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HomeMy WebLinkAbout03.c. (Handout) Revised pages to CAFRNovember 16, 2015 Central Contra Costa Sanitary District Customers and The Honorable Board of Directors, Martinez, California: 3.c. H L P (aeelmeht Pages >r CAFA State law requires that every general - purpose local government publish within six months of the close of each fiscal year a complete set of audited financial statements. This report is published to fulfill that requirement for the fiscal year ended June 30, 2015. Management of Central Contra Costa Sanitary District (the District) assumes full responsibility for the completeness and reliability of the information in these financial statements, based upon a comprehensive system of internal controls that is established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. Maze & Associates has issued an unqualified ( "clean ") opinion on the District's financial statements for the year ended June 30, 2015. The independent auditor's report is located at the front of the financial section of this report. Management's Discussion and Analysis report (MD &A) immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic financial statements. The MD &A complements this letter of transmittal and should be read in conjunction with it. PROFILE OF THE GOVERNMENT History and Services Provided The District was established in 1946 under the Sanitary District Act of 1923 and is located about 30 miles east of San Francisco. The District builds, operates and maintains the facilities required to collect and process wastewater for approximately 339,000 residents of Danville, Lafayette, Martinez, Moraga, Orinda, Pleasant Hill, San Ramon, Walnut Creek and some of the unincorporated communities within Central Contra Costa County. The District also treats wastewater for 137,400 residents of the Cities of Concord and Clayton under a 1974 contract with the City of Concord. The District is committed to protecting the public health and preserving the environment while minimizing facility and operating costs. The District has approximately 1,500 miles of sewer pipeline, ranging in size from 4 inches to 102 inches in diameter, and 19 sewage - pumping stations (three of which are privately owned) in the District's sewage collection system. The District is the sole provider of wastewater service within the District limits (see map of service area). Residents make up th.e largest segment of the District's customer base representing approximately 83% of the Sewer Service Charge revenue. The District's treatment capacity has grown from 4.5 million gallons per day (mgd) initiated in 1948 to 53.8 mgd currently. Bonds, state grants, federal grants, and pay -as- you -go resources of the District have financed expansions. The District also provides an alternative source of water for irrigation by producing high quality recycled water. Recycled water can safely be used on freeway landscaping, street medians, golf courses, athletic fields, parks, playgrounds, schoolyards and multi- family residential common areas. With the continued drought conditions in California, the District opened a residential recycled water fill station with seven hoses to keep up with demand from residents in the area. In addition to its wastewater responsibility, the District also operates and maintains a permanent Household Hazardous Waste (HHW) Collection Facility in partnership with Mountain View Sanitary District and other local governments. The HHW Collection Facility is located adjacent to the District's wastewater treatment plant and seeks to keep pollutants out of the sewer system, making this facility an important part of our Pollution Prevention Program. Completing its eighteenth year of operation, the HHW currently serves over 30,000 residential and small business customers, from which over 2 million pounds of hazardous waste is collected and properly disposed of each year. Organization, Accounting and Budgetary Controls A five - member Board of Directors governs the District. Board members are elected on a non - partisan basis and serve a four -year term. The Board appoints the General Manager, who in accordance with policies established by the Board of Directors, manages District affairs. The District employs 270 regular employees organized in threefew departments led by Managers responsible for their budgets and expenses. The three departments are: Administrative, Engineering, and Operations. The District, by law, uses an enterprise fund to account for its operations and is run in a manner similar to private industry. The District currently has one enterprise fund which is comprised of four internal sub - funds: • Running Expense - accounts for the general operations of the District. Substantially all operating revenues and expenses are accounted for in this fund (also referred to as Operations & Maintenance or O &M). • Sewer Construction - accounts for non - operating revenues that are to be used for acquisition or construction of plant, property, and equipment (also referred to as the Capital Fund). • Self- Insurance - accounts for interest earnings on cash balances in this sub -fund and cash allocations from other funds, as well as costs of insurance premiums and claims not covered by the District's insurance policies. • Debt Service — accounts for activity associated with the payment of the District's long term bonds and loans. Each year, the Board adopts the following four budgets: Operations and Maintenance, Capital Improvement and Sewer Construction, Self- Insurance, and Debt - Service. The Board Finance Committee reviews disbursements prior to each regular Board meeting, and disbursements are then approved by the full Board. Monthly financial statements are issued to management and the Board. A detailed mid -year and annual budget analysis are prepared and presented to the Board. District management is accountable for variances and adhering to budget constraints. The District also has several documented financial policies that are reviewed and updated as appropriate. ASSESSING THE DISTRICT'S ECONOMIC CONDITION Local Economy and Outlook Nationally, the forecast for gross domestic product is to trend towards modest growth, slower than the historic average, as most large metropolitan areas have recovered from the recession of 2008. Unemployment continues to decrease in California as more jobs in the tech sector are being created. According to the Legislative Analyst's Office (LAO), the state's revenues will be about $2 billion higher than estimated which will help the state build reserves up to $4.2 billion. Maintaining a $4 billion reserve, however, would allow little to no new spending commitments in the near future. The state's priorities continue to be to pay off existing debts and to build up the rainy -day fund to help minimize the effects of boom and bust cycles. According to the UCLA Anderson forecast, while the U.S. job growth is led mostly by increases in construction, automobiles, and business investments, as well as high consumer demand, California's tech sector is the leading factor in the state's employment growth. The tech sector has grown beyond Silicon Valley and into San Francisco and San Mateo, which also led to strong increases in the real estate market in the Bay Area. Low interest rates on mortgages continue to make real estate development and home buying attractive to potential buyers. Increased home values have led to growth and new connections in the service area which continue to benefit the District. Concord and Walnut Creek continue to expand their commercial and residential projects which have increased sewer service charges and connections fees. The District and the bargaining units have agreed on a five -year contract that will go to December 2017. The current labor contract progressively eliminates employee retirement costs being paid for by the District. Payment of the unfunded liability is a major concern for the District as it is for many public entities. An additional payment for the unfunded actuarial accrued liability is included as part of the financial plan for the District to alleviate future fiscal obligation of the unfunded liability. The District has an excellent reputation in all areas of public service, which include finance, collection, treatment, training, safety, technology, capital projects, construction and customer service. The District has balanced revenue sources, adequate reserves, and a moderate debt obligation. The District reviews its rate and other charges annually. The District can increase its sewer service charge rates when needed to make up revenue shortfalls by providing public notice to all customers, holding a Public Hearing, and obtaining approval by the Board of Directors. The District is also able to obtain bond financing, as needed, due to the District's AAA bond rating. The District anticipates that it will continue to meet its mission and goals, continue to provide excellent customer service and reasonable rates to its customers, and meet compliance requirements given the current economic conditions. Long -Term Financial Planning_ District management analyzes and updates their strategic plan every two yearsar4+a4, with the sixfeur FnaiR goals being: meet all regulatory requirements for the good of the community and the environment, ensure financial stability, develop our human capital resources, be a leader in the wastewater industry, provide exceptional customer service, and maintain a reliable wastewater infrastructure. pFevidiRg _ se,t+eaal GsteMer SeeiGe, aVntaiR+agftll -.rate.--, aad-- seet+ee+eg -to be - . Strategies to achieve each of the goals are developed, as well as metrics to evaluate success. The District performs a 10 -year long -term cash flow forecast each year shortly before the budget process begins. The main economic factors considered in long -range forecasting are: the impact of state legislation and mandates, regulatory compliance, Governmental Accounting Standards Board (GASB) requirements, negotiated salary increases and employee benefits (including significant increases in retirement and health care costs), energy costs and interpreting the energy market, housing growth, and infrastructure renewal and replacement needs. The District has a significant amount of unfunded actuarial liability for both pension and other post employment costs (OPEB) and various options for managing these liabilities are explored in the financial planning process. Relevant Financial Policies Investment Policy: The District's investment policies for District assets and GASB 45 Trust are reviewed and approved annually by the Board of Directors in accordance with District investment policy. Section 53646 of the California Government Code governs our investment practices, and is reviewed annually by staff, legal counsel and the Board. No required changes were necessary. The Board receives monthly financial statements that include District investment performance. Since 2008, the GASB 45 Trust investments are in a moderate investment strategy fund. The Board Finance Committee reviews GASB 45 Trust quarterly financial statements to monitor the District's investment strategy. Major Initiatives The District's vision is to be a high - performance organization that provides exceptional customer service and full regulatory compliance at responsible rates. -F-u-4 Rregulatory compliance is provided through utilizing best management practice in ou exGeptieRa 1. operation of our collection system and treatment facilities, as well as through continued investment in our infrastructure. iv The District has received the Platinum award from the National Association of Clean Water Agencies (NACWA) for 17 straight years in recognition of 100% compliance with our National Pollutant Discharge Elimination System (NPDES) permit. It has also reduced the number of sanitary sewer overflows by more than 60% in the past 10 years by improved sewer cleaning and a robust sewer rehabilitation program. The District adopted a two year Strategic Business Plan for FY 14 -15 through FY 15- 16. The Strategic Business Plan establishes policy direction and identifies six goals with key performance indicators that provide a roadmap for achieving increased effectiveness and efficiencies. Included in the Strategic Plan was the preparation of a Wastewater Cost -of- Service Study and Staffing Needs Assessment. The purpose of the Cost -of- Service Study was to independently assess and evaluate the District's existing wastewater rates, to provide a fair and reasonable rate structure and to ensure the proportionate recovery of costs from all customer classes. The Board adopted the recommended rate structure and associated rates in June 2015. The purpose of the Staffing Needs Assessment was to make sure that the District's staffing level was optimal based on the level of service our customers expect, the size and complexity of the collection and treatment system and our focus on remaining efficient and effective in running our business. The conclusion of the study was that the District is staffed at the right level. In order to effectively manage assets to meet future state and federal regulatory requirements, the District initiated an Asset Management Program and the preparation of a Comprehensive Wastewater Master Plan to evaluate options for addressing future regulatory requirements. The Master Plan will be completed in December 2016. AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Central Contra Costa Sanitary District for its comprehensive annual financial report for the fiscal year ended June 30, 2014. This was the fifteenth consecutive year that the District has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the program's . _ .. .. mini - - AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Central Contra Costa Sanitary District for its comprehensive annual financial report for the fiscal year ended June 30, 2014. This was the fifteenth consecutive year that the District has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. This report could not have been accomplished without the dedication and commitment provided by District staff. I would like to express my appreciation to the following employees who assisted in its preparation: • The Finance and Accounting staff who compiled the information contained in this document with a special thanks to Chris Thomas, Senior Accountant, and Jamie King, Accountant. • The Reproduction and Graphics Team who creatively and professionally prepared this finished document. • Engineering and Operations staff who provided much of the statistical information included in this document. • The District's Board of Directors and Management Team for their support in preparing this document as well as their day -to -day support in conducting the financial operations of the District in a prudent and responsible manner. Respectfully submitted, Thea Vassallo Finance Manager Vi CENTRAL CONTRA COSTA SANITARY DISTRICT Organization Chart - Composite Electorate Board Members General Manager Secretary of the I I I I I I Engineering & District Administration Operations Technical Services Information Collection Capital Projects System Technology y Division Operations Finance Plant Regulatory Maintenance Compliance Purchasing & Planning & Materials Plant Development Services Operations Services Communication Svcs. & Intergov. Relations Risk Management ix Counsel for the District