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Home My WebLink About09.a. Proposed 2015-16 Operations & Maintenance and Debt Service BudgetsCentral Contra Costa Sanitary District BOARD OF DIRECTORS • POSITION PAPER Board Meeting Date: May 21, 2015 Subject. RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 DEBT SERVICE FUND BUDGET Submitted By. Initiating Dept. /Div.: Thea Vassallo CPA, Finance Manager Administration /Finance & Accounting REVIEWED AND RECOMMENDED FOR BOARD ACTION: Kent Alm Roger S. Bailey Counsel for the District General Manager ISSUE: The proposed Fiscal Year (FY) 2015 -16 Operations & Maintenance (O &M) Budget and Debt Service Fund Budget are being submitted for review at the May 21, 2015 Board Meeting, and are scheduled for approval and adoption at the June 4, 2015 Board Meeting. The budget document was provided to the Board under separate cover dated April 30, 2015. RECOMMENDATION: Receive the proposed FY 2015 -16 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 4, 2015 Board meeting. FINANCIAL IMPACTS: The FY 2015 -16 O &M Budget was prepared using an assumption that a $32 single family (S)/$24 multi - family (M) Sewer Service Charge (SSC) rate increase will be approved by the Board. The $471 S/$463M SSC in FY 2015 -16 is allocated as follows: O &M 89.7 %; Capital 10.3 %. The FY 2015 -16 O &M Budget results in little change to the O &M ending reserves ( +$27,000), and total O &M reserves are projected to be $11.4 million at the end of FY 2015 -16.. ALTERNATIVES /CONSIDERATIONS: At Board meetings in January and March 2015, staff presented various scenarios and options, and requested the Board provide direction should they wish to pursue other options. Incorporated in this O &M Budget from those meetings are expenses that were previously classified as capital expenses, a $2.5 million dollar payment towards the unfunded actuarial accrued liability (UAAL), implementation of Cost of Service Study (COSS) recommendations and a new proposed reserve policy. The Board has the discretion to modify the budgets. The O &M and Capital draft budgets will need to be revised if the Board does not impose the fee increases asset forth in the Proposition 218 Notice. N:\ADMINSUP\ADMIN \DIST- SEC \Position Papers\2015 \PP- Receive O &M & DSF Budgets 5 -21 -15 FINAL.docx Page 1 of 5 POSITION PAPER Board Meeting Date: May 21, 2015 Subject: RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 DEBT SERVICE FUND BUDGET 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 then Sewer Construction Fund. Additionally, a COSS was performed by Raftelis Financial Consultants, Inc. to assess the District's overall staffing needs and analyze the District's rate structure. The results of the study were changes to staffing alignment and implementing a revised rate structure to better comply with Proposition 218. In April 2015, District ratepayers received a NOTICE OF A PUBLIC HEARING /COMPLIANCE WITH PROPOSITION 218 stating a rate increase of $32S/$24M for FY 2015 -16 for a total of $471 S/$463M effective July 1, 2015, and an additional $32S/$24M increase for FY 2016 -17, effective July 1, 2016, for a total of $503S/$487M per year. The proposed FY 2015 -16 O &M Budget includes the allocation of $7.9 million from the O &M Fund towards the unfunded liability associated with Governmental Accounting Standards Board (GASB) 45 post - employment healthcare benefits and current year retiree premiums. This amount is based the most recently completed two -year actuarial study by Bartel Associates. The $7.9 million includes an approximate payment of $5.3 million for retiree medical, dental and life insurance premiums annually and $2.6 million to be deposited in a GASB 45 Public Agency Retirement Services (PARS) investment trust to fund future retiree benefit costs. This position paper focuses on variances between projected FY 2014 -15 expenses and the proposed FY 2015 -16 O &M Budget. The position paper also notes any significant variances between the FY 2014 -15 and FY 2015 -16 O &M Budgets. Attachment I summarizes the Debt Service Fund Budget. Attachment II summarizes the O &M revenues, expenses, and reserve balances for seven years - FY 2009 -10 through FY 2015 -16 (five years of actual expenses plus FY 2014 -15 projected and FY 2015 -16 proposed budget numbers). O &M Revenue: The following table compares Projected FY 2014 -15 to Budget FY 2015 -16 O &M Revenue: C: \Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G \5 -21 -15 Budget Review OM and DS.docx Page 2 of 5 Projected Budget Increase /Decrease ( -) FY 2014 -15 FY 2015 -16 Variance $ Variance % Sewer Service Charge $ 70,051,000 $ 70,390,000 $ 339,000 0.5% City of Concord 13,600,000 13,700,000 100,000 0.7% All Other 3,445,867 3,402,300 (43,567) -1.3% Total $ 87,096,867 $ 87,492,300 $ 395,433 0.5% C: \Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G \5 -21 -15 Budget Review OM and DS.docx Page 2 of 5 POSITION PAPER Board Meeting Date: May 21, 2015 Subject: RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 DEBT SERVICE FUND BUDGET Total District O &M Revenue for FY 2014 -15 is projected to be $87.1 million compared to the FY 2015 -16 Budget amount of $87.5 million, resulting in an increase of $0.4 million, or 0.5 %. This is due to the following: • While the overall SSC amount is increasing, the O &M allocation of SSC is decreasing from 94.8% to 89.7 %. The net result of these changes is a minimal increase in total O &M SSC of $0.3 million, or 0.5 %, for Budget FY 2015 -16 compared to Projected FY 2014 -15. • Concord primarily shares a flow portion of Treatment Plant, Environmental and Regulatory Compliance, and Source Control expenses and is charged administrative overhead and a finance charge. City of Concord revenue is expected to be $0.1 million, or 0.7 %, more than Projected FY 2014 -15, mainly due to flat treatment plant operating expenses in FY 2015 -16. O &M Expense: The following table compares Projected FY 2014 -15 to Budget FY 2015 -16 O &M Expense: Total District O &M Expenses are projected to be $87.0 million in FY 2014 -15 compared to a FY 2015 -16 O &M budget of $87.5 million. This reflects a $0.5 million, or 0.5 %, increase in expenses. Variances are discussed in detail below: O &M Salaries: District O &M salaries are projected to be $28.0 million in FY 2014 -15 compared to a budget of $30.9 million in FY 2015 -16 resulting in an increase of $3.0 million, or 10.7 %. This increase is due to many factors: there is a 3.5% memorandum of understanding (MOU) cost -of- living adjustment, inclusive of the additional 1% per contracts; there are a large number of merit increases and personnel advancements for C:\ Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G \5 -21 -15 Budget Review OM and DS.docx Page 3 of 5 Projected Budget Increase /Decrease ( -) FY 2014 -15 FY 2015 -16 Variance $ Variance % Salaries $ 27,960,765 $ 30,943,085 $ 2,982,320 10.7% Benefits & Cap O/H Credit 39,231,049 33,224,221 (6,006,828) -15.3% Chemicals 1,595,000 1,655,000 60,000 3.8% Utilities 4,810,550 4,780,250 (30,300) -0.6% Repairs & Maintenance 4,275,006 5,369,900 1,094,894 25.6% Hauling & Disposal 860,200 998,550 138,350 16.1% Professional & Legal 440,500 640,300 199,800 45.4% Outside Services 3,208,871 3,883,115 674,244 21.0% Self- Insurance 650,000 1,500,000 850,000 130.8% Materials & Supplies 1,906,725 2,210,045 303,320 15.9% All Other 2,054,505 2,260,398 205,893 10.0% Total $ 86,993,171 $ 87,464,864 $ 471,693 0.5% Total District O &M Expenses are projected to be $87.0 million in FY 2014 -15 compared to a FY 2015 -16 O &M budget of $87.5 million. This reflects a $0.5 million, or 0.5 %, increase in expenses. Variances are discussed in detail below: O &M Salaries: District O &M salaries are projected to be $28.0 million in FY 2014 -15 compared to a budget of $30.9 million in FY 2015 -16 resulting in an increase of $3.0 million, or 10.7 %. This increase is due to many factors: there is a 3.5% memorandum of understanding (MOU) cost -of- living adjustment, inclusive of the additional 1% per contracts; there are a large number of merit increases and personnel advancements for C:\ Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G \5 -21 -15 Budget Review OM and DS.docx Page 3 of 5 POSITION PAPER Board Meeting Date May 21, 2015 Subject: RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 DEBT SERVICE FUND BUDGET recently- hired, current employees; there are two new COSS- recommended positions, and several positions that are currently open and expected to be filled in FY 2015 -16. Benefits Including Capitalized Administrative Overhead Credit: District O &M benefits, including the capitalized administrative overhead credit for FY 2014 -15, are projected to be $39.2 million compared to a budget of $33.2 million in FY 2015 -16, resulting in a decrease of $6.0 million, or <15.3 % >. This is mainly due to a decrease in retirement expenses of $4.4 million in FY 2015 -16 and, to a lesser extent, an increase in capital work. Benefit rate assumptions are provided in the following bulleted list: • Kaiser — <2.82 %> rate decrease for active employees; <2.75 %> weighted average retiree rate decrease • HealthNet — 6.50% rate increase in HMO for active employees; 6.61% weighted average retiree rate increase • CCCERA - additional $2.5 million payment towards the UAAL; 24% average rate decrease (change from prior year's rate, not percentage of payroll) due to favorable assumption changes and market gains • Delta Dental - estimated <1.0 %> rate decrease • Long -Term Disability (LTD) - 0% rate increase • Employee Assistance Program (EAP) - 2.0% rate increase • Workers' Compensation -estimated 10% rate increase • Life Insurance - 0% rate increase All Other O &M Expenses: The remaining O &M non -labor and benefit expenses total a projected $19.8 million in FY 2014 -15 compared to a budgeted $23.3 million in FY 2015 -16 resulting in an increase of $3.5 million, or 17.7 %. Expense category variance explanations are provided in the budget document at a District and Department level. The three largest expense category increases between Projected FY 2014 -15 and Budgeted FY 2015 -16 are noted below: Repairs and Maintenance is $1.1 million higher in Budgeted FY 2015 -16 than Projected FY 2014 -15. This is largely due to the Cogen repair and cathodic protection expenses switching to the O &M budget from the Capital budget, and due to several deferred maintenance expense items. Self- Insurance expenses are $0.9 million higher in Budgeted FY 2015 -16 than Projected FY 2014 -15 due to building reserves per the anticipated new fiscal reserve policy. C:\ Users \danderson\AppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G \5 -21 -15 Budget Review OM and DS.docx Page 4 of 5 POSITION PAPER Board Meeting Date: May 21, 2015 subject: RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE PROPOSED FISCAL YEAR 2015 -16 DEBT SERVICE FUND BUDGET • Outside Services expenses are $0.7 million higher in Budgeted FY 2015 -16 than Projected FY 2014 -15 due to the addition of a records management initiative, class & comp study, increased cost for security and emergency services, and transition to visual display interface. Any revisions to the proposed FY 2015 -16 O &M Budget determined at the May 21, 2015 Board meeting will be incorporated in the Budget submitted for approval at the June 4, 2015 Board meeting, at which the following actions are scheduled for Board consideration: • Conduct a public hearing to receive comments on the FY 2015 -16 O &M Budget, Self- Insurance Fund Budget, and Debt Service Fund Budget. • Approve and adopt the FY 2015 -16 O &M Budget, Self- Insurance Fund Budget, and Debt Service Fund Budget. COMMITTEE RECOMMENDATION: The Finance Committee reviewed the FY 2015- 16 O &M Budget and Debt Service Fund Budget on May 11, 2015. RECOMMENDED BOARD ACTION: Receive the FY 2015 -16 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 4, 2015 Board meeting. Attached Supportinq Documents: 1. Debt Service Fund FY 2015 -16 11. O &M Revenues, Expenses and Reserves FY 2009 -10 Through 2015 -16 (Note: O &M and Debt Service Fund Budgets distributed under separate cover.) C: \Users \dandersonWppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G \5 -21 -15 Budget Review OM and DS.docx Page 5 of 5 CENTRAL CONTRA COSTA SANITARY DISTRICT DEBT SERVICE FUND FY 2015 -16 Debt Service Revenue: Reserve Account Bond Interest Income Ad Valorem Tax (portion allocated to Debt Service) Debt Service Expense: Attachment I $ 42,676 3,779,654 $ 3,822,330 2009 Bond Interest Payment and Amortized Costs, less Tax Subsidy on BAB $ 1,394,785 7.3% reduction of tax subsidy due to congressional sequestration 30,426 Recycled Water Loan Interest Payment 13,868 Total Interest Payment and Amortization Costs $ 1,439,079 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 $ 2,210,000 173,251 $ 2,383,251 $ 3,822,330 C:\ Users\ danderson \AppData \Local\Microsoft \Windows \Temporary Internet Files \Content.Outlook \DVCG8C5G \Debt Service Fund - Attachment 1 O &M Revenues: Sewer Service Charge (O &M Only) City of Concord Other Total Revenues O &M Expenses: Administration 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) CENTRAL CONTRA COSTA SANITARY DISTRICT O & M REVENUES, EXPENSES AND RESERVES FISCAL YEARS 2009 -10 THROUGH 2015 -16 FY 2009 -10 FY 2010 -11 Actual Actual 48,692,520 8,664,668 2,899,485 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 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 Actual 56,770,984 10,483,421 3,593,410 70,847,815 20,936,708 8,680,940 11,278,661 23,035,932 3,049,274 66,981,515 3,866,300 8,706,410 3,866,300 12,572,710 FY 2013 -14 Actual 60,796,421 11,625,864 3,706,529 76,128,814 21,174,011 12,308,800 12,926,765 27,808,829 3,183,160 77,401,565 (1,272,751) 12,572,710 (1,272,751) 11,299,959 Attachment II FY 2014 -15 FY 2014 -15 FY 2015 -16 Projected Budget Budget 70,051,000 13,600,000 3,445,867 87,096,867 23,722,496 13,233,131 15,175,289 31,489,775 3,372,480 86,993,171 103,696 11,299,959 103,696 11,403,655 Sewer Service Charge Rate - O &M 292 300 302 344 365 416 Sewer Service Charge Rate - Capital /Debt 19 11 39 27 40 23 Sewer Service Equivalent Units 166,755 163,653 162,662 165,032 166,566 168,392 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. C:\ Users \danderson\AppData \Local \Microsoft \Windows \Temporary Internet Files\ Content .Outlook \DVCG8C5G\2015 -16 Attachmentll 69,447,000 13,500,000 3,284,600 86,231,600 24,476,326 12,229,549 15,617,120 32,523,037 3,352,863 - • ::�'F (1,967,295) 70,390,000 13,700,000 3,402,300 87,492,300 25,297,760 16,668,822 14,996,254 27,532,927 2,969,101 ARIMAsMi 27,436 11,403,655 27,436 11,431,091