HomeMy WebLinkAbout09. Receive FY 2020-21 Pre-Audit Year-End Finacial Statement summary and consider recommended variance alternatives Page 1 of 24
Item 9.
CENTRAL SAN BOARD OF DIRECTORS
POSITION PAPER
MEETING DATE: NOVEMBER 4, 2021
SUBJECT: RECEIVE FISCAL YEAR (FY) 2020-21 PRE-AUDIT YEAR-END FINANCIAL
STATEMENT SUMMARY REPORT; AND CONSIDER (A)ALTERNATIVES
FOR HANDLING VARIOUS PRE-AUDIT BUDGET VARIANCES AND (B)
ALLOCATION OF $1.25 MILLION BUDGETED IN FY2021-22 TOWARD
EMPLOYEE-RELATED UNFUNDED LIABILITIES
SUBMITTED BY: INITIATING DEPARTMENT:
KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION-FINANCE
PHILIP LEIBER, DIRECTOR OF FINANCE AND
ADMINISTRATION
Roger S. Bailey
General Manager
ISSUE
The Board of Directors (Board) approves the Operations and Maintenance (O&M), Capital Improvement
(CI B), Self-Insurance, 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
2021-22 budget provides for the payment of $1.25 million to be used toward employee-related unfunded
liabilities. The Board is asked to consider staff's recommendation for allocation of these funds.
BACKGROUND
A District-wide summary of FY 2020-21 budget-to-actual results with percent and dollar variances is
summarized in Attachment 1. This summary includes the revenue and expense variances for each major
sub-fund of Central San, which includes the O&M, Sewer Construction, Self-I nsurance, and Debt Service
funds. Attachment 2 provides a detailed analysis as well as graphical illustrations of FY 2020-21 O&M
fund budget-to-actual revenue and expense variances.
Relevant Principles
I n terms of proposing an optimal recommendation, the following principles/objectives are relevant for
November 4, 2021 Regular Board Meeting Agenda Packet- Page 61 of 324
Page 2 of 24
consideration:
1. Maintain adequate funding availability to ensure reliable operations (Fiscal Reserves policy, BP 017);
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(facilitated by
Fiscal Reserves policy, BP 017);
4. Keep borrowing within the constraints specified by the Debt Management and Continuing Disclosure
Policy (BP 029);
5. Maintain progress in reducing employee-related pension and OPEB liabilities as specified in relevant
Board policies (BP 041 and BP 042)
6. Maintain consistent treatment for funds that have already been allocated in the FY 2021-22 budget
and associated reserve calculations.
FY 2020-21 Budget Variance Actions:
Keeping the above principles in mind, staff recommends the following actions as viable, balanced
alternatives, given the pre-audit budget variances for FY 2020-21:
• O&M Fund Favorable $7.5 Million Expense Variance - Contribute Portion to O&M Rate
Stabilization Fund Reserve Account, Portion to Self-Insurance Fund, and Retain Remainder
in Working Capital Reserves (Principles 1,2,3 and 6)
The Rate Stabilization Reserve Account was established by the Board during FY 2019-20 as
permitted by the 2018 Revenue Refunding Bond Indenture, and further codified through BP 017,
Fiscal Reserves. This restricted account can be drawn down (with Board approval)when needed to
meet specified debt service coverage levels, or for other purposes. Central San retains the right 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,
avoiding the need for higher-than-desired rate increases. As of June 30, 2021, the O&M Rate
Stabilization Reserve account had a balance of $3.8 million. Additionally, the original Board-adopted
FY 2021-22 budget anticipated an additional deposit of funds to the O&M Rate Stabilization
Reserve account of $5.2 million from FY 2020-21 year-end budget variances. This planned
additional contribution would increase the O&M Rate Stabilization Reserve Account balance to
approximately$9.0 million, which is equivalent to 8.3% of total budgeted sewer service charges in
FY 2021-22. This action would be consistent with the original FY 2021-22 adopted budget's plan to
contribute additional funds to the O&M Rate Stabilization Fund Reserve account to help mitigate
future rate volatility.
Given the FY 2020-21 net negative variance reported in the Self-I nsurance fund, it is recommended
that$0.2 million of the FY 2020-21 O&M expenditure budget variance be transferred to the Self-
Insurance fund to restore reserves back to the $6.5 million target level specified by the Fiscal
Reserves Policy. While reserves of the Self-Insurance fund were already planned to be replenished
per the FY 2021-22 budget through a direct allocation of sewer service charges, those funds will not
be available until later in the fiscal year following the allocation of funds from the County Auditor-
Controller's Office. Additionally, the pre-audit FY 2020-21 negative variance is slightly higher than
anticipated in the FY 2021-22 budget,justifying this additional transfer.
Finally, as was discussed in conjunction with the budget amendment approved by the Board on
September 2, 2021, it was anticipated that the O&M fund working capital reserve would fall short of
its minimum requirement as of June 30, 2021, directly resulting from the pension UAAL payoff in
June 2021. While this working capital shortfall was planned to be replenished through a higher than
normal allocation of sewer service charges to the O&M fund in FY 2021-22, it is prudent at this time
for the residual FY 2020-21 O&M fund spending variance of approximately$2.1 million to remain in
the O&M fund. This amount, in addition to a higher than ordinary allocation of sewer service charges
November 4, 2021 Regular Board Meeting Agenda Packet- Page 62 of 324
Page 3 of 24
from the Sewer Construction fund will help in building O&M working capital reserves back to
minimum policy-specified levels at a faster pace. We anticipate that the balance in the O&M reserve
will be above the policy required level at June 30, 2022, allowing the Board to specify use of the
funds above the targeted level next fall.
• Sewer Construction Fund Unfavorable $3.2 Million Net Revenue Variance - Rebuild
Through Next Year's Budget (Principles 4 and 6)
While the Sewer Construction fund by itself is reporting a negative revenue variance of
approximately$31.0 million, this is largely attributable to the reallocation of April and June 2021
sewer service charges to the O&M fund which were originally budgeted in the Sewer Construction
fund. This reallocation was authorized by the Board in J une 2021 and was necessary to finance the
payoff of the pension UAAL in that same month. Given this unique situation, it is appropriate to net
the resulting large favorable O&M revenue budget variance with the large unfavorable revenue
budget variance in the Sewer Construction fund, resulting in a derived (or"net") unfavorable budget
variance of approximately$3.2 million.
This non-recurring negative revenue variance does not present a problem for the long-term financing
of the Sewer Construction fund as it is expected to be replenished through a higher proportional
allocation of sewer service charges in future years attributable to savings arising from the successful
payoff and refinancing of Central San's pension UAAL in June 2021. Additionally, as the Sewer
Construction fund reserve is well above the minimum amount specified in the Fiscal Reserves Policy
as of June 30, 2021, no action is necessary at this time.
It should also be noted that the Sewer Construction Fund expenditures variance of$39.0 million is
expected to be a timing issue related to multi-year capital projects that is expected to be spent in
future years. Accordingly, this amount has been added to the FY 2021-22 Capital Improvement
Program spending plan as an unspent budgetary carry-forward amendment consistent with treatment
in prior years. Also to be acknowledged at this time is the need for a re-forecast of the Capital
Improvement Program spending over the next several years as a result of the change in direction in
the Solids Handling program decision taken in September 2021. This will be presented later during
the current fiscal year.
• Self-Insurance Fund Unfavorable $0.2 M illion Net Variance - Replenished with FY 2020-21
O&M favorable budget variance (Principle 1)
Each year, the budget incorporates an allocation of funds that would have otherwise remained in 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. In prior years, this was accomplished through an inter-fund
transfer from the O&M fund to the Self-I nsurance fund. Commencing in FY 2021-22, however, the
annual replenishment funding source will be a direct allocation of sewer service charges to the Self-
I nsurance Fund. In doing so, reporting will be improved as Central San expenses as a whole will not
be over-inflated through a transfer-out (expense) in the O&M fund on top of premiums and losses
that are reported in the Self-I nsurance Fund.
With the budgeted allocation of $1.6 million in sewer service charges directly to the Self-I nsurance
fund in FY 2021-22, it is projected that the Self-I nsurance fund will have sufficient reserves to
finance the program through June 30, 2022. However, given the large favorable O&M budgetary
spending variance discussed previously, it is recommended the $0.2 million funding gap resulting
from the overall negative FY 2020-21 budget variance be addressed sooner through a board
authorized transfer as described previously.
November 4, 2021 Regular Board Meeting Agenda Packet- Page 63 of 324
Page 4 of 24
FY2021-22 Funds Allocated Toward Employee-Related Unfunded Liabilities (Principles 5 and 6�
Staff is also seeking the Board's direction regarding the $1.25 million budgeted in FY 2021-22 for paying
down unfunded other post-employment benefits (OPEB) or pension-related liabilities. Given the June
2021 payoff of Central San's pension UAAL resulting in a fully funded position, staff recommends that this
year's budgeted amount be dedicated toward the OPEB Trust. With a market value of approximately
$84.6 million as of June 30, 2021, exclusive of investment gains and losses, this additional contribution is
projected bring to the total OPEB plan to a funded position of approximately 98.3%. This is in line with the
Central San's OPEB Funding Policy(BP 042)to achieve a funded position of 100%, and puts Central
San within very close reach of achieving this goal. As planned for the long-term use of the OPEB Trust,
staff has already implemented protocols (as outlined in the adopted FY 2021-22 budget book)to
commence reimbursements from the OPEB trust for retiree premium costs in excess of the actuarially
determined contribution (ADC) as calculated by an independent actuary.
ALTERNATIVES/CONSIDERATIONS
The Board may elect to allocate the favorable FY 2020-21 budget variance toward the staff-recommended
alternatives proposed previously or may elect to fund these choices at different levels.
Absent specific Board action, any favorable budget variance of the O&M fund would, through operation of
the Fiscal Reserve Policy and mechanics of the financial plan, ultimately be allocated to the Sewer
Construction Fund. This allocation is accomplished by modifying the proportional split of sewer service
charges between the O&M and Sewer Construction funds in the following year's budget. However this
mechanism would not take place as of June 30, 2021, as the O&M Working Capital Reserve is temporarily
below the policy specified level.
FINANCIAL IMPACTS
The actions being recommended are in line with Central San's FY 2021-22 budget (as amended) and
long-term financial plan. Building up the Rate Stabilization Fund reserve account will help provide flexibility
to mitigate Sewer Service Charge rate volatility. Furthermore, bringing the OPEB plan to a near fully
funded position will help in meeting the full funding goal specified in BP 042 — Other Post-Employment
Benefits (OPEB) Funding.
COMMITTEE RECOMMENDATION
The Finance Committee reviewed this subject at its October 26, 2021 meeting and recommended receipt
of the Pre-Audit Year-End Financial Statement Summary Report and supported the staff recommended
actions to address year-end budget variances.
RECOMMENDED BOARD ACTION
Receive the FY 2020-21 Pre-Audit Year-End Financial Statement Summary Report and direct staff to:
1. Designate the FY 2020-21 O&M expenditure variance for the following purposes:
a. $5.2 million to the O&M Rate Stabilization Reserve Account
b. $2.1 million retained in O&M Working Capital Reserves
c. $0.2 million to the Self-Insurance Fund
2. Allocate the $1.25 million additional contribution budgeted toward employee-related unfunded
liabilities in the O&M fund's FY 2021-22 budget to Central San's OPEB Trust.
November 4, 2021 Regular Board Meeting Agenda Packet- Page 64 of 324
Page 5 of 24
Strategic Plan Tie-In
GOAL THREE:Fiscal Responsibility
Strategy 1—Maintain financial stability and sustainability, Strategy 2—Ensure integrity and transparency in financial
management
ATTACHMENTS:
1. District-Wide Variance Overview
2. O&M Fund Variance Analysis
3. Presentation
November 4, 2021 Regular Board Meeting Agenda Packet- Page 65 of 324
Page 6 of 24
Attachment 1
Pre-Audit-Fiscal Year Ending June 30, 2021(FY 20-21)
Overall Variance Summary
Budget(Amended) Actual
FY 2020-21 FY 2020-21 Variance Favorable/Unfavorable
Operations&Maintenance
Revenues $ 65,432,162 $ 92,619,274 $ 27,187,112 F See Attachment 2
Expenses 161,466,338 153,946,768 7,519,570 F See Attachment 2
Total (96,034,176) (61,327,494) 34,706,682
Sewer Construction
Reallocation of SSC to O&M fund for
Revenues 94,952,902 63,957,923 (30,994,979) U UAAL payoff in June 2021
Expenses 108,595,770 69,610,843 38,984,927 F
Total (13,642,868) (5,652,920) 7,989,948
Self Insurance
Revenues 582,050 629,075 47,025 F
Expenses 1,153,500 1,395,142 (241,642) U
Total (571,450) (766,067) (194,617)
Debt
Revenues 2,517,605 2,522,405 4,800 F
Interest&Other 777,605 782,405 (4,800) U
Principal Payment 1,740,000 1,740,000
Total - -
District Totals(4 Funds)
Largely attributable to lower than
projected reimbursements from City
Revenues 163,484,719 159,728,677 (3,756,042) U of Concord
Expenses/Debt Principal 273,733,213 227,475,158 46,258,055 F Favorable
Total $ (110,248,494) $ (67,746,481) 42,502,013
November 4, 2021 Regular Board Meeting Agenda Packet- Page 66 of 324
Attachment 2
Pre-Audit-Fiscal Year Ending June 30,2021(FY 20-21)
Operations and Maintenance(O&M)Fund Variance Analysis
($in thousands)
Budget Variance
(Amended) Actual Variance($) (%) Variance Explanation Implications for FY 21-22 Budget(if applicable)
Revenues
Sewer Service Charge $ 44,528 $ 72,325 27,797 62.4% Retaining full April and June 2021 SSC allocation from county Budget already amended by Board to increase O&M fund's
in O&M fund in connection with Board approved plan for proportion of SSC split to recover remaining amount due from S/C
pension uaal payoff in June 2021 fund for UAAL payoff
City of Concord 15,760 15,003 (757) -4.8% Lower than projected annual treatment cost reimbursement Budget based on expected flow and estimated treatment plant
due to lower than anticipated O&M spending as well as expenditures
decrease in proportional flow rate from 34.1%to 32.3%
HHW Reimbursements 1,064 1,055 (9) -0.8% Immaterial variance
Recycled Water 482 565 83 17.2% Higher than anticipated usage;Recycled Water O&M expenses Conservative estimates for recycled water revenue were applied in
continue to exceed revenue,so no excess revenue was FY 21-22 budget,assuming growth of approximately 2.9%.
transferred to SC subfund
Other Service Charges 631 576 (55) -8.7% Largely resulting from retroactive adjustment to St.Mary's bill Budget projections developed using historical water flow data,
for water leak issues. which is adjusted for known significant water leak issues as
applicable.
Permit&Inspection Fees 2,022 2,176 154 7.6% Primarily driven by more side sewer inspection,resulting from Conservative assumptions for growth are used;3 year average will
more private lateral inspections than conservatively projected pick up higher than budgeted experiences
during pandemic environment
Other Nonoperating 755 776 21 2.8% Immaterial variance;actuals largely in line with budget
Income projections
Investment Income 190 143 143 75.3% Governmental investment pools largely limited to fixed Budget assumed decline investment yields based on yields of fixed
income investment instruments,which were adversely income instruments and LAIF at time of budget development.
impacted by low interest rate environment in FY 21-22. To
demonstrate,average LAIF apportionment rates for FY 18-19,
FY 19-20,FY 20-21 were 2.42%,2.06%and 0.56%respectively.
Total Revenues $ 65,432 $ 92,619 $ 27,377 41.8% Overall favorable revenue variance
Page 1 of 5
November 4, 2021 Regular Board Meeting Agenda Packet- Page 67 of 324
Attachment 2
Pre-Audit-Fiscal Year Ending June 30,2021(FY 20-21)
Operations and Maintenance(O&M)Fund Variance Analysis
($in thousands)
Budget Variance
(Amended) Actual Variance($) (%) Variance Explanation Implications for FY 21-22 Budget(if applicable)
Expenditures
Salaries&Benefits $ 51,088 $ 47,828 $ 3,260 6.4% Turnover was higher than projected with average vacancy Conservatively increased vacancy factor assumption to 3.0%in FY
factor of 5.7%during FY 20-21,compared to budget projection 21-22 budget.
of 2.0%. Many retiring tenured staff were replaced with less
costly newer successors(i.e.PEPRA,lower step,no longevity,
single vs.2 party+plan)
Unfunded Liabilities 86,627 86,280 $ 347 0.4% Immaterial variance;actuals largely in line with budget Beyond small CCCERA admin rate,UAAL no longer budgeted in
projections,as amended. Line includes UAAL payoff of O&M fund. Debt service for connected 2021 COPS budgeted in
approx.$70.8 million in lune 2021. debt service sub-fund in FY 21-22.
Utilities&Fuel 4,690 4,450 240 5.1% Budgetary savings attributable to optimal electrical generation Budget incorporates increases for ongoing storage usage and
of the Cogen system. While natural gas costs were slightly replenishment to adequately respond to PG&E PSPS safety
higher than budgeted,those overages were more than offset measures as well as projected inflationary growth
by savings in imported electricity costs.
Chemicals 1,534 1,727 (193) -12.6% Largely attributable to costs for lime and polymer used in None-Budget already incorporates higher costs attributable to
treatment process being higher than projected driven by new chemical supplier contracts.
increases in hauling costs during pandemic.
Other Operating 3,243 2,561 682 21.0% Primarily attributable to budgetary savings in the Plant Savings considered non-recurring and bulk of incomplete jobs
Supplies Maintenance Division with Other Operating and Repairs& deferred to FY 21-22 for completion.
Maintenance supplies being lower than projected in the
pumping stations,buildings and grounds and mechanical shop
functions.
Professional& 6,305 4,161 2,144 34.0% Largely attributable to budgetary savings in the Planning& Savings considered non-recurring and bulk of incomplete
Technical Services Development Services and Collection System Operations projects/initiatives deferred to FY 21-22 for completion.
divisions with the deferral of many projects/initiatives due to
the pandemic. This included,but was not limited to,the
following planned projects/initiatives:CASA sewer service flow
study,hydraulic model upgrades,ROW projects,and CCTV
inspection services,etc.
Contracted Repairs& 4,090 3,329 761 18.6% Primarily attributable to savings in the Plant Maintenance Savings considered non-recurring and bulk of incomplete jobs
Maintenance division's pumping station and mechanical groups realized by deferred to FY 21-22 for completion.
internal preventative maintenance initiatives reducing
unplanned/reactive repairs as well as the deferral of
projects/initiatives to next year due to setbacks caused by
shelter in place and social distancing precautions during the
pandemic.
Hauling&Disposal 1,014 1,289 (275) -27.1% Hauling costs for household hazardous waste was higher than Significant cost increase considered non-recurring with planned
budgeted due to close of public reuse room to mitigate covid opening of reuse room to the public in FY 21-22.
exposure during the height of the pandemic.
Page 2 of 5
November 4, 2021 Regular Board Meeting Agenda Packet- Page 68 of 324
Attachment 2
Pre-Audit-Fiscal Year Ending June 30,2021(FY 20-21)
Operations and Maintenance(O&M)Fund Variance Analysis
($in thousands)
Budget Variance
(Amended) Actual Variance($) (%) Variance Explanation Implications for FY 21-22 Budget(if applicable)
Other Contracted 1,230 1,133 97 7.9% Immaterial variance;actuals largely in line with budget
Services projections. Line includes security,rentals,cleaning and other
contracted services connected to property owned or used.
Other Expenses 1,645 1,188 457 27.8% Primary driver for budgetary savings is the limited amount of While reduced travel/conference costs were budgeted compared
travel,lodging,and registrations for conferences and training to FY 20-21,this level of budgetary savings is not considered
during the pandemic. recurring.
Total Expenses $ 161,466 $ 153,946 $ 7,520 4.7% Overall favorable variance expenses variance
Net Increase $ (96,034) $ (61,327) $ 34,897
(Decrease)
Page 3 of 5
November 4, 2021 Regular Board Meeting Agenda Packet- Page 69 of 324
Attachment 2
FY 2020-21 O&M Revenues
$80,000
$72,325
$70,000
$60,000
$50,000
I $44,528
c
m
C $40,000
L
C
$30,000
$20,000 $15,760
$15,003
$10,000
$1,064 $1055 $2,022 $2,176
, $qg2 $565 $631 $576 $755 $776
\ $190 $143
5eer 5eCv`ce Charge CAI°f C°�c HHVN Re�mbuCSemeOt5 Recyc\ed W at Other Ser\I*Ice ev Chaveem�t&�rSPection{eN°�°3erat%O�l�cOme`,,ve5tme�t\nc°me
P pthe
■Budgeted Revenues ■Actual Revenues
Page 4 of 5
November 4, 2021 Regular Board Meeting Agenda Packet- Page 70 of 324
Attachment 2
FY 2020-21 O&M Expenses
$100,000
$90,000 $86,627 $86,280
$80,000
$70,000
$60,000
$51,088
f6 $47,828
c $50,000
s
c
$40,000
$30,000
$20,000
$6,305
$10,000 $1,534 $3,243
$4,690 $4,450 $2,561 $4,090
$1,727 4,161 $3.329 $1,014 $1,230 $1,645
■ ■ � � M = ■ 1M x .89 .$.3 � �$
Sa ries&Bene{%ts ded"ab\\\ties 5&Fue\ em\ca\s u p\ie5 t
Ch ica\Se vices Disp°sa
\a Vn{un ut\\itie Other Operating S p n Repaic &Maintena Nau\\ng&then�Ontracted Serv�c O p
&�ech s e thec EX ense
pro{essiona\ Contracted O
■Budgeted Expenses ■Actual Expenses
Page 5 of 5
November 4, 2021 Regular Board Meeting Agenda Packet- Page 71 of 324
Attachment 3
UTILIZATION OF FY 2020 =21
VARIANCE FUNDS
AND BUDGETED $ 1 . 25MILLION
USE OF
FOR EmPLOYEE =RELATED LIABILITIES
b KEVIN MIZUNO, FINANCE MANAGER
AND PHILIP R. LEIBER, DIRECTOR OF FINANCE & ADMINISTRATION
NOVEMBER 4, 2021
r�
November 4, 2021 Regular Board Meeting Agenda Packet- Page 72 of 324
CTIVES
Consider past guidance on use of variances from
PFM (Financial Advisor)
Review variances from close of FY 2020-21
Review alternatives and direct available funds
towards optimal use
Direct budgeted $ 1 .25 M towards relevant employee
related liability (Pension or OPEB)
November 4, 2021 Regular Board Meeting Agenda Packet- Page 73 of 324
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:
Pay down CCCERA unfunded Allocate all currently available dollars
pension liabilities (UAAL) to reduce pension URAL and OPEB
Pay down other post- liability.
employment benefits (OPEB)
unfunded liabilities and shorten $2.5M budgeted in FY 2016-17
amortization period from 22 to toward OPEB Trust (done Feb.
18 years (done) 2017 by unanimous vote)
Set up and fund IRS Sec 115 $3.359M initial funding of Pension
Pension Prefunding Trust axone) Prefunding Trust using FY 2015-16
Allocate to CIB program budget variances (done Aug. 2017
Use to cover 0% rate increase by majority vote)
FY 2017-18
q; 2
November 4, 2021 Regular Board Meeting Agenda Packet- Page 74 of 324
BUDGET V
Favorable
$7 . 5 M : Operations & Maintenance (O&M ) fund
from lower spending .
Unfavorable
$3 . 8 M : Sewer Construction (SC)/Capital
Improvement Budget (CIB) from lower revenues *>
Largely attributable to lower than projected
reimbursements from City of Concord .
$0 .2 M for Self-Insurance higher expenses .
* $39 million underspending variance for Capital Improvement Program will be carried forward to FY 2020-21
F 3
November 4, 2021 Regular Board Meeting Agenda Packet- Page 75 of 324
TIAF VARIAN E
POTFK� C
A. For O&M , leave in O&M reserve R
E Contribute to Rate Stabilization Reserve Account P/1
$5.2 M of the variance was assumed to be directed
towards Rate Stabilization , which affected the initially
budgeted split of SSC for FY 2021 -22
B For Sewer Construction , leave variance in Sewer
Construction Reserve
If favorable, to reduce future debt or rate increases N/A
If negative, offset with reduced spending or increased
revenue/debt proceeds
C . Restore Self-Insurance Fund to targeted balance 0
Pay down employee related liabilities
a
(OPEB or Pension )
November 4, 2021 Regular Board Meeting Agenda Packet- Page 76 of 324
RECOMMENDEr 91SPOSITION
O&M :
$5.2 M favorable O&M towards rate stabilization fund (as
assumed in budget);
$2. 1 M remains in O&M fund . This, along with higher allocation
of FY 2021 -22 SSC will restore O&M fund to policy required
level .
$0.2 M to Self-Insurance fund to restore balance to $6.5 M
target;
Capital
Net $3.8 M lower than anticipated reserves still results in reserve
balance above policy required level . No action necessary.
November 4, 2021 Regular Board Meeting Agenda Packet- Page 77 of 324
RECOMMENDED ALLOCATIONS
($ 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 Trust
Allocation of Funds: Total Reserve Acct
Year-End Variances
2020-21 O&M $7.5 $2.1 - $5.2 $0.2 - - -
2020-21 SC ($3.8) - ($3.8) - - - - -
2020-21 SI $0.2 $0.2
Total $3.5 $2.1 $3.8 $5.2 $0.0 - - -
Budgeted
2021-22 UAAL Liabilities $1 .25 - - - - $1 .25 - -
Funding Status Fully More than No Target $6.5 96.9% / 0% 100%
Funded Fully Funded Established 98.3%
(1) Funding status per CCCERA June 30 payoff.
F 6
November 4, 2021 Regular Board Meeting Agenda Packet- Page 78 of 324
RESERVESTATUS
($ MILLIONS)
Rate
Stabilization
Reserve Acct
O&M SC-CIB ( including Pension Assets in
Total Reserve Reserve Self O&M and OPEB Prefunding CCCERA
Variance 5/12 50% CIB Insurance Capital) Trust(1) Trust(2) Trust(3)
Reserves per 6/30/21 * $14.3 $90.4 $6.3 $4.76 $84.6 $0 $455
Policy Required Level at 6-30-21 33.1 33.2 6.5
Difference (18.8)(4) 57.2(5) (0.2)
Proposed Reallocations (5.4) 0.2 5.2
Balances After Reallocations $8.9 (4 90.46.5 9.96 84.6 0 455
Reserve balances per pre-audit financial statements and external sources as applicable.
(1) Amounts per Balance sheet,and for CCCERA the actuarial value of pension assets.
(2) Pension Prefunding Trust had a balance of$0.0 M as of 6/30/21,due to CCCERA pension UAAL payoff.
(3) $384.2 M actuarial value of assets per December 31,2020 CCCERA valuation, plus$70.8 million contribution.
The next pension valuation report will be available in October 2021.
(4) The O&M reserve will be replenished during FY 2021-22 from a higher than typical allocation of SSC. The budgeted excess of O&M revenues
over expenses is projected to increase the O&M reserve by$37.1 million to$46.1 million,above the policy required level at 6/30/22 by about
$11.3 million.
(5) Balance is higher than the policy required level due to factors including:
$39M remains in SC from the carryforwards(total authorized spending less actual spending)
$20.5 million of bond proceeds above the budgeted level were used in FY 2020-21, band the Sewer Construction fund will receive a
lower allocation of SSC in FY 2021-22 offset by bond proceeds, in connection with the UAAL payoff.
Reforecast of Capital spending is underway due to change in direction on Solids Handling project
= I 7
November 4, 2021 Regular Board Meeting Agenda Packet- Page 79 of 324
AISTORY OF PEB
($ MILLIONS)
Actuarial Value of Assets %
Per Bartel 2-year Valuation Assets') Funded0)
7/11/2012 $22.5 22.4%
7/1/2014 33.7 32.4%
7/1/2016 43.8 44.0%
7/11/2018 59.4 56.3%
CaIPERS
FMedical Transition
7/1/2019 65.9(2) 82.9%(3)
7/11/2020 69.8 82.0%
7/1/2021 $84.6(2) 96.9%(4)
(1 ) Source: Bartel OPEB biennial actuarial report, unless specified otherwise
(2) Source: PARS OPEB Trust assets as of 6/30/19 and 6/30/21 respectively
(3) Calculated using PARS OPEB Trust and revised 7/11/18 AAL per 2/8/19 Bartel letter
preceding transition to CaIPERS healthcare. Bartel did not provide a revised AAL
estimate as of 7/1/19 reflecting figures from the transition to CalPERS healthcare
(4) Calculated using PARS OPEB Trust and projected UAAL per biennial OPEB
valuation for 7/1/19 and 7/1/21 respectively 1 $
November 4, 2021 Regular Board Meeting Agenda Packet- Page 80 of 324
HISTORY OF ADDITIONAL UAAL PAYMENTS
($ MILLIONS)
Pension
Date of CCCERA Prefunding
FY Payment Trust Trust OPEB 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
2016-17 Feb 2017 $2.5 Budgeted-Board Decision
2017-18 Aug 2017 $3.4 Funded by FY 2015-16 variances
2017-18 Various 2.5 Budgeted-Board Decision
2017-18 Various 2.0 Funded by FY 2016-17 variances
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
2020-21 Various $70.8 (12.8) Payoff of Pension UAAL (included earnings of$3.65 M)
Subtotal $83.3 $0 * 6.25
2021-22 Pending 1.25 1.25 Recommendation:
Budgeted $1.25M to OPEB Trust
Total $83.3 $0 $7.5 $90.8
November 4, 2021 Regular Board Meeting Agenda Packet- Page 81 of 324
- COMMENDATION ON VARIANCE FUNDS
Direct staff to utilize the FY 2020-21 variances as follows:
• •
9ZW_
IMF
A. Direct $5.2 million of the FY 2020-21 O&M spending variance to the $5.2 million
O&M Rate Stabilization fund, as assumed in the adopted budget for FY
2021-22.
B. Leave $2.1 million from the FY 2020-21 O&M spending variance in $2.1 million
the O&M reserve.
C. Acknowledge the $0.2 million unfavorable Self Insurance Fund ($0.2 million)
variance.
C. Transfer to $0.2 million from the FY 2020-21 O&M spending variance $0.2 million
to the Self-Insurance Reserve to restore balance to $6.5 million.
D. Acknowledge the $1-5 $3.8 million unfavorable Sewer Construction ($3.8 million)
revenue variance; no action necessary. Sewer Construction Reserve
remains above policy required level.
Total $3.5 million
N ¢t .
10
November 4, 2021 Regular Board Meeting Agenda Packet- Page 82 of 324
RECOMMENDATION ON BUDGETED $ 1 .25 MILLION
FOR EMPLOYEE RELATED LIABILITIES
Direct $ 1 .25 million budgeted in FY 2021 -22 to
OPEB Trust:
Funded Ratios: Alone Cumulative
Existing Assets in OPEB Trust 96.9%
Additional $1 .25 M contribution 1 .4% 98.3%
Rationale:
OPEB has a lower funded ratio (but still excellent!) while Pension
is fully funded.
Amount was budgeted for employee-related liabilities.
November 4, 2021 Regular Board Meeting Agenda Packet- Page 83 of 324
QUESTIONS ?E
1112
,l�tl _
November 4, 2021 Regular Board Meeting Agenda Packet- Page 84 of 324