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HomeMy WebLinkAboutFinance MINUTES 05-21-19 Page 2 of 22 -= I CENTRAL SAN CENTRAL CONTRA COSTA SANITARY DISTRICT 5019 IMHOFF PLACE, MARTINEZ, CA 9,45.53-4392 REGULAR MEETING OF THE BOARD OF DIRECTORS: CENTRAL CONTRA COSTA DAVIDR, WILLIAMS President SANITARY DISTRICT MICHAEL R.MCcrLL FINANCE COMMITTEE President Pro Tem PAUL H CA USEY JAMES A.NEJEDLY M I N U T E S TAD J PILECKI PHONE: (925)228-9500 TFAX.- (925)372-0192 Tuesday, May 21, 2019 www.centralsan.org 2:00 p.m. Executive Conference Room 5019 Imhoff Place Martinez, California Committee: Chair Paul Causey Member Jim Nejedly Guests: Andrew Brown, HighMark Capital Management (left after Item 4.a.) Nick Weigand, Public Agency Retirement Services (PARS) (left after Item 4.a.) Staff. Phil Leiber, Director of Finance and Administration Jean-Marc Petit, Director of Engineering and Technical Services Danea Gemmell, Planning and Development Services Division Manager Edgar Lopez, Capital Projects Division Manager Thomas Brightbill, Senior Engineer (left after Item 3.c.) Todd Smithey, Finance Administrator Shari Deutsch, Risk Management Administrator Donna Anderson, Assistant to the Secretary of the District 1. Call Meeting to Order Chair Causey called the meeting to order at 2:00 p.m. 2. Public Comments None. At this point, the Committee proceeded to hear Item 4.a. out of order. June 6, 2019 Regular Board Meeting Agenda Packet- Page 443 of 463 Page 3 of 22 Finance Committee Minutes May 21, 2019 Page 2 3. Items for Committee Recommendation to the Board a. Review and recommend approval of expenditures dated June 6, 2019 This item was heard immediately after Item 4.a. The Committee reviewed the expenditures included with the agenda material, and staff responded to questions from Committee Members. It was pointed out during the discussion that the new Enterprise Resource Planning (ERP) system will allow for more detailed descriptions of expenditures (including procurement card expenses) than the present SunGard system. COMMITTEE ACTION: Recommended Board approval. b. Review April 2019 Financial Statements and Investment Reports Chair Causey said he appreciates the highlighting that staff has been including in the financial reports indicating line items with larger budget variances. He noted that the Pump Stations year-to-date Operations and Maintenance (O&M) expenditures are nearing their full-year budgeted amount. Mr. Leiber said that according to Operation staff, the annual O&M costs for the Pump Stations are expected to come in at or below budget. That raised the question for Chair Causey as to what process is in place when a line item is expected to exceed the budget for the year. Mr. Leiber said staff has an internal budget control process that involves regular review and monitoring of all budget categories. Given that the Board, by adopting the annual Budget, delegates to the General Manager the authority to work within the budgeted limits, subject to limitations on staff authority that may be expressly stated elsewhere (namely, Board Policy No. BP 036— Informal Bidding, and BP 037— Delegation of Authority to the General Manager), he said a good amount of internal attention is devoted to ensuring that the overall budget is not exceeded. With that in mind, Chair Causey asked why the Finance Committee/Board receives the current level of detail for O&M activities. He opined that less detailed information would be more appropriate for a Board-level report. Member Nejedly concurred, stating that the Board does not need to see the O&M activity by Division. Chair Causey also raised a concern about potential liability to Board Members if the Committee were to overlook something in its review of the detailed reports. He also asked how much staff time is involved in producing the detailed O&M reports. Mr. Leiber said producing the reports is mostly routine at this point and takes minimal staff time; the detailed reports would be generated in any event because they are used by staff for internal budget control purposes. June 6, 2019 Regular Board Meeting Agenda Packet- Page 444 of 463 Page 4 of 22 Finance Committee Minutes May 21, 2019 Page 3 Upon conclusion of the discussion, Chair Causey said he would be comfortable reducing the level of detail included in the monthly Financial Reports if General Manager Roger S. Bailey and the other Board Members agreed. Member Nejedly concurred. COMMITTEE ACTION: Recommended: 1) Board receipt of the April 2019 Financial Statements and Investment Reports; and 2) Asking the General Manager and other Board Members if they concur with the Committee's suggestion to omit the O&M activity by Division from future monthly Financial Statements and Investment Reports. C. Review a proposed change to the Capacity Fee calculation methodology and a minor revision to the proposed Fiscal Year (FY) 2019-20 Capacity Fees presented at the April 23, 2019 Finance Committee meeting Mr. Brightbill explained that this item was in follow-up to feedback received from the Committee at the last meeting seeking to clarify that capacity fees are allocated entirely to the Capital Program. As indicated in the agenda material, a minor change in methodology for calculating capacity fees is proposed which would reduce FY 2019-20 capacity fees by approximately 3%. Chair Causey concurred with the proposed change in methodology, stating that his only remaining question relates to the conflicting assumptions used for the life of sewer mains versus the life of recycled water pipelines. He suggested that the issue be made consistent and/or clarified when calculating next year's capacity fees. COMMITTEE ACTION: Recommended Board approval of the proposed change to the Capacity Fee calculation methodology for FY 2019-20. At this point, the Committee proceeded to hear Items 4.c. and 4.d. and Items 5-7 out of order. 4. Other Items a. Review and provide input on Highmark Capital Management Government Accounting Standards Board (GASB 45) Other Post-Employment Benefits (OPEB) Sub-Trust and Pension Sub-Trust Quarterly Reports (First Quarter 2019) This item was taken out of order, immediately after Item 2. June 6, 2019 Regular Board Meeting Agenda Packet- Page 445 of 463 Page 5 of 22 Finance Committee Minutes May 21, 2019 Page 4 Mr. Weigand said he represents PARS, the trust administrator for Central San's OPEB trust and Section 115 Pension Prefunding Trust, and Mr. Brown manages the investments for both trusts. Mr. Brown reviewed his report included with the agenda material, noting changes in the financial markets since he last reported to the Committee in August 2018. Looking ahead, he envisions a low inflationary environment with few, if any, interest rate hikes. Overall, he expects a good environment for growth in 2019. In response to questions posed by Chair Causey, it was noted that the investment objectives of"Moderate"for the OPEB trust and "Moderately Conservative"for the Pension trust differ due to somewhat differing time horizons during which the assets may be drawn down, with the Pension trust assets potentially being used sooner than the OPEB trust assets. Both investment objectives were approved by the Board and were used to establish the targeted returns shown on pages 4 (OPEB trust) and 13 (Pension trust) of Mr. Brown's report. COMMITTEE ACTION: Received the report. At this point, the Committee reverted to Item 3.a. b.* Review proposed Fiscal Year 2019-20 Central San Operations and Maintenance, Self-Insurance, and Debt Service Budgets Chair Causey provided a detailed list of questions to staff before the meeting, to which staff had prepared written responses shortly before the meeting (see attached). Chair Causey expressed satisfaction with the responses, except for those related to the Recycled Water Program. He understood, however, that those questions should be answered once staff presents findings on its investigation into options for recovering the full cost of supplying recycled water. Member Nejedly said he had reviewed the budget twice, and several of his questions were the same as Chair Causey's, all of which were answered to his satisfaction by staff. Chair Causey said the proposed budget document is impressive and staff has done a wonderful job. He was satisfied with the changes to the narratives proposed by staff based on his feedback and offered the following suggestions for staff to consider when compiling the FY 2020-21 budget document: 1) Adding a property tax table to provide perspective regarding how Central San's revenue is growing in relation to property values; and June 6, 2019 Regular Board Meeting Agenda Packet- Page 446 of 463 Page 6 of 22 Finance Committee Minutes May 21, 2019 Page 5 2) Incorporating in the Capital budget the impact, if any, that specific capital projects may have on future O&M costs (particularly electricity, disposal, labor, and chemicals). Chair Causey said he intends to raise the issue of overtime when the budget is brought before the Board for discussion because of his concerns that overtime can get quickly out of hand. COMMITTEE ACTION: Reviewed and provided input to staff. C. Review Risk Management Loss Control Report as of May 14, 2019 Ms. Deutsch reviewed the Loss Control Report with the Committee. COMMITTEE ACTION: Received the report. d. Receive list of future agenda items In response to a request by Chair Causey, it was noted that the future agenda item regarding potential outside vendors for processing Medicare reimbursements has been tentatively scheduled for the July 23, 2019 Committee meeting. COMMITTEE ACTION: Received the list. 5. Announcements None. 6. Future Scheduled Meetings Tuesday, June 25, 2019 at 2:00 p.m. Tuesday, July 23, 2019 at 2:00 p.m. Tuesday, August 27, 2019 at 2:00 p.m. 7. Suggestions for Future Agenda Items None, other than those included in the narratives under Items 3.c. (relating to next year's capacity fee calculations) and 4.b. (relating to suggestions for next year's budget). At this point, the Committee proceeded to hear Item 4.b. as the last item of discussion. 8. Adjournment— at 3:01 p.m. June 6, 2019 Regular Board Meeting Agenda Packet- Page 447 of 463 Page 7 of 22 Item 4.b. Budget Related Comments by Member Paul Causey (Handout) (DRAFT Answers as of 5/21/19) 1. Great job on the document!!! Enhancements were excellent- no comparison to my first budget in 2013. Response: Thank you. We are committed to constantly improving the document. 2. Page 11, Embracing the future, 1st Para - don't agree with "allows significant reduction in O&M" 2% not significant in my book-if we start by removing the 5.81VI from the 18/19 budget then how much is the change probably positive not negative. How much have services and supplies been increased in this budget?And in Insurance and Debt? Page 42 also Response: • The $5.8 million cost savings from the transition is significant, representing 6.5%of the FY 2018-19 O&M budget. (See page 253 for a reconciliation of Bartel saving estimates vs. FY 19-20) • Costs other than Salaries, Benefits, UAAL payments were held flat ($22,332,169 in FY18-19 and $22,358,850 in FY 19-20). • See page 249 for detail on 0&M Salaries, Benefits, UAAL. • Normal salaries were up 4.7% (including COLA of 3.5%and other routine growth such as step increases) • We reverted to a vacancy factor of 2% instead 3.25% reflecting the trend resulting in an increase of $573,000 in salaries and $370,000 in benefits. • OT was increased $260,845 (see response to question 18 for detail) • Current employee benefits were reduced by 10.4% ($1,829,285) due to the CalPERs medical transition • Capitalized Admin Overhead was increased by 11.8% due to more work on capital projects for FY2019-20, as a result in a saving of$468,646 in O&M budget • Retiree benefit costs and UAAL were down 14.2% ($2,723,837), due to the CalPERs medical transition. Overall changes in salaries, benefits and UAAL were down $2.162 million, or 3.2%, while other costs were held flat. From page 249, Table 2—Salaries, Benefits, Retiree and Unfunded Liabilities Detail (O&M) Percentage shown in right column for your reference. 1 June 6, 2019 Regular Board Meeting Agenda Packet- Page 448 of 463 Page 8 of 22 FY 2017-18 FY 2017-18 FY 2018.19 FY 2M9-2D Budget to Budget Adual Budget Budget BudgetVariance $33,739,967 $32,313,704 $35,186429 % , $36�839,790 ,653,761 4,7% ,SalaryVacancy ) � — ($1,1U,0001, ($539 Q) $5$573,000 -516% 000 S1,0%,661 $1,153,631 f $1,12.808 $1.381,653 $26a845 23.396 $1,8000.5% :standby :TotaiSalaries $34,797,628 $33,847,471 i $3SSnA37 S38,060,443 S24118,406 TOY. Current Employee Benefi �15 81ZOIG ($1,929,295) ts $17,776,358 10.4Yc Benefit Vacancy ($1,149, $0 ($1,006,OOD) ($636,000) $370,000 -36.894: Total Benefits(Active Employees) $16,627,358 $166431,579 i $26i63S,295 $I5,176X0 ($I459,285) Total Salaries and Benefits("I kTptoyees) $SI424,986 i $54279,050 $52,206,332 $53,236,453 $1.030,= Capitalized Administrative O/H ($3,972,203) ($3,337,316) ($3,979,723) ($4,44$369) (W8,646) 1.8% Total Salaries and Benefits(Active Employees) $47452,783 �i�C7ii, $",2 ki $49,79%084 $561,475 after Capitalized Administrive O/H L2% .Retiree Benefit Costs 5 5, $ 5,573,753 5 5,941 UAAU Unfunded Liabilities 5 14,179,261 $ 16,347,O10 $13,220,478 $ 12,436,841 ($783,63 Total Benefits and LiabifitiesforPast Service $2425,261 i $22,924753 $19,161,678 $16,437,841 ($2,723)837) -14,2% Total Salaries,Benefits&Liabilities for Past $67,578,844 $68,862,489 $67"M $65,225,925 ($2,16Z,362) Service_(Active and Retiree) -3.2% 3. Page 12 can we get a copy of the benchmarking study. Page 84 says completed page 12 initiated Response: The benchmarking study is not yet completed. Page 84 will be corrected from "completed"to "initiated" to reflect the actual status of the project and to be consistent with page 12. 4. Love the addition of the demographic information - largest employers needs Better breakdown in the ranking though Response: Central San copied this table from the Contra Costa County Comprehensive Financial Annual Report. Unfortunately, the exact number of employees by employer is not provided in the source document, and all employers tied for second place ("T-2") are shown as having the same range of employees (1,000-4,999). Staff will remove the "Rank" column, as it is superfluous. S. Page 19 "11 Division Managers". Can't get this from the org chart looks like 14 not 11 Response: The following clarifying sentence has been added after the paragraph mentioning the Division Managers: "The chart on the right depicts the operating divisions and programs that are funded in the budget." 2 June 6, 2019 Regular Board Meeting Agenda Packet- Page 449 of 463 Page 9 of 22 6. Page 20 and 21, 5th Para - please explain why residential rates are below approved? Does 218 now limit us to the lower numbers going forward? Response: .Per page 20 of the budget book: "Additionally, during'FY 2018-19, staff presented an update of the financial plan and commenced a discussion about the need for,rate adjustments. During the financial workshop in January 2019, the Board provided staff with tentative direction to prepare a multi-year rate adjustment which would be announced through a Proposition 218 notification process in March and a public hearing on proposed rate adjustments on April 18. At that meeting; the Board adopted a four-year schedule of adjustments, with increases of 5.5%, 5.2%, 4.9%, and 4.2%for single family residential customers, which were elements of the 5.25%, 5.25%, 4.75%, and 4.75% average increases across all customer classes. Annual public hearings will be conducted for years two through four to determine if lesser rate adjustments are possible." To elaborate on the underlined text, residential rate changes differ from the system-wide averages noted. The system-wide average consists of a weighted blended average of both the increase in residential rates and commercial rates approved by the Board in April. The tables of rates adopted for the four years were based on the SSC amounts in dollars, not percentage increases. The dollar changes were those specified in the financial plan. 7. Page 22 -do we have a formal definition for the use of contingency funds SOP? Response: The use of contingency funds is addressed in BP 037- Delegation of Authority to General Manager, with relevant language is specified below. We are also tracking and reporting on capital project transfers monthly, and in a quarterly report Which are both presented to the Board. 3 June 6, 2019 Regular Board Meeting Agenda Packet- Page 450 of 463 Page 10 of 22 Ca itai Improvement Pro ram Authorization UmI Action General Mananer Board of Directors Transfer fi ros io Ind yrlu3i .t..;Oge', I W,QNor 1e55 I I TraWer funds kom VE conbroenci aC[ouni io proiect5 09-W Q1-61 irickmled in the CI8 Greater than$2DO OQT Audigim mjpW ntal tunas to pMrarri budgets � � Sir Construction Fund I "xice -------------------- -- ------ -------- - - - - -------.------ �imitrd by the remaining balances a#the suohcaWe oroeram and contineene account � i—ma—_ . . _ �ininx ba.iance of the aeQlicabte contig="Agaunt Dig r f ' beiection of all biol MUst gg Ig ft2fro ih ft LU1121igaf thot Vndjr nd&WOfli undcr the arovi5-er.5 of the California Uniform EW&Construction Coat Accounting A&j IUPC A )(0 22442 and 22042 Si 'hsi hmill shall ke ratsed goncurrently with changes to the UPCCAA(California Public Contract Code 0220321a), Etqrgstnfinathethrelhold above vrhigh f®r 1 being ds reouired under ttMe_tlPrC to 8. Page 29-what is the real O&M budget including debt and insurance as most agencies report? How is this reported to state in annual budget reporting combined? Response: The table below shows changes year by year combining these 3 subfunds: FY2015-16 ! FY2016-17 FY2017-18 FY2018-19 f FY2019-20 f O&M I 87,464,864 89,810,918 89,713,587 89,720,456 1 87,584,775 - Less Self Insurance in 1,500,000 920,000 585,000 779,500 825,000 O&M (Appears as a Revenue for SIF) _ Subtotal 0&M excluding 85,964,864 88,890,918 89,128,587 1 88,940,956 86,759,775 ' i Self Insurance Funding ' i ' 1 " " I + Debt Service i 3,822,330 3,790,807 3,819,099 3,611,038 2,982,415 _ -- —_-- + ` Self Insurance Spending ; 1,917 000 948,000 E 936,500 ' 924,500 1,073,700 i i I s = Total O&M, Debt Service 91,704,194 93,629,725 93,884,186 93,476,494 90,815,890 1 &Self Insurance " i Spending The reduction in O&M from the CalPERs transition and debt service from the September 2018 debt refinancing comprises the change from FY2018-19 to FY 2019-20. 4 June 6, 2019 Regular Board Meeting Agenda Packet- Page 451 of 463 Page 11 of 22 Annual expenditures are reported to the State Controller in a report specific to special districts, and further specific to "waste disposal enterprises". The prescribed format does not include debt service but does include Depreciation and Amortization as an element of Operating Expenses. See also response to question 27. 9. Page 30, 3rd bullet-states&5.6M not$5.8 Response: It is not an error, but the following explanation has been added following the V bullet, regarding the apparent inconsistency between $5.6 million in savings and the $5.8 million in savings used elsewhere: "The Financial Plan assumed $5.6 million in annual savings from a 2017 analysis conducted by Central San's actuarial services consultant, Bartel Associates. In February 2019, Bartel Associates provided an updated analysis showing the savings to be $5.8 million. An analysis showing the reconciliation between the savings estimate provided by Bartel Associates and the budget line items is shown in Table 6 of the Supplemental Financial Information section of this budget document." 10. Page 30 last bullet-rate stabilization fund moving forward?Will Board reconsider this? Response: Bond Counsel suggested including the ability to create make use of a rate stabilization fund. They can be useful to ensure debt service coverage requirements are met. Central San is presently not facing any issues in the foreseeable future meeting debt service coverage ratio requirements. So, there is no immediate need to pursue this. Rates have already been set for the next year to provide for overall gradual growth and the avoidance of rate shock in any one year. Tools including the prudent use of debt, temporarily funding the sewer construction reserve above the currently required level are tools that have been used to smooth rates. Study of the potential funding and use of a rate stabilization account may be undertaken in future years, as part of the review of the fiscal reserve policy. Any changes, if proposed, would be discussed with and approved by the Board. There are no immediate plans for such changes. 11. Page 33 -why is insurance fund up 16.1%Table 1 -given the PERS switch seems that the -2.4% reduction should really be much larger for O&M- 5.8 eaten up by real increases?What happens if an added $11VI is added back to pretending? I think there is a real increase in the O&M budget not a savings given all of the changes that have been made to reduce the total budget-what is the impact when adding Insurance and debt to the O&M program still a reduction. 5 June 6, 2019 Regular Board Meeting Agenda Packet- Page 452 of 463 Page 12 of 22 Response: Self-insurance fund expenditures are highlighted below: �J Table 1-Self Insurance Fund (SIF) Summary AccountDescription FY 21 • Budget IFY 2019-20 Budget Expenditures: Claims Adjusting $0 $2,000 Insurance Consulting $6,500 $0 . Loss Payments $253,000 $275,000 Losses: Audit Adjustment for GASB10 $0 Legal Services $20,000 $80,000 Technical Services $75,000 $85,000 Insurance Premiums $570,000 $631,700 Total Expenses $924,500 $1,073,700 Budgeted self-insurance fund spending is up by$150K due to higher insurance premiums, loss payments, legal expenses. As to the $2.1 million net reduction in 0&M, see response to Question 2. See response to Question 8 for a combined O&M, Debt Service and Self Insurance budget. We are unsure about the question regarding the add back of$1M. 12. 'Figure 2 -why are property taxes so flat. Seems like property values are increasing far greater- may an additional table of property tax changes over time earlier in the budget. Only a 4%growth over previous year Response: 6 June 6, 2019 Regular Board Meeting Agenda Packet- Page 453 of 463 Page 13 of 22 o In reviewing the property tax revenue we receive, it does not seem to steadily increase; it seems to follow a pattern of larger increases every other year followed by smaller increases in the off years. o Over the last 5 years, our actual increase in property tax revenue has been about 6% per year o Planning & Development staff have noted a slowing of applications for new construction at the permit counter and this was taken into account when the forecast was made o Like other budget forecasts, we also have a timing issue that we have to make property tax revenue projections for the upcoming year before we get final numbers for the current year. We take all of this into account when we do financial projections and ratemaking (i.e. once we have confirmed there is a positive variance, we quickly incorporate it). We will reconcile these numbers on an annual basis and any favorable variance will be presented to the Board for disposition. 13.Table 2 page 37 -what do property value numbers growth? Response: Property tax was budgeted at $16,828,591 in FY2018-19 and $17,502,415 in FY 2019-20. This represents 4%growth from budget to budget. Additional discussion regarding the current outlook for Ad Valorem taxes related to the FY2018-19 project follows: What is the projected ad valorem revenue outlook for Fiscal Year 2018-19? The FY2018-19 budget anticipated $13.31VI in ad valorem revenue for the construction fund and $3.51VI for Debt Service for a total of$16.8M. The February 2019 Revenue Report shows a favorable variance of$1.71VI for ad valorem (Tax Revenue) in the construction fund. The District collects ad valorem along with SSC revenue in December and April; the December payment may be higher as residents can make a single tax payment rather than splitting into two payments. The property tax revenue is dependent upon property values and administered by the County. This revenue does not increase steadily; rather staff has monitored the revenue and noticed that it increases in a stepwise fashion with larger increases every other year. The District received $17.65M for FY17-18. To account for the higher property tax revenues, staff increased the financial model from a growth projection of 1.5%per year to 3%for FY2019-20 and beyond. Using the amount received in FY17-18, there is the potential for an additional $11VI in Tax Revenue as a favorable variance which could be used toward the sewer construction fund. 7 June 6, 2019 Regular Board Meeting Agenda Packet- Page 454 of 463 Page 14 of 22 This page intentionally left blank. s June 6, 2019 Regular Board Meeting Agenda Packet- Page 455 of 463 Page 15 of 22 14. Would be nice to have a table of the historical percentages of Salaries and benefits against the total O&M budget. Response: Data source: Salary data is from page 249 of current year budget, page 16 of FY 2016-17 budget FY2015-16 FY2016-17 FY2017-18 FY2018-19 FY2019-20 1 0&M 81,464,864 89,810,918 89,713,587 89,720,456 87,584,775 2 Salaries 30,943,085 33,158,707 34,797,628 35,571,037 38,060,443 3 Benefits Active 17,377,128 17,907,904 16,627,358 16,635,295 15,176,010 Employees 4 Capitalized (3,812,007) (3,744,593) (3,972,203) (3,979,723) (4,448,369) Overhead 5= Salaries&Benefits 44,508,206 47,322,018 47,452,783 48,226,609 48,788,084 1+2+3+4 Net of Capitalized Overhead 6=5/1 Salaries&Benefits 51% 53% 53% 54% 56% Net of Capitalized Overhead/O&M 7 Retiree benefits 5,258,400 5,362,300 5,946,000 5,941,200 4,001,000 8 UAAL 14,400,700 14,241,700 14,179,261 131220,478 12,336,841 9=5+7+8 Total of all above 64,167,306 66,926,018 67,578,044 67,388,287 65,125,925 10=9/1 Total of all above/ 73% 75% 75% 75% 74% 0&M 9 June 6, 2019 Regular Board Meeting Agenda Packet- Page 456 of 463 Page 16 of 22 15. Page 45 Delta Dental - seems there is another$50,000 savings here? 10.75% reduction. Why has District experience mod gone up so high?What will be done to correct this? 43.2% increase? Response: Delta Dental: Certain benefit costs have to be estimated prior to the availability of quotes by carriers;this has been a timing issue that has affected the budget development for numerous years. Staff are keeping a running list of expenses that are likely to be above or below budget; this one fortunately is likely to be below budget. Others, including for HHW collection service, polymers, and others are running above budget. As there will be ups and downs throughout the year after any snapshot is taken, it is not practicable or necessary to update the budget for these minor matters. Workers' Comp.: We had six very expensive WC claims in FY 2017-18. The combined incurred cost of those six cases exceeds $540,000 (thus far). The other years' claims history did not account for the jump. These six added to the population of claims used to calculate ExMods created the problem. What we're doing about it: • Joining the CSRMA Medical Provider Network effective 7/1/19 • Adding Company Nurse medical triage services effective 7/1/19 • Evaluating the use of internal WC cost allocation by department/division for FY 2020-21 16. Page 46, Section D utilities- PGE indications maybe a 25% increase due to bankruptcy was this considered in budget development? Response: What have we assumed for any potential rate increases? For the electrical budget, the methodology estimates the current budget based on electricity costs for the previous five years. Other considerations are factored in, including; cogen maintenance, wet weather pumping, furnace turnarounds, and importing for GHG. Cogen supplies 90%of the plant electrical load. Our PG&E contact typically gives us notice of upcoming changes to our service to minimize surprises for both the gas and electricity sides. Our contact checked with their rate specialist, and they are not aware of a such a drastic 25% increase, but they will have a rate communication going out in June to provide guidance on future rate forecasts. 10 June 6, 2019 Regular Board Meeting Agenda Packet- Page 457 of 463 Page 17 of 22 Do we normally.look at proposed rate increases in setting the energy budget? Generally,we use existing rates, but would include formally approved rate adjustments. In the past when our gas transport rates increased, our point of contact let us know beforehand, so the gas budget could reflects those cost increases. PG&E changes their electrical rate schedule up to four times per year, and over the past two years, it's averaged 3-4%year to year. The energy budget is requested in early February, so it doesn't reflect late April developments. Electrical expenses have remained in line with budgets for the past five years. While several alternatives are conceivable for how to budget for energy costs, we use approach #2: a. We base the budget on existing rates b. We base the budget on any formally approved rate adjustments. c. We base the budget on any formally proposed rates by PG&E, notwithstanding that the rates the CPUC may approve are likely to differ d. We base the budget on expected rates, including any proposed by PG&E either formally or informally (such as "rates may increase 25%") 17. Page 46-what additional legal research and advice required? Response: The explanation relates to "Professional & Legal fees-This expense increased by$29,000 or 3.4% due to a need for additional legal research and advice to District staff. The FY 2018-19 budget for legal costs for this Division was $75,000. Year to date through February, costs were$72,983, which equates to an annual run rate of$125,114. Accordingly,the budget for this line item in GM/SOD division was increased by$25,000. The work specified in that Division anticipates legal support for: o Legal Research and Advice o Conflict of Interest Statements & Participants o Record Retention Policy o Acceptance of Subpoenas o Claims Processing o PRA Procedures o Records Retention Schedules o Preparation for Potential Litigation 11 June 6, 2019 Regular Board Meeting Agenda Packet- Page 458 of 463 Page 18 of 22 18. Page 49- don't agree with proposed increase in OT-21%what is being done to hold the line on this-$300,000 why justified?Where plant or collections? Response: Page 49 refers to an increase in overtime of"$0.3 million an increase of 21%". Page 249 shows the specific (unrounded) increase at$260,845 for O&M, which is comprised of numerous changes by separately tracked work area. Budget (Current Projected Budget (Proposed Budget Budget to Year) (FY18-19) Actual Year (FY19-20 (Variance of Budget Variance (Current Current Year Year) Budget- Projected Actual) Total 1,120,808 1,207,800 1,381,653 ' -173,853 -260,845 Of 35 separately tracked work units, seven had decreases in overtime, seven were flat, 13 had increases less had less than $5000, six had increases from $5K to $20K, and two had increases more than $20K. The two major contributors are Plant Operations (Operators) at $120,900 and CSO/Field Operations/Construction at$69,000. Overall, CSO cost centers had an increase in budgeted overtime costs of$88,000 (inclusive of the $69,000 for construction). The increase at the Plant is due in part to increased CIP work and the increase at CSO is due in part to the increase in cities doing street repairs, which requires us to go out and raise manholes. 19. Page 51 why aren't summer and interns listed as partial FTEs not whole FTEs? In future pages also?Summer inter is 0.3 FTE? Response: Interns and summer students are not included in the overall staffing figures of full time 291 positions listed on page 51. Interns and summer students are shown in the detailed budget discussions from page 59-126, but are not converted (pro-rated)to partial figures based on the duration of their stay over the course of a year. That is a refinement that could be done in the future but would require gathering some additional information about their length of stays (particularly interns). 12 June 6, 2019 Regular Board Meeting Agenda Packet- Page 459 of 463 Page 19 of 22 20. Page 51 cost of four reallocations?Auditor added also? Response: In the delegation of authority for the GM, Mr. Bailey has the authority to add/delete positions as long as he does not add more positions or increase the budget. HR tracks the cost impact of any implemented position changes/reallocations. The results are shown below: • Contracts Analyst (Purchasing)to Contracts Specialist (Capital Projects) {NO COST IMPACT} • Two Assistant Engineers (Capital Projects)to one Engineering Assistant 1/II (Capital Projects) and one Associate Engineer (Capital Projects) {MINOR COST IMPACT OR SAVINGS- Will depend on level of Engineering assistant it is filled at: If we fill at the.'ll level it will be a net cost of$532.44. If we fill at the] level, cost savings.) • Two Control Systems Engineers (Plant Operations)to Utility Systems Engineers (Plant Operations) (Title change only) (NO COST IMPACT) • Transfer of One Associate Engineer to Utility System Engineer (Capital Projects) (updated) (NO COST I M PACT', Although the Internal auditor position will remain vacant for the current FY,the services are budgeted in Finance Division at $190,000. This position was included in the 291 budgeted FTEs to reflect the recommendations of the 2015 Staffing Assessment, where the position was approved. 21. Page 53 - how are the impacts of the capital program over the ten year financial plan on O&M included?See 26 below. Response: Page 53 indicates as follows: Impact of Capital Improvement Plan on Ongoing Operations& Maintenance Budget Central San's Capital Improvement Budget and the extent to which FY 2019-20 nonrecurring capital investments will affect the proposed or future years' operating budget are described later in this document. In general, given the nature and composition of the FY 2019-20 Capital Improvement Budget, these effects are minimal. Future capital projects could have more substantial impacts (e.g., additional personnel costs, additional maintenance costs, or additional utility costs, or conversely, 13 June 6, 2019 Regular Board Meeting Agenda Packet- Page 460 of 463 Page 20 of 22 anticipated savings such as reduced utility costs or lower maintenance costs) that would be specified further in the year such projects are budgeted. We have included a paragraph on each project description in this CIB budget. For future Budget books, we are working on including a section on a more detailed projected of any additional O&M cost (labor, chemical, utilities, etc.). 22. Page 73/73 please explain accrued compensated absence expenses? Response: Certain costs relating to all Central San employees or retirees are centrally budgeted in the HR Division. The following are items budgeted in HR but not specific to that division: o Salaries &Wages includes $400,000 for Compensated Absences Accrual Payments o Employee benefits includes $450,000 for Compensated Absences Accrual Payments and $30,000 for Unemployment expenses Compensated Absences Accrual and Unemployment expenses are budgeted solely in HR due to the difficulty in predicting these expenses. Compensated Absences accruals and payments happen regularly but it is difficult predict the distribution amongst the various cost center. So instead of having numerous favorable/unfavorable variances occurring in many of the cost centers, it was determined that a roll-up amount to a single cost center gives a more stable and accurate picture of these expenses. Central Services used to house these expenses, but they were moved to HR a few budget cycles ago to mirror our retiree healthcare consolidation. There are two different codes related to compensated absences that slightly differ from one another. GASB requires us to state on our financial statements the amount of outstanding liability related to the cash value of earned accruals on the books. Each fiscal year end (FYE) staff review the change in value of accruals on the books (almost always an increase) and record an expense to the benefit code "Accrued Compensated Abs";the offsetting accounting entry is against a liability account. Then, upon termination of an employee, any accrual payouts are charged to that liability account (up to the previous FYE amount). The second code under Salaries &Wages, Comp Abs- Accrual Payments, is used for any terminal accrual payout that is greater than the employee FYE accrual total. This code is also used for any in-service vacation payouts. Unemployment insurance payments are not common and could come from any of our 40+ different cost centers, and the cost is accordingly recorded centrally in HR for budget purposes. 14 June 6, 2019 Regular Board Meeting Agenda Packet- Page 461 of 463 Page 21 of 22 23. Page 89-what is Director of Finance included here when not discussed in the narratives for the department Response: The Director of Finance and Administration does not have its own operating division budget, and the position has historically been budgeted within the Office of General Manager. The position is mentioned in the last paragraph of the Overview of the GM Operating Division on page 84; however,to add more discussion in the narrative, staff has reworked and added,to the last paragraph in the GM's Operating Division Overview to read as follows on page 84: "This office's staffing budget includes the administrative staff supporting the General Manager, Finance Division, and the rest of the Administration Department, as well as the Director of Finance and Administration, who provides oversight over the administrative divisions of Information Technology, Finance, Purchasing and Materials Services, Communication Services and Intergovernmental Relations, and Risk Management." 24. Page 126 Recycled Water-expenses $1.6 revenue$420,000 please explain movement of expenses between plant and distribution? Response: O&M expenses did not change substantially from FY 2018-19 to FY 2019-20: Recycled : e18-19 FY 2019-20 Budget to Percent Expense Actual Budget Projected Budget Budget Variance Summary Vananc Treatment Plant $572,878 $712,100 $718,800 $627,700 ($84,400) -12% O&M Distribution $450,880 $840,694 $603,433 $980,648 $139,954 17% O&M 25. Page 126 value not charged -don't existing rate payers have an obligation here?Should be billed to wastewater plant O&M -this section is murky to me. Response: This format of the budget book is generally unchanged from the past two years (FY17-18 and FY18- 19), except that trend information was added for FY18-19 and FY19-20. Planning and Development presented an update on Recycled Water to the Board during 2017, and additional reporting on the budget has been developed in an effort to provide continued transparency of that nature. 15 June 6, 2019 Regular Board Meeting Agenda Packet- Page 462 of 463 Page 22 of 22 The top table on page 126 shows wastewater costs. The bottom table shows values, and includes the "value not charged category". Up until a few years ago,these costs were not shown to the public or the Board. The "value not charged" is not included as an element of the O&M budget. An alternative presentation would be to increase the O&M budget and our revenue projection, however they do effectively cancel each other out. Since our current budget is based on actual expenditures and not our recycled water rates multiplied by the volume used, the alternative presentation would likely increase the budget with an offset of additional revenue. If the Board would like to pursue this alternative presentation that could be done for the following year's budget; however proceeding with broader changes to recycled water costs and revenues were not previously supported by the Board. Planning & Development will be looking at the rates we charge during the next fiscal year to have them catch up to actual costs, and this topic could be further pursued at that time. 26. CIP Program project summaries should include real evaluations of O&M impact for the future. Response: For this Budget book, we have added a segment on the capital project description summary sheet related to Operating Department Impact and Funding Sources. This is a good topic of discussion and we will certainly add more details in the future. Life Cycle Cost is an important element of a project. We will add more relevant and specific O&M details in future budget book. 27. Page 248 et seq-do the tables include debt and insurance fund salaries and benefits? That is real O&M costs. Response: Utility revenue requirements and their composition differ across jurisdictions. For investor owned utilities, O&M typically includes depreciation. Other utilities (Particularly not for profit/municipal utilities) may use debt service as an element of the revenue requirement rather than depreciation. In the experience of the Director of Finance &Administration, debt service costs are typically presented as a separate element of the revenue requirement. Self-insurance fund replenishment costs are included in the 0&M budget. From a spending authorization standpoint, the Board separately approves the Self-Insurance fund budget which includes all expenditures of the Self Insurance Fund. See response to question 11. 16 June 6, 2019 Regular Board Meeting Agenda Packet- Page 463 of 463