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HomeMy WebLinkAboutFinance MINUTES 01-28-19 Page 2 of 12 I CENTRAL SAN CONTRACENTRAL •STA SANITARY DISTRICT 5019 IMHOFF SPECIAL MEETING O F THE BOARD OF DIRECTORS: CENTRAL CONTRA COSTA DAVID R, WILLIAMS President SANITARY DISTRICT MICHAEL R.MCCILL FINANCE COMMITTEE President Pro Tem PAUL H CA USEY JAMES A.NEJEDLY M I N U T E S TAD J PHECKI PHONE: (925)228-9500 92 Monday, January 28, 2019 FAx cent alsan. rg www.centralsan.org 2:00 p.m. Executive Conference Room 5019 Imhoff Place Martinez, California Committee: Chair Paul Causey Member Jim Nejedly Staff.- Katie Young, Secretary of the District Ann Sasaki, Deputy General Manager Phil Leiber, Director of Finance and Administration Stephanie King, Purchasing and Materials Manager Todd Smithey, Finance Administrator (left after Item 3.c.) Chris Thomas, Finance Administrator Shari Deutsch, Risk Management Administrator Laci Kolc, Risk Management Specialist (arrived during Item 3.a.) Donna Anderson, Assistant to the Secretary of the District 1. Call Meeting to Order Chair Causey called the meeting to order at 2:02 p.m. 2. Public Comments None. 3. Items for Recommendation to the Board a. Review and recommend approval of expenditures dated January 31, 2019 Mr. Leiber responded to several questions that had been posed by Chair Causey prior to the meeting. The following action items resulted: February 21, 2019 Regular Board Meeting Agenda Packet- Page 92 of 111 Page 3 of 12 Finance Committee Minutes January 28, 2019 Page 2 1. Software Licensinq Fees: With regard to the $6,171.64 payment to NEOGOV indicated on p. 18 of the expenditures listing, Mr. Leiber explained that NEOGOV is a human resource management software for government and public agencies; the payment was for annual licensing fees. Chair Causey said he would be interested in how many software licenses the District has and their associated costs. Mr. Leiber said staff could compile this information relatively easily and report back to the Committee. 2. Procurement Card (P-card) Expenditures: In response to a question from Chair Causey, Mr. Leiber explained the history of the changes incorporated over the past year in terms of the level of detail reported to the Committee regarding P-card expenditures. Those changes have resulted in the Committee being provided with copies of all P- card statements every month. Chair Causey said that with the approval processes already in place at the staff and management levels, and the fact that an audit of P-card expenditures was conducted in the recent past, he was open to leaving scrutiny of P- card expenditures to staff with the understanding that if the Committee were to periodically request copies of the P-card monthly statements, staff would provide them upon request. Ms. King said P-card expenditures are typically low-dollar items, and US Bank automatically notifies staff when items look out of the ordinary or there is indication that an item has been split into multiple, smaller purchases. Additionally, Mr. Smithey said he personally conducts random testing each month of ten P-card statements, including review of underlying receipts, as a measure of staff control. The Committee Members were agreeable to eliminating P-card statements from the Committee's monthly review unless specifically requested from time to time. Mr. Leiber clarified that the Committee was directing staff to revert to the past monthly practice of listing P-card expenditures in the expenditures listing only, without providing individual statement details, with the proviso that the detailed P-card statements will be provided to the Committee as periodically requested. The Committee Members concurred. COMMITTEE ACTION: Reviewed and recommended Board approval of the expenditures; and 1) requested details at a future meeting on how many software licenses Central San has and their associated costs, and 2) eliminated the need for staff to provide P-card statements as February 21, 2019 Regular Board Meeting Agenda Packet- Page 93 of 111 Page 4 of 12 Finance Committee Minutes January 28, 2019 Page 3 part of the monthly expenditures report to the Committee, unless specifically requested by the Committee on a periodic basis. b. Review December 2018 Financial Statements and Investment Reports Mr. Leiber briefly recapped the information contained in the cover memo to the Financial Statements included with the agenda material, after which he responded to several questions that had been posed by Chair Causey prior to the meeting. The following matters were discussed in some detail: 1. Investments in Corporate Securities: Member Causey inquired about the last paragraph of the above-referenced cover memo which stated that staff has suspended purchases of individual investments in corporate securities pending investigation of potential options for making investment decisions besides relying exclusively on ratings assigned by rating agencies such as Moody's and Standard & Poors, particularly in light of rapid rating downgrades as have recently occurred with PG&E. Mr. Leiber noted that Member Nejedly had expressed concern in the past about relying solely on rating agencies to make investment decisions and said staff has begun looking at alternatives. While evaluation is still ongoing, Mr. Leiber said there appear to be a couple of options for supplementing staff's due diligence in this regard. One is a subsidiary of Moody's and another is a smaller operation out of New York. The approximate cost could be roughly $8,000 to $20,000 annually, and he said there may be some merit to utilizing such a service. Staff is holding off on making any corporate security purchases until a decision is made. If corporate securities are not purchased, Chair Causey asked if the funds just remain in the Local Agency Investment Fund (LAIF). Mr. Leiber said yes, either LAIF or federal agency securities. Chair Causey asked if financial consultant PFM may be of assistance with advising on corporate securities. Mr. Leiber said PFM has not been tasked with such advice because the County serves as Central San's treasurer. The County has been instructed to make purchases of securities with certain durations, in accordance with Central San's Investment Policy. A review of how the County's service as Treasurer in the selection and execution of investment decisions, as well as potential additional credit assessments such as might be provided by the two outside services, will be part of staff's evaluation of this issue. Mr. Leiber said staff will report back to the Committee once it has completed its evaluation. February 21, 2019 Regular Board Meeting Agenda Packet- Page 94 of 111 Page 5 of 12 Finance Committee Minutes January 28, 2019 Page 4 2. Favorable Revenue Variances: Chair Causey said it was his understanding that once Operations and Maintenance (O&M) costs and debt service are funded, any favorable revenue variances are to be applied to the capital program. Given the mid-year O&M favorable revenue variance of$4.2 million, he inquired why no funds have been transferred to the capital program. Mr. Bailey stated that in past years such decisions have not been made until after the end of the fiscal year, at which time the Board decides how to apportion any favorable budget variances. Mr. Smithey said Chair Causey is correct in his understanding, but only as it relates to ad valorem tax revenues, which are first used to fund debt service, after which the balance is transferred to the capital program. There is no such automatic transfer arrangement for monthly favorable O&M revenue variances. Mr. Leiber noted that sewer service charge revenues are allocated to O&M and capital funds as received, based on the allocation ratios specified in the annual budget document. COMMITTEE ACTION: Reviewed and recommended Board receipt. C.* Review draft Position Paper to approve updated administrative overhead percentage of 203% for Fiscal Year 2019-20, a decline from the prior year rate of 219% Administrative Overhead Percentage Recommendation: In reviewing Attachment 1 to the draft Position Paper, which sets forth the calculations used in determining the administrative overhead percentage, Chair Causey asked how the projected savings in healthcare costs due to the anticipated transition to CaIPERS Healthcare will affect the calculation. Mr. Thomas distributed an alternate Attachment 1 (attached) which reflected a three-year smoothed rate of 198%, 5% lower than the staff recommended rate, which reflects cost savings that are likely to occur after the planned Ca1PERS transition. Chair Causey opined that the proposed rate ought to include the projected savings. Mr. Leiber and Mr. Bailey said that since the transition to CaIPERS has not yet occurred, it was staffs recommendation to rely on actual figures and then re-evaluate the rate after the transition has taken place. Part of the reason for this recommendation is that the cities with which Central San does business use the administrative overhead rate for budgeting purposes. Mr. Bailey said he would prefer to give them a rate based on actual numbers until the transition has been completed. Chair Causey asked Member Nejedly his thoughts on whether to recommend the higher rate of 203% at this point and then re-evaluate once February 21, 2019 Regular Board Meeting Agenda Packet- Page 95 of 111 Page 6 of 12 Finance Committee Minutes January 28, 2019 Page 5 the transition to Ca1PERS Healthcare has been finalized. Member Nejedly said he supported staff's recommendation to stay with the status quo. Chair Causey concurred and suggested the matter be revisited in October or November to see if an adjustment is warranted. Member Nejedly agreed. Internal Benefit Rate vs. Overhead Rate: Mr. Leiber then took a few minutes to review a brief PowerPoint (attached) explaining the difference between the internal benefit rate and the administrative overhead rate. The purpose of the presentation was to illustrate that the administrative overhead rate includes the internal benefit rate as well as unfunded actuarial accrued liability (UAAL), administrative overhead, and employee non-work hours. It was requested that slide 2 be revised to separate out the UAAL from the employee benefits line. Review of Methodology Used to Calculate Overhead: Chair Causey noted that it has been five years since the last overhead study was conducted and asked when it might be time to revisit the issue. Mr. Leiber said it would be better to wait until the new Enterprise Resource Planning (ERP) software is up and running. COMMITTEE ACTION: Reviewed and recommended Board approval of a 203% administrative overhead rate for Fiscal Year 2019-20, with the proviso that the rate be revisited in October or November to consider making an adjustment after the transition to CaIPERS Healthcare has been completed. 4. Other Items a. Annual review of contracts and blanket purchase orders (BPOs) older than five years with an annual spend greater than $25,000 Ms. King highlighted several items on the report. There were no questions from the Committee. COMMITTEE ACTION: Received the update. b. Review Risk Management Loss Control Report as of January 17, 2019 Ms. Deutsch reviewed the Loss Control Report with the Committee. COMMITTEE ACTION: Received the report. C. Receive list of future agenda items COMMITTEE ACTION: Received the list. February 21, 2019 Regular Board Meeting Agenda Packet- Page 96 of 111 Page 7 of 12 Finance Committee Minutes January 28, 2019 Page 6 5. Announcements None. 6. Future Scheduled Meetings Tuesday,day Cohrs apy 26 2019 at 2:00 p.m. — The meeting date was changed �--uc�c,-�rcp,-a-ar� , to Monday, February 25, 2019 at 2:00 p.m. Tuesday, March 26, 2019 at 2:00 p.m. Tuesday, April 23, 2019 at 2:00 p.m. 7. Suggestions for Future Agenda Items None, other than the requests made in Items 3.a.and 3.c. above. 8. Adjournment— at 3:08 p.m. * Attachments February 21, 2019 Regular Board Meeting Agenda Packet- Page 97 of 111 Page 8 of 12 ATTACHMENT Central Contra Costa Sanitary District Administrative Overhead Summary For the 2019-20 Budget-Calculated using 2017-2018 Audited Financial Statements Current Year 3 Year Calculation Last Year's Two Years ago Smoothed Unsmoothed Unsmoothed Unsmoothed Year 2019-2020 2019-2020 2018-2019 2017-2018 Employee Benefits 77.6% 60.2% 80.6% 91.5% Administrative Overhead 102.7% 96.7% 102.3% 109.4% Non-work Hours 18.1% 18.2% 18.1% 18.0% 198.4% 175.1% 201.0% 218.9% Smoothed Rate 98% I I 219% o Years in Smooth Rate 1101Jyr 3 yr yr Comparison of Rate Before Smoothing 2019-2020 2018-2019 Decrease Employee Benefits 60% 81% -20.4% Administrative Overhead 97% 102% -5.6% Non-work Hours 18% 18% 0% Total 175% 201% -25.9% Summary of Increases(Decreases) Employee Benefits: Total adjusted benefits(numerator)decreased by 21.6%due to projected healthcare savings from switch to CalPERS medical -20.4% and total salaries(denominator)increased by 5.0%,causing the overall decrease FY 2017-18 FY 2016-17 Difference % Adjusted Benefits(numerator) $21.9 $28.0 ($6.1) -21.6% Salaries(denominator) $36.4 $34.7 $1.7 5.0% Admin Overhead: Total adjusted indirect costs(numerator)decreased by about 0.1%,but total direct salaries(denominator)increased by 5.7%,causing the overall decrease -5.6% FY 2017-18 FY 2016-17 Difference % Indirect costs(numerator) $29.0 $29.0 ($0.0) -0.1% Direct salaries(denominator) $30.0 $28.4 $1.6 5.7% 01/28/19 03:11 PM Summary Page 1 February 21, 2019 Regular Board Meeting Agenda Packet- Page 98 of 111 ATTACHMENT 2 (Handout) Item 3.c. INTERNAL BENEFIT RATE VS . r OVERHEAD RATE 7 =- Finance Committee { January 28, 2019 "01 February 21, Board Me - - INTERNAL BENEFIT RATE VS ., OVERHEAD RATE The Board has heard about rates applied to labor costs that vary significantly. Why the differences and what are these separate rates used for? 200.00% 180.00% 18.18% 160.00% 140.00% 120.00% 96.710 0 100.00% 80.00% 60.00% 0.00% 40.00% 0.00% 20.00% 0.00% 0.00% Internal Benefit Rate Overhead Rate 19/20 (unsmoothed) Benefits ■ UAAL AdminOverhead ■ Non-Work Hours 1 g Re - FISCA1 . YEAR ( FY) 2019 =20 "VERHEAD RATE Current Year Calculation Last Year's Two Years ago 3 Year Smoothed Unsmoothed Unsmoothed Unsmoothed Fiscal Year FY 2019-20 FY 2019-20 FY 2018-19 FY 2017-18 Employee Benefits 82.64% 75.30% 80.63% 91.52% Administrative Overhead 102.67% 96.71% 102.29% 109.37% Non-work Hours 18.08% 18.18% 18.06% 18.04% 203.39% 190.19% 200.98% 218.93% Smoothed Rate 203% • The Overhead Rate methodology strives to fulfill Board mandate of full cost recovery • Follows the recommendations of Matrix Consulting; Board approved in 2014 • Employs three-year smoothing to mitigate rate volatility for our customers • This rate is used for the majority of our customer billings (other than the City of Concord), including the Clean Water Program, private pump stations and laboratory services performs for other agencies • Internally, the rate is used to develop the Permit Counter fees, and the Administrative Overhead and Non-work Hours percentages are charged to capital project (Employee ` ;. Benefits are charged based on an individual's actual benefits) . 2 �_7� 1 t Re - ... FY 2019 =20 INTERNAL BENEFIT RATE Current Year Calculation Unsmoothed FY 2019-20 Employee Benefits 75.3% Less Retirement UAAL -34.47% Adjusted Benefit Total 40.83% Rounded Rate 41% • Uses an unsmoothed rate calculated off of the most recently completed audited financial statements • Removes the unfunded actuarial accrued liabilities (UAAL) from the Employee Benefits calculation as the UAAL is not a benefit related to the current year's service • Was developed as a tool for Human Resources to express current benefit expenses associated with changes in staffing needs 3