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Att 1-O&M Presentation Page 3 of 358 Attachment 2 _ PROPOSED CENTRAL SAN BUDGET FISCAL YEAR 2020-21 Presented by Philip R.Leiber,Director of Finance and Administration i Kevin Mizuno,Finance Manager Scheduled for final adoption at June 4,2020 Board Meeting v y Presented to Board of Directors on May 21,2020 Capital Presented to: Engineering and Operations Committee May 12,2020 Operations and Maintenance to be presented to: Finance Committee May 18,2020 5-4 PRESENTATION OVERVIEW • Budget Summary • Overall Funding Sources and Uses • Implementation of New ERP and Changes to Chart of Accounts • Operation and Maintenance • Sewer Construction (Capital Improvements) • Self-Insurance • Debt Service • Reserves • Detailed Capital Improvement Presentation t May 21, 2020 Regular Board Meeting Agenda Packet- Page 110 of 505 Page 4 of 358 Attachment 2 BUDGET SUMMARY MMMMM Operations& $89,713,587 $89,720,456 $87,584,775 $90,666,338 $3,081,563 3.5% Maintenance Sewer $42,774,000 $45,319,000 $66,176,000 $88,024,000 $21,848,000 33.0% Construction Debt Service $3,819,099 $3,611,038 $2,982,415 $2,517,605 ($464,810) -15.6% Self-Insurance $936,500 $924,500 $1,073,700 $1,153,500 $79,800 7.4% Total Budget $137,243,186 $139,574,994 $157,816,890 $182,361,443 $24,544,553 15.6% THE PROPOSED BUDGET PROVIDES THE RESOURCES F—tea, 2020-22 TO MEET THE GOALS OF THE GOALS FY 2020-22 STRATEGIC PLAN 3 ' SUMMARY OF SIGNIFICANT CHANGES FROM INITIAL DRAFT OF BUDGET BOOK • Certain revisions to May 7, 2020 draft of budget book have been made • Most noteworthy revisions include the following: • Reduction of sewer service charge revenues for customer relief program • Corresponding revisions to O&M and Sewer Construction fund reserves table • Addition of"Goal 7" in response to COVID-19 • Revised "Financial Summary" and log of changes with page references included as attachment to osition paper May 21, 2020 Regular Board Meeting Agenda Packet- Page 111 of 505 Page 5 of 358 Attachment 2 ADDRESSING 8 BUDGET PRIORITIES FY 2020-21 Budgeted Project(s) CUSTOMER AND COMMUNITY Provide exceptional customer service and maintain an excellent reputation in the community Balancing the need for Continue commitment to educating Public outreach,including the highly successful financial resources against customers about required revenue and Central San Academy,student education impacts to the customer resources needed to replace aging programs,facilities tours,Pipeline community infrastructure and meet regulatory newsletter,and social media engagement requirements ENVIRONMENTAL STEWARDSHIP Meet regulatory requirements and promote sustainabili 2.Evolving regulatory Anticipate changing regulations and plan for Proactive participation with regulatory agencies requirements alternatives to maintain reliability and meet and replacement of wet scrubber as part of the requirements Solids Handing Facilities Improvement Project Maintaining3. a sustainable Partner with agencies to find creative water Continue pursuing the Refinery Recycled Water water supply solutions benefiting the region and state,and Exchange Project to utilize recycled water at identify ways to maximize cost-effective nearby refineries in place of potable water to resource recovery and sustainability increase the amount of potable water available to the community 5 ' ADDRESSING 8 BUDGET PRIORITIES Primary Response FY 2020-21 Budgeted Project(s) C' FISCAL RESPONSIBILITY Manage finances wisely and prudently 4.Maintaining responsible Balance capital spending with affordability Financial planning to forecast needs and rates at an affordable level and rate impact concerns,and offset sensible spending,as well as the continued push infrastructure replacement,regulatory to become a more cost-effective and efficient responses,and other expenses with operation cost-saving efforts,efficiencies, Ilk optimizations,and innovations WORKFORCE DEVELOPMENT Recruit,empower,and engage a highly trained and safe workforce S.Driving employee 1W Develop,retain,and equip high quality Employee recognition,training and performance and rewarding employees with the tools needed to succeed development programs,outside conferences, excellence and professional association memberships to 1111 inspire continuous education and improvement ® INFRASTRUCTURE RELIABILITY Maintain facilities and equipment to be dependable,resilient,and long lasting 6.Aging infrastructure and Make investments in capital improvement Major projects include the Solids climate resiliency and internal resources to deliver on increased Handling Facility Improvements; levels of capital spending Pumping Station Improvements,Phase 1; Outfall Pipeline Inspection and Improvements 6 ' May 21, 2020 Regular Board Meeting Agenda Packet- Page 112 of 505 Page 6 of 358 Attachment 2 ADDRESSING 8 BUDGET PRIORITIES FY 2020-21 Budgeted Project(s) INNOVATION AND OPTIMIZATION Explore new technologies for continuous improvement 7.System optimization and Continue to champion and initiate projects Optimizations include the Steam and Aeration utilization of _Data through the Central San Smart initiative to Blower Systems Project to evaluate efficiency optimize operations,improve asset options for one of the major energy sources of management,increase energy efficiency and the treatment process safety,and reduce facility management costs Smart initiative projects include optimization of the treatment plant asset handover process and development of an asset health indicator tool AGILITY AND ADAPTABILITY • Preserve business continuity during pandemic events or major natural disasters 8.Adjusting operations in Provide a safe working environment for Investment in cost-effective technologies to response to the COVID-19 employees and the public,continue to support teleworking as needed,enhancement of pandemic provide essential services,maintain customer customer-facing programs with contactless service and productivity levels,and plan procedures,procurement of personal protective ahead for any potential financial effects equipment,and modifications to the workplace to facilitate social distancing and reduce the risk of transmission 7 ' RESPONSES TO COVID-19 PANDEMIC Balancing: Continuing essential service, keeping employees safe w/revised working arrangements Customer Relief Programs Changing FY 2020-21 budgetary forecasts Addition of strategic plan goal Continuing to monitor fiscal impacts , . . 8 1 .. A _ May 21, 2020 Regular Board Meeting Agenda Packet- Page 113 of 505 Page 7 of 358 Attachment 2 TOTAL FUNDING SOURCES FY 2018-19 FY 2019-20 FY 2020-21 $182,361,443 Sources of Funds 51zo,aaa,000 51BO,000,OW 5W,".000 560,000,000 54a,oaa,00a szo.000.asun 5- $exerSe'v Gtyef Con d rrecertY L,pdty Fees All ornerswrce: Lean Proceeds Drax nom Ofxge Reienue R-11111 Tab a 14) ■FY201&19Budget ■FY1019-20&dget ■FY2020-21Wdget • Sewer Service Charge(SSC)rate relief approved by Board May 7,2020 • Increase in reimbursement from City of Concord reflective of expanding capital program • Significant draw on available O&M reserves reflects amended definition for working capital in fiscal reserves policy and anticipated favorable FY 2019- 20 operating results 9 SEWER SERVICE CHARGE RATES AND REVENUES FY 2018-19 THROUGH FY 2020-21 (UPDATED) FY FY FY 91 SSC Rates 2018-19 2019-20 2020-21 Change Single Family $567 $598 $598 $0 - Multi Family $549 $566 $566 $0 - Other Charges Vary—See Ordinance No. 304 Post-Rate Change Budget Relief from FY 19- %Increase Budget FY 2019- Projected Budget 20 from FY 2018-19 20 FY 2019-20 FY 2020-21 Projected* Projected SSC Revenues $95,000 $101,310 $101,180 $101,201 ($109) ($Thousands) • Customer relief measure approved by Board May 7,2020--waived the July 1,2020 rate increase,which will now be implemented July 1,2021. 10 ' May 21, 2020 Regular Board Meeting Agenda Packet- Page 114 of 505 Page 8 of 358 Attachment 2 USE OF FUNDS FY 2018-19 FY 2019-20 FY 2020-21 $147,386,287 $159,166,815 $182,361,443 Use of Funds $100,000,000 $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 Operations a nd Maintenance Sewer Construction(Cl P) Debt Service Self-Insurance Contribution to Reserves •FY 2018-19 Budget ■FY 2019-20 Budget ■FY 2020-21 Budget • $21.8 million increase in capital spending(excluding carryforwards), largely in collection system program(60%of increase) • $3.1 million increase in O&M budget for various purposes including increases in contracted services(i.e.treatment plant repairs,security services),contributions towards unfunded liabilities,and salaries& wages. 11 IMPLEMENTATION OF NEW ENTERPRISE RESOURCE PLANNING SYSTEM AND CHART OF ACCOUNTS • Oracle Cloud Fusion selected to replace the legacy system of 20+ years • Testing occurred throughout FY 2019-20 with expected financial system "go-live" date of July 1, 2020 • Significant investment at approximately $5.2 million over 3+ years • Budget book reflects new and improved chart of accounts designed in conjunction with the ERP project Prior year O&M Divisional columns restated to reflect new accounts for comparability purposes 12 May 21, 2020 Regular Board Meeting Agenda Packet- Page 115 of 505 Page 9 of 358 Attachment 2 NEW ORGANIZATION UNIT STRUCTURE IN CHART OF ACCOUNTS • Improved logic of parent- child roll-ups will allow for easy reporting at higher or lower levels well as alignment with HR system • New Director org units New Executive Governance Department Operations Department divisions structured similarly ® ® ® with improved separation between Plant Treatment and Plant Maintenance L Lm • Pump station org unit included within Plant Maintenance parent • Recycled Water within 5000- Series not depicted here NEW BUDGETED EXPENSE ACCOUNT STRUCTURE IN CHART OF ACCOUNTS • At highest level within expenses, budget now reports seven basic"grandparent"expense categories in new chart of account. • Budget book presents divisional expenses at this level with parent-level breakouts for non- payroll costs. • Structure reflects template chart of accounts published by GFOA. • Improved logic of parent-child roll-ups will allow for easy reporting at higher or lower levels • Expenses organized into three levels: Grandparent, Parent and Child. • Lowest child accounts can now be much more granular to improve data collection, while budget remains at a higher level. 14 " ' I May 21, 2020 Regular Board Meeting Agenda Packet- Page 116 of 505 Page 10 of 358 Attachment 2 OPERATING FUND - FUNDING SOURCES Budgeted ($MILLIONS) Budgeted FY 2019-20 FY 2020-21 $89.6 $90.7 Other Permits& Other$3.0 Permits& HHW$1.0 Inspection 4% Fees$1.9 2% 1% 2% Fees$2.0 City of 2% HHW$1.1 Concord City of �1% $14.6 16% Concord $15.8 18% Sewer Service ewer Service Charge$69.1 harge$44.5 77% Draw from Reserves 49% $25.2 28% • Draw on O&M working capital reserves results in higher proportion of SSC being allocated to Sewer Construction fund. • Combination of SSC and draw from reserves($69.7 million)reflects increase of 1.0%over prior year SSC revenue. • City of Concord O&M reimbursement to increase$1.2 million(8.2%) Interest income expected to drop significantly($1.04 million) ,. 15 OPERATING FUND EXPENDITURES FY 2020-21 $90.7 $MILLIONS) D.Other Expenses,1.3% D.Other Expenses-Self D.Other Purchased Insurance,0.5% Services,7.0% D.Supplies&Materials, 10.4% D.Purchased Property Services,7.0% C.Additional UAAL Contributions,1.4% C.Pension URAL,13.4% A.Salaries& wages,43.6% C.OPEB UAAL,2.7% B.Benefits&Cap O/H Credit,12.7% • Approximately 72.4%of next year's O&M budget is for labor-related costs(in( UAAL,which is not a current employee benefit) 16 I May 21, 2020 Regular Board Meeting Agenda Packet- Page 117 of 505 Page 11 of 358 Attachment 2 O&M SPENDING BY DEPARTMENT $35,000,000 $30,000,000 — $25,000,000 $20,000,000 $5,000,000 $10,000,000 $s,000,000 $0 Engineering and Plant Operations, Administration Technical5ervices Collection System Maintenance,Director Recycled Water Department Operations of ops Program W FY 2018-19 Budget $28,585,082 $17,033,408 $13,960,060 $28,589,114 $1,552,794 N Fy2019-20 Budget $24,231,589 $16,863,942 $14,750,139 $30,130,757 $1,608,348 .'Y 202.-21 Budget $25,148,751 $18,623,383 $14,916,566 $30,506,348 $1,471,290 • Budgeted increases$3.1 million (3.4%) • Largest increase in in FY 2020-21 attributable to Engineering & Technical Services Department for several specific and planned objectives • Substantial reduction in Administration over three-year period shown related to transition to CaIPERS Healthcare and savings in employee benefits, OPEB costs, and discretional trust contributions 17 OPERATING EXPENSE COMPARISON $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $ ,000,000 $5 $5,000,000I � $0 LW�Y.1 \ es&yroe.Scz olN C"6" oeEe�°,a`?"^ °�M`co"'rnoi`°os Im�N�cesFazedSeN�cer��es&Maet�lD�e`�"xpe°Ses.s C.9 c. P Sa 0 ge°eF6°'+ c PdaC`Oo�U O Pot FasedPtO O Ohet Po`c 0 SJPP p0.ch°c PYP°°5es 0 FY 2018-19 Budget■FY 2019-20 Budget Y FY 2020-21 Budget • Salaries&Wages increase(2.5%)attributable to cost of living adjustment and merit increases,adjusted for vacancy factor and capitalized labor. • Increase in Pension UAAL contributions(8.4%)result from actuarial CCCERA rate increases per 12/31/18 actuarial report. • Purchased Property Services increase(41.3%)attributable to repairs& maintenance and security services. 1s � May 21, 2020 Regular Board Meeting Agenda Packet- Page 118 of 505 Page 12 of 358 Attachment 2 O&M LABOR-RELATED BUDGET HIGHLIGHTS • Salaries &Wages: - Cost of Living Adjustment(COLA): 2.9% - Assumed vacancy factor remains at 3.25%. - Budget assumes two additional for transitional Permit Counter staff approved during FY 2019-20,with total of 293 staff. - Higher capitalized labor cost by$0.6 million reduces costs in OW • Benefits: - Significant Assumptions include the following: CCCERA(Normal Cost)contributions decreasing 6.7%for legacy employees and increase of 2.1%for PEPRA employees per 12/31/2018 actuarial valuation CalPERS Medical premium increase of 7.25%effective January 1,2021 Delta Dental premium increase of 7.25%effective January 1,2021 ii 19 LJ O&M LABOR-RELATED BUDGET HIGHLIGHTS • UAAL Costs (CONTINUED) - OPEB: Actuarially Determined Contribution(ADC)prepared by Bartel for FY 2020-21 was$3.917 million,a 2.1%reduction from FY 2019-20 ADC. As with FY 2019-20,as estimated retiree health premiums of$4.001 million exceed the ADC,no contributions to the OPEB trust are required. "Normal cost"component of retiree health premiums now reported within employee benefits for improved tracking and transparency purposes(similar to pension costs). Prior year's have been restated for comparability purposes. - Pension (CCCERA) Total FY 2020-21 budgeted cost projected to be$12.1 million,increase of 8.4% UAAL does not yet reflect impact on pension assets in market downturn of 2020 as it is based on the 12/31/2018 actuarial report Additional UAAL Contributions Remains steady at$1.25 million to either pension or OPEB at Board's discretion. Further contribution above the budgeted amount could be made from available O&M budget variances($5 MM of FY 2019-20 variance consisting of$1.7 MM revenue and$3.3 MM already recognized in FY 2020-21). 20 I May 21, 2020 Regular Board Meeting Agenda Packet- Page 119 of 505 Page 13 of 358 Attachment 2 PENSION AND OPEB LIABILITY AND FUNDING STATUS (in millions) Pension (in millions) OPEB $160 100% $90 100% $140 90% $80 90% $120 80% $70 80% 70% $60 70% $100 60% 60% $50 $80 50% 50% $60 40% $40 40% 30% $30 30% $40 20% $20 20% $20 lo% $10 10% $0 0% $0 0% 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018 2019 1111111111UAAL —Funded% 1111111111UAAL —Funded% • Pension valuations dated as of December 31St • OPEB valuations dated as of June 30th and performed every two years • Pension funded percentage excludes Section 115 Prefunding Trust Assets • Funding ratios may be adversely affected with 2020 equity market downturns 21 ' O&M BUDGET HIGHLIGHTS: PROVIDING NECESSARY STAFFING • Staffing of 291 full-time equivalent positions plus two limited duration positions for the permit counter were approved during FY 2019-20 bringing the total FY 2020-21 budgeted full-time equivalent figure to 293. • Reallocations and position changes include the following: - Creation of Engineering Assistant position (Planning & Development Services) - Management Analyst transferred from the Office of the General Manager to Human Resources - Engineering Assistant transferred from Planning & Development Services to the Director of Engineering &Technical Services (Resource Recovery Program) - Vacant Senior Buyer position repurposed to Buyer(Purchasing) - Vacant Payroll Analyst position repurposed to Senior Administrative Technician (Human Resources) Vacant Utility Worker positions repurposed to Maintenance Crew Members (Collection System Operations) -1 zz �; May 21, 2020 Regular Board Meeting Agenda Packet- Page 120 of 505 Page 14 of 358 Attachment 2 CAPITAL BUDGET HIGHLIGHTS: INFRASTRUCTURE INVESTMENT • Infrastructure Investment Over Past Ten Years: $334.7 million 5as.3 530.,3 $35.9 35.1 Spa tt holo-11 ttmtl-lx ttzmx-li ttzpt3.le tt�ale.15 ttiois-15 tt�olc-i� tt'�o1]->e ttZpla.x9 2019-3a .elaaed -•I Peryeled Water Pmpam General Improwmenb Program _ �Collntle�SVReav..q.� �T.aaunent PUnx Pmeram • FY 2020-21 investment increases to $88.0 million CAPITAL IMPROVEMENT PROGRAM FUNDING SOURCES FY 2020-21 $98.0 MILLION Debt Proceeds Capacity Fees$6.3 6% $3.0 3% Other$0.8 1% City of Concord Capital Reimbursement$15. 16% Sewer Service Charges $56.7 Ad Valorem Tax$15.9 58% 16% • Increase of$32.4 million from FY 2020-21: $24.5 million increase in Sewer Service Charge $3.7 million increase in Concord Capital Reimbursement $1.4 million increase in Ad Valorem Taxes $0.2 million increase in Capacity Fees $3.0 million increase in Loan Proceeds(SRF) 50.4 million decrease in Interest NMI 24 '. a- , May 21, 2020 Regular Board Meeting Agenda Packet- Page 121 of 505 Page 15 of 358 Attachment 2 CAPITAL IMPROVEMENT PROGRAM EXPENDITURES FY 2020-21 $88.0 MILLION General Contingency$2.5 3% Improvements$3.9 4% Collection Recycled Water$9.1 System 10% $40.2 46% Treatment Plant $32.3 37% • Increase in budgeted capital spending of$21.8 million from FY 2019- 20 • Funding sources of$98 million less expenditures of$88 million results in contribution to reserves of$9.9 million necessary for capital program rowth in upcoming years (i.e. solids handling, filter plant, etc.). 25 1E SELF INSURANCE BUDGET FY 2020-21 Operating Revenue Operating Expense $582,050 $1,153,500 HHW Legal Services, Interest$112,750 Contribution Technical& $80,000 $20,000 Other Services, $98,500 VI Expected ` Losses, Insurance O&M Fund Contribution $275,000 Premiums, $450,000 $700,000 • Revenues of$582,050 less expenditures of$1,153,500=Draw from Reserve of$571,450 • Self insurance Operating Expense of$1.154 million compares to $1.074 of budgeted in the prior year(7.4%increase,due to higher premiums). ..-.... 26 `� 1 May 21, 2020 Regular Board Meeting Agenda Packet- Page 122 of 505 Page 16 of 358 Attachment 2 DEBT SERVICE BUDGET FY 2020-21 Operating Revenue Operating Expense $2.517.605 $2.517.605 Interest Interest Payments Income$- $77,605 Ad Valorem Principal Tax Payments $2,517,605 $1,740,000 • Decrease in budgeted outlays of$465 thousand from the prior year is due to lower debt service following the 2018 refunding • No interest revenue as reserve fund not maintained nor required as part of the 2018 bond refunding 27 RESERVE BALANCE PROJECTIONS FY 2019-20 Reserve Policy Target end of June 30,2020 $37,777,641 $44,012,000 $6,500,000 $88,289,641 Projected Balance as of June 30,2020 $64,373,260 $60,938,108 $7,072,665 $132,384,033 Projected Balance Minus Reserve Policy Target at $26,595,619 $16,926,108 $572,665 $44,094,392 June 30,2020 • Takeaway: Reserves are projected to meet or exceed the policy required levels at year end. Year-end O&M reserves above policy target level are largely drawn down in FY 2020-21, resulting in smaller proportion of SSC to O&M and larger share going to Sewer Construction fund "Working Capital Reserves"definition updated fall 2019 to reflect standard N.1definition of working capital by including current assets and liabilities in addition to"cash and investments". --- 28 May 21, 2020 Regular Board Meeting Agenda Packet- Page 123 of 505 Page 17 of 358 Attachment 2 RESERVE BALANCE PROJECTIONS FY 2020-21 Projected Balance as of June 30,2020 $64,373,260 $60,938,108 $7,072,665 $132,384,033 Projected Balance as of $39,139,084 $70,867,010 $6,501,215 $116,507,309 June 30,2021 Change in Reserve ($25,234,176) $9,928,902 ($571,450) ($15,876,724) Reserve Policy Target end of June 30,2021 $39,139,084 $40,107,546 $6,500,000 $85,746,630 Projected Balance Minus Reserve Policy Target at $- $30,759,464 $1,215 $30,760,680 June 30,2021 • Net draw on reserves of$15.9 million in FY 2020-21 attributable to: • Drawdown of O&M reserves above policy required level for O&M • Offset by further contribution for Sewer Construction Fund related to future year's funding needs. • _ _ 29 JUNE 4, 2020 PUBLIC HEARING Approve and Adopt Budgets 1 Operations & Maintenance 2Capital Improvement 3 Self-Insurance 4Debt Service 5 Insurance Renewal _ Oel I: May 21, 2020 Regular Board Meeting Agenda Packet- Page 124 of 505 Page 18 of 358 Attachment 2 QUESTIONS May 21, 2020 Regular Board Meeting Agenda Packet- Page 125 of 505