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Home My WebLink About03.c. Review draft Position Paper to adopt Resolution Nos. 2019-___ through Resolution Nos. 2019- ___, pursuant to District Code Section 2.28.010, establishing three new funds: Rate Stabilization Fund, Pension Prefunding Trust Fund, and the Other Post-E Page 1 of 9 Item 3.c. BOARD OF DIRECTORS ' POSITION PAPER DRAFT MEETING DATE: NOVEMBER 26, 2019 SUBJECT: REVIEW DRAFT POSITION PAPER TO ADOPT RESOLUTION NOS. 2019- THROUGH RESOLUTION NOS. 2019- , PURSUANT TO DISTRICT CODE SECTION 2.28.010, ESTABLISHING THREE NEW FUNDS: RATE STABILIZATION FUND, PENSION PREFUNDING TRUST FUND, AND THE OTHER POST-EMPLOYMENT BENEFITS (OPEB) TRUST FUND SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION-FINANCE PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION REVIEWED BY: ANN SASAKI, DEPUTY GENERAL MANAGER KENTALM, DISTRICT COUNSEL ISSUE On October 3, 2019, the Board directed staff to allocate portions of the Fiscal Year 2018-19 favorable budget variance to a new rate stabilization fund ($2,610,000) and the existing Section 115 Pension Prefunding Trust ($1.25 million). The Board also directed staff to allocate $1.25 million budgeted in FY 2019-20 to the existing GASB 45 OPEB Trust. In accordance with District Code Section 2.28.010, the Board may establish funds by resolution as it considers necessary or convenient BACKGROUND Rate Stabilization Fund The 2018 Bond I ndenture of Trust authorizes the creation of a Rate Stabilization Fund. It warrants treatment as a separate "fund" given the name specified in that document, and because recent revisions to BP 017 — Fiscal Reserves specify how the fund will operate. Once established, monies in this new fund may be used for meeting debt service coverage requirements, to stabilize and limit volatility of sewer service charges in an economic downturn or other similar fiscal challenge, or any other legal purpose permitted by the 2018 Bond I ndenture. As specified by the Bond I ndenture, deposits into the fund will reduce the debt service coverage measure in the year funds are deposited, and any withdrawals would increase the debt service coverage measure. Transfers in and out of the fund, other than interest earnings, would require Board authorization. Pension Prefunding Trust and OPEB Trusts The GASB 45 OPEB Trust was established in 2008, and the Pension Prefunding Trust was established November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 85 of 100 Page 2 of 9 in 2017. BP 017— Fiscal Reserves details the use of these two separate restricted-use trust funds. While the legally-restricted OPEB trust fund has been reported as a separate fund for reporting purposes in the District's Comprehensive Annual Financial Report(CAFR) in accordance with GASB accounting pronouncements, this was a separate fund on paper only as a separate fund in the District's accounting records had not been authorized. Somewhat similarly, the legally-restricted pension prefunding trust fund has been reported within the Operations and Maintenance fund as a restricted asset as the creation of a separate fund in the District's accounting system had also not been authorized. Creating separate funds in accordance with District Code Section 2.28.010B will allow for improved internal tracking of financial transactions and improved budgetary presentation. As the pension prefunding trust is considered a"secondary" pension trust, with CCCERA acting as the primary pension trust, the newly created pension prefunding fund is required to be consolidated into the District's single enterprise fund in the CAFR for reporting purposes pursuant to GASB pronouncements. In contrast, the GASB 45 OPEB trust will continue to be reported as a separate fiduciary fund, distinct and separate from the District's enterprise fund, for CAFR financial reporting purposes as this serves as the District's only trust for OPEB obligations. Regardless of CAFR presentation requirements, the establishment of two separate funds is expected to improve budgetary transparency. Four Existing and Three Proposed Funds Central San currently has four funds used for accounting and financial reporting purposes, as outlined in District Code Section 2.28.010, as follows: 1. Running expense fund; 2. Sewer construction fund; 3. Self-insurance fund; 4. Debt and bond fund; By adopting the attached proposed resolutions, the following three new funds will be established: 5. Rate Stabilization fund; 6. Pension Prefunding Trust fund; and 7. OPEB Trust fund. It is timely to establish the funds given (1)the establishment of the Rate Stabilization fund this year, and (2) the development of the chart of account structure of the new Oracle Fusion Cloud ERP. ALTERNATIVES/CONSIDERATIONS The Board could decide not to create the proposed three funds, but that is not recommended. FINANCIAL IMPACTS None. COMMITTEE RECOMMENDATION This matter was reviewed by the Finance Committee on November 26, 2019. The Board recommended adoption of the three proposed resolutions. RECOMMENDED BOARD ACTION Adopt three proposed resolutions establishing three new funds: Rate stabilization fund, Section 115 Pension Prefunding Trust fund, and GASB 45 Other Post-Employment Benefits (OPEB) Trust fund, in accordance with District Code Section 2.28.010, as additional funds alongside the current four funds used November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 86 of 100 Page 3 of 9 for accounting and financial reporting purposes. Strategic Plan Tie-In GOAL THREE:Be a Fiscally Sound and Effective Water Sector Utility Strategy 1 - Conduct long-range financial planning, Strategy 2- Manage costs ATTACHMENTS: 1. Proposed resolution establishing Rate Stabilization Fund 2. Proposed resolution establishing Pension Prefunding Trust Fund 3. Proposed resolution establishing OPEB Trust fund November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 87 of 100 Page 4 of 9 ATTACHMENT 1 RESOLUTION NO. 2019- A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT ESTABLISHING A NEW RATE STABILIZATION FUND IN ACCORDANCE WITH DISTRICT CODE SECTION 2.28.010 WHEREAS, Section 2.28.010A of the District Code currently specifies the establishment and maintenance of four funds: 1. Debt and bond fund; 2. Running expense fund; 3. Sewer construction fund; and 4. Self-insurance fund; and WHEREAS, Section 2.28.010B of the District Code specifies that the Board may establish by resolution other such funds as it considers necessary or convenient; and WHEREAS, the September 2018 Series A and B Revenue Bonds Indenture of Trust permits the establishment of a Rate Stabilization Fund; and WHEREAS, the Board of Directors on October 3, 2019 directed that a total of $2,610,000 from the FY 2018-19 favorable budget variance be transferred from the Running Expense Fund and Sewer Construction Fund to a newly established Rate Stabilization Fund in the amount of $1,610,000 and $1,000,000 respectively; and WHEREAS, Board Policy No. BP 017 — Fiscal Reserves specifies the operation of the Rate Stabilization Fund, including deposits into and withdrawals from such fund. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Central Contra Costa Sanitary District (Central San) as follows: 1. THAT a Rate Stabilization Fund is hereby established, to be treated as a separate fund for accounting and financial reporting purposes, with usage as specified in Board Policy No. BP 017 — Fiscal Reserves and relevant Bond Indentures; and 2. THAT the above-mentioned fund is to be maintained as a separate fund in the District's financial system in accordance with District Code Section 2.28.010. PASSED AND ADOPTED this day of December 2019, by the Board of Directors of Central San by the following vote: AYES: Members: NOES: Members: ABSENT: Members: David R. Williams President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 88 of 100 Page 5 of 9 Resolution No. 2019- Central Contra Costa Sanitary District Page 2 of 2 COUNTERSIGNED: Katie Young Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 89 of 100 Page 6 of 9 ATTACHMENT 2 RESOLUTION NO. 2019- A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT ESTABLISHING A NEW SECTION 115 PENSION PREFUNDING TRUST FUND IN ACCORDANCE WITH DISTRICT CODE SECTION 2.28.010 WHEREAS, Section 2.28.010A of the District Code currently specifies the establishment and maintenance of four funds: 1. Debt and bond fund; 2. Running expense fund; 3. Sewer construction fund; and 4. Self-insurance fund; and WHEREAS, Section 2.28.010B of the District Code indicates that the Board may establish by resolution other such funds as it considers necessary or convenient; and WHEREAS, the Board of Directors established a Section 115 Pension Prefunding Trust on July 20, 2017; and WHEREAS, Board Policy No. BP 017 — Fiscal Reserves details the restricted use of the funds in this Trust; and WHEREAS, Governmental Accounting Standards Board pronouncements direct specific financial statement presentation of transactions related to the Section 115 Pension Prefunding Trust that will be improved through the establishment and maintenance of this Trust as a separate fund permitted by section 2.28.010B of the District Code. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Central Contra Costa Sanitary District (Central San) as follows: 1. THAT the Section 115 Pension Prefunding Trust is hereby established, to be treated as a separate fund for accounting and financial reporting purposes, with usage as specified in Board Policy No. BP 017 — Fiscal Reserves; and 2. THAT the above-mentioned fund is to be maintained as a separate fund in the District's financial system in accordance with District Code Section 2.28.010. PASSED AND ADOPTED this _ day of December 2019, by the Board of Directors of Central San by the following vote: AYES: Members: NOES: Members: ABSENT: Members: David R. Williams President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 90 of 100 Page 7 of 9 Resolution No. 2019- Central Contra Costa Sanitary District Page 2 of 2 COUNTERSIGNED: Katie Young Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 91 of 100 Page 8 of 9 ATTACHMENT 3 RESOLUTION NO. 2019- A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT ESTABLISHING A NEW GASB 45 OTHER POST-EMPLOYMENT BENEFITS (OPEB) TRUST FUND IN ACCORDANCE WITH DISTRICT CODE SECTION 2.28.010 WHEREAS, Section 2.28.010A of the District Code currently specifies the establishment and maintenance of four funds: 1. Debt and bond fund; 2. Running expense fund; 3. Sewer construction fund; and 4. Self-insurance fund; and WHEREAS, Section 2.28.010B of the District Code indicates that the Board may establish by resolution other such funds as it considers necessary or convenient; and WHEREAS, the Board of Directors established a Governmental Accounting Standards Board (GASB) 45 Other Post-Employment Benefits (OPEB) Trust on May 1, 2008 and November 6, 2008; and WHEREAS, Board Policy No. BP 017 — Fiscal Reserves details the restricted use of the funds in this Trust; and WHEREAS, GASB pronouncements direct specific financial statement presentation of transactions related to the GASB 45 OPEB Trust that will be improved through the establishment and maintenance of this Trust as a separate fund permitted by Section 2.28.010B of the District Code. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Central Contra Costa Sanitary District (Central San) as follows: 1. THAT the GASB 45 OPEB Trust Fund is hereby established, to be treated as a separate fund for accounting and financial reporting purposes, with usage as specified in Board Policy No. BP 017 — Fiscal Reserves; and 2. THAT the above-mentioned fund is to be maintained as a separate fund in the District's financial system in accordance with District Code Section 2.28.010. PASSED AND ADOPTED this day of December 2019, by the Board of Directors of Central San by the following vote: AYES: Members: NOES: Members: ABSENT: Members: David R. Williams President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 92 of 100 Page 9 of 9 Resolution No. 2019- Central Contra Costa Sanitary District Page 2 of 2 COUNTERSIGNED: Katie Young Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District November 26, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 93 of 100