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Home My WebLink About09. Public hearing to consider adopting FY 2021-22 District Budget Pagel of 332 Item 9. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER MEETING DATE: JUNE 3, 2021 SUBJECT: CONDUCT PUBLIC HEARING TO RECEIVE PUBLIC COMMENT AND CONSIDER ADOPTING THE FISCAL YEAR (FY) 2021-22 CENTRAL SAN BUDGET FOR THE FOLLOWING FUNDS: OPERATIONS AND MAINTENANCE, CAPITAL IMPROVEMENT, SELF-INSURANCE, AND DEBT SERVICE SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION-FINANCE REVIEWED BY: EDGAR LOPEZ, CAPITAL PROJECTS DIVISION MANAGER PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL SERVICES Roger S. Bailey General Manager ISSUE It is Central San's practice to hold a public hearing to receive comment on the budget for the following funds: Operations and Maintenance, Capital Improvement, Self-Insurance, and Debt Service. BACKGROUND Central San's proposed budget for the fiscal year ending June 30, 2022 (FY 2021-22)was presented to the Board of Directors on May 20, 2021, at a regularly scheduled public meeting. The proposed FY 2021- 22 budget book (Attachment 1) provides both an overall assessment of Central San's fiscal health, as well as a comprehensive analysis of how management has and plans to use budgetary resources to achieve strategic objectives established by the Board in the current year(FY 2020-21) and next year(FY 2021- 22). The following are highlights of Central San's Operating & Maintenance (O&M), Sewer Construction, Self-I nsurance, and Debt Service fund budgets covered far more extensively in the attached budget book. June 3, 2021 Regular Board Meeting Agenda Packet- Page 94 of 646 Page 2 of 332 O&M Budget(Running Expense Fund) The proposed FY 2021-22 O&M budget is balanced, with total revenues of$93.0 million exceeding total expenditures of$91.0 million resulting in a planned contribution to reserves of approximately$2.0 million. This planned contribution to reserves is necessary close FY 2021-22 with the minimum working capital reserve requirement specified in Central San's Fiscal Reserves Policy equal to 5/12 of the estimated budget for FY 2022-23 per the long-term financial plan. Total proposed expenditures reflect a modest increase of only$0.3 million (0.3%) over the prior year adopted budget. Total estimated revenues reflect a sizeable increase of$27.5 million (42.1%) over the prior year adopted budget. The sizeable increase in revenues is attributable to a "normalization" of sewer service charges being allocated to the O&M fund in FY 2021-22 following the planned and approved utilization of excess working capital reserves in FY 2020- 21. A more in-depth analysis of the O&M Fund Budget commences on page 57 of the budget book. Capital Improvement Budget(Sewer Construction Fund) The proposed FY 2021-22 Sewer Construction Fund budget is balanced, with total funding sources (including debt proceeds) of$100.8 million exceeding total expenditures of$97.2 million (net of a 90% non-spend cash flow factor) resulting in a planned contribution to reserves of approximately$3.6 million. This planned contribution to reserves results in an estimated ending reserve on June 30, 2022 of approximately$65.3 million, well above the minimum working capital reserve requirement specified in Central San's Fiscal Reserves Policy(50% of cash-funded portion of estimated FY 2022-23 budget). This temporary excess is necessary in order to address planned increases in capital spending over the next few years while stabilizing sewer service charge rates as designed in Central San's long-term financial plan. Total proposed capital expenditures reflect a noteworthy increase of$19.9 million (23%) over the prior year adopted budget, largely attributable to the planned expansion of the capital program over the next few years. Total estimated revenues (excluding debt proceeds) of$67.0 million reflects a sizeable decrease of$28.3 million (-30%)from the prior year adopted budget. The decrease in revenues is attributable to a "normalization" of sewer service charges being allocated to the Sewer Construction fund in FY 2021-22 following the planned and approved utilization of excess working capital reserves in the O&M Fund FY 2020-21, resulting in a non-recurring larger than normal share of sewer service charges being allocated to the Sewer Construction fund in the prior year. When including debt proceeds, total funding sources of $100.8 million actually exceeds the prior year budget by$2.9 million (3%). The FY 2021-22 Sewer Construction Fund anticipates a significant increase in borrowing with the large Solids Handling Facilities Improvement Project, financed by a California State Revolving Fund loan, transitioning to the construction phase next year. A more in-depth analysis of the Sewer Construction Fund Budget is provided page 70 of the budget book.Also, an extensive analysis of the 10-year Capital Improvement Budget commences on page 181 of the budget book. Self-Insurance Budget Central San currently self-insures general and auto liability risks up to $500,000 per occurrence and purchases a$15 million excess liability insurance policy above that retention. The proposed FY 2021-22 Self-Insurance budget is balanced, with total revenues of$1.65 million exceeding total expenditures of $1.29 million resulting in a planned contribution to reserves of approximately$0.37 million. This planned contribution to reserves is necessary close FY 2021-22 with the minimum self-insurance reserve requirement specified in Central San's Fiscal Reserves Policy of$6.5 million. A more in-depth analysis of the Self-I nsurance Fund Budget, including it's sub-funds for the two insurance programs, commences on page 173 of the budget book. The budget includes funding for excess liability and property insurance renewal premiums of up to $475,000, and $375,000 respectively. Based on the latest communications available with insurance brokers, renewal costs may be in excess of these budgeted amounts due to hard insurance market conditions. Since insurance renewal quotes are not yet available, staff recommends that the Board June 3, 2021 Regular Board Meeting Agenda Packet- Page 95 of 646 Page 3 of 332 authorize the General Manager to renew the excess liability and property insurance at costs higher than the budgeted amounts, as indicated in the motion below, along with the approval of the FY 2021-22 Self- Insurance Budget. Debt Service Fund Budget By policy, Central San's debt service is paid for and secured by ad valorem property taxes. Total expenditures of the Debt Service Fund, comprised of interest and principal payments on the 2018 Revenue Refunding Bonds, is projected at$2.5 million in FY 2021-22, which is relatively flat when compared to the prior year adopted budget. There is no increase in budgeted debt service attributable to the California State Revolving Fund loan described previously as debt service on that loan is not scheduled to commence until after FY 2021-22. A more in-depth analysis of the Debt Service Fund Budget commences on page 299 of the budget book. California Environmental Quality Act Staff has evaluated the FY 2021-22 O&M, Sewer Construction, Self-I nsurance, and Debt Service Fund budgets and concludes the adoption of these budgets are not projects, are ministerial in nature, and are exempt from the California Environmental Quality Act (CEQA). They are exempt under Central San's CEQA Guidelines Section 15301, since each funds the ongoing operations of Central San and the Capital Improvement Budget funds the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of use beyond that existing at the present time.Approval of the FY 2021-22 Budgets will establish the Board of Directors' independent finding that these budget documents are exempt from CEQA. The Board further finds that, although the Capital I mprovement Program Budget will authorize amounts of individual capital improvement project spending, the adoption of the Budget does not authorize construction of any project requiring CEQA compliance documentation. Central San either has or will produce appropriate CEQA compliance documentation prior to undertaking any"project" identified in these documents. ALTERNATIVES/CONSIDERATIONS During FY 2020-21, the Board has considered numerous financial planning alternatives and assumptions, most recently at the March 25, 2021 publicly held financial workshop. This budget reflects the policy direction provided in areas including the composition and level of the Capital Improvement Budget in the context of the Comprehensive Wastewater Master Plan, paying down unfunded liabilities, maintaining staffing at the level specified in the 2015 staffing study, and overall guidance regarding the need for fiscal discipline and cost control. FINANCIAL IMPACTS Adoption of the proposed FY 2021-22 budget will provide Central San the resources necessary to accomplish Strategic Plan Objectives directed by the Board for that year. The FY 2021-22 budget was prepared using the sewer service charge revenue assumptions per the adopted four-year rate plan, with the expiration of the rate relief program adopted by the Board waiving the collection of the scheduled increase for FY 2020-21. Sewer service charge revenues in FY 2021-22 are proportioned as follows: O&M 66.9%; Capital 31.6%; Self-insurance 1.5%. COMMITTEE RECOMMENDATION The Finance Committee received a staff presentation of the FY 2021-22 O&M, Self-insurance, and Debt Service fund budgets on May 17, 2021. The Engineering and Operations Committee reviewed the Capital Improvement budget on May 11, 2021. Both Board Committees provided feedback to staff, which June 3, 2021 Regular Board Meeting Agenda Packet- Page 96 of 646 Page 4 of 332 has been considered in the final version of the budget book attached hereto. A log of revisions made to the initial draft of the budget book provided to the Board on May 6, 2021 has been attached hereto (Attachment 2). RECOMMENDED BOARD ACTION Conduct a public hearing and adopt the FY 2021-22 Central San budget as follows: 1. Find that the FY 2021-22 budget is exempt from CEQA; 2. Adopt the FY 2021-22 Operations and Maintenance fund budget; 3. Adopt the FY 2021-22 Capital Improvement fund budget; 4. Adopt the FY 2021-22 Self-I nsurance fund budget; 5. Adopt the FY 2021-22 Debt Service fund budget; 6. Authorize the General Manager to renew Central San's expiring: • Excess liability insurance for a premium not to exceed $900,000; and • Property insurance for a premium not to exceed $450,000. Strategic Plan re-In GOAL ONE: Customer and Community Strategy 1—Deliver high-quality customer service, Strategy 2—Maintain a positive reputation GOAL TWO: Environmental Stewardship Strategy 1—Achieve 100% compliance in all regulations, Strategy 2—Anticipate and prepare for potential regulatory changes, Strategy 3— Support regional development of local water supply, Strategy 4- Reduce reliance on non- renewable energy GOAL THREE: Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability, Strategy 2—Ensure integrity and transparency in financial management GOAL FOUR: Workforce Development Strategy 1—Proactively plan for future operational staffing needs, Strategy 2—Foster relationships across all levels of Central San, Strategy 3—Inspire employee engagement, Strategy 4—Meet or exceed industry safety standards GOAL FIVE: Infrastructure Reliability Strategy 1—Manage assets optimally to prolong their useful life, Strategy 2—Execute long-term capital renewal and replacement program, Strategy 3—Protect personnel and assets from threats and emergencies GOAL SIX: Innovation and Optimization Strategy 1—Implement the Central San Smart Initiative, Strategy 2—Improve and modernize operations through technology and efficiency measures GOAL SEVEN:Agility andAdaptability Strategy 1—Maintain a safe working environment for employees and the public during the COVID-19 pandemic , Strategy 2—Plan ahead for scenarios of direct adverse impacts ATTACHMENTS: 1. Final Draft Budget as of 05-27-21 2. Budget Revision Log June 3, 2021 Regular Board Meeting Agenda Packet- Page 97 of 646