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HomeMy WebLinkAbout03.a. Approve minutes of Special meeting held 03-12-2020 Page 1 of 8 Item 3.a. ,ek CENTRAL SAN SANITARYCENTRAL CONTRA COSTA , . April 2, 2020 TO: HONORABLE BOARD OF DIRECTORS FROM: KATIE YOUNG, SECRETARYOF THE DISTRICT SUBJECT: MARCH 12, 2020 SPECIAL BOARD MEETING MINUTES Attached are the draft minutes of the above Board meeting. ATTACHMENTS: 1. Draft Minutes of Financial Planning Workshop held 03-12-2020 April 2, 2020 Regular Board Meeting Agenda Packet- Page 6 of 115 Page 2 of 8 CENTRAL SAN CENTRAL •NTRA COSTA SANITARY DISTRICT 5019 • MINUTES* BOARD OF DIRECTORS: MICHAEL R.MCGILL President SPECIAL BOARD MEETING TAD J PILECKI Board Room President Pro Tent Thursday, March 12, 2020 PAUL H.CAUSEY 12'00 p.m. JAMES A.NEJEDLY DAVID R. WILLIAMS DRAFT Open Session — Board Room (Video recorded) ROLL CALL A special meeting of the Board of Directors was called to order by President McGill at 12:03 p.m. Secretary of the District Katie Young called roll: PRESENT.- Members: Causey, Nejedly, Pilecki, Williams, McGill ABSENT. Members: None PLEDGE OF ALLEGIANCE The Board, staff and audience joined in the Pledge of Allegiance. PUBLIC COMMENT PERIOD No members of the public made any comments. With regard to concerns about the Coronavirus (COVID-19), General Manager Roger S. Bailey stated that the safety of staff is the highest priority and diligent efforts are underway to address them. FINANCIAL PLANNING WORKSHOP 1. Financial Planning Workshop: A. Introduction Mr. Bailey noted that Ordinance No. 304 adopted April 18, 2019 established Sewer Service Charge (SSC) rate increases for residential and non- residential customers for each of the next four fiscal years, through Fiscal These summary minutes are supplemented by a corresponding video recording available on the District's website at centralsan.org. April 2, 2020 Regular Board Meeting Agenda Packet- Page 7 of 115 Page 3 of 8 CENTRAL CONTRA COSTA SANITARY DISTRICT March 12, 2020 Special Board Meeting Minutes- Page 2 Year(FY) 2022-23. Under that ordinance, prior to imposing each year's rate increase, the Board is required to consider at a noticed public hearing an update on the District's financial condition to determine whether the previously established SSC rate increase for the coming fiscal year is still needed. He said the public hearing to review the FY 2020-21 SSC charge is scheduled to take place on April 16, 2020 and this workshop was arranged to provide the Board Members and public an opportunity to fully assess Central San's current financial condition in preparation for the public hearing. B. Financial Condition and Other Issues o Current Budget Status o Future Projects and Assumptions o Potential Impact of a Recession o Board Policy on Funding Levels Director of Finance and Administration Phil Leiber reviewed the first portion of the presentation included with the agenda materials, including a review of the current budget status, future projects and assumptions, the potential impact of a recession, and a potential new Board policy on pension funding levels. A lengthy discussion was held regarding the progress made in recent years toward lowering Central San's unfunded actuarial accrued liabilities (UAAL). In response to a question from Member Williams, it was confirmed that Central San has contributed an additional $12.5 million to the Contra Costa County Employees'Retirement Association (CCCERA) over the past few years, and approximately$9 million to the Pension Pre-funding trust established in 2017, for a combined approximate total of over$21.5 million. More recently, the URAL has attained an additional $45 million reduction due to favorable investment returns. Member Williams commented that the bulk of the reduction has resulted from changes outside of the District's control. With regard to the new Board policy on pension funding, Mr. Leiber said the goal would be to achieve a fully-funded level over a specified time frame through additional contributions if the funding level falls below 100%. Given that the agencies served by CCCERA are de-pooled, Member Pilecki sought confirmation that any additional funds contributed by Central San may only be used toward Central San pension obligations. Finance Administrator Todd Smithey explained that while the liabilities associated with each agency served by CCCERA are segregated, all contributions go into a pooled, multi- employer trust account. If an employer were to default on its obligations, that employer would begin accruing additional liabilities to make the fund whole. Funds from the pooled trust account theoretically could be used to meet other agency obligations; however, in his experience, that has never occurred. Member Williams said his initial thought was that 100 percent funding was a good approach. However, considering the information shared by Mr. Smithey, he had some concerns, even though the probability is low that the April 2, 2020 Regular Board Meeting Agenda Packet- Page 8 of 115 Page 4 of 8 CENTRAL CONTRA COSTA SANITARY DISTRICT March 12, 2020 Special Board Meeting Minutes- Page 3 pooled CCCERA trust would have to be used to meet the obligations of an agency in default. Mr. Bailey said the goal of being fully funded could be achieved in various ways, including using the Pension Pre-funding trust. That would be a policy issue for the Board to decide in the future. Member Causey asked if there is a mechanism to make agencies whole if funds were to be used from the pooled CCCERA trust to meet another agency's obligations. Mr. Smithey said he did not know because, to his knowledge, no CCCERA plan sponsor has ever defaulted but that CCCERA could and would go after any agency in default to make the trust whole. Mr. Leiber offered to bring back more information on CCCERA's pooled trust and how it may be utilized under various circumstances. In the meantime, he reviewed the table on Slide 29 of the presentation indicating alternatives that could be used to develop a pension funding policy. He noted that, as indicated on Slide 30, the staff recommendation was to assume a $1.25 million additional pension contribution each year until FY 2025-26. Member Causey said he would be interested in seeing assumptions for additional annual budgeted UAAL contributions at both the $1.25 million and $2.50 million levels. Given the likelihood of a favorable budget variance at the end of the current fiscal year, Mr. Bailey said the Board is expected to have options for funding any additional UAAL pension contributions above the recommended level of $1.25 million. C. Proposed Fiscal Year 2020-21 Capital Improvement Budget (CIB) and corresponding Ten-Year Capital Improvement Plan (CIP) Planning and Development Services Division Manager Danea Gemmell reviewed the proposed Ten-Year CIP and explained changes from last year's projections. Capital Projects Division Manager Edgar Lopez reviewed the slides covering the FY 2020-21 CIB. Member Causey expressed concern from a Board policy perspective that future sewer collection system efforts not be compromised in order to keep the budget at the same level. Mr. Lopez reviewed Slide 37, illustrating collection system renovation comparisons prior to adopting the Comprehensive Wastewater Master Plan (CWMP) through the proposed FY 2020-21 CIP and noted that proposed collection system spending is close to the forecasted needs over the next ten years. April 2, 2020 Regular Board Meeting Agenda Packet- Page 9 of 115 Page 5 of 8 CENTRAL CONTRA COSTA SANITARY DISTRICT March 12, 2020 Special Board Meeting Minutes- Page 4 D. Update on Rate Impact Scenarios o Revenue Assumptions Ms. Gemmell reviewed the presentation starting with Slide 47, which illustrated financial baseline model assumptions used to prepare the proposed operations and maintenance budget and capital budget for the coming fiscal year. She also reviewed the reserve requirements set forth in Board Policy No. BP 017— Fiscal Reserves, and assumptions related to additional debt required to fund the capital program. Finally, she reviewed projected revenue requirements for the coming year. o Sewer Service Rate Impact Scenarios Ms. Gemmell presented a graph on Slide 49 depicting the four-year SSC rates adopted by the Board last year, and projected increases through FY 2022-23, illustrating that anticipated SSC rate increases are expected to decline during the ten-year period through FY 2028-29. She also presented a comparison of Central San's SSC rates with other agencies, indicating the District's rates are below the average of all the agencies surveyed in the Bay Area. With regard to funding long-term capital projects, Ms. Gemmell explained that efforts are underway to maximize Central San's eligibility for receiving State Revolving Fund (SRF) loans for certain projects and that the CIP allows for designing these projects for cash with a one-year gap before the construction phase begins, to allow for successful SRF funding applications. She explained SRF interest rate history and compared the cost of borrowing using traditional bonds versus 20- and 30-year SRF loans. Interest rates on SRF loans are currently a very favorable 1.4 percent (one half of the state's general obligation rate of 2.8 percent). Ms. Gemmell also noted that loan payments for SRF funding do not commence until a year after the projects is completed. Member Pilecki asked if interest begins accruing once the project is completed. Ms. Gemmell said she would find out the answer to that question and report back. (After the meeting, Ms. Gemmell confirmed with the State Department of Financial Assistance that interest starts accruing as the loan proceeds are utilized, though payments do not commence until after construction is completed.) Ms. Gemmell presented Slide 57, illustrating the effect on Central San's Ten- Year Financial Plan using projected rates with 30-year SRF funding. She noted that 20-year SRF funding would look nearly identical on the chart. Member Williams noted that reserve targets would still be met, albeit barely, in later years, despite the SRF loan obligations. April 2, 2020 Regular Board Meeting Agenda Packet- Page 10 of 115 Page 6 of 8 CENTRAL CONTRA COSTA SANITARY DISTRICT March 12, 2020 Special Board Meeting Minutes- Page 5 In Slides 58-61, Ms. Gemmell presented a summary of proposed scenarios, with a baseline scenario of$154 million in traditional bond funding, two scenarios (1A and 1B) using combinations of bond and SRF funding over a 30-year term, and two scenarios using only SRF funding with either 30-year (2A) or 20-year(2B) loan terms. Member Pilecki stated that from a historical perspective, 3.25 percent on traditional bond funding is extremely low and, over a longer period, it will probably rise significantly. Ms. Gemmell agreed. Member Williams said he would be in favor of Scenario 2B. Member Causey agreed, stating that the scenario also addresses intergenerational issues. Member Pilecki also agreed, stating that less is always better. o Recycled Water Rate Impact Scenarios Ms. Gemmell reviewed the slides illustrating recycled water rate impact scenarios, which were the same as those presented to the Board last October. E. Recap of Recommendations Mr. Bailey recapped the workshop as follows: 1) Bonds/SRF Loan Scenarios for Funding Certain Capital Projects: It appeared that the Board favors Scenario 2B using SRF loans with 20- year terms. 2) Potential Pension Funding Policy: The Board favored establishing a pension funding Board policy using the staff recommendation shown on Slide 29. Staff will develop a draft policy for the Administration Committee to review. 3) Capital Improvement Program: Staff will assure that future sewer collection system efforts are not unnecessarily deprived of improvements. 4) FY 2020-21 SSC Rate Increase: Member Causey clarified that the staff recommendation is to leave unchanged the FY 2020-21 SSC rate increase approved by the Board last year. Mr. Bailey said yes, and that staff will return each of the next two years with similar updates as required by Ordinance No. 304. April 2, 2020 Regular Board Meeting Agenda Packet- Page 11 of 115 Page 7 of 8 CENTRAL CONTRA COSTA SANITARY DISTRICT March 12, 2020 Special Board Meeting Minutes- Page 6 Member Pilecki noted that the prioritization of individual capital projects was not addressed at the workshop; he assumed that will be addressed when the draft FY 2020-21 CIB is provided to the Board. Noting that two attendees from the City of Concord were present at the workshop, Member Nejedly asked if they had any questions or comments. They did not. Member Williams asked how likely it is that Central San will receive all $141 million in SRF funding. Ms. Gemmell said, given what the District is spending on capital projects over the next ten years, staff is very hopeful. President McGill stated that it was evident that staff had put a lot of work into the workshop presentation and demonstrated a thorough knowledge of all the issues, which was very apparent by the responses to Board Member questions. He said it appeared to him that Mr. Bailey and staff have the financial issues well under control. President McGill understood that staff brought this information to the Board to prepare for future policy decisions; however, he encouraged Board Members to refrain from getting into operational issues and allow Mr. Bailey and staff to implement any overarching policy decisions made by the Board. BOARD ACTION: Conducted the workshop and provided direction to staff. ANNOUNCEMENTS A. Mr. Bailey announced that staff was actively working on its response and action plan for the Coronavirus (COVID-19) situation, which will be presented to the Board at the March 19 Board meeting next week. B. Member Williams announced that his upcoming travel plans have been canceled and he will no longer be absent from the April 16 Board meeting. C. Mr. Bailey announced that he recently met with the general managers of Valley Water in Santa Clara and Contra Costa Water District. They like the idea of meeting with the Board liaisons, and a tentative meeting has been set for the first week of April. D. Member Causey announced that his upcoming conference travel plans were canceled and he will no longer have to miss the April 2 Board meeting. E. Member Causey shared that the California Water Environment Association's website includes the strategic plans of two agencies related to COVID-19. F. Member Causey thanked Mr. Bailey for all he has done to keep the Board Members informed as to what has been going on at the District to address the challenges presented by COVID-19. April 2, 2020 Regular Board Meeting Agenda Packet- Page 12 of 115 Page 8 of 8 CENTRAL CONTRA COSTA SANITARY DISTRICT March 12, 2020 Special Board Meeting Minutes- Page 7 ADJOURNMENT The meeting was adjourned at 2:50 p.m. Michael R. McGill, P.E. President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California COUNTERSIGNED: Katie Young Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California April 2, 2020 Regular Board Meeting Agenda Packet- Page 13 of 115