year, all closing projects (projects whose work is completed and that do not appear in the following year's CIB) are closed out and are included in a report to the Board. The report includes a brief description of the work completed under the project, the total allocated by the project, the total expenditures, and the amount of allocated but unspent funds being returned to the program or the expenditures in excess of the total allocation that are required in order to pay for the work done. Closing projects either return money to the program or they allocate small additional amounts from the program. Because these close -out allocations are prepared before the fiscal year actually ends, the actual total expenditure is not known and the final underrun or overrun amount is adjusted in the Accounting department when final project expenditures are known. In general, closing projects return money to the program. Any remaining program balance that is not allocated by the close of the fiscal year is returned to the Sewer Construction Fund and is not carried over to the new fiscal year. Board members frequently request presentations on completed projects, and these presentations are scheduled soon after the close of the fiscal year. Prepared by E. Millier and A. Antkowiak Page 7 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 J. Board Approval and Staff Approval Authority: Board approval is required at the following points in the capital program financial system: • Sewer Service Charge Rate (a portion of which is designated to the Sewer Construction Fund) • Capacity Fees (all revenue goes to the Sewer Construction Fund) • Capital Improvement Budget and Annual Authorization (total of estimated allocations) from the Sewer Construction Fund to the four programs • Re- authorization of amount allocated but unspent in prior year (carryover) — estimated at time of CIB /CIP approval and updated with actual carryover amount in August • Supplemental Authorizations if allocations will exceed the remaining program balance • Allocations greater than $100,000 or exceeding the Program Contingency balance • Individual project contracts — position papers include final project budgets • Project overruns in excess of 15% Staff Approval: The Board has delegated to staff the following approval authority: • Allocations from program balances to individual projects (with a limit of $100,000 for an individual project not in the CIB from the program contingency balance) • Project overruns up to 15% Prepared by E. Millier and A. Antkowiak Page 8 of 9 CENTRAL CONTRA COSTA SANITARY DISTRICT Summary of Capital Improvement Budget/Plan Financial Process January 31, 2014 K. Capital Program Reporting Throughout the year, a variety of reports are prepared for Board and staff use. These include: • Quarterly cash flow analyses: Used by staff to track spending, plan allocations, adjust cash flow estimates for projects currently underway and about to begin, and used for investment decision - making. • Monthly and quarterly capital projects reports to the Engineering & Operations Committee: Written reports to the Board committee updating the progress of capital projects currently underway and highlighting changes in estimated expenditures. • Final project budget and description is provided with contract award position papers, and there are frequently presentations made on these. • Projects under $100,000: General Manager written announcements are made quarterly and include all contracts under $100,000 for which contracts were awarded by the General Manager. • Monthly capital project expenditure data: written reports are included in the Board agenda packages each month detailing expenditures, allocations, and other financial data related to projects underway. • Periodic updates on particular capital projects:. Large or unusual projects are periodically selected for more frequent updates to the Board. • Project close -out report: A written report to the Board after the close of the fiscal year that lists all projects completed that year, along with a summary of expenditures and work completed under the project. The Board frequently designates individual projects for lengthier close -out reports. Prepared by E. Millier and A. Antkowiak Page 9 of 9 Capital Improvement Budget Financial System At the end of the fiscal year, unallocated funds are returned from the programs to the SCF. When projects close out, unspent funds are returned to the programs. Ratepayers �s f� VUIJAOO,]-'� M /- The Sewer Construction Fund is replenished each year from capacity fees and a portion of SSC revenue. R 1W CDi U5� The Board approves authorizations from the Sewer Construction Fund to the four program balances each year. Uqqr Projects spend and allocate funds as needed, but cannot exceed the remaining program balance without Board approval. The Board approves Final Project Budgets when construction contracts are awarded. The GM approves allocations from program balances to individual projects.