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HomeMy WebLinkAbout05.d.1)a) Action Summary-Finance Committee 3-24-14ACTION SUMMARY Acting Chair Nejedly Member Williams (Alternate) Monday, March 24, 2014 3:00 p.m. Executive Conference Room 5019 Imhoff Place Martinez, California om BOARD OF DIRECTORS: DAVID R. WILLIAMS President MICHAEL R. MCGILL President Pro Tom PAUL H CAUSEY JAMES A. NL<IEDLY TAD J PILF,CKI PHONE: (925) 228 -9500 FAX (925) 372 -0192 www.centralsan.org PRESENT: Acting Chair Jim Nejedly, Member Dave Williams (Alternate), Finance Manager Thea Vassallo, General Manager Roger Bailey, Director of Operations Curt Swanson, Environmental Services Division Manager Danea Gemmell, Accountant Jamie King (left after Item 3.), Finance Administrator Todd Smithey (left after Item 3.), Senior Engineer Thomas Brightbill (left after Item 3.), Courtney Ramos of Matrix Consulting Group (left after Item 3.), Senior Administrative Technician Christina Gee 1. Call Meeting to Order Acting Chair Nejedly called the meeting to order at 3:00 p.m. 2. Public Comments None. *3. Review draft Position Paper approving single rate of Administrative Overhead Percentage of 194 percent for Fiscal Year (FY) 2014 -15 and receive presentation from Matrix Consulting Group, the District's overhead consultant Courtney Ramos of the Matrix Consulting Group gave a presentation on the Overhead Rate Evaluation Study (attached) performed by her company. She reported that the District's current methodology is in compliance with guidelines; the District's use of multiple overhead rates is a common practice, consistent with other jurisdictions; and alternative rate methodologies would neither provide a better rate, nor stabilize the volatility associated with the current rate. Finance Committee Action Summary March 24, 2014 Page 2 Finance Manager Thea Vassallo distributed a sheet regarding Administrative Overhead Methodologies (attached), which listed the criteria for the proposed method and the recommendation by staff and Matrix Consulting Group. General Manager Roger Bailey noted that the priorities in coming to these conclusions included 1) compliance with regulations; 2) full cost recovery for customers, so fees would take on the burden of only the costs of services directly related to them; 3) fairness; and 4) simplicity. The Committee reviewed the recommendations of staff and the consultant to change%larify the methodology for calculating the District's administrative percentage with regard to the following items: • Use of audited or budgeted benefits for the Benefits component • Treatment of Other Post - Employment Benefits (OPEB) contribution for active employees and retirees • Treatment of retiree premiums • Treatment of additional Unfunded Actuarial Accrued Liability (UAAL) payments COMMITTEE ACTION: Recommended Board action as follows: a. Approve a change /clarification in methodology for calculating the District's administrative overhead percentage, commencing with FY 2014 -15 as follows: • Use audited benefits for the Benefits component of the calculation • Allocate the OPEB contribution for active employees and retirees to their respective departments, and include only the administrative portion to the administrative component • Continue to treat retiree premiums as indirect, and include them in the administrative overhead component • Allocate any additional UAAL payments to their respective departments, and include only the administrative portion in the administrative overhead component. b. Approve a single administrative overhead percentage of 194% for FY 2014 -15 to be used for billing outside agencies, calculating the annual Environmental and Development - Related Rates and Charges, and for internal use in charging to Capital Projects (administrative and non -work hours percentages used); and C. Adopt a single -rate, three -year smoothing methodology going forward, using FY 2014 -15 as the base year. Finance Committee Action Summary March 24, 2014 Page 3 4. Old Business a. Review staff's response to questions regarding an expenditure at the previous meeting: 198927 $807.03 Brook Additional clarification regarding the charges related 02/10/14 Furniture to rental furniture used by Source Control Rental employees, who remained in the Warehouse Bays rather than returning to the Headquarters Office Building (HOB) after the seismic retrofit work was completed. COMMITTEE ACTION: Reviewed staff's response. 5. Expenditures a. Review Expenditures Acting Chair Nejedly recommended that the use of the word "Refreshments" should be avoided in future expenditures. COMMITTEE ACTION: Reviewed and recommended Board approval. 6. Review draft Position Paper reviewing the financial status and budget of the Self - Insurance Fund and approving the allocation of $650,000 to the fund from the FY 2014 -15 O &M Budget COMMITTEE ACTION: Reviewed and recommended Board approval of the allocation. 7. Review Fiscal Year (FY) 2013 -14 key Operations and Maintenance (O &M) Budget assumptions and 2014 -15 Pass 1 Budget projections with 10 percent cut scenario Finance Manager Thea Vassa //o reported that there was a $1.4 million favorable variance between budgeted and projected FY 2013 -14 actual expenses. The 10 percent cut scenario, which was requested by Board Member Causey, would amount to an $8.7 million reduction across the board. Member Williams questioned why there was such a large difference between the projected FY 2013 -14 actual of $76,391,193 and FY 2014 -15 Budget Pass 1 of $87,453,529. Regarding the 10 percent cut scenario, he expressed his opinion that to set a target in that manner forces the situation and might result in staff Finance Committee Action Summary March 24, 2014 Page 4 suggesting reductions that would diminish the level of service the District could provide. General Manager Roger Bailey stated that the cost -of- service study will include a staffing assessment, and while there is no foolproof way to evaluate budgets, hiring a consultant seems the most objective way to do so. With staff having completed the 10 percent cut exercise, he asked that staff have the opportunity to study the budget systematically, through a third -party evaluation. Acting Chair Nejedly expressed his concern that Board Members have been overstepping their bounds with regard to their level of management at the District, which included the need to hire consultants to perform what he believed to be unnecessary studies at the Board's request. He stated that staff should be doing their jobs, not exercises such as the 10 percent cut scenario, which could threaten the quality of the District's reputation. He noted that the Board's responsibility was to manage rates and policies. Member Williams added that the function of the Board was not to cause difficulties and additional work for staff, or the Board. Regarding the scenario, he noted that he was not in support of cuts to utilities needed to run the plant, and suspected that the District already spends judiciously in those areas. He suggested that supervisors, managers, and directors be incentivized to take a hard look at staffing, which creates the bulk of the expenses. COMMITTEE ACTION: Reviewed budget assumptions, projections, and scenario. 8. Review February 2014 Financial Statements and Investment Reports Ms. Vassallo reported that revenues are running a $6.5 million favorable variance for Operations and Maintenance (O &M), and Sewer Construction combined. The current O &M is under spent by $2.2 million but is projected to be $1.4 million by year end. Ms. Vassallo noted the current cash and investment balance is $39.2 million. COMMITTEE ACTION: Reviewed and recommended Board approval. 9. Announcements a. Next meeting scheduled for Monday, April 7, 2014 at 3:00 p.m. COMMITTEE ACTION: Received the announcement. Finance Committee Action Summary March 24, 2014 Page 5 10. Suggestions for future agenda items None. 11. Adjournment — at 4:00 p.m * Attachment Central Contra Costa Sanitary District • Administrative Overhead Methodologies Regular Calculation Admin Overhead Benefits Non -Work Hours Change From 2013 -14 Source: Admin Overhead Source: Benefits 3 -Year Smoothing Admin Overhead Benefits Non -Work Hours Full -Cost Recovery using Matrix Prior Year Current Method For 2013 -14 For 2014 -15 117% 111% 85% 100% 18% 18% 220% 229% 9% 11/12 Audit 12/13 Audit 12/13 Budget 13/14 Budget Prior Year Current Year For 2013 -14 For 2014 -15 105% 111% 73% 85% 18% 18% 196% 214% Recommended by Staff & MCG For 2014 - 2015 ** 95% 81% 18% 194% -26% 12/13 Audit 12/13 Audit ** Criteria for this method: 1. Audited financials used rather than budgeted numbers for the Benefits piece of overhead Pros: consistency in component calculations for admin O/H and benefits lowers O/H rate have an actual source document to refer to as support (most recent audited financials) eliminates charge for budgeted salaries that are vacant and associated operating expenses Cons: a lag in capturing full cost for big ticket items such as CCCERA pension and healthcare increases 2. OPEB contribution for active employees and retirees removed from Admin Overhead to direct cost of business Pros: allocates expenses to original depts where employees worked fair and equitable allocation lowers O/H rate have an actual source document to refer to as support (most recent audited financials) Cons: doesn't capture 100% of today's cost 3. Retiree premiums portion of OPEB to remain as part of Admin Overhead calculation Pros: reflects today's cost of retirees (Kaiser, HealthNet, Delta Dental, Life Insurance, etc.) current budget is already structured as an indirect cost Cons: an argument could be made that a majority of the expense is also direct and should not be in the O/H calculation a more complex calculation required to spread actual individual premiums to depts where employees worked 4. Additional UAAL payments of $5.0 to $10 million removed from Admin Overhead to direct cost of business Pros: an "optional" expense customers shouldn't have to pay Cons: this expense is a true cost of running the District that is not captured in the O/H rate more complex calculation as staff has to keep track of retirees by department WACCOUNTING \GMTEMPI\Hdmin Overhead \Consensus after March 17, 2014 meeting with MCG and Roger �Wlp Evaluation Study L . ......... FF;q matrix w consulting group M04LOIN + Present study objectives and backgrounI * Discuss methodology and approach Present • recommendations Mq matr'ixiz,- consulting group Study Objectives -> Audit the District's current model for developing overhead rates I ll lllir: "FM • • •- 1 itroffm IMI: 1=1 1� I VON Z=m I I matrix MIT L. consulting group Ak The District currently calculates an Overhead Rate in order to account for administrative operating expenses and indirect support such as administration and management, payroll, etc. + This rate is primarily applied to: 4 Developer's fees and charges (Plan Reviews, Inspections, etc.) EM Mq matrixl�tl consulting group Overview of District Methodology On, The District currently calculates its overhead rate based on the following components: average for workers compensation, medical, dental, + Non-Work Hours: This component accounts available o r year District staff. matrix'I'lif consulting group Discussion of Rate Components (11 Salary, wages, and benefits associated with Administrative division and departmental Directors and support staff. 4 OPEB, retiree premiums, accrued compensation, etc. 4 Administration and Engineering Division operating costs (utilities, repairs & maintenance, materials ♦ supplies, Other adjustments such as vehicle and building depreciation and HOB maintenance All costs included in this component are based on actual auditel expenditures. A- a Mainx consulting group Discussion of Rate Components (2) lillill��ii' i Workers compensation, unemployment, medical, dental life insurance and retirement costs associated with all District employees. 4 All costs included in this component are based on budgeted expenditures. 4 Vacation, sick leave, holidays, admin leave, birthdays, and compensated time off. - 'm matrIX& consulting group Last year the District overhead rates to stabilize the overhead rate for external customers, while achieving cost recovery • internal customers. Ou Three-Year Average— was applied to external billings and was based on the average of the previous three year internal full cost Internal Full Cost Recovery — was applied to Capital Projects, and p r matriox, consulting gaup ltvervieW ofStudy Results- The District's current methodology for calculating an overhead rate is in compliance with state and federal guidelines, as well as generally accepted accounting principles. 4 Inclusion of costs such as retiree premiums, OPEB, depreciation, etc. are allowable under OMB guidelines. The District's use of multiple overhead rates is consistent wit,17- other jurisdictions and is a common practice. Mq matri)cilff consulting group i i t:4 M7 F I While the District's current methodology is in complianc certain opportunities for improvement exist: I Utilize audited actual expenditures for the calculation • the Employee Benefits component in order to • consistent with the Admin Overheat' • •• 4 Allocate the OPEB costs associated with active and retired employees to their respective divisions as direct, and premiums associated with retirees as indirect. m at ri X i Consulting group