Loading...
HomeMy WebLinkAboutBOARD MINUTES 11-10-16AC SD Central Contra Costa Sanitary District Nob YEARS 5079 Imhoff Mau, MGartiliez CA 914553-43'72 N'Y °i,� Ptotocting health cued 1/u. [.nvironment MINUTES' SPECIAL BOARD MEETING Thursday, November 10, 2016 8:00 a.m. - Board Workshop Multi -Purpose Room Qpen Session — Multi -Purpose Room (Video recorded) 1 ROLL CALL 2016 BOARD OF DIRECTORS TAD J PILECKI Pres lclr.,: PAUL H CAUSEY President Pro Te,i %!ICH %EL R MCGILL JA;%IES -1 NEJEDL} DAVID R WILLI.1,1/5 A special meeting of the Board of Directors was called to order by President Pilecki at 5:00 a.m. in the Multi -Purpose Room. Secretary of the District Elaine Boehme called roll: PRESENT: Members: Causey, McGill (left after Item 5.F.4), Nejedly (left after item 5. E.), Williams, Pilecki ABSENT: Members: None 2. PUBLIC COMMENT PERIOD No comments. 3 REQUESTS TO CONSIDER MATTERS OUT OF ORDER President Pilecki stated that Items D and G would be heard at the end of the meeting. 4. REPORTS AND ANNOUNCEMENTS a. General Manager Roger S. Bailey announced that the District will host a Business Customer Workshop on November 16, 2016 at the Pleasant Hill Community Center Perera Pavilion Room from 5:30 to 10:00 a.m. The informative workshop is for business customers and will include a presentation on the District's financial outlook, current and future infrastructure improvements, and the vision for meeting future needs of customers. Approximately 2000 letters were sent to the District's property managers and business customers inviting them to attend. These summary minutes are supplemented by a corresponding video recording available on the District's website at centralsan. org. Book 65 — Page 72 CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meeting/Workshop Minutes - Book 65 -Page 73 5 BOARD WORKSHOP - Financial Update and Potential Rate Impacts from Comprehensive Wastewater Master Plan (CWMP) Outside Consultants Present for the Workshop: Bartel Associates, LLC: John Bartel Carollo Engineers, Inc: Mike Britten CH2M: Summer Bundy Katz & Associates: Emily Powell PFM Asset Management LLC: Lauren Brant and Ellen Clark PFM Financial Advisors LLC: Sarah Hollenbeck and Nicholas Jones, Sr. Raftelis Financial Consultants: Sudhir Pardiwala A. Introduction Mr. Bailey explained that the workshop was intended to address a number of policy -related issues that the Board has asked staff to agendize for discussion. One such item was how to apportion the $2.5 million budgeted this fiscal year for unfunded liabilities. Another was to discuss options for utilizing the extra reserve fund balances at the end of Fiscal Year (FY) 2015-16. Mr. Bailey also said staff would be presenting various financial viability and rate scenarios, including assumptions used in each scenario, to begin the dialogue on future rates and to obtain direction from the Board. Finally, if time permits, he said staff will facilitate discussions regarding: 1) Budgeting and tracking options for the Recycled Water Program, and specifically whether the Board desires to set up a separate enterprise fund; and 2) The merits of a two-year versus a one-year budget. B. Status of Fiscal Year -End 2015-16 Extra Reserve Fund Balance Finance Manager Thea Vassallo reviewed Item B of the presentation included with the agenda materials on the status of the fiscal year-end 2015-16 extra reserve fund balance, during which it was noted that the District has $3.359 million extra year-end reserve fund balance that may be used for other purposes. BOARD ACTION: Received the presentation. CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meeting/Workshop Minutes - Book 65 -Page 74 C. Review Financial Scenarios for use of the funds toward unfunded liabilities Available for Questions: John Bartel, President of Bartel Associates, LLC Ms. Vassallo reviewed the financial scenarios for use of funds toward unfunded liabilities. Lauren Brant, Managing Director of PFM Asset Management LLC, noted that she and her associate, Ellen Clark, Senior Managing Consultant of PFM Asset Management LLC, have been consulting with the District with respect to asset management issues. Her associates from PFM Financial Advisors LLC, Sarah Hollenbeck (Managing Director) and Nicholas Jones (Senior Managing Consultant) have been consulting with regard to debt management issues. Ms. Brant, Ms. Clark and Ms. Hollenbeck reviewed Item C of the presentation included with the agenda materials on the options for optimizing allocation of the $2.5 million budgeted in the current year operations and maintenance (O&M) budget toward unfunded liabilities and the $3.359 million unrestricted extra reserve funds remaining at the end of FY 2015-16. Their recommendation was to allocate all currently available dollars toward reducing the District's pension unfunded actuarial accrued liabilities (UAAL) and the unfunded liabilities associated with the District's existing Other Post - Employment Benefits (OPEB) Trust. Specifically, PFM recommended that the entire $2.5 million be allocated to the existing OPEB Trust, reducing the amortization period from 22 to 18 years, which will generate long-term cash savings (an estimated $15.4 million) and increase the funding status. PFM also recommended that the entire $3.359 million be allocated toward establishing a new internal Revenue Code Section 115 Pension Trust for the UAAL associated with Contra Costa County Employees' Retirement Association (CCCERA). This would help mitigate budgetary issues from volatility associated with CCCERA's required pension contributions, and potential future legislative changes such as occurred under Public Employees' Pension Reform Act of 2013 (F'EPRA). A Section 115 Pension Trust would also reduce the pension UAAL on the District's balance sheet and provide greater flexibility over a broader universe of investment options. Ms. Brant pointed out that, ultimately, the purpose of such a pension trust is to provide the District with more flexibility and greater control over asset allocation than would occur if the funds were paid to CCCERA. The issue of potentially becoming fully funded or superfunded in terms of the CCCERA pension obligations was discussed. Mr. Bartel stated that the District would have less rate relief on any excess funds that were within CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meeting/Workshop Minutes - Book 65 -Page 75 CCCERA's control as compared to a Section 115 Pension Trust. Even if it were to be 110 percent funded, he said the District would continue to receive an annual bill for pension contributions and there is a high degree of likelihood that the District would not be able to access the excess funds. Once overfunded, he said the District would likely continue to be overfunded because there is no pension holiday. Mr. Bartel left the meeting at 1 0: 00 a.m. Member McGill asked Ms. Brant why PFM preferred the recommendations set forth on page 30 of the PFM presentation included with the agenda materials. She responded that any contribution to the existing OPEB Trust and/or a new Section 115 Pension Trust would lead to a meaningful increase in funding status and will create the most in terms of cost savings. Shortening the OPEB Trust amortization period will result in the greatest long- term savings. Improving funding status without having to make additional voluntary payments to CCCERA will provide the District with the greatest flexibility. Ms. Brant also reviewed the cost considerations of setting up and administering a Section 115 Pension Trust, noting that a multi-employer trust would be the most cost effective for the District. The participants took a brief break, after which Mr. Bailey said staff was seeking direction from the Board with regard to the PFM recommendation for allocating the funds that have been the subject of this discussion. President Pilecki said he was supportive of allocating the entire $2.5 million budgeted amount to the OPEB Trust to reduce the amortization period from 22 to 18 years. Member Williams agreed, stating that doing so would mean the public will pay less in the long run. There was unanimous consensus among the Board Members in this regard. The discussion then turned to the PFM recommendation to create a new Section 115 Pension Trust to be initially funded by the $3.359 million extra reserve funds at the end of Fiscal Year 2015-16. Member Causey suggested splitting the funds, with $ 1 million going toward CCCERA unfunded pension liabilities, and the balance going into a Section 115 Pension Trust. He also suggested that consideration be given to establishing a pension "fund" versus a trust. Ms. Brant commented that such a fund would be considered a reserve fund, but would not reduce the District's UAAL on the balance sheet, nor would it enjoy the favorable investment options available under a pension trust. L CENTRAL CONTRA COSTA SANITARY DISTRICT November 101 2016 Special Board Meeting/Workshop Minutes - Book 65 -Page 76 Member Williams noted that a Section 115 Pension Trust allows the District to find the sweet spot between risk and return over the long haul that is in the best interest of ratepayers. Member Nejedly said he has long favored having more control over the District's pension assets because the actuarial assumptions utilized by CCCERA have changed so many times over the years. He said he was open to seeing an analysis of the suggestion by Member Causey of splitting the funds between CCCERA and a Pension Trust. Either way, he was supportive of creating a Section 115 Pension Trust. Member Williams said he was supportive of establishing a Section 115 Pension Trust with the entire $3.359 million available funds. Member McGill and President Pilecki agreed. Members Causey and Nejedly were also supportive of establishing a Section 115 Pension Trust, but preferred to see an analysis of splitting the funds between CCCERA ($1 million) and a new pension trust ($2.359 million). The Board gave the following direction to staff on the items shown below: 1) How to utilize the $2.5 million for UAAL budgeted in this fiscal year. BOARD ACTION: Unanimously directed staff to present the Board with an action item at a future meeting to utilize the entire $2.5 million budgeted for this fiscal year toward the unfunded liabilities in the existing OPEB Trust. 2) How to utilize the favorable fund balance of $3.359 million from FY 2015-16. BOARD ACTION: A majority of the Board Members directed staff to present the Board with an action item at a future meeting to establish a new Internal Revenue Code Section 115 Pension Trust to be initially funded by the $3.359 million extra reserve fund balance at the end of FY 2015-16. D. Recycled Water Accounting -- Consider continuing current method of tracking as line item or establishing a separate fund for recycled water Available for Questions: Sudhir Pardiwala, Raftelis Financial Consultants (RFC) Due to time constraints, this item was deferred to a future meeting. BOARD ACTION: item postponed to a future meeting. CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meeting/Workshop Minutes - Book 65 -Page 77 E. Summary of Capital Improvement Plan 1) Presentation of latest update of the 10 -Year Capital Improvement Plan (CIP) from the Comprehensive Wastewater Master Plan (CWMP), including an overview of the 20 -Year CIP. Available for Questions: Dan Frost, Senior Engineer Mike Britten, Senior Vice President Carollo Engineers Summer Bunde, Vice President CH2M At 11:05 a.m. Director of Engineering & Technical Services Jean -Marc Petit reviewed the presentation included with the agenda material, which included a review of the CWMP goals and levels of service, as well as overviews of key findings from the first two CWMP workshops. With regard to the slide regarding energy improvement projects, Member Causey asked why solar and wind projects were not included as a contingency against loss of power if something were to happen with the cogeneration system. In the interest of time, President Pilecki suggested that this topic be put on the parking lot for discussion at a future meeting. Continuing his presentation, Mr. Petit said the CWMP has identified $1.8 billion of capital improvement projects in the next 20 years. In the 10 -year window, he said the CWMP has identified a total of $867 million of capital improvement projects versus $413 million that were identified prior to the CWMP. This is the level of required funding that was used for the rate impact scenarios to be discussed under item 5.F.3). The current approved budget includes approximately $41 million in the next fiscal year, and another $40 million the following year. The CWMP identified another $16.5 million of projects over the next two years. President Pilecki asked if the District's engineering staff was prepared to handle the increase in projected capital projects over the next two fiscal years. Mr. Bailey noted that consultants will be hired to assist with the additional workload. Mr. Petit added that staff is working on establishing and developing a program management system to implement all these projects on time and on budget. Member Williams said he is a strong proponent of good asset management, including conducting analyses such that the end of an asset's useful life can be estimated to potentially get the longest possible life out of each asset. Mr. Petit confirmed that is exactly how staff assesses the useful life of assets under the District's asset management program. CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meeting/Workshop Minutes - Book 65 -Page 78 it was noted that the staff recommendation for this item was to fund the capital program as presented at this meeting, including the additional projects such as pump stations and filter rehabilitation projects. BOARD ACTION: Received the presentation and provided direction to staff. Member Nejedly left the meeting at 12:30 p.m. F. Financial Viability Available for Questions: Sudhir Pardiwala, Raftelis Financial Consultants 1) Bond Financing This matter was taken out of order, after Item 5.F.4). (Neither Member Nejedly nor McGill were present for this presentation.) Given that much of the information regarding bond financing had been discussed earlier in the workshop, Ms. Hollenbeck briefly reviewed the presentation included with the agenda material. BOARD ACTION: Received the presentation. 2) Revenue Requirements Planning and Development Services Division Manager Danea Gemmell reviewed the assumptions used in the financial rate model based on the Cost of Service Study conducted by Raftelis in May 2015. She also reviewed revenue requirements related to the CWMP as well as a comparison chart with other wastewater agencies of their sewer service charge rates from five years ago and now. In response to a request from President Pilecki, staff will bring additional information to a future meeting regarding the varying amounts of ad valorem tax revenue received by the various agencies shown in the comparison chart. BOARD ACTION: Received the presentation. CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meetinglworkshop Minutes - Book 65 -Page 79 3) Rate Impact Scenarios Ms. Gemmell reviewed the District's four scenarios for funding the proposed Capital Improvement Budget for the 10 -year period FY 2017- 18 to FY 2026-27. Mr. Bailey said it is recommended that the District consider bond financing for longer term, less frequent and non-recurring projects, but continue to fund pipeline replacement projects in the Collection System Program on a pay-as-you-go basis. Ms. Gemmell said that all four rate impact scenarios were designed with staggered bonds issuances totaling $477 million coming forward in fiscal years 2, 5 and 8 (FY 2018-19, FY 2021-22, and FY 2024-25). She proceeded to review each scenario followed by a "Scenario 2.1" that had not been included with the agenda materials. Scenario 2.1 illustrated (1) two additional $2.5 million payments toward unfunded liabilities in each of the next two fiscal years, and (2) elimination of the 1 percent wage assumption required by the current bargaining group memoranda of understanding. A lengthy discussion took place during which Ms. Gemmell and other members of staff responded to questions from Board Members. Member Williams said that failing to address unfunded liabilities is kicking the can down the road. He said he was in favor of including $2.5 million payments in all 10 years of the plan and to consider augmenting that with any future extra reserve fund balances. Member Causey concurred. President Pilecki expressed concern about the potential for exceeding 85 percent pension funding levels, stating that any monies that would exceed that level should go into the Section 115 Pension Trust. He also expressed reservation about the impact on rates of including $2.5 million payments in all 10 years. Member McGill suggested that for purposes of budgeting, the guide should be making additional $2.5 million payments every year until 85 percent funding level is achieved. Beyond that, the Board can decide how to use any extra funds. Finally, he said he was comfortable with up to a four-year rate increase, but was not supportive of a five-year increase. He was also not in favor of any years with a zero increase. President Pilecki said he liked the idea of a two-year increase, and then evaluating a possible five-year increase the following year. District Counsel Kent Alm noted that whether or not an increase is for two or five years, the ordinance may be written such that a review of L CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meeting/Workshop Minutes - Book 65 -Page 80 the increase is conducted each year without the need for a Proposition 218 Notice. President Pilecki inquired how the District's bond ceiling would be affected by every $100 rate increase. Ms. Brant said she could provide that information at a future date. Member Causey said he was in favor of directing staff to proceed with projections for a five-year rate increase, which could be reviewed each year as indicated by Mr. Alm. It was the consensus of the Board Members present that staff should proceed with projections for Scenarios 2 and 3. Mr. Bailey then asked for the Board's input with regard to the number of years staff should use for rate increases. In response to a question from Member Williams, Mr. Bailey said staff's main goal in proposing a five-year rate increase is to be able to show bonding agencies how the District plans to recover costs. Mr. Williams asked if it is common for agencies to seek five-year rate increases. Mr. Aim said it is fairly common, noting that the underlying information and data must be current and reasonable to justify the rates over the five-year period. Member McGill said he would be willing to consider a two-year increase followed by a four-year increase. Member Williams said he was comfortable seeking an initial two-year increase and would be open to considering longer periods after that, but he was not in favor of any years with zero increase. Mr. Bailey said it was not necessary for the Board Members to decide on the number of years for rate increases in order for staff to run the projections. He said he believed that the Board had provided ample guidance for staff to move forward. BOARD ACTION: It was the consensus of the Board Members present during the discussion (Member Nejedly absent) to direct staff to proceed with preparing 1O -year financial/rate projections based on: 1. Rate Impact Scenarios 2 and 3, 2. Additional annual payments of $2.5 million toward unfunded liabilities in each of the next 10 years (with no specificity as to their allocation to CCCERA, the existing OPEB Trust or a new Section 115 Pension Trust), 4 ) CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meetinglworkshop Minutes - Book 65 -Page 81 3. Pay-as-you-go funding for pipeline replacement projects, and 4. Staggered bonds issued at the intervals recommended by staff. The Board Members further expressed support for: 1. Updating Board Policy No. BP 017 - Fiscal Reserves with respect to capital improvements when using bond financing, and 2. Meeting reserve target levels by FY 2017-18. Rate Implementation Schedule Ms. Gemmell quickly reviewed the Rate Implementation Schedule included with the agenda material. BOARD ACTION: It was the consensus of the Board Members present during the discussion (Member Nejedly absent) to direct staff to accelerate the 2017 rate hearing from June to April. Member McGill left the meeting at 2:01 p.m. At this point in the meeting, the Board returned to Item No. 5.F.1). G. Discussion: One -Year versus Two -Year Budget Due to time constraints, this item was deferred to a future meeting. BOARD ACTION: Item postponed to a future meeting. H. Recap of Recommendations and Closing Mr. Bailey said the earlier discussion had provided staff with the direction it needs to move forward with preparing projections for upcoming rate discussions. He also noted that the following list of parking lot items had been compiled during the workshop: 1. Funding for vehicle replacement. 2. Separate benefits, UAAL and other items in O&M budget 3. Could the District pledge real property as assets to be used to secure a bond to increase bond agency rating scores? 4. What is superfunding of CCCERA? When is the District projected to reach that level? Could those funds be accessible in the future if funding levels reach or exceed superfunding? • CENTRAL CONTRA COSTA SANITARY DISTRICT November 10, 2016 Special Board Meetinglworkshop Minutes - Book 65 -Page 82 5. What should be done with future $2.5 million payments toward unfunded liabilities? 6. Consider solar for alternative energy under a P3 agreement model. 7. Add ad valorem taxes to the sewer construction fund as well as additional revenues when comparing rates between agencies. 8. Review and comment on DC Water century bonds. Could they be considered for the District? 9. Discuss status and availability of Water Infrastructure Finance and Innovation Act (WIFIA) funding from the U.S. Environmental Protection Agency (EPA). 10. How would the District's bond ceiling be affected by every $100 rate increase? 11. What are the true costs of issuing a Proposition 218 Notice, including staff time? BOARD ACTION: None. . EMERGENCY SITUATIONS None. 7. REQUESTS_FOR FUTURE AGENDA ITEMS None. B. ADJOURNMENT The meeting was adjourned at 2:30 p.m. in recognition of those veterans present at the meeting and in honor of Veterans Day tomorrow. COUNTERSIGNED: CE&,e"cr2, TJ. PileciS)-- c President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California Elaine R. Boehme, CMC Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California