Loading...
HomeMy WebLinkAbout17.c. Committee Minutes-Finance 06-26-18 Page 1 of 9 Item 17.c. CENTRALSAN CENTRAL CONTRA COSTA SANITARY DISTRICT July 5, 2018 TO: HONORABLE BOARD OF DIRECTORS FROM: KATIE YOUNG, SECRETARYOF THE DISTRICT SUBJECT: JUNE 26, 2018 - FINANCE COMMITTEE - PRESIDENT NEJEDLYAND MEMBER PILECKI Attached are minutes of the above Committee meeting. Strategic Plan re-In GOAL ONE: Provide Exceptional Customer Service Strategy 1 - Foster Customer Engagement and Awareness ATTACHMENTS: 1. Finance Committee Minutes 06-26-18 2. (Handout) Item 3.e.-Updated Position Paper July 5, 2018 Regular Board Meeting Agenda Packet- Page 175 of 195 Page 2 of 9 ,or76— I CENTRAL SAN CENTRAL • ■ • COSTA . IMHOFF PLACE, MARTINEZ, CA 9AS53-A37 REGULAR MEETING OF THE BOARD OF DIRECTORS: CENTRAL CONTRA COSTA JAMES A.NEJLDLY President SANITARY DISTRICT DAVID R, WILLIAMS FINANCE COMMITTEE President Pro Tem PAUL H CAUSEY MICHAEL R.MCGILL M I N U T E S TAD J PHECKI PHONE: (925)228-9500 Tuesday, June 26, 2018 FAX.- (925)372-0192 www.centralsan.org 2:00 p.m. Executive Conference Room 5019 Imhoff Place Martinez, California Committee: Chair Jim Nejedly Member Tad Pilecki Guest: Sarah Hollenbeck, PFM Financial Advisors LLC Staff. Roger S. Bailey, General Manager Katie Young, Secretary of the District Ann Sasaki, Deputy General Manager Phil Leiber, Director of Finance and Administration Stephanie King, Purchasing and Materials Manager Teji O'Malley, Human Resources Manager (left after Item 3.d.) Thea Vassallo, Finance Manager Todd Smithey, Financial Administrator (left after Item 3.d.) Chris Thomas, Financial Administrator (left after Item 3.c.) Shari Deutsch, Risk Management Administrator (arrived at the end of Item 3.c.) Laci Kolc, Risk Management Specialist Theresa Nidetz, Temporary Internal Auditor (present for Item 3.d.) Carrie Shields, Payroll Analyst (left after Item 3.d.) Donna Anderson, Assistant to the Secretary of the District 1. Call Meeting to Order Chair Nejedly called the meeting to order at 2:00 p.m. 2. Public Comments None. July 5, 2018 Regular Board Meeting Agenda Packet- Page 176 of 195 Page 3 of 9 Finance Committee Minutes June 26, 2018 Page 2 3. Items for Committee Recommendation to the Board a. Review and approve expenditures dated July 5, 2018 Member Pilecki mentioned that a list of vendors utilized by Central San would be helpful to him in reviewing the expenditures lists. Ms. King said her group would be glad to provide such a list. Subsequently, Ms. King indicated later in the meeting that there were approximately 2,600 vendors on the list. The Committee reviewed the expenditures included with the agenda material, and staff responded to questions that had been provided in advance of the meeting by Member Pilecki. It was noted that the $51,194 check payable to Global Diving and Salvage was for repair work related to the Clearwell Project. At the request of Member Pilecki, Ms. Vassallo said staff will provide additional information at the next meeting with regard to Check#219504 ($8,333.33) to Hearst Communication. COMMITTEE ACTION: Reviewed and recommended Board approval. b. Review May 2018 Financial Statements and Investment Reports Ms. Vassallo reported that year-to-date Operations and Maintenance (O&M) revenues are running at an approximate $1 million favorable variance from budget through May. O&M expenses are running a favorable variance of$4.5 million through May owing primarily to lower labor costs and repairs and maintenance expenses. Sewer construction revenues are showing a positive variance of$4.4 million, primarily due to a large capacity fee related to a senior housing project in San Ramon. Roughly$30.3 million has been spent on the capital program through May, which is roughly 65% of budget. Member Pilecki requested information on the $9,133 amount charged to Salary & Benefits related to the CoCo San Sustainable Farm in May, noting that this was more than previous months and not consistent with the Board direction that staff curtail support activities related to the project. COMMITTEE ACTION: Reviewed and recommended Board receipt. C. Review draft Position Paper to authorize the General Manager to enter into a three-year professional services agreement with Maze & Associates, Certified Public Accounts, to perform financial audit services July 5, 2018 Regular Board Meeting Agenda Packet- Page 177 of 195 Page 4 of 9 Finance Committee Minutes June 26, 2018 Page 3 for Fiscal Years (FY) 2017-18 through 2019-20, with the option to extend for two additional years COMMITTEE ACTION: Reviewed and recommended Board approval. d. Review Internal Audit Report on Payroll Controls Mr. Leiber introduced the report noting it was the third internal audit report presented during this fiscal year. Ms. Nidetz reviewed each of the ten findings in the audit report for payroll controls and reviewed the plans for addressing them. The Committee Members asked several questions about the findings and staff responded to their questions. COMMITTEE ACTION: Reviewed and recommended Board receipt. e.* Review draft Position Paper to adopt resolution recommending appointment of Financing Team for refinancing of existing 2009 outstanding debt obligations and authorize negotiated sale of refinancing bonds Mr. Leiber distributed an updated Position Paper(attached) containing the name of the senior managing underwriter recommended by staff, Piper Jaffray, and reviewed the rationale behind that selection. He also stated that that the advice from PFM is that revenue bonds are likely the more cost effective option over the long term, and that the Financing Team will likely pursue that approach rather than the Certificate of Participation approach that was used for the 2009 financing. Staff responded to a number of questions from Member Pilecki in which it was clarified that: (1) the cost for the underwriters would be covered by the bond proceeds; (2) Central San would be the issuing body for revenue bonds, not the Facilities Financing Authority; (3) it is recommended that the amortization schedule remain unchanged; and (4) that only one rating agency will be utilized (Standard & Poors). Mr. Leiber raised the issue of the need for the existing debt service reserve fund (DSRF) if the bonds were refinanced. Ms. Hollenbeck stated that eliminating the DSRF reduces the amount of refunding debt to be issued, thus reducing interest costs, and noted that the investor market and rating agencies do not focus on having a debt reserve fund but do look at whether overall reserve funds are sufficient, and investors focus primarily on the credit ratings. Member Pilecki stated his understanding that part of the rationale for having a debt reserve fund was to insulate against potential future erosion in ad valorem tax revenue, the majority of which is currently used to fund July 5, 2018 Regular Board Meeting Agenda Packet- Page 178 of 195 Page 5 of 9 Finance Committee Minutes June 26, 2018 Page 4 debt. Mr. Leiber said staff will discuss the interplay of the DSRF and the ad valorem taxes with District Counsel. COMMITTEE ACTION: Reviewed and recommended Board approval, including leaving the amortization schedule unchanged and utilizing a single rating agency. The Committee also wished to have a discussion regarding the proposal to consider abolishing the debt service reserve fund upon refinancing of the 2009 bonds. 4. Other Items a. Review Highmark Capital Management Government Accounting Standards Board (GASB 45) Other Post-Employment Benefits (OPEB) Sub-trust Quarterly Report (First Quarter 2018) Ms. Vassallo briefly highlighted portions of the Report and responded to questions from the Committee Members. She noted that Andrew Brown of Highmark will be attending the August Committee meeting to present the report for the second quarter of 2018. COMMITTEE ACTION: Reviewed and provided input to staff. b. Review Risk Management Loss Control Report as of June 18, 2018 Ms. Deutsch reviewed the Loss Control Report included with the agenda material and responded to questions from the Committee Members. COMMITTEE ACTION: Reviewed the report. 5. Announcements a. Mr. Bailey introduced Laci Kolc, the District's new Risk Management Specialist. 6. Future Scheduled Meetings a. Tuesday, July 24, 2018 at 2:00 p.m. Tuesday, August 21, 2018 at 2:00 p.m. Tuesday, September 25, 2018 at 2:00 p.m. 7. Suggestions for Future Agenda Items a. Receive list of future agenda items COMMITTEE ACTION: Received the list. July 5, 2018 Regular Board Meeting Agenda Packet- Page 179 of 195 Page 6 of 9 Finance Committee Minutes June 26, 2018 Page 5 b. Member Pilecki suggested, and Chair Nejedly concurred, that staff should report at a future meeting how the new Enterprise Resource Planning (ERP) System and timekeeping system are working. 8. Adjournment— at 3:07 p.m. * Attachment July 5, 2018 Regular Board Meeting Agenda Packet- Page 180 of 195 Page 7 of 9 Item 3.e. (Handout) ' CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER DRAFT MEETING DATE: JULY24,2018 SUBJECT: REVIEW DRAFT POSITION PAPER TO ADOPT RESOLUTION RECOMMENDING APPOINTMENT OF FINANCING TEAM FOR REFINANCING OF EXISTING 2009 OUTSTANDING DEBT OBLIGATIONS AND AUTHORIZE NEGOTIATED SALE OF REFINANCING BONDS SUBMITTED BY: INITIATING DEPARTMENT: PHILIP R. LEIBER, DIRECTOR OF FINANCEAND ADMINISTRATION-FINANCE ADMINISTRATION REVIEWED BY: THEAVASSALLO, FINANCE MANAGER ANN SASAKI, DEPUTY GENERAL MANAGER ROGER S. BAILEY, GENERAL MANAGER ISSUE Per Board Policy 029-Debt Management and Continuing Disclosure Policy, Board approval is required for the selection of the financing team that will assist with the execution of the 2009 bond refinancing transaction. The financing team includes the appointment of a financial advisor, bond counsel/disclosure counsel and a senior managing underwriter to issue the bonds through a negotiated bond sale. BACKGROUND At previous Finance Committee and Board meetings,staff have discussed the potential to achieve savings through refinancing Central San's 2009 outstanding debt. The attached memo addresses current market conditions,anticipated saving from a refinancing,and recommendations on the structure for the refunding. Key issues still outstanding and included in the attached memo include: • Whether to issue Certificates of Participation or Revenue Bonds. • Whether to proceed with refinancing only on the Series 2009A bonds,or in addition,the Series 2009B bonds. I n addition to seeking the Board's input on the issues listed above,staff is seeking the Board's approval on the appointment of the financing team to assist in issuance of the refunding bonds. The team is comprised of a Financial Advisor, Bond Counsel/Disclosure Counsel and Underwriter. • The Financial Advisor is PFM Financial Advisors LLC ("PFM"). Central San appointed PFM and Sperry Capital as financial advisors in December 2017,with PFM to serve as the financial advisor for this refinancing transaction. PFM's work on this matter will include financial analysis related to the potential refunding savings,assistance in selecting an underwriter,evaluation of bond structuring alternatives, bond document review, bond pricing, interfacing with the rating agencies,and assistance with state and federal initial and continuing disclosure compliance. PFM's fee for this work, payable from bond proceeds,will be$47,500. • The Iawfirm of Jones Hall served as both bond counsel and disclosure counsel to Central San in the 2009 bond issuance. The District has been well served by their previous work,and staff believes it is prudent and cost effective to have this firm continue in those roles. Jones Hall drafted the documents related to the existing bonds,and they are well situated to draft new agreements on the refunding bonds. As to the disclosure counsel work,their familiarity with Central San,and the existing bond official statement will allow them to assist with constructing required disclosures for the new bonds in the most timely and cost effective manner. Jones Hall's fees for bond counsel are$60,000,and for disclosure counsel are$40,000. Both of these fees are payable from bond proceeds as a cost of issuance. July 5, 2018 Regular Board Meeting Agenda Packet- Page 181 of 195 Page 8 of 9 • Underwriter: Staff recommends appointing Piper Jaffrey as senior managing underwriter. PFM conducted a RFP process in early June by notifying a total of 9 underwriting firms of Central San's proposed bond refunding. The list of firms notified was comprised of three firms that approached Central San to indicate the District should consider refunding existing debt to save money, plus another six firms who are active issuers for water and wastewater bonds. These firms were asked to address several issues including the optimal bond structure and anticipated yields, marketing approach,and underwriting cost. Six firms presented written proposals: Barclays, Piper Jaffrey, Prager&Co., Raymond James, Stifel,Wells Fargo. Based on qualifications, proposed structure and cost as outlined in the informal RFP,staff and PFM narrowed the underwriter selection to two firms: Stifel and Piper Jaffrey. Final interviews to select the proposed underwriter were conducted on June 20-21,2018. The following factors set forth in the request for proposal were considered in the selection: A. Quality of proposal and responses to specific questions included in this RFP. B. Ability to structure and market the bonds in a manner that will result in the lowest possible cost of capital; C. Experience on similar financings in California. D. Relevant qualifications of key personnel assigned to this financing. E.Accessibility of key personnel to the District's staff during the engagement. F. Understanding of the District's financing objectives. G. Distribution capabilities. H. Reasonableness of fees. Both firms submitted excellent proposals and were highly qualified. Piper Jaffrey distinguished themselves with respect to items C, D and F, including very strong wastewater experience,and view of current and longer term financing District needs. With respect to underwriter's cost,this is a specified dollar amount per bond that covers their fees(take-down fee)and a provision for other expenses including underwriter's counsel. The proposed fees are as follows: $3.19 per$1,000 bond. This equates to about$51,100 for Series 2009 A,and an additional 20%of that if the Series 2009B bonds are also financed. The costs of the debt to Central San would include those fees, plus the yield on the bonds,which are typically quoted as a spread over a benchmark(called MMD,for Municipal Market Data)index of"AAA"tax exempt bonds. This spread is to be negotiated with the assistance of PFM near the time of issuance. This spread is to allow the underwriter to market the bonds to investors after the underwriter purchases the bonds from the District. Setting this spread too high could result in the District paying a higher interest cost than necessary and setting it too low could result in the underwriter losing money on the bonds if they are unable to resell them to investors at a price equal or higher than they paid Central San. The anticipated savings related to the refinancing are net of the cost of issuing the new bonds,and the steps necessary to defease the existing debt. The direct costs to refinance the Series 2009A bonds apart from underwriter costs are anticipated to be approximately $200,000,consisting of: Financial Advisor Fee $47,500 Bond Counsel $60,000 Disclosure Counsel $40,000 Moody's Rating $24,000 S&P Rating $24,000 Other miscellaneous cost $4,500 Total costs without underwriter costs $200,000 If the Series 2009B bonds are also refinanced,certain additional minor costs may also be incurred by Central San. An updated cost schedule will be provided at the July meeting if it appears likely the Series B bonds will be refinanced. Schedule and Next Steps An initial financing schedule was prepared by PFM in May and provided to the Finance Committee on May 21,2018. An updated version of the schedule is provided as Attachment 3,with some of the mid-course milestones dates updated. The targeted issuance date remains early to mid-September, but with targeted pricing in August. The next key milestone for Board and Finance Committee involvement will be approval of several key documents related to the Financing in July,as noted below: 1. Adoption of the Refinancing Resolution,authorizing the refinancing of existing debt to take advantage of interest cost savings. 2. Approval of draft Preliminary Official Statement for the refunding obligations 3. Approval of other necessary documents to authorize and implement the refinancing At the July Finance Committee and related Board meetings, Financing Team members will available to answer any questions the Board may have. ALTERNATIVES/CONSIDERATIONS July 5, 2018 Regular Board Meeting Agenda Packet- Page 182 of 195 Page 9 of 9 Do not refinance the bonds. FINANCIAL IMPACTS The 2009 obligations,whether Series A alone,or also with Series B,will be refinanced only if cost effective and will result in savings to Central San. Preliminary indications are that savings on the order of$1 million to$1.4 million are possible for the Series A bonds,and potentially another$100,000 or so for the Series B bonds. This is anticipated to result in a potential reduction in the Sewer Service Charge of approximately 75 cents per year through 2029(ranging from about$1 per year in the first five years and declining to about 20 cents in 2029 as the amount of bonds outstanding declines). COMMITTEE RECOMMENDATION The Finance Committee reviewed this matter at its meeting on June 26,2018 and recommended that the Board: RECOMMENDED BOARD ACTION Staff recommends that the Board: 1. Adopt the proposed resolution appointing the financing team proposed for the refinancing of 2009 obligations consisting of PFM Financial Advisors LLC as financial advisor, Jones Hall as disclosure and bond counsel,and Piper Jaffrey as senior managing underwriter;and 2. Authorize that the refunding securities be sold on a negotiated basis with the senior managing underwriter. Strategic Plan Tie-In GOAL THREE:Be a Fiscally Sound and Effective Water Sector Utility Strategy 2-Manage costs ATTACHMENTS: 1. Memo To General Manager 2. Updated Transaction Calendar July 5, 2018 Regular Board Meeting Agenda Packet- Page 183 of 195