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HomeMy WebLinkAbout10. Receive FY 2019-20 Pre-Audit Year-End Financial Statement Summary and consider allocation of favorable budget variance Page 1 of 14 Item 10. Algi CENTRAL SAN BOARD OF DIRECTORS WE VS.101 M POSITION PAPER MEETING DATE: OCTOBER 1, 2020 SUBJECT: RECEIVE FISCAL YEAR (FY) 2019-20 PRE-AUDITYEAR-END FINANCIAL STATEMENT SUMMARY REPORT; AND CONSIDER ALTERNATIVES FOR ALLOCATION OF: • FY2019-20 FAVORABLE BUDGET VARIANCE OF $10.48 MILLION TOWARD VARIOUS POTENTIAL USES, AND • $1 .25 MILLION BUDGETED IN FY2020-21 FOR EMPLOYEE-RELATED UNFUNDED LIABILITIES TOWARD EITHER PENSION OR OTHER POST-EMPLOYMENT BENEFIT (OPEB) LIABILITIES SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION-FINANCE PHILIP LEIBER, DIRECTOR OF FINANCEAND ADMINISTRATION Roger S. Bailey General Manager ISSUE The Board of Directors (Board) approves the Operations and Maintenance (O&M), Capital Improvement (CI B), Self-I nsurance, and Debt Service budgets on an annual basis. At fiscal year end, staff reviews and compares the final revenues and expenditures, based on the pre-audit financial reports and provides an update to the Board on the budget-versus-actual activity. If there is a favorable budget variance, staff typically provides alternatives for the Board's consideration for allocating the unspent funds. Finally, the FY 2020-21 budget provides for the payment of$1.25 million to be used toward employee-related unfunded liabilities. The Board also will be asked to consider staff's recommendation for allocation of these funds, to the Pension Prefunding Trust. BACKGROUND The proposed revenue and estimated expenditures within the FY 2019-20 budget compared to actual results with variances and year-end adjustments are summarized in Attachments 1 and 2, providing a detailed analysis and graphical illustrations of FY 2019-20 O&M fund budget-to-actual variances. October 1, 2020 Regular Board Meeting Agenda Packet- Page 61 of 104 Page 2 of 14 Attachment 1 summarizes the revenue and expense variances by each sub-fund (i.e. O&M, Sewer Construction, Self-I nsurance, and Debt Service). It should be noted that the Sewer Construction Fund expenditures variance of$21.0 million is expected to be a timing issue; so this amount has been added to the FY 2020-21 Capital Improvement Program spending plan as a carry-forward. The variance in the Self-Insurance Fund is also typically reconciled as part of the budgeting process and will be resolved in the FY 2020-21 budget proposal. With those adjustments, the amount of funds to be considered for allocation to various potential uses is therefore $10.48 million, as detailed in Attachment 1. Relevant Principles I n terms of proposing an optimal recommendation, the following principles are relevant for consideration. 1. Maintain adequate funding availability to ensure reliable operations; 2. Keep long-term Sewer Service Charge (SSC) rates as low as possible; 3. Provide SSC rate stability by minimizing significant unplanned fluctuations year to year; 4. Minimize reliance on borrowing; and 5. Maintain consistent treatment for funds that have already been allocated in the FY 2020-21 budget and associated reserve calculations. FY 2019-20 Favorable Budget Variance Keeping the above principles in mind, staff recommends the following as viable, balanced alternatives for use of the $10.48 million favorable budget variance for FY 2019-20: • Retain in O&M Consistent with Budget Plan: $5.04 million (Principle 1) The FY 2020-21 budget projected the O&M fund would have reserves in excess of its minimum working capital reserve requirement as of June 30, 2020. A portion of this excess, $5.04 million, was projected to result from favorable FY 2019-20 budget variances of the O&M fund. As the Board's adopted split of Sewer Service Charges between the O&M and Sewer Construction fund in FY 2020-21 incorporated this projection, this portion of the O&M's FY 2019-20 favorable budget variance should remain in the fund excess reserves to be drawn down during FY 2020-21. [Supported by principles 1,5] • Retain in Sewer Construction Fund: $3.2 million (Principle 4 above) Bolstering the Sewer Construction Fund may reduce borrowing needs currently anticipated for FY 2021-22 and FY 2022-23. Retaining the positive revenue budgetary revenue variance in the Sewer Construction Fund's reserves will help achieve this. It should be noted that the Reserve Calculation in the FY 2020-21 budget assumed a favorable Sewer Construction revenue variance of$5.1 million, while the actual favorable variance is only$3.2 million. This does not present a problem however in meeting any reserve policy targets as the Sewer Construction fund balance was and is expected to be above the targeted level as of June 30, 2020, and June 30, 2021, respectively. [Supported by principles 4,5] • Contribute to O&M Rate Stabilization Reserve Account: $2.15 million (Principles 2 and 3) The Rate Stabilization Reserve Account was established by the Board during FY 2019-20 as permitted by the 2018 Refunding Bond Indenture. This restricted account can be drawn down when needed to meet specified debt service coverage levels. Furthermore, the District retains the right at any time to withdraw any or all amounts on deposit in this restricted account and apply such amounts for any lawful purposes of the District relating to the Wastewater System, including, but not limited to, avoid the need for higher-than-desired rate increases. As of June 30, 2020, the O&M and Sewer Construction rate stabilization reserve accounts had balances of$1.61 million and $1.0 million, respectively. This contribution would increase the O&M Rate Stabilization Reserve Account balance to $3.76 million. [Supported by principles 1,2,3] October 1, 2020 Regular Board Meeting Agenda Packet- Page 62 of 104 Page 3 of 14 • Transfer to Self-Insurance Fund Reserve: $0.1 million (Principle 1) Each year, the budget incorporates a transfer from the O&M fund to the Self-I nsurance Fund to cover projected operational expenses (i.e. insurance premiums, uninsured losses, etc.) as well as meet the minimum reserve requirements stipulated by the District's Fiscal Reserves Policy. This transfer, equal to the total FY 2019-20 negative budget variance reported in the Self-I nsurance Fund, will help insure the Self-Insurance Fund has sufficient funding to cover its expected FY 2020- 21 operational costs and maintain adequate reserve levels. [Supported by principles 1,5] FY 2020-21 Funds Allocated Toward Emplo.yee-Related Unfunded Liabilities Staff is also seeking the Board's direction regarding the $1.25 million budgeted in FY 2020-21 for paying down unfunded other post-employment benefits (OPEB) or pension-related liabilities. Staff recommends that this year's budgeted amount be dedicated toward the Pension Prefunding Trust. With a market value of approximately$10.3 million as of June 30, 2020, exclusive of investment gains and losses, this additional contribution would bring to the total Pension Prefunding Trust balance to $11.55 million. This would result in pro-forma pension funding ratio of 84.9%, inclusive of CCCERA and Pension Prefunding Trust assets. The long-term projected impact of continued annual $1.25 million contributions to the trust is illustrated on slide 13 of Attachment 3, which projects the pension plan unfunded actuarial accrued liability(UAAL)will be fully paid down by FY 2024-25. ALT ERNAT IVES/CONSIDERAT IONS The Board may elect to allocate the favorable FY 2019-20 budget variance toward the staff- recommended alternatives proposed above or may elect to fund these choices at different levels. Absent specific Board action, the entire favorable budget variance would, through operation of the fiscal reserve policies and mechanics of the financial plan, ultimately be allocated to the Sewer Construction Fund. FINANCIAL IMPACTS Due to the FY 2019-20 favorable variances in the O&M and Sewer Construction fund budgets, Central San's beginning cash balances for FY 2020-21 are higher than projected when rates were established in April 2019 and contemplated during the FY 2020-21 budget process. The variance of$10.48 million can be directed toward multiple beneficial uses as described above. The financial impact is favorable to District ratepayers regardless of which option is chosen, as there will be decreased future upward pressure on the SSC. As noted previously, $8.23 million of the funds were "spoken for" in the adopted budget through the projected reserve balances as of June 30, 2020, and subsequently, the allocation of the budgeted SSC for FY 2020-21. COMMITTEE RECOMMENDATION The Finance Committee reviewed this subject at its September 22, 2020 meeting and recommended receipt of the Pre-Audit Year-End Financial Statement Summary Report and supported the staff recommended budget allocations. October 1, 2020 Regular Board Meeting Agenda Packet- Page 63 of 104 Page 4 of 14 RECOMMENDED BOARD ACTION Receive the FY 2019-20 Pre-Audit Year-End Financial Statement Summary Report and direct staff to: 1. Make the following allocations for utilization of the $10.48 million FY 2019-20 favorable budget variance: $ 5.04 million retained in O&M Fund $ 3.19 million retained in Sewer Construction Fund $ 2.15 million to the O&M Rate Stabilization Reserve Account $ 0.10 million to the Self-I nsurance Fund Reserve $10.48 million 2. Allocate the $1.25 million additional contribution budgeted in FY 2020-21 toward employee-related unfunded liabilities to Central San's Pension Prefunding Trust. Strategic Plan Tie-In GOAL THREE:Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability, Strategy 2—Ensure integrity and transparency in financial management GOAL SEVEN:Agility andAdaptability Strategy 2—Plan ahead for scenarios of direct adverse impacts ATTACHMENTS: 1. District-Wide Variance Overview 2. O&M Fund Variances 3. FY 2019-20 Pre-Audit Budget Variances Presentation October 1, 2020 Regular Board Meeting Agenda Packet- Page 64 of 104 Page 5 of 14 ATTACHMENT 1 Pre-Audit-June 2020 Financial Statement Summary and Variance Overview All Funds of District Budget Actual Variance FY 2019-20 FY 2019-20 Variance($) Result Explanation Operations&Maintenance Revenues $ 89,560,370 $ 90,970,747 $ 1,410,377 F See Attachment 2 Expenses 87,584,775 81,702,214 5,882,561 F See Attachment 2 Total 1,975,595 9,268,533 7,292,938 Sewer Construction Primarily attributable to higher than projected Revenues 65,598,130 68,789,918 3,191,788 F property taxes and facilities capacities fees. Disruptions to capital project progress arising from COVID-19 pandemic. Projects deferred to Expenses 74,669,521 53,662,584 21,006,937 F FY 2020-21 for completion. Total (9,071,391) 15,127,334 24,198,725 Self Insurance Revenues 1,025,900 1,008,390 (17,510) u Expenses 1,073,700 1,152,448 (78,748) u Higher property insurance premiums Total (47,800) (144,058) (96,258) Debt Revenues 2,982,415 2,749,442 (232,973) u Expenses 837,415 604,852 232,563 F Principal Payment 2,145,000 2,145,000 - Total - (410) (410) District Totals(4 Funds) Revenues 159,166,815 163,518,497 4,351,682 F Expenses/Debt Principal 166,310,411 139,267,098 27,043,313 F Total $ (7,143,596) $ 24,251,399 31,394,995 F Exclude: 1.Sewer construction fund spending variance due to timing (21,006,937) (Carried Forward to FY 2020-21 Budget) 2. Self-Insurance variance that is typically addressed in Budget 96,258 Process District-wide variance to be Addressed $ 10,484,316 Legend: F=Favorable budget variance U=Unfavorable budget variance October 1, 2020 Regular Board Meeting Agenda Packet- Page 65 of 104 Page 6 of 14 ATTACHMENT 2 Pre-Audit-lune 2020 Financial Statement Summary Operations and Maintenance Fund Variance Analysis ($in thousands) Budget Actual Variance Variance Explanation Implications for future budgeting ($1 (%) Revenues SSC-County $ 67,891 $ 69,013 1,122 1.7% Higher than projected development in service area Conservative assumptions for growth used SSC-Direct 1,200 1,396 196 16.3% Higher than projected flow levels for customers not on Spike to be considered non-recurring and conservative County tax roll(i.e.non-profit,governmental,etc.) assumptions for growth used City of Concord 14,570 14,924 354 2.4% Higher proportional share of treatment plant flow than Budget based on expected flow and estimated treatment projected plant expenditures Side Sewer Inspection 1,107 1,144 37 3.3% More private lateral inspections than projected Conservative assumptions for growth are used;3 year average will pick up higher than budgeted experiences HHW Reimbursements 968 884 (84) -8.7% HHW operating budget costs lower than projected caused by Reduction considered to be non-recurring and conservative COVID-19 pandemic response resulting in lower assumptions forgrowth used reimbursable costs as well Investment Income 950 637 (313) -32.9% Significant drop in interest rates following development and Budget assumed decline investment yields based on yields of adoption of budget fixed income instruments and LAIF at time of budget development. Permit/Application Fees 540 595 55 10.2% Higher than projected development in service area Conservative assumptions for growth are used;3 year average will pick up higher than budgeted experiences Recycled Water 420 504 84 20.0% Higher than anticipated usage;Recycled Water 0&M Recycled Water revenue was flat lined in FY 2020-21 budget expenses continue to exceed revenue,so no excess revenue and all revenue is assumed to stay in RE sub fund was transferred to SC sub fund Annexation Charges 120 117 (3) -2.5% Immaterial variance;actuals largely in line with budget projections All Other 1,794 1,757 (38) -2.1% Immaterial variance;actuals largely in line with budget projections Total Revenues $ 89,560 $ 90,971 $ 1,410 1.6% Favorable variance Expenditures Salaries&Benefits $ 52,789 $ 50,182 $ 2,607 4.9% Longer vacancy periods than expected largely caused by Largely considered to be non-recurring temporary COVID-19 hiring freeze;Also staff charging slightly more time to ERP replacement project than anticipated. Unfunded Liabilities 12,437 12,490 $ (53) -0.4% Immaterial variance;actuals largely in line with budget projections Repairs&Maintenance 5,243 4,271 972 18.5% Largely attributable to the deferral of many projects to next Savings considered non-recurring and incomplete repair& fiscal year for completion in the CSO,Treatment Plant maintenance needs deferred to FY 2020-21 for completion. Maintenance,and IT divisions.Deferral of many projects was a necessary measure to respond to the COVID-19 pandemic, which included re-prioritizing of staff assignments(i.e. process re-engineering,etc.),reductions to on-site staff, implementing social distancing and other safety measures. Hauling&Disposal 1,186 1,164 22 1.9% Immaterial variance;actuals largely in line with budget projections Other Outside Services 4,514 2,684 1,830 40.5% Savings realized on various budgeted professional and other At time of FY 2020-21 budget development,savings largely outside services costs including:(1)vacant internal auditor considered non-recurring.Should COVID-19 disruptions position for much of the fiscal year in the Finance Division persist through FY 2020-21,District may realize similar resulting in savings to professional services budgeted,(2) savings again. lower than budgeted professional services costs incurred for legal services in the Central Services and HR Divisions,(3) underutilized outside/technical services throughout divisions of the Administrative Department caused largely by deferrals to projects caused by COVID-19 pandemic,and(4)the deferral of projects utilizing professional and outside/technical service providers in the Planning& Development Division resulting from the District's response Chemicals 1,620 1,509 111 6.9% Largely resulting from savings in the Treatment Plant Budget incorporates this significant process change,netted Operations Division through the elimination of sodium with inflationary growth in other areas hydroxide in the treatment process Utilities 4,209 4,495 (286) -6.8% Higher PG&E electrical expense incurred while cogen system was being overhauled Materials&Supplies 2,152 2,084 68 3.2% Lower than projected consumption of office and other At time of FY 2020-21 budget development,savings largely operating supplies in Administrative and Engineering& considered non-recurring.Should COVID-19 disruptions Technical Services departments. persist through FY 2020-21,District may realize similar savings again. Other 3,435 2,823 612 17.8% Largely attributable to public information,technical training At time of FY 2020-21 budget development,savings largely &conferences,as well as BACWA expenses being lower than considered non-recurring.Should remote work persist budgeted following COVID-19 pandemic shelter in place through FY 2020-21,District may realize similar savings order. again. Total Expenses $ 87,585 $ 81,702 $ 5,883 6.7% Favorable variance Net Increase(Decrease) $ 1,975 $ 9,269 $ 7,293 Unadjusted favorable O&M sub fund variance October 1, 2020 Regular Board Meeting Agenda Packet- Page 66 of 104 Page 7 of 14 ATTACHMENT 2 Pre-Audit-June 2020 Financial Statement Summary Operations and Maintenance Variance Analysis ($000) FY 2019-20 C&M Revenue Variances $80,000 $67,891 $69,013 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 - $14,570 $14,924 $10,000 - $1,200 $1,144 ln iiiIiiit$1,396 $1,7\94 $1,757 $_ - i I _$1,107 $968$$=84 $950$$=37 $$=40$$=95 $420$504 $120$117 1 SSC-County SSC-Direct City of Concord Side Sewer HHW Investment Income permit/Application Recycled Water Annexation Charges All Other Inspection Reimbursements Fees ■Budget ■Actual FY 2019-20 C&M Expense Variances $60,000 $52,789 $50,182 $50,000 $40,000 $30,000 $20,000 $12,437 $12,490 $10,000 J.$4,271 $1,164 $4,514 $4,209 $4,495 $2,684 $1,620 $2,1522,014 $3,435 $2,823 $�6� ,■ $�9 $ 01, Salaries&Benefits Unfunded Liabilities Repairs&Maintenance Hauling&Disposal Other Outside Services Chemicals Utilities Materials&Supplies Other ■Budget ■Actual October 1, 2020 Regular Board Meeting Agenda Packet- Page 67 of 104 Page 8 of 14 Attachment 3 UTILIZATION OF FY 2019-20 �w VARIANCE FUNDS �II AND USE OF BUDGETED $1 .25 MILLION FOR EMPLOYEE-RELATED LIABILITIES KEVIN MIZUNO, FINANCE MANAGER AND PHILIP R.LEIBER,DIRECTOR OF FINANCE&ADMINISTRATION OCTOBER 1,2020 it Emmil 1 NOVEMBER 10, 2016 WORKSHOP FINANCIAL ALTERNATIVES FOR EXCESS RESERVES PFM's Review of Excess PFM's Recommendation and Fund Alternatives: Direction Given by the Board: 1. Pay down CCCERA unfunded Allocate all currently available dollars pension liabilities(UAAL) to reduce pension UAAL and OPEB 2. Pay down other post- liability. employment benefits(OPEB) unfunded liabilities and shorten $2.5M budgeted in FY 2016-17 amortization period from oto toward OPEB Trust(done Feb. 18 years (done) 2017 by unanimous vote) 3. Set up and fund IRS Sec 115 . $3.359M initial funding of Pension Pension Prefunding Trust(done) Prefunding Trust using FY 2015-16 4. Allocate to CIB program budget variances(done Aug. 2017 5. Use to cover 0% rate increase by majority vote) FY 2017-18 ' 2 2 1 October 1, 2020 Regular Board Meeting Agenda Packet- Page 68 of 104 Page 9 of 14 Attachment 3 BUDGET VARIANCES AND RECOMMENDED DISPOSITION Good news:$10.48 M in favorable variances in FY 2019-20 • $7.29 M from Operations&Maintenance(O&M)fund: Lower spending($5.88 million)and higher revenues($1.41 M). • $5.04 M favorable variance was assumed in the reserve calculation for the FY 2020-21 budget, and is necessary to meet reserve requirement for 6/30/2021. • $3.19 M for Sewer Construction(SC)/Capital Improvement Budget(CIB)higher revenues(*) • $5.1 M favorable variance was assumed in the reserve calculation for the FY 2020-21 budget, but as the reserve is projected to be more than fully funded,the reduced favorable variance does not present a problem. Recommendation: • $8.23 M ($5.04 M in O&M,and$3.19 M for SC)of this was already assumed in the reserve calculations per the FY 2020-21 budget. Keep those funds in respective reserves. • $2.25 M of O&M variance is available for other uses. Direct primarily to Rate Stabilization Reserve Account(O&M),and small amount to Self-Insurance. *$21 million underspending variance for Capital Improvement Program will be carried forward to FY 2020-21 POTENTIAL USES A. Required: $8.23 M of the variance was assumed to be kept in the respective reserves as of 6/30/2020, which affected the split of SSC for FY 2020-21 As to the Remainder ($2.25 million), options include: B. Contribute to Rate Stabilization Reserve Account C. Additional amount directed to Sewer Construction Reserve to reduce future debt or rate increases JD. Restore Self-Insurance Fund to targeted balance E. Pay down employee related liabilities (OPEB or Pension) re 4 2 October 1, 2020 Regular Board Meeting Agenda Packet- Page 69 of 104 Page 10 of 14 Attachment 3 RECOMMENDED ALLOCATIONS ($MILLIONS) A. A. B. D. E. E. E. Pension Recommended O&M SC-CIB Rate Self OPEB Prefunding CCCERA Reserve Reserve Stabilization Insurance Trust Trust(1) Trust Isl Allocation of Funds: Total Reserve Acct Year-End 2019-20 Variances-O&M $7.29 $5.04 - $2.15 $0.1 2019-20 Variances-SC 3.19 $3.19 $0 $0 Total $10.48 $5.04 $3.19 $2.15 $0.1 Budgeted 2020-21 UAAL Liabilities $1.25 $1.25 Funding Status Fully More than No Target $6.5 87% 2.8% 82.1 Funded Fully Funded Established 84.9%Pro-Forma (1)Funding status per staff calculation using PARS Pension Trust June 30,2020 statement and CCCERA December 31, 2018 valuation($338M+$10.3M+$1.25M proposed)/$412.2M)=84.9%. (2)Funding status per CCCERA December 31,2018 valuation.2019 valuation expected in October 2020. I5 5 RESERVE STATUS ($MILLIONS) O&M SC-CIB Rate Pension Assets in Total Reserve Reserve Stabilization OPEB Prefunding CCCERA Variance 5/12 50%CIB Self Insurance Reserve Acct Trust 0) Trust(2) Trust 13) Reserves per 6/30/20* $66.0 $73.8 $6.4 $2.61 $69.8 $10.3 $338.3 Policy Required Level at 6-30-20 37.8 44.0 6.5 Difference 28.2 29.8 (0.1) Reconciliation: FY 2019-20 CIB Carryforward(6) 21.0 PY Additions available for Future Use (6) 5.6 All Other(4)(5) 20.9 $0.1 2019-20 O&M&SC YE Variances $10.48 7.29 3.2 (from slide 3) Proposed Reallocations (2.25) 0.1 2.15 Balances After Reallocations3SZ-Z $I33 lu S4-m lau Im B- (1) Amounts per Balance sheet,and for CCCERA the actuarial value of pension assets. (2) Pension Prefunding Trust had a balance of$10.3M as of 6/30/20 (3) Actuarial value of assets per December 31,2018 CCCERA valuation.2019 Valuation available October 2020. (4) For O&M,this is the remaining balance of the O&M reserve in excess of the policy required level that will be drawn down during FY 2020-21. (5) Consisting of($0.1)FY 2019-20 self-insurance variance typically addressed in budget process. (6) $21 M remains in SC for the FY 2019-20 carryforward,which increased from the$8.5M carryforward at 6/30/19. Reserve balances per pre-audil financial statements and external sources as applicable.. ,dfdo 6 6 3 October 1, 2020 Regular Board Meeting Agenda Packet- Page 70 of 104 Page 11 of 14 Attachment 3 HISTORY OF OPEB ($MILLIONS) Actuarial Value of Assets % Per Bartel 2-year Valuation Assets Funded 7/1/2012 $22.5 22.4% 7/1/2014 33.7 32.4% 7/1/2016 43.8 44.0% 7/1/2018 59.4 56.3% CaIPERS Medical Transition 7/1/2019 65.8 82.7% 7/1/2020 69.80) 87%(2) (1) PARS OPEB Trust assets as of June 30,2020 (2) Calculated using PARS OPEB Trust June 30,2020 and liabilities per draft OPEB valuation 17 HISTORY OF ADDITIONAL URAL PAYMENTS ($MILLIONS) Pension Date of CCCERA Prefunding OPEB FY Payment Trust Trust Trust Total Source of Funds 2013-14 Dec 2013 $5.0 Budgeted 2014-15 Dec 2014 5.0 Budgeted 2015-16 Dec 2015 2.5 Budgeted-Board Decision 2016-17 Feb 2017 $2.5 Funded by FY 2015-16 variances 2017-18 Aug 2017 $3.4 Budgeted-Board Decision 2017-18 Various 2.5 Funded by FY 2016-17 variances 2017-18 Various 2.0 2018-19 Various 2.5 Budgeted-Board Decision 2019-20 Various 1.25 1.25 Budgeted$1.25M to OPEB Trust,and$1.25M variance from FY 2018-19 to Pension Prefunding Trust Subtotal 12.5 9.15 6.25 27.9 L2020-21 Pending 1.25 1.25 Recommendation:Budgeted$1.25M to Pension Prefunding Trust Total $12.5 $10.4 $6.25 $29.15 Totals d&V18 8 4 October 1, 2020 Regular Board Meeting Agenda Packet- Page 71 of 104 Page 12 of 14 Attachment 3 ADDITIONAL UAAL PAYMENTS HAVE HELPED REDUCE THE UAAL COMPONENTS OF THE PENSION UAAL $74 MILLION AS OF 2018 CCCERA VALUATION (2019 VALUATION AVAILABLE FALL 2020) Assumption Change Admnonal > Q Subsequent ARuarial Losses Q � Restart of Amorfizaiion Y � I Discount Rate fro,7.75%to 7.25% N U C Depooling Implementation O V Attuarial Losses from 2008-2012 Li $(30,000,000) $(20,000,000) $(10,000,000) $- $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 Notes: • Pension Pre-Funding Trust assets of$10.3 million are available to further reduce UAAL indicated above 19 9 RECOMMENDATION ON VARIANCE FUNDS • Direct staff to utilize FY 2019-20 variances as follows: Funding Source and Use A.Keep$5.04 million of the FY 2019-20 O&M spending variance in the $5.04 million 0&M reserve,as assumed in the adopted budget for FY 2020-21. A.Maintain$3.19 million of the FY 2019-20 Sewer Construction $3.19 million Revenue variance in the Sewer Construction reserve. B.Contribute to$2.15 million from the FY 2019-20 0&M spending $2.15 million variance to the Rate Stabilization Reserve Account housed within the 0&M reserve. B.Transfer to$0.1 million from the FY 2019-20 0&M spending variance $0.1 million to the Self-Insurance Reserve to restore balance to$6.5 million. Total $10.48 million 10 5 October 1, 2020 Regular Board Meeting Agenda Packet- Page 72 of 104 Page 13 of 14 Attachment 3 RECOMMENDATION ON BUDGETED $1 .25 MILLION FOR EMPLOYEE RELATED LIABILITIES • Direct $1 .25 million budgeted in FY 2020-21 to Pension Prefunding Trust • Funded Ratios: Alone Cumulative • CCCERA 82.1% 82.1% • Existing Assets in Pension Trust 2.5% 84.6% • Additional $1.25 M contribution 0.3% 84.9% • Rationale: • Pension has lower funded ratio vs. OPEB • Amount was budgeted to reduce employee related liabilities 111 11 NEW PROPOSED PENSION FUNDING POLICY BP 041 • Funded Ratios: Alone Cumulative • CCCERA 82.1% 82.1% • Existing Assets in Pension Trust 2.5% 84.6% • Funding Gap to be Closed in (100%-84.6%)/2 years = 7.7 years • Projected Funding Gap will be closed by FY 2024-25* = 4 years • Conclusion: Progress towards closing gap is ahead of schedule/ consistent with BP 041 * See subsequent slide 12 12 6 October 1, 2020 Regular Board Meeting Agenda Packet- Page 73 of 104 Page 14 of 14 Attachment 3 PENSION UAAL PROJECTION Anticipated UAAL with Scheduled Amortization(Blue) and with Additional UAAL Payments to Pension Prefunding Trust to Date and at$1.25 million millions prospectively(Red) $40 Net Asset $20 _ $0 Net Liability ($20) ($40) ($60) ($80) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 UAAL(2018Valuation) ($74) ($66) ($59) ($50) ($40) ($34) ($27) ($19) 1510) ($0) Net UAAL(2018 Valuation) (68.62) (58) (49) (38) (26) (18) 19) 1 11 22 ensi.n prefunding Trust offset on 2018 CCCERA Valuation.2019 valuation available Fall 2020. s scheduled amortization of UAAL(over 18 years for each annual layer of historic UAAL),assuming no additional UAAL is generated. ws UAAL offset by Pension Prefunding Trust balance,with continuing$1.25 million discretionary contributions through 2025 t aced as the UAAL is forecast to be retired by 2025). 13 �3 QUESTIONS? 14 7 October 1, 2020 Regular Board Meeting Agenda Packet- Page 74 of 104