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HomeMy WebLinkAbout20.c. Committee Minutes-Finance (Regular) 03-22-2022 Page 1 of 9 Item 20.c. CENTRALSAN jdf A- hom CENTRAL CONTRA COSTA SANITARY DISTRICT April 7, 2022 TO: HONORABLE BOARD OF DIRECTORS FROM: KATIE YOUNG, SECRETARYOF THE DISTRICT SUBJECT: MARCH 22, 2022 - REGULAR FINANCE COMMITTEE - CHAIR MCGILLAND PRESIDENT WILLIAMS Attached are minutes of the above Committee meeting. ATTACHMENTS: 1. Minutes of 03-22-22 meeting April 7, 2022 Regular Board Meeting Agenda Packet- Page 171 of 194 Page 2 of 9 r CENTRAL SAN CONTRACENTRAL •STA SANITARY DISTRICT 5019 IMHOFF REGULAR MEETING OF THE BOARD OF DIRECTORS: DAVID R. WILLIAMS CENTRAL CONTRA COSTA President SANITARY DISTRICT BARBARA D.HOCKETT President Pro Tena FINANCE COMMITTEE MARIAHNLAURITZEN MICHAEL R.MCGILL TAD J PILECKI MINUTES PHONE: (925)228-9500 Tuesday, March 22, 2022 FAX.- (925)372-0192 2:00 p.m. www.eentralsan.org (All attendees participated via videoconference) Committee: Chair Mike McGill Member David Williams Guests: Erika Armstrong, MissionSquare (left after Item 4.a.) Rob Whited, NFP (left after Item 4.a.) Staff: Roger S. Bailey, General Manager Katie Young, Secretary of the District Philip Leiber, Director of Finance and Administration Jean-Marc Petit, Director of Engineering and Technical Services Emily Barnett, Communications and Government Relations Manager (joined during Item 4.d.) Danea Gemmell, Planning and Development Services Division Manager Kevin Mizuno, Finance Manager Olivia Ruiz, Accounting Supervisor Heather Ramamurthy, Management Analyst Amelia Berumen, Assistant to the Secretary of the District 1. Notice This meeting was conducted virtually in accordance with the provisions stipulated in Assembly Bill (AB) 361 and adopted by the Central San Board of Directors on March 17, 2022. The agenda included instructions for options in which the public could participate in the meeting. 2. Call Meeting to Order Chair McGill called the meeting to order at 2:01 p.m. April 7, 2022 Regular Board Meeting Agenda Packet- Page 172 of 194 Page 3 of 9 Finance Committee Minutes March 22, 2022 Page 2 3. Public Comments None. 4. Items for Committee Recommendation to the Board a. Review draft Position Paper to receive the 2021 Annual Deferred Compensation Report encompassing Central San's 457(b) Deferred Compensation, 401(a) Money Purchase, and 401(h) Retirement Health Savings Plans Mr. Mizuno provided historical background on the requirement for the Deferred Compensation Report, the adoption of a Deferred Compensation Board Policy last year, the Advisory Committee and its current structure, and a recent action by the Advisory Committee to create subcommittees to provide further review and vet matters prior to their regularly scheduled meetings. The annual report (Attachment 2) summarized the plan for the 2021 calendar year and was reviewed in-depth in its content and other technicalities. Regarding performance — with the conflict in eastern Europe and rise in inflation, Mr. Mizuno advised the market value of the plans as of yesterday (March 21), was at$164.7 million, reflecting a noteworthy 6% reduction in assets from the market value shown in the 2021 Annual Report (as of December 31, 2021). Educational efforts have remained successful during the pandemic. Participant meetings for planning strategies, enrollment assistance and allocation education were provided by Mission Square. There were 98 virtual one-on-one meetings with a retirement plan specialist and meetings with certified financial planners, an increase of 82% from the prior year. As it pertained to fiduciary oversight, staff solicitated proposals for fiduciary services for the Deferred Compensation plan. NFP was selected for the services at a competitive price. Member Williams inquired about the difference between the responsibilities of the plan administrator versus that of the fiduciary advisor. Mr. Mizuno explained Mission Square serves as a third-party administrator (TPA), with the Finance Manager serving as the Plan Administrator. In contrast, NFP will serve as a fiduciary advisor for compliance and fund allocation, and assist the Advisory Committee in meeting their fiduciary responsibilities, but not replace their role. April 7, 2022 Regular Board Meeting Agenda Packet- Page 173 of 194 Page 4 of 9 Finance Committee Minutes March 22, 2022 Page 3 Ms. Armstrong added an analogy that Mission Square is the record keeper and is not a fiduciary— Central San is the fiduciary and is responsible for the Plan. Mission Square provides a due diligence of types of funds and fund offerings and handling; however, fiduciary determination is up to the District. NFP is a neutral fiduciary advisor that will aid in benchmarking plan performance and fees to industry standards, provide Advisory Committee education, and assist in evaluating the funds with the criteria in the policy statement. She advised it is very important to bring in a professional fiduciary when a plan grows to a sizeable balance, like the $175 million now held in Central San's plan, and noted the fiduciary advisor stands beside the District in legal cases through a legal process. The fiduciary advisor helps the Advisory Committee check the boxes that everything is in compliance. Mr. Whited concurred with the explanation and provided further likeness to having an accounting firm audit the books. He stated it was important to note that the oversight is a diligent process and everything is well documented. A lengthy and technical discussion ensued regarding the process, and towards the Finance Committee's concerns of Board responsibility. Mr. Whited added that NFP reviews the governing documents and if something does not make sense, it is immediately brought to staff for review and reconciliation. He anticipates by the next quarterly meeting everything should be in order. Chair McGill noted his deep concern for the Board to have responsibility and wants more than a Finance Committee review and recommend Board receipt process. He recommended the report should have a statement to address the fiduciary review of the report. Mr. Bailey concurred with this point and that, at a minimum, there should be some form of training and communication for the Board so they can appreciate and understand what their responsibilities are. Chair McGill requested clarification on the Board's fiduciary responsibility versus that of the Advisory Committee, and how best the Board could accomplish the responsibilities since the Board Members are not experts in this matter. Mr. Mizuno advised that the Deferred Compensation Plan Board Policy (BP 047) outlines the roles of the: Board, General Manager, Plan Administrator, and Deferred Compensation Advisory Committee. In that document, it made clear the Advisory Committee's role was to provide fiduciary oversight, and the Board's establishment of this committee and requiring this annual report serves to meet its own fiduciary responsibilities in relation to the Plan. April 7, 2022 Regular Board Meeting Agenda Packet- Page 174 of 194 Page 5 of 9 Finance Committee Minutes March 22, 2022 Page 4 Mr. Whited stated he could not provide a legal opinion. However, he recommended a one-day fiduciary training that the Board Members could attend provided by NFP through its 457 University training program, and advised of a local April session. He noted that the Board has a right to delegate under the California Code but one could get into trouble if delegated to someone that cannot adequately handle. Chair McGill recommended one or both Committee Members should attend the training and well as offer to the entire Board. He asked staff to note in the Position Paper regarding hiring people that can be relied upon in order to recommend to the Board for the fiduciary responsibilities. Mr. Leiber stated the District has a fully engaged Deferred Compensation Advisory Committee consisting of employees asking tough questions. Furthermore, Mission Square has a long tenure in the field as a not-for-profit entity and provides diversified investment options and services at low cost; the District now has an independent fiduciary to assist, and he opined the Board should be able to take some comfort in these implemented steps. Mr. Bailey added the key for the Board to know is that the Committee wants to make sure there is a system and processes in place the Board can rely upon to the extent it has the fiduciary responsibilities to check the appropriate boxes. He noted the District has hired outside experts, has Committees and best practices in place, and as such is likely to have met at least the minimum standards. Ms. Armstrong stated Central San has set good oversight practices. She added that a high-level presentation was provided to the Advisory Committee that may be beneficial for this Committee or the full Board to also receive. Chair McGill inquired as to how long an Investment Policy Statement has not been in place. Mr. Mizuno stated he could not speak to the history with his fairly recent employment at the District, as to why one was not in place or whether there was a previous one, but did confirm that he was unable to find any evidence of an Investment Policy Statement was ever implemented in the past. Mr. Whited stated the District would not want to have an Investment Policy Statement without an advisor and it would have been more problematic if the District already had one in place. He stated he would work with the Advisory Committee on the framework so that it is clear. In regard to the section in the draft Position Paper that discusses the Advisory Committee Administrative Procedures Adoption (p. 3 of 44), Chair McGill requested staff rephrase the ending to remove the abbreviation "etc."with other descriptive terms; Member Williams agreed. The Committee provided suggestions for this scenario for staff to consider. April 7, 2022 Regular Board Meeting Agenda Packet- Page 175 of 194 Page 6 of 9 Finance Committee Minutes March 22, 2022 Page 5 It was further requested to clarify the term "directors,"such as the Advisory Committee members being appointed by "directors."Mr. Mizuno clarified it was by the department directors and would revise the Position Paper accordingly. The Committee recommended Board receipt and requested an informational presentation/training on fiduciary responsibility be provided at a future meeting. COMMITTEE ACTION: Recommended Board receipt with a capture of today's discussion and other changes to be reflected into the Position Paper as stated. The Committee requested an informational fiduciary responsibility presentation be made to the Board at a future meeting. b. Review and recommend approval of expenditures incurred February 11 , 2022 through March 10, 2022 Staff responded to limited questions posed during the meeting, to which the Committee was satisfied with the responses. Chair McGill noted his appreciation for the procurement card reconciliation (Attachment 4). COMMITTEE ACTION: Recommended Board approval. C. Receive Financial Overview through the month of February 2022 Mr. Mizuno provided a broad outline of the February 2022 financial overview and noted the updates from the January overview presented last week. In response to Chair McGill's inquiry on the timing of depreciation for capital projects, Mr. Mizuno replied the depreciation commences once Finance receives notification from Engineering that the project is- or is significantly complete, after which it is capitalized and depreciated in the first year following a mid-year convention. COMMITTEE ACTION: Recommended Board receipt. April 7, 2022 Regular Board Meeting Agenda Packet- Page 176 of 194 Page 7 of 9 Finance Committee Minutes March 22, 2022 Page 6 d. Receive annual update on Strategic Risk Inventory / Enterprise Risk Management (ERM) Program Chair McGill noted discrepancies in the agenda materials regarding appropriate Committee designation (Administration versus Finance) and asked staff to correct prior to Board receipt. Mr. Leiber reviewed the presentation provided in the agenda materials. There are 28 risks in total, color coded by responsibility. It was noted the top- ten categories do not change much over time. He discussed these areas in detail. Member Williams inquired about the pandemic range within the chart being spiked in the middle, surrounded by lower risk items. Mr. Leiber noted the difference and would update prior to Board receipt. In response to Member Williams question of a defined frequency to update the histogram, Mr. Leiber replied it occurs every six months. He acknowledged there are some assessments that are already out of date and this report represents a point-in-time snap shot. As an example, one unknown then was the current crisis that has since developed in the Ukraine. Chair McGill inquired about economic uncertainty, such as the pandemic and the current conflict, and how is that considered. Mr. Leiber replied that one form of analysis is social/political risk; staff attempts to plan ahead and have mitigation plans. The presentation was concluded to the satisfaction of the Committee. COMMITTEE ACTION: Recommended Board receipt. 5. Other Items a. Annual review of contracts and blanket purchase orders older than five years with an annual spend greater than $25,000 Mr. Leiber provided an update of stale, open blanket purchase orders (BPO) that reached a five-year threshold or more. This update was initially requested by the prior Board to review long-term BPOs. Mr. Leiber reported the initial list has dwindled down significantly and, as of December 31, 2021, the last remaining BPO has since been rebid. COMMITTEE ACTION: Received the information. April 7, 2022 Regular Board Meeting Agenda Packet- Page 177 of 194 Page 8 of 9 Finance Committee Minutes March 22, 2022 Page 7 b. Receive update on the Septic-to-Sewer (S2S) Financing Program Ms. Gemmell provided a status of the two-year pilot program the Board put in place one year ago. As background, she noted the District has always had a financing program to address septic conversion capacity fees; however, the S2S program provides additional customer assistance with expanded financing. This program helps pay for all associated costs for septic conversion to sewer, with a low interest rate (3.22%) that was adopted with the fees and charges last June. In response to Member Williams question of how often the rate is reviewed, Ms. Gemmell stated it is reviewed annually. Staff uses a 20-year approach when looking at rates, using T-bills that extend for 20 years and adding a half-percent for staff costs for the duration of the financing term. When fees/charges are brought before the Board in June as part of a public hearing process, the interest rate will also be updated. Ms. Gemmell added that during the first year of this pilot, internal processes and outreach materials were focused upon with refinements made along the way. The first S2S agreement was signed in October 2021; seven agreements have been signed to-date. Initially, there was some concern that a $50,000 cap for an agreement would only allow for 10 agreements per year. Out of the seven current agreements, the amount being financed is just shy of$200,000 of the $500,000 allocated per year. Ms. Gemmell noted the funds in the Capital Improvement Program are used to pay for third-party costs, such as contractor payments, reimbursements, or Contractual Assessment District (CAD) fees. These costs are about$66,000 to date, and allow staff to leverage more loans, which is expected to increase in time. Ms. Gemmell responded to various questions posed. She stated that staff plans to discuss whether other financing programs should also be made available, such as mainline extensions for single-family properties or lateral replacements; however, that discussion will be reserved for the appropriate time in the future when ready for consideration. The Committee concurred this is a good program and recommended Board receipt of the information. COMMITTEE ACTION: Received and recommended staff also present the update to the Board. April 7, 2022 Regular Board Meeting Agenda Packet- Page 178 of 194 Page 9 of 9 Finance Committee Minutes March 22, 2022 Page 8 6. Announcements Mr. Bailey reported an incident that occurred hours earlier in the day regarding a force main hit by a contractor near the Orinda Pump Station. It had been initially estimated that 60,000 gallons of sewage spilled and entered a nearby creek. East Bay Municipal Utility District (EBMUD) had been notified. An interception of the flow from entering their reservoir further downstream was able to be made. It was an active situation, and all necessary parties have been notified for coordination efforts. The General Manager declared an emergency which will be brought before the Board for ratification at its next meeting. A second announcement was made by Mr. Bailey that discussion remains underway regarding bringing remote staff back to the office; telework continues. 7. Suggestions for Future Agenda Items a. Receive list of upcoming agenda items and provide suggestions for any other future agenda items COMMITTEE ACTION: Received the list. 8. Future Scheduled Meetings Tuesday, April 19, 2022 at 2:00 p.m. Monday, May 9, 2022 at 2:30 p.m. (Special meeting) Tuesday, May 24, 2022 at 2:00 p.m. 9. Adjournment— at 3:58 p.m. April 7, 2022 Regular Board Meeting Agenda Packet- Page 179 of 194