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Home My WebLink About04.c. Review draft Position Paper to adopt new Board Policy No. BP 048 - BudgetPage 1 of 8 Item 4.c. DCENTRALSAN MEETING DATE: MARCH 1, 2022 BOARD OF DIRECTORS POSITION PAPER DRAFT SUBJECT: REVIEW DRAFT POSITION PAPER TO ADOPT NEW BOARD POLICY NO. BP 048 - BUDGET SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION -FINANCE REVIEWED BY: PHILIPLEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER ISSUE Adoption of new Board policies requires approval of the Board of Directors. Staff is proposing adoption of a new Board policy establishing objectives and rules for the development, adoption, monitoring, and amendment of Central San's budget. BACKGROUND With the turnover of key staff in the Finance function over the past several years as well as the recent implementation of a new system for budget development and monitoring, it is prudent to develop a formal budget policy document (Attachment 1) outlining important policies and objectives and related to the budgeting process. Specific processes considered in the scope of this newly proposed policy include the development, adoption, monitoring, and amendment of the budget. While many of the components of this proposed budget policy are largely a formalization of long-standing practices at Central San, incorporating these rules into a written policy document will enhance the transparency of important budget policies for the Board, staff, and the public. Development of this proposed budget policy involved 1.) internal reviews with key staff involved in the budget process, 2.) a review of example budget policies from other California municipalities (i.e. Orange County Sanitation District, City of San Diego, and Contra Costa County), and 3.) surveying other neighboring Bay Area wastewater agencies on their current budget practices. Key Central San staff included in the budget review process that were solicited for feedback included the General Manager, Director of Finance and Administration, Finance Division Manager, Capital Projects Division Manager, and the Planning and Development Division Manager. While the results of this research showed that not every public agency has a formal budget policy, the development of one is in line with best practices issued by Government Finance Officers Association as well as Central San's existing practice to establish formal Board policies on important processes such as budgeting. March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 9 of 58 Page 2 of 8 Of the twenty-four neighboring Bay Area wastewater districts surveyed, Central San received sixteen responses, or 66.7%. Only five multiple choice questions were asked in the survey in an effort to keep it brief to promote timely responses. A list of the responding municipalities and their responses is summarized in Attachment 2. 1 n addition to incorporating feedback from key internal budget development participants, and results from the review of example policies as described previously, the proposed Budget Policy was also designed to reflect "the norm" per the budget survey. The only exception to this was in relation to encumbrances, where the results of the survey indicated an even 50/50 split between those using and not using encumbrance accounting to monitor budgetary spending. While the proposed Budget Policy includes a requirement to monitor commitments for compliance with budgetary restrictions and long-range financial planning, the topic of encumbrance accounting was deemed to be a procedural matter better addressed through an internal procedures document rather than a Board Policy. To ensure a discussion was held on the concept of a two-year budget prior to the presentation of draft Budget Policy, on January 27, 2022, staff provided a presentation to the Board covering the potential pros and cons of transitioning to a two-year budget versus remaining with the status quo one-year budget approach. At the conclusion of the presentation, it was the recommendation of staff to remain with a single year budget approach for the time being, but emphasized the concept of a two-year budget could be discussed in the future following the completion of the upcoming fiscal year's budget for Fiscal Year 2022- 23. Board members held a brief dialogue on the topic, but ultimately did not direct staff to depart from the status quo approach. Accordingly, the attached draft Budget Policy formally establishes the budget and fiscal year period as the one year timeframe from July 1 st to June 30th. As with all board policies, this policy will be subject to periodic review, where the budget duration can once again be reconsidered at a later date. ALTERNATIVES/CONSIDERATIONS The Board may elect not to adopt the proposed Budget Policy, and rely on existing informal protocols for the development, adoption, monitoring and amendment of the budget. This is not recommended, however, as establishing formal rules for budgeting will enhance transparency and improve the clarity of important budget policies and restrictions. The Board may alternatively adopt a Budget Policy similar to the one being proposed by staff, but with some modifications. Should changes be requested, it is recommended that the Board, via motion, direct specific changes to be made to the attached draft policy document. FINANCIAL IMPACTS Adoption of this proposed policy does not have any immediate or direct fiscal impacts to Central San. The proposed Board Policy formalizes protocols that have been in practice at Central San for several years (i.e., rollover of unspent CI B appropriations, budget timeframe) while also establishing formal guidelines for topics that were previously unaddressed (i.e., method of amendment, legal level of budgetary control). COMMITTEE RECOMMENDATION The Administration Committee reviewed this item at its March 1, 2022 meeting and recommended RECOMMENDED BOARD ACTION Adopt the proposed new Board Policy No. BP 048 - Budget, as it would formalize important policy rules and objectives concerning the budget process. March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 10 of 58 Page 3 of 8 ATTACHMENTS: 1. Proposed Board Policy BP 048 2. Budget Survey Responses March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 11 of 58 Page 4 of 8 FIRTTATM Number: BP 048 Authority: Board of Directors Effective: TBD Revised: Reviewed: March 1, 2022 Initiating Dept./Div.: Administration/Finance BOARD POLICY BUDGET PURPOSE To set forth a budget policy for Central San consistent with current and future goals as they pertain to fiscal responsibility, accountability, transparency, and sustainability. POLICY 1. Budgets shall be presented to and adopted by the Board for each fiscal year (FY), which starts July 1 and ends June 30. 2. Public involvement shall be encouraged in the annual budget development and adoption process. 3. Budgets shall incorporate strategic plan goals and strive to provide the resources necessary for achieving them. 4. Central San shall strive to achieve a long-term structurally balanced budget. 5. The development of the annual budget shall be a collaborative District -wide effort. 6. The legal level of budgetary control (i.e., the level at which expenditures may not exceed appropriations) shall be at the fund level on a FY basis. 7. A secondary legal level of budgetary control for the Capital Improvement Budget (CIB) shall be at the total project level, which may overlap multiple FYs. 8. The CIB shall include a 10-year rolling planning timeframe with future budget estimates for long-range financial planning. 9. At the close of each FY, any unspent CIB appropriations for active projects shall automatically rollover for reappropriation in the following FY's CIB. 10.Any savings from closed capital projects or unused contingency in the CIB shall remain in the sewer construction fund. March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 12 of 58 Page 5 of 8 Number: BP 048 BUDGET Page 2 of 2 11. Central San shall monitor its contractual commitments to ensure budgetary compliance and alignment with its long-range financial plan. REPORTING AND ACCOUNTABILITY Staff shall be accountable for monitoring and controlling their respective operational and project budgets. Finance shall develop and present budget -to -actual reports to the Finance Committee and Board, not less than quarterly, to demonstrate budgetary control, fiscal accountability, and compliance, where applicable. Following the close of the FY, a report of year-end results shall be provided to the Board for direction on favorable or unfavorable budget variances that significantly differ from projections of the adopted budget. This annual report shall also specify the amount of CIB rollover appropriations as previously described. AUTHORITY The General Manager has the authority to approve line -item transfers within funds between organizational units (i.e., departments or divisions) and/or accounts. Furthermore, the General Manager has the authority to approve inter -project budget transfers in the CIB up to the maximum threshold specified in Board Policy No. BP 037, Delegation of Authority to General Manager. Inter -project budget transfers above this authority level must be approved by the Board. Any spending above total fund appropriations specified in the adopted budgets must be accompanied by a budget amendment authorized by the Board. In the CIB, any increases to individual project budgets not covered by inter -project budgetary transfers are considered budget amendments, thereby requiring Board authorization. For purposes of this policy, Board approval of a budget amendment shall be demonstrated by a motion passed via simple majority. POLICY REVIEW This policy shall be reviewed on an annual basis to reflect the highest standards of fiscal management and Central San's budgetary goals. Any changes must be approved by the Board after review by the Administration Committee. [Original Retained by the Secretary of the District] March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 13 of 58 Page 6 of 8 Attachment 2 Budget Policy Survey • List of Neighboring Municipal Wastewater Utility Responses: 1. Central Marin Sanitation Agency 2. Delta Diablo 3. Dublin San Ramon Services District 4. East Bay Dischargers Authority 5. Fairfield Suisun Sewer District 6. Monterey One Water 7. Mountain View Sanitary District 8. North Marin Water District 9. Novato Sanitary District 10. Oro Loma Sanitary District 11. Ross Valley Sanitary District 12. Sanitary District No. 5 of Marin County 13. Tamalpais Community Services District 14. West Bay Sanitary District 15. West County Wastewater District 16. West Valley Sanitation District • Survey Questions and Responses: 1. How often do you publish formal interim budget -to -actual financial reports for your governing body? H-Dnthiy 37.9 Quarterly 43.75% Mir4yeerpcint 12.50°l0 Other {pIR,rle 6.25% specify} fM 1COA 20Da 3CfA 40% 50% 60% 70% 80% 80xc 100xc 1 March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 14 of 58 Page 7 of 8 Attachment 2 2. What is your agency's legal level of budgetary control? Fund -Level a 5()ICO% DepartmeWDivi 45,009G sion-level Account -Level 6.25% NotappLicabLe M 12250%6 Other(plea_ae , 6 2596 specify) 0% 10%5 20% 30%5 40% 50%5 60% 70% 30% 90% 100% 3. What specifies your legal level of budgetary control? Policy a (approved by--- =2, CA Government 6-25% Code Other CA Law NotapplicabLe 31.25% Other(please specify) 0% 10%6 20% 30%6 400A 50%6 60% 70% 8D% SO% 100% 2 March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 15 of 58 Page 8 of 8 Attachment 2 4. Does your organization use encumbrance accounting? _- dd 501ce% 1M 20N 30% 40% 5M &Y% 70% 30% 90% 100% 5. What approval mechanism is used for budget amendments? :1veclution - - Minutemation=� fL,=� Notapplicable Other (plea_,,e 25,CO% specify) ()% 10% 20% 30% 40% 5095 GO% 70% 80% 50% 100% 3 March 1, 2022 Regular ADMIN Committee Meeting Agenda Packet - Page 16 of 58