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Home My WebLink About01. Financial Planning Workshop presentatioin Page 1 of 29 Item 1. CENTRALSAN jdf A- hom CENTRAL CONTRA COSTA SANITARY DISTRICT March 24, 2022 TO: HONORABLE BOARD OF DIRECTORS FROM: DANEA GEMMELL, PLANNING AND DEVELOPMENT SERVICES DIVISION MANAGER PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION REVIEWED BY: JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL SERVICES ROGER S. BAILEY, GENERAL MANAGER SUBJECT: CONDUCT THE FINANCIAL WORKSHOP, DURING WHICH THE FOLLOWING WILL BE PRESENTED: • CURRENT FINANCIAL CONDITION REVIEW • FINANCIAL PLAN UPDATE • DEBTTIMING • RATES • LONGER TERM ISSUES Staff will present the attached presentation at the Financial Workshop. Strategic Plan re-In GOAL THREE: Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability, Strategy 2—Ensure integrity and transparency in financial management ATTACHMENTS: 1. Financial Workshop Presentation March 24, 2022 Special Board Meeting Agenda Packet- Page 4 of 64 Page 2 of 29 77 + ANNUAL FINANCIAL WORKSHOP Board Workshop March 24, 2022 INTRODUCTION Roger S. Bailey, General Manager CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 5 of 64 1 Page 3 of 29 TODAY'S OBJECTIVES FOR BOARD DISCUSSION 1. Confirm adopted Sewer Service Charge (SSC) rates for Fiscal Year (FY) 2022-23 and proposed recycled water rates 2. Confirm Financing Alternatives of Capital Improvement Program (CIP) L CENTRALSAN OVERVIEW OF TODAY'S PRESENTATION I. Current Financial Condition Review II. Financial Plan Update a. Past, Present& Future Rate Forecasts b. Capital Outlook and Funding Needs ($190 million) III. Debt Timing (now or later) IV. Rates for Year 4 (same need regardless of future alternative paths) V. General Manager Concluding Remarks ` 4 March 24, 2022 Special Board Meeting Agenda Packet- Page 6 of 64 2 Page 4 of 29 I. CURRENT FINANCIAL CONDITION REVIEW Phil Leiber, Director of Finance and Administration l RECENT FINANCIAL ACCOMPLISHMENTS • Overall Budgetary Control and Cost Reductions • Eight years of nearly flat Operations and Maintenance(O&M)budgets(through FY 2021-22) • California Public Employees'Retirement System(CaIPERS)Healthcare Plan switch; $5.5 million savings annually started in FY 2019-20 • 2018 Bond Refinancing:$8 million interest savings through 2030 • 2021 UAAL Payoff: --$15(+/-)million interest savings through 2029 • State Revolving Fund(SRF)Financing for Solids Handling Facility Improvements (Solids Project):$20+million interest savings over 30 years based on likely use of $100 million of the$173 million loan • Spending Control after Budget Adoption • FY 2020-21 $7.5 million O&M savings • FY 2021-22 anticipated-$2.7 million O&M spending savings CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 7 of 64 3 Page 5 of 29 RECENT FINANCIAL ACCOMPLISHMENTS • Customer Rate Relief • Deferral of FY 2020-21 adjustment:maintained$598 SSC,postponing$629 SSC • Building Reserves to Weather Turbulent Times • Fully funded O&M and Sewer Construction Reserves • Rate stabilization account:$7.5 million • Increased Catastrophic Self Insurance Reserve from$5 million to$7.5 million • Greatly improved funded ratios for employee related liabilities 100%for UAAL and 85.7%on an actuarial basis for Other Post-Employment Benefits(OPEB)(estimated at 100%on a market value basis) • Recovery of$1 million of COVID response costs so far,with FEMA application still open 7 CENTRAL SAN FY 2021 -22 CENTRAL SAN FUNDING SOURCES (AMENDED BUDGET $197.6 MILLION (M) TOTAL 5RF Loan Proceeds,34.1 17 All Other Revenue, 5.6, 3% �Residential 4l% Capacity Fees, 88.6,45% 6.0,3% 11 Ad Valorem Tax,J 19.8,10% City of Concord, -Ll 24.1,12% \—Non-Residential SSC,19.3,10% Revenue provides$163.5M of the$197.6M revenue requirement ` CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 8 of 64 4 Page 6 of 29 SSC ANNUAL REVIEW REQUIREMENT 'Prior to imposing the rate set forth under this Ordinance for Fiscal Year 2022-23, the Board of Directors shall consider, at a noticed public hearing:" A. District's proposed budget; B. Projected capital and operations and maintenance costs; C. Its financial condition; D. Other factors which bear on the revenue requirements of the District. - 13 CENTRAL SAN A. PROPOSED FY 2022-23 BUDGET • Pending finalization (Draft Budget to be presented in early May) O&M for FY 2022-23 • Per Financial Plan: $101.2 million per original 4-year plan $83.4 million per Financial Plan as of January 2022 • Less: Draft Budget: $84.1 million as of Pass 2 • Equals: Net Variance: $17.1 million decrease from original plan/ $0.7 million increase from updated plan prior to start of budget process plan (due to salaries &benefits, chemicals,utilities,credit card fees) CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 9 of 64 5 Page 7 of 29 LJ1 A. PROPOSED FY 2022-23 BUDGET • Pending finalization (Draft Budget to be presented in early May) Capital Budget for FY 2022-23 • Per Financial Plan: $116.3 million per original 4-year plan $108 million per current financial plan Draft Budget: $108 million • Net Variance: $8.3 million decrease from original plan/ no deviation from updated plan CENTRAL SAN B. HISTORICAL & PROJECTED O&M COSTS $140,000,000 $120,000,000 $100,000,000 - - - - - Sw,000,000 - - - - - - $60,",000 $40,000,000 $20,000,000 S- R44 0" ititi nti .�i NtiNr`� � mv ,c co r°� � m pppp N N N N N N N vN N N N N N N N M 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N N N N N N N N N N N N Budget D UAAL Debt Projection -Original Financial Plan Takeaway: Eight years of O&M budget stability at an average of about$89M ` 12 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 10 of 64 6 Page 8 of 29 B. HISTORICAL & PROJECTED CAPITAL COSTS Capital Budget ("Estimated Expenditures"pre FY17/18) 140.000.000 120.000.000 100.000.000 80.000.000 60.000.000 °�� 4�224� laaaA �R��s tt� t = ttt = �� Takeaways: Spending remains high in second half of decade due to acceleration of Solids Project,Phase 2 Rate increases will be mitigated by planned use of debt. 13 CENTRAL SAN C. FINANCIAL CONDITION • Financial Condition is Good • Required Fiscal Reserves are fully funded • $7.5 million in Rate Stabilization Account • Pension UAAL fully paid off. OPEB at 86%/100%actuarial&market basis funded • Favorable variances are anticipated from FY 2021-22: Results through February 2022 • O&M Variances • Total revenues:$2.4 million ($1.3 million SSC, and $1 million COVID grant, $0.1 million other) • Total spending:$3.5 million ($900K salaries&benefits, balance prof.service) • Net Varonninp- $5.9 million favorable • Capital Variances • No revenue variance projected($600K under for capacity fees, but may be offset by property taxes in 2nd installment) • Total capital project spending of$145.8 million authorized; actual will be below, but mainly a timing issue • Net Variance: 0 14 CENTRAL SAN March 24, 2022 Special Board Meeting Agenda Packet- Page 11 of 64 Page 9 of 29 C. FINANCIAL CONDITION: RESERVES BOARD POLICY (BP) 017 FISCAL RESERVES Rama oa„ ' Defines and governs use of.- • O&M Reserve • Sewer Construction ReserveY ,� d..� • Self-Insurance Reserve • Rate Stabilization Accountm • OPEB Trust and Pension ' b � Prefunding Trusts --b CENTRALSAN C. FINANCIAL CONDITION: RESERVES ON TRACK / HEALTHY Reserve Status ($ millions) �EMMMM3=lmmm 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) 57.20) (0.2) Proposed Reallocations (5.4) 2.7 2.7 Balances After Reallocations $8.9 i4) 90.4 AD $7.46 $84.6 $9 455 Role-balancas pofp—dil financial Btalam9ms and i—imal so—as applicable_ (1) Annwn per babnca aheel,and tar CCCERA Ne acpwdel value of panaidnaasats, (2) Penson pmNridigTwt Mde bdance°ISOX Mas of(W=1,duo td CCCERA pension URAL payoff (3) $3842Ma-neilvdue dlassad par 0ecemba31,2020 CCCERA-1.lon,plus$708.11i ndnaib— The nab pension velue0on report will he—bible in 0ctnber 2021_ (4) The CBM reserve will be repl.,.h.d during FY 2021-22 bdma higher then lyplcelaXocetlon dfSSC.The bix%..deaceasol MIA revanuea $11`eapenseais pmjectedtd inc —the C8M reserve by S371 million to$48.1 millld eb—the policy required Wrol at 813022bya�ut 3 mari°n. (5) &ib—ishig",ft,he pdicyreq,,,d level din,lb,fecbrsmcluding� '$39Mremains in SC yi thecanyldrxerde(tole!wlhorized apandl in lessW"apending� $205 million of bond proceedsabove he b 1 by—level were used in FY 2020-21,band the Sewer Consauction Iund Al reneive a ower elbcdidn olaSC In try 2021-2 ii—yl by band proceeds,in cdnnsctidn wih.n kg p peyotl 'RafdrerostalCepilel apaMing la undanvey due to chenpa in tlirecNan on Solids Hendling protect 16 March 24, 2022 Special Board Meeting Agenda Packet- Page 12 of 64 8 Page 10 of 29 D. OTHER FACTORS THAT BEAR ON REVENUE REQUIREMENTS OF DISTRICT • Revenue outlook in FY 2022-23: • Last year,we were predicting a 20%decline in commercial SSC with gradual recovery over four years. Outlook is now improved and much less significant. • Non-residential SSC Revenue budgeted just slightly lower than FY 2021-22 actuals based on COVID and anticipated calendar year 2021 water consumption. This will almost certainly be offset by increases in other revenues. • Change in direction for Solids Project; Phase 1A lower costs overall, but increased spending within 10-year horizon. • Economy good; unemployment is low. • Contra Costa County unemployment rate as of January 2022 was 4.7%(versus December 2021 4.2%, November 4.6%, October 5.30%down from 6.90%in November 2020).This is lower than the long-term average of 5.74%. • Uncertainty: Impact of interest rate hikes, continuing escalation in Russia/Ukraine situation. CENTRAILSAN SUMMARY ASSESSMENT Commentary 9 Conclusion M P 0 A.District's proposed budget; Consistent with 4-year rate plan Stay the course B. Projected capital and Capital needs in the next 5 years Stay the course operations and maintenance higher than anticipated due to costs; acceleration of Solids Project, Phase 2. Potential other projects (water exchange) C. Its financial condition; Good Stay the course D. Other factors which bear on External economy reasonably Stay the course the revenue requirements of strong,but mounting uncertainties the District. CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 13 of 64 9 Page 11 of 29 II. FINANCIAL PLAN UPDATE Danea Gemmell, Planning and Development Services Division Manager CENTRAL SAN-- SUMMARY OF ADOPTED SSC RATES • Board of Directors approved a 4-year schedule of SSC rates in April 2019. • Rate ordinance requirements include annual reviews to determine if adjustments are needed followed by an annual public hearing. CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 14 of 64 10 Page 12 of 29 APPROVED 4-YEAR SSC RATE • The Board's Annual Review will consider the 4th year SSC rate for FY 2022-23; which represents a 4.55%increase from the approved Single-Family Residential rate of$690. • Board Direction:Stay the Course or Adjust the Rate. $1,000 $31 not $906 $938 collected $855 $880 (+3%) (+3.5%) $900 approved $776 $807 (+3%) (+3%) (+3%) f I I I $629 $718 $746 (+4%) (+4%) _ r I I I I I I I $800 (+5.25%) (+718 —(+4%) effective $660 $690 r—I I I I I I I I I I I I I I I $700 $598 $598IL I I I I 1� r � r� r� 1 -1 r-1 I $600 3soo 1$400 � 1F_ $300$200$10oI11111IL I$0 � L� I_1 l_I I_1 I_1 I_1 1_1 L_I 2019-20 2020-21 2021-22 2022-23 2023.24 2024.25 2025.26 2026.27 2027.28 2028.29 2029.30 2030-31 2 ■Approved Single-Family Rate rSNot Collected ri Planned 21 CENTRALSAN 111,11.1110 ••. FIVE-YEAR PLAN IS RELATIVELY UNCHANGED FOR ALL THREE SCENARIOS $1.200 -- ---------------------------- $1,038 $989 4.95% $942 4.99% +$49 $898 4.90% +$47 $1,000 $856 4.91% +$44 ,r +816 4.90% +$42 ----- $998 $717 $778- 4$38 +$40-- =��'��/� $951 4.94% $745 4.43% _ +.91% 3$28 $33 — �' $869 4.4% +$43 +$47 $BOO — $27 _ - $8� $836 3.95% +$39 $745 $774 3$32 +$33 3.88% $717 3.$29 +$30 3.91% +$29 $600 — 3.91% +$28 +$717 $877 $903 $939 $804 $gam $852 2.93% 2.96% 3.99% $400 $717 $745 $774 SSW 2.99% 2.90% 2.96 +$36 $660 $690 3.91% 3.91% 3'S� 3.98 +$24 +$24 +$25 $598 $629 493% 4.55% +$27 +$28 5.28% 5.18% $200 201420 2020-21 2021-22 2022-23 - - - - 202]-28 2028-29 2029-30 2030-31 2031-32 PRIOR APPROVED UNDER REVI EW PROJECrED(No Nutrients):10-Year:42.27% —4—PRO]ECTED(With Nutrients):10-Year:51.21% —�—PROJECrED(Nutrients 5 Years Earlier):10-Year:57.27% 22 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 15 of 64 11 Page 13 of 29 CURRENT YEAR CIP: FY 2021-22: $938.7 MILLION FY 1011-21 BUDGET mmuron zozD Dollars Ten Year CIP 1 2 3 4 5 6 7 8 9 10 11 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 reat $45.2 $66.3 $69.3 $76.5 $58.8 $52.5 $40.6 $23.7 $26.0 $38.3 Collection system $39.8 $37.4 $42.0 $39.1 $31.8 $34.3 $27.6 $29.9 $25.3 $26.8 General lm rove $3.8 $2.6 $2.1 $2.0 $2.1 $2.0 $2.0 $2.0 $2.0 $2.0 Rec cled Water $16.6 $8.2 $2.0 $5.5 $11.6 $13.7 $1.3 $0.3 $0.3 $0.3 ontin en $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.7 $3.5 TOTAL FY 2020-21 CIP $108.0 $117.0 $117.9 $125.5 $106.8 $105.0 $74.0 $58.4 $56.2 $70.1 $74.7 $938.7 533ao suao sroso 5so9 s>so ssaa 5<60 51r.... irHI - ... rr21-2a -s FY 2Y30 rr 30.31 FY 3132 p[omirgenry p E War.• •�e�erzl em-mt p[oaeeiio m YTremmem Alam CENTRALSAN r PROPOSED 10-YEAR CIP FY 2022-23: $1,080.8 MILLION fio m;;l;oo zou wno.: Ten Year CIP 1 2 3 4 5 6 7 8 9 10 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 iiatilant $53.6 $639 $710 $717 $533 $568 $662 $699 $82.2 $608 Cstem $40.7 $46.6 $46.8 $30.5 $30.6 $38.5 $28.5 $28.5 $28.5 $29.2 $3.0 $2.3 $2.1 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 $8.2 $2.0 $0.6 $5.6 $12.0 $14.1 $1.4 $0.3 $0.3 $0.3 onti $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 TOTAL Y2022-23 Proposed IP $108.0 $117.3 $123.0 $112.6 $100.6 $104.2 $100.9 $103.5 $115.7 $95.1 $1,080.8 m2?-23 Proposed CIP 533s9 Seco. seosa Sme s�sn 560.0 545A Sss0 50.9 en npncv i4q<lod Wetar��GemrA Mpwmx a LCMe r�n5vremry�}rturmem olml� 24 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 16 of 64 12 Page 14 of 29 CAPITAL PROJECTS ASSUMPTION UPDATES Updated Project Cost: Total change of$141.1 million • Solids Project,Phase 1A: Reduced Scope • Solids Project,Phase 2: Added to 10-Year Plan • UV Disinfection Replacement: Updated Project Estimate • Aeration Basins Diffuser Replacement: Updated Project Estimate • Pump Station Upgrades, Phase 2: Updated Project Estimate • Filter Plant&Clearwell Improvements,Phase 1 B Updated Project Estimate These and previously known factors have been incorporated in ALL new financial model scenarios Either Nutrients/Water Exchange may enter the 10-Year CIP Horizon Nutrient Removal Project(Added to 10-Year Plan): $205 million Water Exchange Project(Nutrient Project+Added Processes implemented 5-years earlier) $250 million Nutrients treated as separate financial scenarios CENTRALSAN 111-M95FIZ 1:7 111 11 :'1 PROPOSED 10-YEAR CIP - NO NUTRIENTS FY 2022-23: $1,025.6 MILLION Ten Year CIP-No Nutrients 1 2 3 4 5 6 7 8 9 10 FY 22-23 FY 23-24 FY 2425 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 Treatment Plant $53.6 $63.9 $70.5 $69.7 $51.3 $52.6 $60.7 $61.9 $74.2 $35.8 Collection System $40.7 $46.6 $46.8 $30.5 $30.6 $28.5 $28.5 $28.5 $28.5 $29.2 General Improvements $3.0 $2.3 $2.1 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 Recycled Water $8.2 $2.0 $0.6 $5.6 $12.0 $14.1 $1.4 $0.3 $0.3 $0.3 Contingency $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 TOTAL 2022-23 Proposed qP 1 $108.0 $117.3 1 $122.5 1 $110.6 1 $98.6 1 $100.0 1 $95.4 1 $95.5 1 $107.7 1 $70.1 1 $1,025.6 $135.0 $120.0 -- --- - $105.0 - --- - $90.0 $75.0 $60.0 $45.0 $30.0 $15.0 $0.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 ❑Contingency ■Recycled Water ■General Improvements ❑Collection System ■Treatment Plant ` 2C CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 17 of 64 13 Page 15 of 29 PROPOSED 10-YEAR CIP -WATER EXCHANGE FY 2022-23: $1,275.8 MILLION Ten Year CIP-Water Exchange 1 2 3 4 5 6 7 8 9 10 FY 22-23 FY 23-24 FY 2425 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 reatment Plant $53.6 $78.1 $78.5 $77.7 $76.3 $147.6 $160.7 $61.9 $74.2 $35.8 Collections stem $40.7 $46.6 $46.8 $30.5 $30.6 $28.5 $28.5 $28.5 $28.5 $29.2 Generallmprovements $3.0 $2.3 $2.1 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 Recycled Water $8.2 $2.0 $0.6 $5.6 $12.0 $14.1 $1.4 $0.3 $0.3 $0.3 Contingency $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5 TOTAL 2022-23 Proposed Cip 108.0 $131.5 $130.5 $118.6 $123.6 $195.0 $195.4 $95.5 $107.7 $70.1 $1,275.8 $210.0 $195.0 $180.0 $165.0 $150.0 $135.0 $120.0 $105.0 $90.0 $75.0 $60.0 $45.0 $30.0 $15.0 $0.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 ❑Contingency ■Recycled Water ■General lmprovements ❑Collection System ■Treatment Plant I _ CENTRALSAN CAPITAL PROJECT ALTERNATIVE SCENARIOS SUMMARY Nutrient/ Nutrient 10-Year CIP CIP Alternative Project Project Start Sta rt Tot - . . Total Alternative 1: Full CIP with start of $205M FY 5 FY 2031F Nutrients Construction (Yeearar 33)) (Year 100)) Alternative 2: No Nutrients in 10-Year $205M FY ear 11)3 FY ear 14)6 Horizon (Year 11) (Year 14) Alternative FY 2023- FY 202 Water Exchange $250M (Year 2)) 5)(Year 5) March 24, 2022 Special Board Meeting Agenda Packet- Page 18 of 64 14 Page 16 of 29 RATE MODEL ASSUMPTIONS Basis of Model: January 2019 Cost of Service Study by Raftelis Updated O&M Budget: • Updated for Pass II of budget for FY 2022-23 (under development) • Based on Tentative Agreements Memorandums of Understanding; 5%for FY 2022-23, and 3.75% Consumer Price Index(CPI)for following 4 years • Number of employees per latest Staffing Plan with 1 FTE request • Retirement(CCCERA data) • CalPERS Medical per current employee contract • Includes Unfunded Pension Liability replaced with Certificates of Participation with approximately$1 M annual savings Capital Budget: • 2024-5% escalation; 2025-5%escalation;2026-4%escalation;thereafter 3% • Updated 10-Year CIP:$1,080M based on revised cash flow • Future SRF issuances at 1.8%to 2.0%interest • Bond Interest at 3%to 3.5%over next 10 years Reserves: Targets per Board Policy Debt Service Coverage 29 CENTRAL SAN DEBT ASSUMPTIONS SRF Debt • SRF Assumed since Central San preference due to low interest rates; • Loans must be project scope and budget specific • Loans are competitive and approved by Water Board Approved Debt Issuance ($98.5M) 1. Solids Project, Phase 1A: $173.1M ceiling at 0.90%interest;Assumes total loan of$98.5M inclusive of previous planning/design expenditures. Near-Term Debt Issuance ($190M) 2. UV Disinfection Replacement:$60M with construction in FY 2024-25. Submit Application by December 31,2022 3. Solids Project, Phase 2: $130M with construction in FY 2027-28. Submit Application by December 31,2023 Future Debt Issuance ($205M-$250M) 4. Nutrients($205M)/Water Exchange($250M): Only one of these options will be selected with associated debt issuance.While SRF is prefePnk rre ` ,o CENTRAL SAN March 24, 2022 Special Board Meeting Agenda Packet- Page 19 of 64 15 Page 17 of 29 FIVE-YEAR PLAN IS RELATIVELY UNCHANGED FOR ALL THREE SCENARIOS SFR SSC Rate Scenarios $1,200 $1,038 $989 4.95% $941 +.99% +$49 $898 4.90% $47 $1,000 $856 +.91% +$44 A�'��w +816 4.90% $41 _ • 4.88% �' $717 $745 4.43%- $38 $40- $951 4.94% 3.91% +$47 $800 3.91%+$27 +$28 $33 _ � '$869 $908 +$4% $27 $804 $836 +$39 *$43 3.$33 $774 3.98% $717 $745 3.89% 3.88% +$32 *$33 $600 — 3.91% 3.91% +$29 *$30 $717 $28 $939 $8� $852 $877 2.96 3.99% $400 $717 $745 389% $ 888% 2.99% 2.90% +$25 +$26 +$36 $598 $629 $660 4.5% 3.91% 3.91%$28 +$29 +$30 +$24 +$29 5.28% 5.18% 4.93% +$27 $200 — 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 PRIOR APPROVED —UNDER REVIEW O PROJECTED(No Nutrients):30-Year:42.27% — —PROJECTED(With Nutrients):10-Year:51.21% �—PROJECTED(Nutrients 5 Years Earlier):30-Year:57.27% CENTRALSAN II. DEBT TIMING CONSIDERATIONS Phil Leiber, Director of Finance and Administration March 24, 2022 Special Board Meeting Agenda Packet- Page 20 of 64 16 Page 18 of 29 DEBT FINANCING • Debt is a key financial planning tool. 7• With a given level of spending, funds can be generated either through RATES or BORROWING. • We need to collect through rates funds to pay debt service and/or pay-as-you-go funding for CIP. • Borrowing Types: • SRF Loan through State; or • Direct Borrowing by Central San through COPS/Revenue Bonds CENTRALSAN DEBT FINANCING 7Per Piper Sandler(2018 underwriter): "With Build America/Buy America impacts and after factoring in regional/local impacts for Davis Bacon wages: (1)SRF subsidies are diminished compared to market rates, and (2) Timing and schedule is more essential—i.e. unless inflation is tamed and unless the Feds exercise rate restraint,future borrowing costs will increase,so borrow now. " • Decision: With current low interest rates, should we borrow now before rates increase? • Analysis by PFM and Financial Plan Scenarios explore options ` ,4 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 21 of 64 17 Page 19 of 29 TIMING DECISION Borrow 7now Borrow later • PRO PRO • Aim to lock in today's • Potentially access SRF loan lower interest rates rates which are 50% of borrowing rates we would • CONface borrowing on our own • With SRF, accrue/pay • Forego potential for lower interest only on draws as SRF rates they occur • Negative carry(borrow and invest at lower rate) CON • Interest rates forecast to be higher in 2-5 years • Uncertainty and complications related to SRF 35 CENTRALSAN OTHER SRF COMPLICATIONS 7ILengthy, burdensome process (24 months minimum after application submission and 30+ steps) • Uncertainty given competitive process; SRF cashflow targets for lending approximately$600M annually • Build America/Buy America (BABA) Requirements on cost(up to 25% for some components), although impact on overall project can be minimal and there are workarounds (cash funding equipment) • Project funding limitations for consumables and other expenditures (more relevant for some projects such as UV project) • Major change in project direction requires a new application/restarting timeline • Waiting on construction start for completion of SRF process results in higher project costs by at least 3.9% annually based on historic ENR construction cost inflation rates (and potentially higher in this environment) • For Solids Project Phase 2,we see an ability to accelerate project if funds are available earlier;this would not be possible with SRF 36 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 22 of 64 18 Page 20 of 29 7INTEREST RATES: SRF VS. AGENCY DIRECT BORROWING *SRF --a0V MM9 5% lata 2022 1,59%• 5% v^ Dec 2031 148% 6% �' -nv 3031 1.51% 4% Oct2021 1.69% M Sep 2D2 156% 3% Aug]1031 1,48% z% Jul 2021 vara 1un 2021 116% zoz, 1s2% 1% ** Of 0%� Mn 1021 1.14% ¢ ay 0 1 9• .y0 v Fe6201] 1.68% The tahles on thrrdght show monthly are.ape:of short-terminmcesandtex-e.empt Tiede tme ahe As ofC0hlm,.'Y1x 20?z o claimer:Mello&Company has onsored this matefial(or'mformatinnal purposes poly Mellp&Compam,obtained this information from multiple souf[es believed to be reliable as of the date of pvbibatlpn.Melb&Company,h6wevn,makes no representations as to the xwracy 6r wmpleteness of such th�rtl Wrty bformappn-Mel,u&Company has no obligation to update.modify or amentl this Inf—adpn 6f.am—isen ifya readef thereof in the event that anysuch Information becomes outdated.inaccutate.of Inwmplete. 'I CENTRALSAN � e INTEREST RATES: HEADED UPWARDS, BUT WITH UNCERTAINTIES o•epmyer z0x,–taee•ane -,. p•, _ 35 basis points increase from 1/24 to 3/9 for a debt issuance of 20 years per Piper Sandler • Inflation,end of Fed extraordinary actions, raising short-term interest rates(25 basis point hike on 3/16,with the expectation of 6 more hikes this year, aiming to get to a short-term benchmark rate of 1.9%.) • Economic uncertainty due to Russia/Ukraine CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 23 of 64 19 Page 21 of 29 7L CONCEPTUAL DEBT TIMING DECISION Borrow Later (Path 1) vs. Now (Path 2) shown below June 2024 June 2027 $60M $130M Path 1 N Probability: Probability: Probability weighted total 80%SRF 50%SRF interest&principal costs 20%Bonds 50%Bonds for"Borrow Later' Use SRF or other Borrow now? debt? w $190M Path 2 Probability: Total interest and principal 100%Bonds costs for"Borrow Now" Key issues include forecasting future interest rates and likelihood of success in SRF loan applications CENTRAL SAN PFM ANALYSIS CONDUCTED • Borrow now or later analysis included: • Forecast future interest rates (used Bloomberg BVAL Municipal AAA rate curve; with forward rates 10-93 basis points higher than today) • Forecast investment rates on funds until needed • Probabilities of success in obtaining SRF loans (80% and 50%) • Estimates of project spend by year • Results: • Borrow later appears tentatively to have a lower overall cost to Central San, but gap narrows significantly when considering two other important factors. • Delay on project cost of delay due to SRF loan process • Higher project costs with SRF spending requirements(BA/BA) 40 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 24 of 64 20 Page 22 of 29 735PFM ANALYSIS: RESULTS Total Cost: (Principal,Interest,less earnings) 1 2 3 4 0 299 2B6 286 286 28b - 2]1 274 251 250 2W 150 100 43 50 I 16 12 1.Initial 0% 0% $43M 2.Updated 5% 3.9%*2 years $15M 3.Updated 5% 5%*2 years $12M 4.Updated/ 5% 9%*2 years $0 Breakeven 41 CENTRAL SAN ' SENSITIVITY FACTORS • What would have to change to affect the conclusions of the What analysis? • SRF rates increase by more than 0.60% (to over 1.70%)between now and 2024, a level they reached in 2019, 2018, and before 2015. This is more than what the market expects based on the Bloomberg Terminal forward curve. • Decreased likelihood of success for SRF loans yAL Muni AAA Curve(Callable) • Higher inflation m, o2z.,„,5 ,o, ,e ese,=n�,erae,<<eE.•vPor. 02 Sfi Yl M estimates affect •Amo 1.1-- project --project cost and argue for expediting delivery of capital projects • Change in Forward eso 111— tezm� 1,91413 1 Interest 1 WM .94553 2.00742 Rate Curve15 ` 4z CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 25 of 64 21 Page 23 of 29 7F TERNATIVES AND RECOMMENDATION FOR $190M OF NEAR-TERM DEBT • 1 . Accept results of analysis: Pursue SRF RECOMMENDED •1a. Tentatively accept the analysis but, continue to monitor the situation (inflation, interest rates, SRF funding, other project borrowing needs) • 2. Critique assumptions to sway analysis to the other conclusion • 3. Hedge the bet/compromise: borrow some now, and some later I' CENTRALSAN IV. SSC AND RECYCLED WATER RATES Thomas Brightbill, Senior Engineer Financial Planning CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 26 of 64 22 Page 24 of 29 APPROVED 4-YEAR SSC RATES (FY 2019-20 TO FY 2022-23) STAY THE COURSE OR ADJUST? $1,000 $31 not collected $900 approved $776 $807 $800 $629 $718 (+$746 (+4.02%) (+13.99%i 907 $700 effectiv $660 e $690 (+4.06%) _ $598 $598 $600 I I I $500 I I I I I I I $400 I I I I I I I I I I I I I I $300 I I I I I I I I $200 I I I I I I I I I I I I I I I $100 I I I I I I I I $o L_1 I__I L_ 2019-20 2020.21 2021-22 2022-23 2023.24 2024-25 2025.26 2026-27 ■Approved Sing le-Family Rate ❑Not Collected rJ Planned 45 CENTRAL SAN OUR RATES CONTINUE TO BE BELOW THE AVERAGE San Francisco(SFPUC) Berkeley(EBMUD for treatment) Santa Rosa Petaluma Mum. Rodeo Sanitary District Richmond San Leandro(EBMUD for treatment) Crockett Sanitary Department Oakland(EBMUD for treatment) Average Average of Agencies Surveyed Vallejo Sanitation and Flood Control momommom Livermore Mt View Sanitary District Napa Sanitation District Central San PROPOSED FY 2022-23 Central San FY 2022-23(approved April 2019) Stege SO(EBMUD for treatment) Median Median of Agencies Surveyed Brentwood West County wastewater District Concord(CCCSD for treatment) Sunnyvale Central San Central San FY 2021-22 Novato Sanitary District Pittsburg(Delta Diablo for treatment) Antioch(Delta Diablo for treatment) Bay Point(Delta Diablo for treatment) Fairfield-Suisun Sewer District Pleasant—(DSRSD for treatment) San lose Union Sanitary District Dublin San Ramon Services District Castro Valley Sanitary District Hayward Oro Loma Sanitary District $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 FY 2021-22 Sewer Service Charge per Single-Family Home d � 46 March 24, 2022 Special Board Meeting Agenda Packet- Page 27 of 64 23 Page 25 of 29 RATE COMPARISON INCLUDING PROPERTY TAX San Francisco(SFPUC) Berkeley(EBMUD for treatment) i Santa Rosa i Petaluma Rodeo Sanitary District i Benicia i Crockett Sanitary Department o Richmond San Leandro (EBMUD for treatment) Oakland(EBMUD for treatment) i ❑ Average i o Average of Agencies Surveyed Central San PROPOSED Fy 2022-23 o Central San FY 2022-23(approved April 2019) Mt View Sanitary District o Vallejo Sanitation and Flood Control ❑ Central San o Central San FY 2021-22 Novato Sanitary District o Livermore Median o Median of Agencies Surveyed Napa Sanitation District Stege SD(EBMUD for treatment) West County Wastewater District Brentwood Concord(CCCSD for treatment) Pittsburg(Delta Diablo for treatment) Sunnyvale ■FY 2021-22 Sewer Service Charge L a Diablo for treatment) a Diablo for treatment) �wimated property tax Valley Sanitary District Fairfield Suisun Sewer District (DSRSD for treatment) San Jose Union Sanitary District Ron Services District Hayward Loma Sanitary District � $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,800 $1,800 $2,000 FY 2021-22 Sewer Service Charge per Single-Family Home 47 STAFF RECOMMENDATION: RECOMMEND ADOPTION OF PREVIOUSLY APPROVED SEWER SERVICE CHARGE RATES Proceed with published rate of$690 per Single-Family Residence for FY 2022-23. CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 28 of 64 24 Page 26 of 29 7 30% RECYCLED WATER RATE INCREASE IS SCHEDULED ON JULY 1 , 2022 • On April 18, 2019, the Board adopted 4-year recycled water (ReW) rates with 3% escalation annually • Zone 1 ReW customers are billed based on measured use $4.50 $4.00 $3.50 $3.91 $4.03 '4'1' $3.00 $3.38 $3.48 ___$3.58_ $3.69 $3.80________ $2.50 $1.92 $2.00 $1.61 $1.66 $1.71 $1.76 $1.81 $1.86 $1.50 $1.00 $0.50 $0.00 FY 2015- FY 2016- FY 2017- FY 2018- FY 2019- FY 2020- FY 2021- FY 2022- 2016 2017 2018 2019 2020 2021 2022 2023 -40--Class I(Former Treated) —Class II(Former Untreated) CENTRALSAN '1 SUMMARY OF RECOMMENDATIONS AND CLOSING Roger S. Bailey, General Manager CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 29 of 64 25 Page 27 of 29 SUMMARY OF KEY POINTS BY GENERAL MANAGER 1. Confirm adopted Sewer Service Charge rates for FY 2022-23 and proposed recycled water rates 2. Confirm Timing Decisions for Financing Capital Improvement Program L CENTRALSAN SSC RATE RECOMMENDATION • Continue with previously adopted SSC rate for FY 2022-23; representing a 4.55% increase from the approved Single-Family Residential rate of$660. • Conduct a public hearing on April 21, 2022 accordingly (required per 2019 rate ordinance). $1,000 $31 not $900 collected $776 $807 $800 approved $718 $746 (+4.02%) (+13.99%) $629 $690 (+4.06%) $700 effective $598 $600 $598 I I II I I I I I I I $500 I I I I I I I $400 I I I I I I I I I I I I I I $300 I I I I I I I I $200 I I I I I I I I I I I I I I I $loo I I I I I I I I $0 L_� 1_1L_ 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026- ■Approved Single-FamilV Rate r9Not Collected U Planned 52 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 30 of 64 26 Page 28 of 29 NEXT STEPS RELATED TO FY 2022-23 BUDGET AND RATES Set Public Hearing for 4/21/22 3/17/22 Confirm Rates at Public Hearing for Fiscal 4/21/22 Year 2022-23 Draft Budget Released 5/5/22 Engineering&Operations Committee 5/11/22 Review of Budgets Finance Committee Review of Budgets 5/16/22 Budget Presentation 5/26/22 Budget Hearing and Adoption 6/16/22 CENTRALSAN FUTURE EVENTS Cost of Service Project Commences Spring 2022 Cost of Service Project Results Available Fall-Winter 2022 Board approves rates for FY 2023/24(and potentially additional years) Spring 2023 ` 54 CENTRALSAN March 24, 2022 Special Board Meeting Agenda Packet- Page 31 of 64 27 Page 29 of 29 QUESTIONS, COMMENTS, AND DISCUSSION I� March 24, 2022 Special Board Meeting Agenda Packet- Page 32 of 64 28