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Home My WebLink About03.a. Receive Fiscal Year 2016-17 pre-audit year end Financial statement summary report and recommended variance alternativesPage 1 of 6 Item 3.a. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER � DRAFT MEETING DATE: AUGUST 29, 2017 SUBJECT: RECEIVE FISCAL YEAR 2016-17 PRE -AUDIT YEAR END FINANCIAL STATEMENT SUMMARY REPORT AND RECOMMENDED VARIANCE ALTERNATIVES SUBMITTED BY: INITIATING DEPARTMENT: THEA VASSALLO, FINANCE MANAGER ADMI NI STRATI ON -FI NANCE REVIEWED BY: PHIL LEI BER, DIRECTOR OF FINANCE AND ADMINISTRATION ANN SASAKI, DEPUTY GENERAL MANAGER ISSUE The Board of Directors approves the Operations and Maintenance (O&M), Capital Improvement (CIB), Self Insurance, and Debt Service budgets on an annual basis. At Fiscal Year (FY) end, staff reviews and compares the final revenues and expenditures, based on the pre -audit financial reports, to update the Board on the budget versus actual activity. BACKGROUND A public hearing was held on June 2, 2016, after which the Board adopted the FY 2016-17 budgets. The proposed revenue and estimated expenditures within the adopted FY 2016-17 budgets, actuals, variances, and year-end adjustments are summarized in Attachments 1 and 2. ALT ERNATIVES/CONSIDERATIONS Attachment 3 summarizes alternative uses for the combined O&M favorable variances for both revenues and expenditures for FY 2016-17. FINANCIAL IM PACTS Due to the FY 2016-17 favorable variances in the O&M and Cl B Budgets, the District's beginning cash balances for FY 2017-18 are higher than projected. COMMITTEE RECOMMENDATION August 29, 2017 Regular Committee Meeting Agenda Packet - Page 3 of 158 Page 2 of 6 The Finance Committee reviewed this subject at its August 29, 2017 meeting and recommended receipt of the Pre -Audit Year End (YE) Financial Statement Summary Report and the recommended variance alternatives. RECOMMENDED BOARD ACTION Receive the FY 2016-17 Pre -Audit YE Financial Statement Summary Report and recommended variance alternatives. Strategic Plan re -In GOAL THREE: Be a Fiscally Sound and Effective Water Sector Utility Strategy 1 - Conduct Long -Range Financial Planning, Strategy 2 - Manage Costs ATTACHMENTS: 1. FY 2016-17 Pre -Audit Variance Analysis Summary and Variance Overview 2. FY 2016-17 Pre -Audit Variance Analysis Operations and Maintenance 3. FY 2016-17 Pre -Audit Variance Alternatives - Use of O&M Budget August 29, 2017 Regular Committee Meeting Agenda Packet - Page 4 of 158 Page 3 of 6 ATTACHMENT 1 Pre -Audit - June 2017 Financial Statement Summary and Variance Overview August 29, 2017 Regular Committee Meeting Agenda Packet - Page 5 of 158 Budget Actual FY 2016-17 FY 2016-17 Variance Favorable/Unfavorable Operations & Maintenance Revenues 89,817,200 91,983,043 21165,843 F * See Attachment 2 Expenses 89,810,918 85,489,792 (4,321,126) F * See Attachment 2 Total 6,282 6,493,251 6,486,969 Sewer Construction Revenues 34,905,400 37,083,804 21178,404 F Capacity $307k, Property Taxes $1.5M Expenses 36,808,756 36,696,049 (112,707) F Total (1,903,356) 387,755 21291,111 District Totals (4 Funds) Revenues 129,518,782 133,902,694 4,383,912 F Favorable Expenses/Debt Principal 131,343,455 126,867,710 (4,475,745) F Favorable Total (1,824,673) 7,034,984 8,859,657 August 29, 2017 Regular Committee Meeting Agenda Packet - Page 5 of 158 Page 4 of 6 ATTACHMENT 2 Pre -Audit - June 2017 Financial Statement Summary Operations and Maintenance Variance Analysis ($000) August 29, 2017 Regular Committee Meeting Agenda Packet - Page 6 of 158 + Favorable Budget Actual Variance % Explanation Implications for future budgeting Revenues SSC - County $ 69,885 $ 71,438 $ 1,553 2% RUE growth, best estimate of water conservation and drought impact SSC - Direct 11100 11,705 605 55% Higher than anticipated development Conservative assumptions for growth are used City of Concord 14,790 13,851 (939) -6% Lower Central San expenses Permit/Application Fees 400 616 216 54% Higher than anticipated development Conservative assumptions for growth are used; but 3 year average will pick up higher FY 2016-17 and FY 2017-18 experience Side Sewer Inspection 820 11,192 372 45% Higher than anticipated development Conservative assumptions for growth are used; but 3 year average will pick up higher FY 2016-17 and FY 2017-18 experience Recycled Water 100 350 250 250% RE & SC combined variance $13k due to mid -year FY 2017-18 budget was adjusted for RW, tracking changes and O&M expenses are covered 1st and accordingly variance for that and future years should be smaller Annexation Charges 55 232 177 322% Higher than anticipated development Conservative assumptions for growth are used; but 3 year average will pick up higher FY 2016-17 and FY 2017-18 experience All Other 2,667 2,600 -68 -3% Includes septic/overtime inspections, industrial permits, lease revenue, pre-treatment, household hazardous waste, storm water and interest income. Total Revenues 89,817 91,983 21166 2% Favorable variance Expenditures Salaries & Benefits $ 66,926 $ 64,842 $ 2,084 3% Comprised of $1,364 salaries (unfilled vacancies Will provide somewhat higher vacancy offset by less charged to capital), and $849 benefits factor than the 2% of salaries and 3% of (about 2/3 retirement, 1/3 healthcare and worker's benefits used for FY 2016-17 comp insurance) Chemicals 1,920 11#426 494 26% Sodium hydroxide budgeted due to anticipated Removed from the budget for FY 2017 - regulation changes, but not needed, saving $420k 18, so not a recurring issue Utilities 4,316 4,681 (365) -8% Higher electrical use due to Cogen emissions limits Repairs & Maintenance 5,223 4,664 559 11% POD saving General and Outside Repairs & Maintenance $433k, also $105k in computer repairs & maintenance savings Outside Services 3,980 3,244 736 18% Less spent on various Technical Services - including: At times, items are not needed due to (1) RW opportunity study/satellite SWRF $150k; (2) change circumstances or delays RW Process support services & Survey consultant $95k; (3) Legislative Analysis $50k; (4) Radio fee for county -deferred. $70k; (5) IT temp services $25k; (6) Virtual Desktop Infrastructure IT $70k; (7) Records mgmt $160k; (8) Security guards $30k; (9) emergency mgmt/safety. Other 71,446 6,633 813 11% $168k Public information $52k Outside organization fees $200k Election expense vs. $400k budgeted (fewer candidates/assessment from County) $48k Technical training & conferences $116k Tuition & professional reimbursement Total Expenses 89,811 85,490 4,321 5% Total under spent - Favorable Net 6 6,493 6,487 Favorable variance available for disposition August 29, 2017 Regular Committee Meeting Agenda Packet - Page 6 of 158 $80,000 $69,885 $71,438 $70,000 $60,000 - $50,000 $40,000 $30,000 $20,000 $10,000 SSC - County $80,000 $66,926 $70,000 $64,842 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Salaries & Benefits ATTACHMENT 2 Pre -Audit - June 2017 Financial Statement Summary Operations and Maintenance Variance Analysis ($000) FY 2016-17 O&M Revenue Variances 14,790 13,851 1,100 400 820 100 232 1,705 616 1,192 350 55 SSC - Direct City of Concord Permit/Application Side Sewer Inspection Recycled Water Annexation Charges Fees ■ Budget ■ Actual FY 2016-17 O&M Expense Variances 4,316 5,223 1,920 4,681 4,664 1,426 Chemicals Utilities Repairs & Maintenance ■ Budget ■ Actual 3,980 3,244 Outside Services Page 5 of 6 2,600 2,667 M M All Other 7,446 6,633 Other August 29, 2017 Regular Committee Meeting Agenda Packet - Page 7 of 158 Page 6 of 6 ATTACHMENT 3 Pre -Audit - June 2017 Financial Statement Summary Use of O&M FY 2016-17 Budget Variances (Revenues and Expenditures) # Item Description Tentative Staff Recommendation 1 Increase O&M The financial plan used as the basis for setting rates in FY 2017-18 and FY 2018-19 $1,359,753 Reserve - to be contemplated 7% increases in both years. Based on the FY 2017-18 adopted rate increase applied towards FY of 5.37% (equivalent to $530 annual SSC for a SFR), a funding shortfall of $1,359,753 occurs 2017-18 revenue ($5,839,431 additional revenue at 7% less $4,479,678 additional revenue at 5.37%). This shortfall in SSC would result in a recurring annual shortfall based on expenses in the current financial plan, but it is anticipated that budget adjustments can be identified in future years to offset that revenue loss. Applying funds for this item results in increase (restoring) the Running Expense/O&M reserve fund balance. 2 Pay down employee PFM previously advised Central San on the advantages of applying available funds towards $2,000,000 related liabilities employee related liabilities. Applying funds towards these liabilities can save Central San the assumed actuarial cost of these programs; for pension, this is 7.0%. Actual savings would depend on the actual market returns of the invested funds, but are targeted at the assumed actuarial return. Funds could be: a. Remitted directly to CCCERA. Not advised due to concerns about "superfunding" and once remitted the funds are not available to reduce future year's contributions. (Funding status at 12-31-16 valuation is 78.1%.) b. Deposited in the GASB 45 Trust (Projected funding status at 7-1-17 is 47.5%.) c. Deposited in the Section 115 Pension Prefunding Trust (recommended) The last option provides maximum flexibility to Central San as the funds would be available to offset future REQUIRED contributions to CCCERA. Therefore, these funds could be used to mitigate near term rate pressures that might arise from unplanned increases in CCCERA pension expenses. 3 Retain in Sewer This is the default position. Without further action, the O&M savings [and revenue $3,127,254 Construction sub- variance] will be retained by the Sewer Construction sub -fund. Such monies will be in fund excess of the targeted reserve balance at the end of FY 2017-18, and would reduce any FY 2018-19 borrowing requirements that were otherwise anticipated for CIP needs. With this credit, staff believe a borrowing originally contemplated to partially fund FY 2018-19 CIP requirements could be deferred until FY 2019-20. Total accounted for $6,487,007 Total available savings $6,487,007 $0 -1 RemainingF__ Additional UAAL - Budgeted FY 2017-18 - OPEB Trust 1 $2,500,000 August 29, 2017 Regular Committee Meeting Agenda Packet - Page 8 of 158