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wENTRAL SAN
CENTRAL CONTRA COSTA SANITARY DISTRICT 5019 IMHOFF PLACE, MARTINEZ, CA 94553-4392
REGULAR MEETING OF THE BOARD OF DIRECTORS.,
J}I!x#I ,-J. V 1-11f J�1�y
CENTRALCONRATCOSTA pre.vident
SANITARY DISTRICT DAVID R. iFILL]A MS
FINANCE C Pres d-ow pro Tom
MIUMEL R.ASC GILL
IN U TE S rAD J-PILECKI
PHONE: (925)228-9. 00
Tuesday, June 26, 2018 FAX- (9-25)372-0192
2:00 p.m.
Executive Conference Room
5019 Imhoff Place
Martinez, California
Committee:
Clair Jim I I j dl
Member Tad Pillecki
Guest:
Sarah Hollenbeck, PFM Financial Advisors LLC
Staff;
Fr S. Bailey, General Manager
Katie Young, Secretary f the District
Ann Sasaki, Deputy General Manager
Phil Laih r, Director of Finance and Administration
Stephania Dong, Purchasing and Materials Manager
Taji 'Malley} Human Resources Manager (left after Item .d.
Thea ' a sail a Finance Manager
Tadd Smithey, Financial Administrator (left after Item .d.
Chris Thomas, Financial Administrator (left after Item 3.c.)
Shari Deutsch, Risk k Management Administrator (arrivedat the end of Item 3.c.)
La i Dolce Risk Management Specialist
Theresa Nidetz, Temporary Internal Auditor r (present for Iters 3.d.)
Carrie Shields, Payroll Analyst (left after Item .d.
Donna Anderson, Assistant to the Secretary of the District
I. Call Meeting to Order
Chair Nejedly called the mee frog to order a t :00 p.m.
2. Public Comments
None.
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Finance Committee Minutes
June 26, 2018
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3. Items for Committee Recommendation to the Board
a. Review and approve expenditures dated July 5, 2018
Member Pflee mentioned that a list of vendors utilized by Central San
would be helpful to him in reviewing the expenditures lists. M . King said
her group would be glad to provide such a list. Subsequently, M . 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
maten'al, and staff responded to questions that had been provided in
advance of the meeting by Member Pile i. It was noted that the $51,194
check payable to Global Diving and Salvage was for repair work related to
the Cleer well Project.
A t the re que s t o f Me mb e r Pile cki, Ms. Va ss a 1/o said staff will p ro vide
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
fa vo ra b le va ria n ce o f$4.5 millio n th ro ugh May o win g p rima lily to to we r
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 proj&ect in San Ramon.
Roughly $30.3 million has been spent on the capital program through
May, which is roughly 65% of budget.
Member Pdeck'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 reGeipt.
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
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Finance Committee Minutes
June 26, 2018
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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 staffresponded 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. L vi b e r distrib u te d a n up da te d Po s ition Paper(a tta ch e d) co n ta in ing th e
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 Pile 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 onlone rating
y
ager agwill be utilized (Standard & Poors
%.@
Mr. LBei ber 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
ire ad valorem tax revenue, the majo' rity of which is currently used to fund
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Finance Committee Minutes
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debt. Mr. Le her 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 Governmert 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
M . 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 L Ko1c, 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.
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Finance Committee Minutes
June 26, 2018
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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- Fuge 180 of 195
Page 7 of
Item 3.e.
(Handout)
CENTRAL SAN BOARD OF DIRECTORS
POSITION PAPER
(UPDATED 1
MEETING DATE: ,JUICE 26,.2Dl8
SUBJECT: R EV[EW DRAFT POS I TI ON PAPER TO ADOPT F ESOLUT I ON RE COMMEND I NG
APPO I NTMENT OF F I NANC I NG TEAM FOR RE F I NANO I NG OF EXI STI NG 2009 OUTSTANDI NG
D EBT OBLI GATI ONS AND AUTH I I ZE NE TI AT E D SALE OF RE F I NANO I NG BONDS
SUBMITTED BY: INITIATING DEPARTMENT:
PHI LI P . LEI BE r , D I RECTOR OF FI NAN E AND ADMI N1 STRATI -F I f AN E
ADMINISTRATION
REVIEWED BY: THEAVASSALLO, FINANCE MANAGEF
ANN SASAKI, DEPUTY GENERAL MANAGER
ROGER . BAILEY,G E NERAL MANAGER
ISSUE
Per Board Folic 029-Debt Management and Continuing Disclosure Policy, Board approval is required for the selection of the
financing team that gill assist with the execution of the 2009 bond refinancing transaction. The financing team includes the appointment
of a financial advisor,bond course lid isclosure counsel and a senior managing and erwriter to Issue the bond s throug h 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 outstand ing d ebt. T he attached memo add resses current market Gond itions,antici paced saving from a ref i nancing,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,
* Whetherto proceed with refinancing only on the Series 2009A bonds,or in addition,the Series 2009E bonds.
I n add ition to seeping the Beard's i np ut 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.
• T he Financial Advisor is P F M Financial Advisors L L C (T F M"). Central San appointed P F M and S perm Capital as f nancial
advisors in December 201 ,Wth E F M 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,evaluafion of bond
structuring alternatives, bond document review, bond pricing, interfacing with the rating agencies,and assistance with estate and
federal initial and continuing disclosure compliance. P F M's fee for this work, parable from bond proceeds,will be$47,500.
• The law firm of Jones lull seared as both bond counse[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 HaIl 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 therm 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 Pak t- Page 181 of 195
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Underwi-iter: 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 notif led was
compdsed of three firms that ap proached C entral San to ind irate the D istrict should consider refunding existing de bt 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,Well Fargo. Based on qualifications,
proposed structure and cost as o utlined in the informal R F P,staff and P F M narrowed the underwriter selection to two f i rMs
Stifel and Piper Jaffrey Final''irite rviews to select the proposed underwriter were conducted on June 20-21, 2018. The following
factors set forth in the req uest for proposal were conside red i n the selection,
A.Quality of proposal and responses to specific questions included in this R F R
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 q uallif icabons of key personnel ass ig reed to this f inarcing.
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,
W ith respect to und erwritees cost,this is a specified dollar amo unt per bond that cove rs their fees(take-down fee)and a provision
for other expenses includ ing underwriter's counsel. T he p ro posed fees are as follows: $3.19 per$$31,000 bond. T his eq uates to
about$5 M 00 f or S erie s 2009 A,and an ad d itional 20%of that if the S cries 2 009B bonds are also financed,
The costs of the d ebt to Ce ntral San would includ e those fees,plus the yield on the bonds,Mich are typically q noted 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 P F M near the time of issuance. T his s p read is to allow the uncle writer to market the bonds to i nvestors
af te r the and erwriter purchases the bonds from the D istrict. Setting this spread too hig h co uld result in the D istrict payi ng 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 an.
T he antici gated saving s related to the refinancing are net of the cost of issuing the new bonds,and the steps necessary to def ease the
existirig debt. The direct costs to refinance the Series 2009A bonds apart from underwriter costs are anticipated to be approxirnately
$200,000,consisting of-,
Financial Advisor Fee $47-500
Bond Counsel $60POOO
Disclosure Counsel $40POOO
Moodys Rating $24POOO
S&P Rating $24POOO
Other miscellaneous cost
Total costs without und e rwrite r costs $200M0
1 f the Series 2009 B bond s are also ref i nanced,certain add itional m i no r costs may also be i ncurred by C entrall S an. An updated cost
schedule W11 be provided at the J my meeting if it appears likely the Se ries B bends will be refinanced.
Schedule and Next Steps
An initial f I nancing sched ule was p re pared by P F M in May and provided to the Finance Committee on May 21, 2018, A n updated
version of the schedule is provided as Attachment 3,with some of the mid-course milestones dates updated- The targeted 'issuance
date remains eady to mid-September,but with targeted pricing in August.
T he next key milestone for Board and F i mance C ommittee involvement will be approval of se ral 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 docurrients to authorize and implement the refinancing
At the J my Finance C ommittee and re lated B card meetings, F i nanci ng Team members wi I I avai lab le to answer any q uestions the Board
may have.
ALT ERNAT IVES/CONS]DERAT IONS
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
C
Karg e of approximately 75 ce nts pe r year throug h 2029(rang inn from about$1 per year in the f irst 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:
RECOM M ENDE D BOARD ACT ION
Staff recommends that the Board:
1, Adept the proposed resolution appointing the f inancing team proposed for the ref inancing of 2009 obligations consisting of P F M
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 Wth the senior managing underwriter.
SLraLQ=Plan Tie-in
G OA L THREE:B a a Fiscally S ound and Effective Water S ector Utility
Strategy 2-Manage costs
AT TAC HM ENT S:
1, Memo To General Manager
2- Updated Transaction Calendar
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