Loading...
HomeMy WebLinkAbout07.a.2) Conduct public hearing to adopt FY 2017-18 District Budget Central Contra Costa Sanitary District 7.a.2) BOARD OF DIRECTORS POSITION P Board Meeting Date: June 1, 2017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE Submitted By: Initiating Dept./Div.: Phil Leiber, Director of Finance & Administration/Finance Administration REVIEWED AND RECOMMENDED FOR BOARD ACTION: Roger Bailey, General Managers- . Dent Alm Roger S.Bailey Counsel for the Distri General Manager ISSUE: It is the District's practice to hold a public hearing to receive comment on the budget for the following funds: Operations and Maintenance, capital Improvement, Self-Insurance, and Debt Service. BACKGROUND: The proposed Fiscal Year (FY) 2017-18 Budget was presented as a combined budget which incorporates into one document the Operations and Maintenance Fund (O&M), Sewer construction Fund (for capital improvements), Self-Insurance Fund and Debt Service Fund. The document was delivered at the May 4, 2017, Board meeting and a detailed presentation was made on May 18, 2017 covering all four funds. The Budget incorporates the District's Strategic Plan Goals and Initiatives and provides the resources necessary to implement the initiatives and meet the challenges the District faces as it strives to increase service quality and minimize costs to our customers. At the same time, the Budget allows the District to accomplish its mission in a cost-effective manner that will ensure best value. The Budget also assumes that the second year of rate adjustments approved by the Board last year will go into effect on July 1, 2017. The Budget includes a separate Recycled Water Program Budget, with enhanced detail regarding revenues and expenses. The Budget has been developed in the context of the 1 0-year financial plan for forecasted revenues, expenses and fund balances. The financial planning model assists the District in setting and projecting Sewer Service Charge (SSC) rates. The budget and financial plan have as a foundation the 2015 cost of Service Study (COSS) by Raftelis Financial consultants, Inc., to assess the District's overall staffing needs and analyze the District's rate structure. The COSS resulted in changes to staffing alignment and implementation of a revised rate structure to better comply with Page 1 of 11 POSITION PAPER Board Meeting Date: June 1, 2017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE Proposition 218. In April 2017, the Board adopted increases in the annual SSC for residential and non-residential customers for the next two fiscal years as follows: FY 2016-17 FY 2017-18 Annual SSC Increase Annual SSD Single Family Residences $503 $27 $530 Multi-Family Residences $487 $26 $513 Effective Date July 1,2616 July 1, 2017 (Residential rales shown in dollars per residential unit.) As shown in the Proposition 218 Notice mailed to property Non Commercial: owners and the Wastewater Cost of Service Study dated May 21, 2015. The proposed FY 2017-18 total Budget is $137.2 million, an increase of $5.9 million or 4.5% over the FY 2016-17 Budget of $131.4 million. FY 2016-17 FY 2017-18 Variance Percent Budget Budget_ Variance Operations& Maintenance $89,8102918 $89,7131587 $(97,331) -0.1% Sewer Construction $36,808,756 $429774,000 $51965,244 16.2% Debt Service $3,790,807 $398199099 $28,292 0.7% Self-Insurance $948,000 $9369500 $(111500) -1.2% Total Budget $131,358,481 $137,243,186 $59584,705 4.5% This position paper focuses on variances between the proposed FY 2017-18 Budget and the FY 2016-17 Budget. O&M Budget The proposed FY 2017-18 O&M Budget includes the allocation of $7.5 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 on the most recently Completed two-year actuarial study by Bartel Associates. The $7.5 million includes an approximate payment of $5.9 million for retiree medical, dental and life insurance premiums annually and $1.6 million to be deposited in a GASB 45 Public Agency Retirement Services (PARS) investment trust to fund future retiree benefit costs. Page 2 of 11 POSITION PAPER Board Meeting Date: June 1, 2017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE O&M Revenue: The following table compares revenues for FY 2017-18 to FY 2016-17. FY 2016-17 FY 2017-18 Variance Percent Budget Budget Variance Sewer Service charge(O&M) $711100,000 75,220,700 4,1201700 5.81 City of Concord 14,790,o0O 151200,000 410,000 2.89 All Other 3,9271200 41238,400 310,800 7.91 Total Revenue 8918179200j__ 9496589700 4,841,540 5.4% Total District O&M Revenue for FY 2017-18 is projected at $94.7 million compared to the FY 2616-17 budgeted amount of $89.8 million, an increase of $4.8 million or 5.4%. This is due to the fallowing: • While the SSC rates are increasing, the O&M allocation of SSC is decreasing from 85.8% to 84.3%. The net result of these changes is an increase in total O&M SSC of $4.1 million or 5.8%. • The city of concord primarily shares a flow portion of Treatment Plant, Environmental and Regulatory compliance, and Environmental Compliance expenses and is charged administrative overhead and a finance charge. City of concord revenue is expected to be $0.4 million, or 2.8%, more than FY 2616-17 due to an overall flat O&M budget for FY 2617-18, with costs allocated to concord increasing slightly based on anticipated flows. Page 3 of 11 POSITION PAPER Board Meeting Date: June 1, 2017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE O&M Expense: The following table compares expenses for FY 2017-18 to FY 2018-17. Budget to FY 2016-17 FY 2017-18 Projected Percent _. 1-11-.1-1.1-1-1-- Bud .et Budget Variance Variance-------- -- -- .. ----- --_ ..... --- --- -----.. --- Salaries&Wages -----------33,158,707 34,7971628 1,638,921 4.9% Benefits&Cap O/H Credit 14,153,311 1.x,855,155 ......�.1_a508,156).-..._.--_- 1.0-.6°�- Salary&Benefits Active Employees)-.. .._ ..-- 47,322,018 47,452,783 _ �...... 1309765 0.3% Benefits(Retirees)_ 59362,300 519469000 553,700 10.9% Retirement UAAL 111741,700 - -........_....-... ------ .. ... __.... ........ .-.__._..-- . ...- 1.1,679,261. ....F _-�62,439�..-. M--a.. .. 0.5°/° Additional UAAL 21500,000 21500,000 - 0.0% Total URAL 14,241,700 14,179,261 (62,439 -0.4% Total Labor Related Costs 66,926,01$ 671578,044 652,026 1.0°I° . ._..._ Chemicals , 0,000 , s ,000 soo0} - . ���. Utilities 4,315,790 4,539,790 324,000 7.5°/° w.._. _ _.-.._.w.... _ ___ �._....�- _._.._._ Repair&Maintenance 5,222,852 5,299,754 70,902 1.5% - ......_.._. - _.... --.- Hauling&Disposal 941,050 1,023,975 82,925 8.8% . _.. _ r _...__ -_.. . Professional&Legal Fees 630,750 807,600 176,850 28.0% -..----_..__. _.....s... _...-._.._.-....-...-....._._.-...._ _ _...... _.....-. ..._.............. _.--------------------- Y....._..-.-... Outside Services __---- ----- ----- _ ----------------- _.- .-. _- -- 3,984.,175 3,452,717 _ ..._._..._527,458_.._._ _____-13.3°/° Self Insurance Fund 920,000 585,000 (335,000�-. -36.4°�a _..,...-.... _.. --e.._...w_ ..Materials&Supplies -------_ 2,1 DD,025 2,059,325 X40 700 1.9% ---------- .... ------ . . . .. . ------ Other Expenses 2,854,258 21785,382 687876 2.4% ................. Total other O&M 22,884 900 22 135 _ - -----_--.._ _ - .........-� .._. ---.._-_._ _.-_l......-- _..- _....3543 �749,357�........-.-.-...... 3.3°/0 Total Expenditures 89,8101918 899713,587 X97,331 m � M -0.1% Contribution to Reserve 6 282 419459113 499389831 prior to transfers to other funds Page 4 of 11 POSITION PAPER Board Meeting Date: June 1, 2917 su►bfect: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE The total O&M expenses are projected to be $89.7 million in FY 2917-18 compared to $89.8 million in FY 2015-17. This reflects a decrease of $0.1 million or 9.1%. Variances are discussed in detail below. O&M Salaries: District O&M salaries are projected to be $34.8 million in FY 2017-18 compared to a budget of $33.2 million in FY 2015-17. This is an increase of $1.8 million or 4.9%. This increase is due to several factors, including: a 4.3% salary adjustment consistent with the bargaining unit Memorandum of Understanding (MOU) inclusive of the COLA plus an additional 1%; merit increases and personnel advancements for recently-hired and current employees. Benefits Including Capitalized Administrative Overhead Credit (excluding Retirement UA AL : District O&M benefits, including the capitalized administrative overhead credit for FY 2017-18, are projected to be $18.8 million compared to a budget of $19.5 million in FY 2915-17, resulting in a decrease of $9.9 million or 4.7%. The primary benefit rate assumptions are as follows: • Kaiser - Decrease of 4.0%. • Health Net - Increase of 19.0%. • CCCERA - Retirement rate decreasing 7.844 for legacy employees and 11.2% for PEPRA employees, offset by higher pensionable wages. An additional $2.5 million is to be paid towards the unfunded liability in retirement and/or Other Post-Employment Benefits (OPEB) Trust. • Delta Dental - Decrease of 3.0%. • Long-Term Disability - No rate increase. • Employee Assistance Program - Increase of 3.0%. • Workers' Compensation - Estimated 10% rate increase. • Life Insurance - No rate increase. All Other SSM Expend: The remaining O&M non-labor expenses total $22.1 million in FY 2017-18, compared to a budget of $22.9 million in FY 2915-17. This is a decrease of $0.7 million or 3.3%. Additional information is included in the individual Division budgets. The areas of most significant changes include: • Chemicals - This expense was reduced 22.8% due to lower usage of chemicals in the Plant and Pumping Stations. • Utilities - This expense increased 7.5% due to higher use of electricity from PG&E as the Cogeneration System meets the emissions limitations. • Repairs & Maintenance - This expense increased 1.5% overall due to higher software license renewals fees and higher pump repair expenses. Page 5 of 11 POSITION PAPER Board Meeting Date: June 1, 2017 Subject- CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE,FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE • Hauling & Disposal: - This expense increased 8.8% overall due to higher household hazardous waste disposal rates and for increases in janitorial services. • Professional & Legal Fees - This expense increased 28% due to budgeting for internal audits and for the new contract for legal services. • Outside Services - This expense was reduced 13.3% due to less need for temporary services as vacancies are filled, agenda software purchased in FY 2018-17 that is not in the FY 2017-18 budget, and BACWA-related expenses moving to Other Expenses. • Self-Insurance Expense - This expense was reduced 38.4%, and funds the requirements for the payment of premiums and estimated lasses based on historical trends. • Materials & Supplies: - This expense was reduced 1.9% due in part to fewer purchases of emergency equipment and supplies. • Other Expenses - This expense was reduced by 23.6% due to the removal of one-time expenses in FY 2018-17 related to comprehensive Wastewater Master Pian outreach, mailing of Proposition 218 notices, and the Fall 2018 Board Election. Offsetting these reductions was the transfer of BACWA-related expenses to this category. o Conferences - This expense is a subset of the Other Expenses category. District wide conferences presented in the budget boob in FY 2018-17 'represented out-of-state conferences; FY 2017-18 will also include in-state conferences. The out-of-state and board conferences expense was reduced 10% from $118,000 in FY 2018-17 to $104,480 in FY 2017-18 due to a reduction in travel and the number of conferences. FY 2016-17 FY 2017-18 Variance Percent Budget Budget Variance Board conferences 501000 45,000 (5,000) -10% District Wide Conferences, Out- of-State* $55,350 $59,450 ($61900) -10% District Wide Conferences, In- State not specified $170,675 n/a n/a Tota I 1 $110350 $275,125 n/a n/a Reporting on out of state conference attendance by staff will continue in the new fiscal year as has been provided to date. Page 6of 11 POSITION PAPER Board Meeting Date: June 1 12017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE Capital Improvement Budget (Sewer Construction Fund) Sewer Construction Fund revenues increase $4.4 million from $34.9 million in FY 2018-17 to $39.3 million in FY 2017-18. This increase was due primarily to an increase in SSCs of $2.1 million as a result of user rate increases and an increase in the overall allocation of SSC to the Sewer Construction Fund. Capital expenditures for FY 2017-18 are projected to be $42.8 million, a $8.0 million increase over the FY 2018-17 Budget of $38.8 million. Self-Insurance Budget The District currently self-insures general and auto liability risks up to $500,000 per occurrence and purchases a $15 million excess liability insurance policy above that retention. The Self-Insurance Revenue for FY 2017-18 is $0.7 million; expenses are $0.9 million, and the ending reserve balance is $8.5 million. SUB-FUND A: Actuarially-Based Frisks. Sub-fund A is used to pay claims and expenses within the District's self-insured liability retention. Claims in excess of this retention are covered by the excess insurance policy that renews annually on July 1. Staff projects excess liability renewal premiums of up to $390,000, based on the latest communications available with the insurance broker. Since insurance renewal quotes are not yet available, staff recommends that the Board authorize the General Manager to renew the excess liability insurance up to this projected amount along with its approval of the FY 2017-18 Self-insurance Budget. Under the requirements of GASB-10, risks that can be actuarially studied must be funded based on an actuarial study performed at least every two years. General liability and automobile liability risks are readily studied throughout the insurance and self- insurance industry to project funding levels for future losses. Central San obtained an actuarial review of its self-insured general liability and automobile liability risks in October 2018. The next actuarial report will be performed in August 2018 using loss data through June 30, 2018. The Board established a policy to maintain the Sub-fund A reserve at three times the amount of the District's self-insured retention. The current $500,003 retention requires a $1.5 million reserve. This reserve is used to pay claims and expenses throughout the year and is replenished the following fiscal year. Page 7 of 11 POSITION PAPER Board Meeting Date: June 1, 2017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE SUB-FUND B: Sub-Fund B has been retired and all reserves for these risks were transferred to Sub-Fund C in-FY 2315-15. SUB-FUND c: Non-GASB-10 Risks. This Sub-Fund C has historically covered Risk Management program expenses including insurance premiums, self-insured property losses, potential losses from uninsurable risks, and the costs-of initiating claims and lawsuits against others. As noted above, this fund now includes reserves for non- GASB 10 risks and catastrophic losses. The Board established a policy to maintain this reserve at $5 million. This reserve is used to pay claims and expenses throughout the year and is replenished the fallowing fiscal year. This fund also receives the annual O&M contribution and then re-allocates funds needed to maintain the required reserve in Sub-Fund A. Staff projects property insurance renewal premiums of up to $150,000. Since insurance renewal quotes are not yet available, staff recommends that the Board authorize the General Manager to renew the property insurance up to this projected amount along with its approval of the FY 2017-18 Self-Insurance Budget. Debt service Budget Currently the District is repaying a State of California Water Reclamation Loan and 2009 Revenue Bonds. The revenues and expenditures for the FY 2017-18 Debt Service Budget are $3,819,099, nearly unchanged from the FY 2015-17 amount of $3,790,807. Fiscal Reserves The Board has established Board Policy No. BP 017 - Fiscal Reserves setting targets for each of the District's reserve funds. Fiscal reserves provide working capital for operations and maintenance activities, funding for long-term capital improvement requirements, fulfillment of legal, regulatory and contractual obligations and mitigation of risk and liability exposures. For the Operations and Maintenance Fund —Working Capital Reserves, the Board has set a target of five months (41.7%) of gross operating expenses at the start of each fiscal year. For the Sewer Construction Fund (Capital Improvement) —Working Capital Reserves, the Board has set a target of 50% of the annual capital projects budget at the start of each fiscal year. Page 8of11 POSITION PAPER Board Meeting Date: June 1, 2017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE For the Self-Insurance Fund Reserves, the Board has set a target of three times the annual deductible, which in this case is $1.5 million. In addition, to help mitigate financial impacts and maintain uninterrupted service in the event of an emergency or catastrophic event, the District maintains an Emergency Fund Reserve balance of $5 million in the Self-Insurance Fund. The projected reserve balance compared to the required policy level is shown in the table below. O&M Fund Sewer Self Totals Construction Insurance Fund (Capital) Fund Projected Balance as of $39,223,778 $25,135,597 $6,500,000 $700,859,375 June 30,2017 Change in Reserve prior $4,945,113 ($3.,446,200) ($209,500) $1,2891413 to Transfers Transfers ($3,990,644) $3,,990,644 $0 Projected Balance as of 4 $6,290,500 $72,148,788 June 30 2018 $40,,178,t247 $2 5,580,0 1 Reserve Policy Target $37,380,661 $21,387,060 $6,500,000 $65,267,721 end of June 30,2017 Variance from Policy $1,843,117 $3,745,537 $0 $5.591,654 Target at June 30,2017 The reasons that the projected reserve balances exceed the policy levels are as follows: • For Capital, there is a significant ramp-up in capital spending by FY 2019-20, and the reserve balance is being gradually brought up to this new higher required level. • For O&M, the financial plan requires a transfer of funds from the O&M (Running Expense) fund to the capital Fund; this transfer amount is estimated at $3.99 million in FY 2017-18, and is shown in the table above. CEQA: Staff has evaluated the FY 2017-18 Operation and Maintenance, Self- Insurance, Debt Service and Capital Improvement Budgets and concludes the adoption of these budgets are not projects, or ministerial in nature, are exempt from the California Environmental Quality Act (CEQA) under CCCSD CEQA Guidelines Section 15301, Page 9 of 11 POSITION PAPER Board Meeting Date: June 1, 2017 Subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE F-ISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE since each funds the ongoing operations of the District and the Capital Improvement Budget funds the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of use beyond that existing at the present time. Approval of the FY 2017-18 Budgets will establish the Board of Directors' independent finding that these budget documents are exempt from CEQA. The Board further finds that, although the Capital Improvement Program Budget will authorize amounts of individual capital improvement project spending, the adoption of the Budget does not authorize construction of any project requiring CEQA compliance documentation. The District either has or will produce appropriate CEQA compliance documentation prior to undertaking any "project" identified in these documents. FINANCIAL IMPACTS: The FY 2017-18 Budget was prepared using the Board- approved annual SSC rate increases of$27 for single family(S) and $20 for multi-family (M). The $530S/$513M SSC in FY 2017-18 is allocated as follows: O&M 84.3%; Capital 15.7%. The FY 2017-18 O&M Budget results in a $0.95 million increase in O&M ending reserves, and total O&M reserves are projected to be $40.2 million at the end of FY 2017-18. The financial plan for FY 2018-19 projects an O&M budget,of $95.0 million, which would result in a reserve target of$39.8 million. The FY 2017-18 Sewer Construction Budget results in a $0.5 million increase in reserves, and total Capital reserves are projected to be $25.7 million at the end of FY 2017-18. ALTERNATIVESICONSIDERATIONS: The Board has considered during FY 2017-18 numerous financial planning alternatives and assumptions culminating in the April 20 rate decision. This budget reflects the policy direction provided in areas including the composition and level of the capital budget in the context of the Comprehensive Wastewater Master Plan, paying down unfunded liabilities, maintaining staffing at the level specified in the 2015 staffing study, and overall guidance regarding the need for fiscal discipline and cost control. COMMITTEE RECOMMENDATION: The Finance Committee received an overview of the FY 2017-18 O&M Budget, Self-Insurance, and Debt Service Budget on May 15, 2017. The Engineering and Operations Committee reviewed the Capital Improvement Budget on May 9, 2017. Changes to the draft budget boob distributed to the Board on May 4, 2017 reflective of Committee feedback and guidance have been reflected in the revised budget boob. A Budget Update Log reflecting these changes is attached. Page 10 of 11 POSITION PAPER Board Meeting Date: June 1, 2017 subject: CONDUCT A PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR 2017-18 BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE RECOMMENDED BOARD ACTION: Conduct a public hearing and adept the FY 2017- 18 District Budget as follows: 1. Find that the FY 2017-18 Budget is exempt from CEOA; 2. Adopt those portions of the FY 2017-18 Operations and Maintenance Budget related to Bay Area Clean Water Agencies (BACWA), specifically, the cost of $885,8'18; 3. Adopt the remaining portion of the FY 2817-18 Operations and Maintenance Budget apart from the BACWA costs; 4. Adopt the FY 2817-18 capital Improvement Budget; 5. Adopt the FY 2017-18 Self-Insurance Budget; 8. Adopt the FY 2017-18 Debt Service Budget; 7. Authorize the General Manager to renew the District's expiring: a. Excess liability insurance for a premium not to exceed $300,000; and b. Property insurance for a premium not to exceed $150,000. Attached Spporting Documents: t. (Final) Draft FY 2017-18 District Budget 2. Budget Update Log reflecting changes since earlier draft Page 11 of 11