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Workshop-(1) Updated Ten-Year Capital Financing Plan, and (2) consider allocating $11.7 million Y 2017-18 favorable Budget variances, and $2.5 million in budgeted in FY 2018-19 toward unfunded liabilities FISCAL YEARS 2019 -20 to 2028-29 CAPITAL FINANCING PLAN Board Workshop No. 1 November 1 , 2018 Presentation Outline ❖ Part 1 : Financial Plan ❖ Part 2: Funding Sources ❖ Part 3: Alternative Funding Plan ❖ Questions Appendices: Additional Detail on Funding Sources PART 1 -41NANCIAL PLAN Phil Leiber, Director of Finance & Administration CENT F R ■ a Current 10 Year CIP FY 2018-19 ••• $806 Million of Projects/Improvements (In million 2018 Dollars) Ten Year CIP 1 2 3 4 5 6 7 8 9 10 - FYW19 FY19/20 FY20121 FY21122 FY22/23 FY23/24 FY24/25 FY25/26 FY26/27 FY27/28 8,x29 Treatment Plant $15_q $38.5 $52.5 $5S_4 $56_5 $33.3 $27.3 $30.6 $47.7 $36.9 Cal lecticn System $1-9_3 $26.1 $35.3 $33.1 $42.0 $36_6 $3s_0 $40.0 $27.1 $28.9 Recycled ~Nater $2_S $8.4 $8.4 $3.2 $0.1 $0.1 $0.1 $0.1 $0.1 Sc.- Generallmprove $4.7 $3.9 $2.6 $2.4 $2.4 $1.9 $1.9 $1.9 $1.9 $1.9 Cantingenty 1 $1.5 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 TOTAL Revbed Tow Cr 1 $45.3 $78.9 $100.8 $110.1 $103,0 $73.S $70.3 $74.6 1 $78.8 $69.8 slzo.o S100.o Ssoo Sryoo $KW $0.0 FY1Ell 9 FV19PC FY20/21 FY21f22 FY22/23 FY23124 FY24/25 FY25/F6 FY2607 FY27129 FY2" ❑Contingency ■General Improvements ❑Recyded Water ❑Collection Systern ■Treatment Plant Updated 10 Year CIP FY 2019-20 New Total extended to FY 2028-29 (11 t" Year Added) [In million 2018 Dollars.- Ten Year CIP 0 1 2 3 4 5 6 7 8 9 10 FY18f19 FY19/2O FY20121 FY21/22 FY22/23 FY23/24 FY24/25 FY25/26 FY26/27 FY27/28 FY28/29 atment Plant $38.5 $52.5 $69.4 $56.5 $33.3 $27.3 $30.6 $47.7 $35.9 $26.9 Collection Svsteim $26-1 $35.3 $33.1 $42.0 $36.6 $39.0 $40.0 $27.1 $28.9 $42.7 Recycled Water $9.4 1 $8.4 $3.2 $4.1 $0.1 $0.1 $0.1 $0.1 $4.1 $0.1 nerallmpruvements $3.9 $2.6 $2.4 $2.4 $1_.9 $1.9 $1.9 $1.9 $1.9 $1.8 Ccnt'ngenc:r $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 $2.0 TOTAL Revised Total CIP $78.9 $100.8 $110.1 $103k $73.9 $70.3 $74.6 $79A $64.8 $73.5 583377 $8D.D rD.D s4au $ZQA $0.0 FYI Ell 9 FY1VG FY20/21 MV22 F 2203 FY23124 FY24P5 FV2S#2fr FY26/27 iY'21/25 FY2A(29 ❑Contingency ■General Improvements ❑Recycled Water ❑Collection System ■Treatment Plant e e. Ala k� CENTRALSAN F 1 Y ' Updated 10 Year CIP FY 2019-20 6 New Total extended to FY 2028-29 (11th Year Added & inflated 3%) (I n$millions;assumes3.O inflation) Ten Year CIP 0 1 2 3 4 5 6 7 8 9 10 _... _ .. _. FY19/20 FY2O/21 FY21/22 FY22/23 FY23/24 FY24/25 FY25126 FY26/27 FY27/2g FY28/29 Treatment Plant $39.7 $54.1 $71.5 $58.2 $34.3 $28.1 $31.5 $49.1 $38.0 $27.7 Ccllecticn Swstem $26..9 $35.4 $34.1 $43.3 $37.7 $40.2 $41.2 $27.9 $29.8 $44.0 Recycled Water $8.6 $8.6 $3.3 $0.1 $0.1 $0.1 $0.1 $0.2 $0.2 $0.2 $4.1 $2.7 $2.5 $2.5 $1.9 $1.9 $1.9 $1.9 $1.9 $1.8 Contingency $2.0 $2.0 $2.0 $2.0 $2.0 $2.5 $2.5 $2.5 $2.5 $2.5 TOTAL RevisedTotaiCIP $81.3 $103,8 $113.4 $106.1 $76.0 $72.8 $77.3 $81,6 $77.+1 $76.2 5860,9 $120.0 5100.0 n.o 5 Sam $0.0 t-Ll�, FY18f13 FY19f20 FY20f21 FY21l22 FY22f23 FYZ3fZ4 F1'F4f25 FY25126 FY26127 FY27/28 Ff28}29 01 - `~ , e ❑Contingency ■General Improvements ❑Recycled Water ❑Collection System ■Treatment Plarift Arai) CENTR ■ a Current Financial Plan 7 ❖ Data in Thousands ($ 000's) Proposed Rate Year Fiscal Year FY • . . CIP 1 18-19 45,319 7% $567 2 19-20 78,920 50,000 7% $607 3 20-21 100,813 7% $649 4 21-22 110,176 135,000 6% $688 5 22-23 103,061 6% $730 6 23-24 73,914 6% $773 7 24-25 70,357 5% $812 8 25-26 74,609 5% $853 9 26-27 78,767 3% $878 10 27-28 69,846 3% 904 Total $805,772 $185,000 Recent Updates toFinancial • i Adjustments Additional Other) � • ' Current Debt Plan $185 million 2009 Bond Refunding Savings $8.2 million 2017/18 Variance $11.7 million Increase forecast assumptions for Ad Valorem growth rate $0.8 million Concord Capital Project Reimbursement* $7.0 million Debt Service Payment due to deferral of bonds by one year $3.3 million ro Subtotal $31 million Updated Debt Plan $154 million * Concord's proportionate share of capital that will now be financed through pay-go funding rather than debt proceeds. ., - • _ CENTRALSAN Updated ❖ Data in Thousands ($ 000's) Proposed Rate Year Fiscal Year FY 2019-20 Debt Increase SSC CIP 0 18-19 45,319 % $567 1 19-20 81,227 50,000 7% $607 2 20-21 103,778 77,000 7% $649 3 21-22 113,421 1 2TJ7,wo 6% $688 4 22-23 106,093 77,000 6% $730 5 23-24 76,072 6% $773 6 24-25 72,907 5% $812 7 25-26 77,288 5% $853 8 26-27 81,560 3% $878 9 27-28 72,381 3% $904 10 28-29 76,178 3% $932 Total $860,906 $154,000 NTRALSAN Recommended Board Actions-A Finalize direction on use of $ 11 .7 million FY 2017- 18 favorable budget variance (consisting of $6.2 million O&M and $5.5 million Sewer Construction). Direct budgeted $2 .5 million O&M funding to selected use. Recommended to Pension Prefunding Trust. Results in 83. 1 % funded ratio as of 6/30/2018 including both CCCERA held and Pension Prefunding Trust assets. Provides flexibility to absorb unforeseen changes in CCCERA required contributions, providing improved Sewer Service Charge rate smoothing opportunities. ., - �_ CENTRALSAN Historyof ❖Data in Millions ($ 000,000's) Est % Funded Actuarial Value of Assets* % by moving to Per Bartel 2-year Valuation Assets Funded CalPERS Medical 7/1/2012 $22.5 22.4% - 7/1/2014 33.7 32.4% - 7/1/2016 43.8 44.0% - 7/1/2018 Estimate 59.6 56.3%** 75.0%*** 7/1/2018 estimate if add'I $2.5 million (FY 2018-19 Budgeted amount) went to OPEB 62. 1 58.6%** 78.2%*** * Per Bartel Associates, Actuarial Value of Assets (AVA) which includes smoothing. Report dated July 1 , 2016 (for use in FY 2017-18 and FY 2018-19). ** Total accrued liability using 7/1/2016 valuation rolled forward to 7/1/2018 in Bartel & Associates report. *** CaIPERS Medical estimated funding percentage based on the approximate 25% reduction in OPEB liability by switching to CaIPERS Medical-PEMHCA Minimum per Bartel Associates. Historyof Additional Payments ❖Data in Millions ($ 000,000's) Pension Fiscal Date of CCCERA OPEB Prefunding Year Payment Trust Trust Trust Source of Funds 2013-14 Dec 2013 $5.0 Budgeted 2014-15 Dec 2014 5.0 Budgeted 2015-16 Dec 2015 2.5 Budgeted 2016-17 Feb 2017 $2.5 Budgeted-Board Decision 2017-18 Aug 2017 $3.4 Funded by FY 2015-16 variances 2017-18 Various 2.5 Budgeted-Board Decision 2017-18 Various 2.0 Funded by FY 2016-17 variances Subtotal 12.5 5.0 5.4 22.9 2018-19 Pending - $2.5 Budgeted $2.5 million could be directed to OPEB or either Pension Trust. Recommendation: Pension Prefunding Trust oCENT. Total $12.5 $5.0 $7.9 $25.4 �..h _ � c RALSAN Reserve Status j 0 ❖Data in Millions ($ 000,000's) O&M SC-CIB Pension Assets in Reserve Reserve OPEB Prefunding CCCERA 5/12 50% CIB Trust (1) Trust (2) Trust (3) Target Reserves at Year End $37.4 $22.7 2017-18 CIB Carryforward 7.0 2017-18 O&M & Sewer Const Year End Variances 11 .7 All Other (4) $0.6 Pre-Audit Reserves 6-30-18 $38.0 $41 .4 $59.6 $5.4 $317.2 Pending Budgeted Contribution $2.5 Total $a8.0 41 .4 $59.6 7.9 317.2 (1 ) Balance and amounts are at market value. (2) Pension Prefunding Trust was funded with $3.359 million FY 2015-16 variance and $2 million from FY 2016-17 variance. (3) Allocation of valuation of assets as of December 31 , 2017 CCCERA valuation. (4) Consisting of $0.6 million self insurance that will be addressed in upcoming budget process. CENTRALSAN Recommended • • • ❖Data in Millions ($ 000,000's) Pension Recommended O&M SC-CIB OPEB Prefunding CCCERA Allocation of Funds: Total Reserve Reserve Trust Trust (1) Trust (2) Year-End 2017-18 Variances - O&M 6.2 - 6.2 - - - 2017-18 Variances - SC 5.5 - 5.5 - - - Total $11 .7 - $11 .7 - - - Budgeted 2018-19 UAAL Liabilities $2.5 - - - $2.5 - Fully Fully Following Estimated Funded Ratio % Funded Funded Slide 2.0% 81 .1 % 83.1% Pro-Forma (1 ) Funding status per staff estimate using PARS Pension Trust June 30, 2018 statement and CCCERA December 31 , 2017 valuation ($5.397M+ $2.5M proposed)/$391 ,297,351 ). (2) Funding status per CCCERA December 31 , 2017 valuation. .,t - • _ . PART 2 rm .= UNDING SOURCES kh Sarah Hollenbeck, PFM Greg Swartz, Piper Jaffray h 19L CENTR i k vk ■ a Funding Sources AN • ❖ Overview Added Expense Millions Cash Rates & Balances Schedule & Reserves Inflation $707 Debt Rates Capacity Interest 154 Grants Gifts & Contributions Eligibility & Availability -- Total $861 Grants Monitor eligibility & availability. Currently, Central San is not likely to meet prioritization criteria for Federal and State Grants. Inflation vs Interest ■ Inflation adds expense through increased project costs. ■ Interest "fixes" added expenses when debt is originated. JIDepending on project schedules and rate of inflation, cash funding projects can be as ■ expensive or more expensive than debt funding projects. - _ CENTRAL SAN Common Sources for • Financing 17 ❖ Government ■ IBank RV CA Infrastructure & Economic Development Bank ■ RD Ag U.S. Department of Agriculture, Rural Development - -� • SWRCB � CA State Water Resources Control Board* Water]Boards WIFIA WI FIA U.S. EPA, Water Infrastructure Finance & Innovation Act Market Placement Borrow from 1 Investor Public Offering Borrow from Multiple Investors ❖ Other ■ Co-Bank National Cooperative Bank PFA PFJ96� National Public Finance Authority ■ CSDA �' CA Special District Association Finance Corporation * Funding via State Revolving Fund (SRF) loans ` Macro "Filters" 1 Strike is Out ❖ Government Population Rates Term ■ IBank R2 ✓ ✓ ✓ ■ RD x --- --- ■ SWRCB ✓ ✓ ✓ Water Boards ■ WIFIA }SII FIA `� ✓ ✓ Market ■ Placement ✓ ✓ --- ■ Public Offering ✓ ✓ ✓ ❖ Other ■ Co-Bank x --- --- LL ■ PFA PFA% ✓ x ■ CSDA ✓ x --- Micro "Filters" • ❖ Scale of 1 = Best to 4 = Worst R� Water]Boards (Bank SWRCB 111 FIA Public Offer ❖ Borrowing Cost ■ Rates 2 or 3 1 4 or 3 4 or 3 ■ Requirements 1 3 3 1 ■ I nterest Assessed 3 (Close) 1 (Draw) 1 (Draw) 3 (Close) ■ Issuance/Application 2 1 3 4 ■ Reporting/Disclosure 3 1 2 4 ❖ Timing/Schedule 2 4 3 1 ❖ Access/Predictable 2 3 4 1 ❖ $ Borrowed (1 Project) ■ 1 Project Max=$25M $10-$100M Min=$50M Min=$20M 0 Co-Funding Needed Likely Maybe 51 % No Strategy by Source ••• Preferred Source SWRCB Water$ S • Estimate & Maximize Priority List Score • Generate Climate Action Plan / Green Bond Criteria • Apply Early for Future Projects ❖ Secondary Source Public Offering • Back-up source if other sources are limited or not accessible. • Co-funding source alongside other sources. ❖ Secondary Source WIFIA • Monitor WIFIA's "Evolution" • May-July 2019 - Submit Letter of Interest for "near-shovel ready" projects. If deferring / wrapping / backloading principal repayments is not needed or not preferred, it is challenging to optimize WIFIA. •:• Potential Source (Bank r* • Understand IBank capacity & loan rate setting. Secondary source to co-fund alongside SWRCB & WIFIA. PART 3 7LTERNATIVE FUND&IgPLAN Danea Gemmell , . . Development Services Division Manage - - . . - . . - cc CENTRAL SAN Potential SRF Projects CATEGORY and PROJECT PROJECT FY FY FY FY FY FY FY FY FY FY 10-YR DRIVERS 2420 2021 2022 2023 2024 2025 2026 2027 2028 2029 TOTAL CATEGDRY 1-Solids Management $ 12.3 $ 28.3 $ 32.8 $ 15.8 $ 0.4 $ $ $ - $ - $ - $ 89.6 7348-Solids Handling Fac Impvs ft 10 • • + • • $ 72.7 TBD-Surcharge Soil Pile Relocation lim I • • + • - $ 16.9 CATEGORY2-Wet Weather $ 1.6 $ 3.8 $ 9.9 $ 9.7 $ 6.1 $ 11.4 $ 21.9 $ 30.8 $ 11.5 $ - $ 106.7 TBD-Primary Expansion „� # • + + • - $ 27.9 7328-Influent Pump Electrical Improvements 1 0 • • + $ 4.8 TBD-Wet Weather Flow Management A 0 • • + • $ 18.4 TBD-Ulf Hydraulic Improvements .".. # • • $ 2.7 TBD-SecandaryTreatment Hydraulic Improvements # + . • + $ 26.9 TBD-UV Disinfection Replacement , . • • + + • $ 26.0 CATEGDRY 3-General Improvements $ 0.3 $ 1.3 5 1.3 $ $ $ $ $ - $ - $ $ 2.8 TBD-Treatment Plant SCA DA Improvements 0 • • • $ 2.8 CATEGDRY 4-Energy $ 5.6 $ 5.6 $ 17.3 $ 24.0 $ 19.2 $ 8.3 $ $ - $ - 5 $ 84.1 TBD-Co-Gen Replacement 0 • • • • • - $ 19.1 7349-Steam and Aeration/Blower Renovation 0 • • • • • + - $ 61.0 CATEGDRY 5-Collection Lines $ 6.4 $ 14.9 5 9.7 $ 15.5 $ 5.7 $ 0.3 $ - $ - $ - $ $ 52.5 8436-Pump Station • • . • • • $ 52.5 CATEGORY6-Discharge $ $ 5 $ $ $ 0.6 $ 1.1 $ 5.0 $ 5.0 $ $ 11.7 TBD-Nutrient Removal Level 1 • + • + $ 11.7 CATEGORY 7-Recycle $ 8.5 $ 9.5 $ 3.2 $ $ $ $ $ - $ - $ $ 24.2 7351-Filter Plant Improvements 4- # • • ■ $ 10.6 TBD-Clearwell Improvements 146 # • • • $ 9.5 ALLOTHER PROJECTS&CONTINGENCY $ 46.5 $ 41.4 $ 39.3 $ 41.2 $ 44.7 $ 5Z.3 $ 54.3 $ 45.7 $ 55.9 $ 76.2 $ 497.4 OTAL 0. D In$millions[inflated 3.0%J;totals may vary due to rounding Protect Drivers Key: Aging Infrastructure Capacity 11HI Regulation Sustainability w. Ala k New SRF Priority List Criteria Primary Scare Corrective Preventative irnprovar-art Maximum Example + Drinking water source 9 S 7 g + Delta Nater Quality 8 7 7 + Nater Recycling - - 7 + Impaired Water Body 0 6 4 + ~Nater Quality Control S 6 4 Plan or Permit econdary Score. Can quality for ONE of these additional criteria;l + 3; Climate change action plan or policy ---------, ;---------; + 3; Multiple water quality impairments, eliminates or addresses multiple sources of water 3 3 pollution, or eliminates discharge of waste regulated by a regional water board or state water board + 2; Project is cited in a multi-agency regional environmental management plan, increases the local supply of drinking water, or has a multimedia environmental benefits • 2; Agrees to provide funds to match federal capitalization grants by agreeing to the match financing option --------- ------- `---------i Readiness score (can qualify for both of these, up to 4 points) ----------, ----------, * 2; Complete application received by the division 2 2 * Plans and specifications verified by Division. If49°r', 1, if899 , 2 points ' 2 , , 0 16 12 RACENTLSAN Roadmap • SRF Funding am I Debt #1 Debt #2 $77 million $77 million CY 2018 CY 2019 CY 2020 CY 20221 DFA publishes Solids Project Filter Plant DFA publishes Steam Aeration- Adopt Climate Final Priority/ certified to start Project certified Final Priority/ Blower Project Change Policy Fundability List in bidding after to start bidding Fundability List in certified to bid June March after March June after March Resolution to DFA originates DFA publishes Steam Aeration- DFA originates Submit SRF Loan for Solids Final Priority/ Blower Project Loan for Steam Application Project starts Fundability List in Loan Application Aeration-Blower December June by December 31 Project December CEQA Filter Plant DFA originates Determination Project Loan Loan for Filter for Solids Project Application by Plant Project December 31 starts December Solids Project Loan Application by December 31 Solids Project $76.2 million D Filter Plant Project $22.3 million Steam Aeration-Blower System Renovation Project $79 million Next Steps ❖ Aggregate Projects for SRF Applications $300 Million • 4 Groups of Projects • Solids • Wet Weather • Discharge Compliance • Recycled Water ❖ Monitor Evolution of WIFIA • Potential Source for Aggregated $79 Million of Projects ❖ Meet with (Bank • Understand (Bank capacity & loan rate setting process. ❖ Rate Setting • Assume Public Offerings through 2 separate bond issues. • Adjust rates or projected rates when sources and borrowing costs are known. Z 19 L QUESTIONS? lij S -' ' CENTRALSAN APPENDIX A DETAIL ON SWRCB & SRF JjJ �+ � CENTRALSAN Potential SRF Priority List Scores A-1 PROJECT STARTING 10-YR SRF Scores SRF CATEGORY and PROJECT DRIVERS FY TOTAL Primary Secondary Ready TOTAL CATEGORY 1-Solids Management $ 89.6 7348-Solids Handling Fac lmpvs ,i. ;^r I It 0 2019 $ 7i 7 8 3 2 13 TBD-Surcharge Soil Pile Relocation 2020 $ 16.9 8 3 2 13 CATEGORY 2-Wet Weather $ 106.7 TBD-Primary Expansion 46 5:1�51 0 2024 $ 27.9 6 3 2 11 7328-Influent Pump Electrical Improvements . 0 2020 $ 4.8 6 3 2 11 TBD-Wet Weather Flow Management 0 2020 $ 18.4 6 3 2 11 TBD-UV Hydraulic Improvements 0 2023 $ 2.7 6 3 2 11 TBD-Secondary Treatment Hydraulic Improvements 0 2025 $ 26.9 6 3 2 11 TBD-UV Disinfection Replacement o 2023 $ 26.0 6 3 2 11 CATEGORY 3-General Improvements $ 2.8 TBD-Treatment PlantSCADA Improvements 2020 $ 2.8 4 3 2 9 CATEGORY 4-Energy $ 80.1 TBD-Co-Gen Replacement I J111 10 1 2020 $ 19.1 5 3 2 11 7343-Steam and Aeration/Blower Renovation &I 1 10 1 2019 $ 61.0 6 3 2 11 CATEGORY 5-Collection Lines $ 52.5 8436-PumpStation 2019 $ 52.5 F 3 2 11 CATEGORY 6-Discharge $ 11.7 TBD-Nutrient Removal Level 1 121 2025 $ 11.7 6 2 1'! CATEGORY 7-Recycle $ 20.1 7361-Filter Plant Improvements 2019 $ 10.6 7 3 2- T1311 TBD-Clearwell Improvements I 1 10 1 2019 $ 9.5 7 3 2 ALL OTHER PROJECTS&CONTINGENCY $ 447.4 TOTAL In$r7l ;ons(Mffated 3,0%);totais may vary due to rounding Objective: Package projects to maximize funding likelihood and to minimize administrative/application costs APPENDIX B DETAIL ON WIFIA CENTRAL SAN WIFIA Rates Indexed to Taxable Treasury Rates B-1 AAA MMD & UST Yields 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% O0000DODOhOOO�° O'l O�bO�bo°� oOOOoNo�' O'�' O3oDoDOhOr° O�° OA O`bo`bo° ,�ONONON� ND" ,� ,�r° ,��° ,�'l Nb AAA MMD 30 Yr UST 30 Yr At times, there has been a potential advantage to borrowing at the Federal rate, although the relationship continues to fluctuate. 19 L No Obvious Advantage at Current WIFIA Rates B-2 AAA municipal rates have been consistently below Treasury rates, despite both rising. AAA MMD & UST Yields 3.7% 3.5% 3.3% 3.1% - 2.9% h 2.7% 2.5% 2.3% N1 NA "'A NA NA "1 NA NA '� NIb 1� Nob N% 11 NIb Nob N00 N� �� �� b �� N� �� �� N� �� ��"PN 10 Io �o If, If, Io Io �o If, Io �o Io �o �o �o 'o 'o �o �o �o o �o �o Io �o �o �o �o "o �o Oo Oo� OGS o� o�, a' a" �p e`p atQ� �� �� a� �� J� ��� ��� �� AAA MMD 30 Yr UST 30 Yr Yield . High 10 Yr. MMD 1.88 2.72 +84 bps 10 Yr. UST 2.27 3.23 +96 bps 30 Yr. MMD 2.46 3.40 +94 bps 30 Yr. UST 2.69 3.41 +72 bps CENTRALSAN