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Home My WebLink About04.b. Review proposed FY 2022-23 Central San Operations and Maintenance, Self-Insurance, and Debt Service Budgets Page 1 of 18 Item 4.b. CENTRAL SAN May 9, 2022 TO: FINANCE COMMITTEE FROM: KEVIN MIZUNO, FINANCE MANAGER REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER SUBJECT: REVIEW PROPOSED FISCAL YEAR 2022-23 CENTRAL SAN OPERATIONS AND MAINTENANCE, SELF-INSURANCE, AND DEBT SERVICE BUDGETS The proposed Fiscal Year(FY) 2022-23 District Budget will be considered by the Board for adoption on June 16, 2022 upon conclusion of a scheduled public hearing to receive public comment. Central San's draft FY 2022-23 budget book was distributed to Board Members on May 5, 2022 at a regularly scheduled public meeting. Commencing on page 44 of the draft FY 2022-23 Budget book, the Financial Summary section provides a comprehensive synopsis of the core elements of Central San's entire budget including analysis of specific funds, revenues, expenses, and reserves. Attached is a draft of the presentation planned to be given at the May 21, 2022 Board Meeting in regards to the Operations and Maintenance budget (Attachment 1). On May 11, 2022, the Engineering & Operations Committee will review the Capital Improvement Budget and Ten-Year Capital Improvement Plan portions of the draft FY 2022-23 Budget. At this meeting, the Finance Committee is being asked to review and provide feedback to staff on all non- capital improvement portions of the draft FY 2022-23 budget, namely the Operations and Maintenance, Self-I nsurance, and Debt Service budgets. To have sufficient time to produce a final budget book for distribution as part of the June 16, 2022 Board meeting agenda packet, staff is requesting that all Board Members provide any edits by the end of the day on Wednesday, June 1, 2022. 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. Proposed FY 2022-23 Budget Presentation May 9, 2022 Special FINANCE Committee Meeting Agenda Packet- Page 20 of 37 Item 4.b. (Handout) (Updated Presentation) PROPOSED j CENTRAL SAN BUDGET FISCAL YEAR 2022-23 Presented by Philip R.Leiber,Director of Finance and Administration Kevin Mizuno,Finance Manager Edgar Lopez,Capital Projects Manager Final adoption scheduled for the June 16,2022 Board Meeting Board of Directors presentation on May 26,2022 Capital Presented to: - - Engineering and Operations Committee - May 11,2022 Operations and Maintenance Presented to: Finance Committee May 9,2022 1 BUDGET SCHEDULE January-March: Budget data collection, calculations, analysis, and internal review/approval March-April: Budget book development March 24: Financial Workshop May 5: Draft budget released May 9: Finance Committee review of O&M May 11: E&O Committee review of capital May 26: Budget Presentation June 16: Scheduled Budget Approval Essentially the same timeline as in prior years, except for the budget adoption date being extended. Z PRESENTATION OVERVIEW • Accomplishments • Addressing Strategic Priorities • Budget Summary & Key Takeaways • Overall Uses and Sources of Funds • Four Budget Subfunds • Operation and Maintenance • Sewer Construction (Capital Improvements) • Self-Insurance • Debt Service • Reserves • Recap and Next Steps 3 ACCOMPLISHMENTS • Continued providing essential services during COVID-19 pandemic,while taking appropriate measures to keep public and employees safe • Paid off pension unfunded liabilities and substantially reduced the other post-employment benefits (OPEB)unfunded liabilities,while achieving a projected savings of over$15 million over the next seven years • Invested to address critical infrastructure needs, such as: • Replaced or rehabilitated over six miles of pipes in Danville, Walnut Creek, Lafayette, Martinez, Pleasant Hill, and Orinda • Major renovations at Pumping Stations in Orinda and Moraga and Recycled Water Filter Plant • Constructed the Outfall Renovation project and Safety Phase 5 to add emergency exit stairs to the Solids Conditioning Building • Achieved the lowest-ever recorded volume of overflows. ACCOMPLISHMENTS (CONTINUED) • National Association of Clean Water Agencies(NACWA) Peak Performance Platinum Award, honoring 24 consecutive years of 100%compliance with wastewater discharge permit • Reopened Permit Counter and launched an online scheduling system to serve customers • 70,000 visits to the Household Hazardous Waste(HHW)Collection Facility and Residential Recycled Water Fill Station,with 2.2 million pounds of HHW collected • Served 5,800 students via the digital Pipe Protectors education program • Continued ongoing optimization and improvement of the new enterprise resource planning (ERP)software. Launched IT Strategic Planning effort. • Reimbursed $996,000 from the State Special District COVID-19 Relief fund • Launched Central San's Diversity, Equity, and Inclusion (DEI)initiative • Maintained strong performance on strategic plan metrics ..�z 5 ADDRESSING 9 STRATEGIC PRIORITIES mcc=-"�_I Primary Response FY 2022-23 Budgeted Project(s) CUS ER 1 Provide exceptiio al seryservice ITY 1.Balancing the need for Continue commitment to educating Public outreach,including the highly successful financial resources against customers about required revenue and Central San Academy,student education impacts to the customer resources needed to replace aging programs,facilities tours,Pipeline community infrastructure and meet regulatory newsletter,and social media engagement requirements ENVIRONMENTAL STEWARDSHIP Meet regulatory requirements,promote sustainability,and identify and reduce contributions to climate change 2.Evolving regulatory Anticipate changing regulations and plan for Proactive participation with regulatory agencies requirements alternatives to maintain reliability and meet as part of the Solids Handing Facilities requirements Improvements Project 3.Maintaining a sustainable Partner with agencies to find creative water Continue pursuing the Refinery Recycled Water water supply solutions benefiting the region and state,and Exchange Project to utilize recycled water at identify ways to maximize cost-effective nearby refineries in place of potable water to resource recovery and sustainability increase the amount of potable water available to the community ADDRESSING 9 STRATEGIC PRIORITIES Primary Response FY 2022-23 Budgeted Project(s) WORKFORCE DIVERSITY ANDDEVELOPMENT WIR+%�F^' Recruit,educate,empower,and retain a workforce from diverse backgrounds 4.Driving employee q Develop,retain,and equip high quality Employee recognition,training and performance and rewarding employees with the tools needed to succeed, development programs,outside conferences, excellence so Central San may become a preferred and professional association memberships to diemployer inspire continuous education and improvement - - GOVERNANCE AND FISCAL RESPONSIBILITY Uphold integrity,transparency,and wise financial management in an effective governing model S.Maintaining responsible rat Balance capital spending with affordability and Financial planning to forecast needs and at an affordable level rate impact concerns,and offset infrastructure sensible spending,as well as the continued push replacement,regulatory responses,and other to become a more cost-effective and efficient expenses with cost-saving efforts,efficiencies, operation optimizations,and innovations FIN SAFETY AND SECURITY Provide a safe,secure,and healthful workplace that foresees and addresses threats JWthepIncrease security at the treatment plant to Projects to construct and provide safety address increased contractor and upgrades and to contract with a consultant to construction activity,and implement an help develop and implement the IT Master Plan Information Technology(IT)Master Plan with cybersecurity in mind 7 ' LIP 7 ADDRESSING 9 STRATEGIC PRIORITIES Primary Response FY 2022-23 Budgeted Project(s) ® INFRASTRUCTURE RELIABILITY Maintain facilities and equipment to be dependable,resilient,and long lasting 7.Aging infrastructure and Make investments in capital improvements Major projects include the Solids Handling climate resiliency and internal resources to deliver on increased Facilities Improvements and Filter Plant and levels of capital spending Clearwell Improvements INNOVATION AND AGILITY Optimize operations for continuous improvement,and remain flexible and adaptable 8.System optimization and Continue to champion and initiate projects Continued launch of the Treatment Plant utilization of Big Data through the Central San Smart initiative to Strategic Innovation and Optimization Initiative. optimize operations,improve asset Other optimizations include the Steam and management,increase energy efficiency and Aeration Blower Systems Project to evaluate safety,and reduce facility management costs efficiency options for one of the major energy sources of the treatment process. Smart Initiative projects include optimization of treatment plant asset handover process and development of an asset health indicator tool. Continue to maintain a safe working Continue to update and enforce the COVID-19 environment for employees and the public Exposure Prevention Plan while providing essential services BUDGET SUMMARY =====W Operations $87,584,775 $90,666,338 $79,520,131 $85,019,046 $5,498,915 6.9% &Maintenance Sewer Construction $66,176,000 $88,024,000 $107,955,000 $90,976,000 $(16,979,000) -15.7% Debt Service $2,982,415 $2,517,605 $12,891,059 $13,251,922 $360,863 2.8% Self-Insurance $1,073,700 $1,153,500 $1,285,000 $2,170,000 $885,000 68.9% Total Budget $157,816,890 $182,361,443 $201,651,190 $191,416,968 ($10,234,222) -5.1% THE PROPOSED BUDGET 11111111111wo"Ni LFY ROVIDES THE RESOURCES O MEET THE GOALS OF THE F YS].z 2022-24 STRATEGIC PLAN -` *As amended _ **Excludes overall contributionsto reserves 9 = 9 KEY BUDGET TAKEAWAYS • Commitment to Excellence and High Level of Service • FY 2021-22 Budget amounts presented reflect Board- approved budget amendment following pension UAAL paydown in June 2021 • Higher than normal inflation impacting various line items • Capital Spending down temporarily in FY 2022-23, but ramping up in three-year period FY 2023-24 through 2025-26 consistent with 10-year plan Following slides show funding USES and SOURCES for each of four budget subfunds (OW, sewer construction, self-insurance, debt) ALL BUDGETS: USE OF FUNDS FY 2020-21 FY 2021-22 FY 2022-23 $182,631,443 $201,651,190 $213,536,900 $u0000,000 — N:.00 00 $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 —-- —— — ■ $10,000,000 Operations&Maintenance Sewer Construction Debt Service Self-Insurance Contribution to Reserves ■FY 20-21 ■FY 21-22 ■FY 22-23 Budget Budget Budget • $5.5 million increase in O&M budget,largely attributable to cost increases from higher than-normal inflation. • $17.0 million reduction in capital spending with deferral of expenditures to future years following transformation of large Solids Handling project's scope • Net contribution to policy required reserves of$22.1 million in FY 2022-23 in anticipation of large increase in capital spending over following three fiscal years (this represents this difference between the budgeted spending of $191,416,968 and total use of funds of$213,536,900) 11 ALL BUDGETS: SOURCE OF FUNDS FY 2020-21 FY 2021-22 FY 2022-23 $182,361,443 $201,651,190 $213,536,900 $140,000,000 $120,000,000 $100,000,000 — $80,000,00) $60,000,000 $40,00,000 $20,000,000 -II ,E. MEN —a_ ■— --� Sewer Service Debt Proceeds City of Concord Tax Revenue Capacity Fees Use of Reserves All Other Revenue Charges Sources •FY 20-21 Budget •FY 21-22 Budget •FY 22-23 Budget • 4-year Sewer Service Charge(SSC)rate schedule expiring in FY 2022-23, Cost of Service study and Prop 218 hearings anticipated next FY • Relatively flatlined reimbursements from City of Concord reflective of debt- financed capital projects in FY 2022-23. • Debt Proceeds:$42.0 million of SRF loan funding anticipated No overall draw from reserves planned for next fiscal year g_ iz SEWER SERVICE CHARGE RATES AND REVENUES FY 2020-21 THROUGH FY 2022-23 FY FY FY SSC Rates 20-21 21-22 22-23 Change % Increase Single Family $598" $660 $690 $30 4.5% Multi Family $566* $625 $654 $29 Other Classes -----Char es Vary—See Ordinance No. 304----- Change from Budget Budget Bud FY 20-21 %Increase from FY 20. Projected* Projected SSC Revenues $101,201 $107,944 $114,657 $6,713 6.2%** ($Thousands) *Customer relief measure approved by Board May 7, 2020-- waived collection of the July 1, 2020 (FY 20-21)rate increase. **Higher than rate increase due to dwelling unit growth, commercial water volume growth, and baseline budget estimate in FY 2021-22 lower than actual. 13 O&M BUDGET PRESSURES • O&M budget growth is 6.9% • Higher than normal inflationary pressures are included throughout the budget including in the following areas: US AND CALIFORNIA INFLATION FORECASTS CPI Inflation,year-over-year percent change ofquarterly data 7% .ca Lus. 4 forecast U.S.2021 04�• 5% actual: 6.7% 4% 3% 2% 1% 0% 2019 2020 2021 2022 2023 Nate:Data areas of moll recent forecast. Source,LLS.Bureau of taloor Statistics and the UCLA Anderson Forecast 15 OPERATING FUND EXPENDITURES FY 2022-23 $91.0 $MILLIONS) Other Expenses,1.7% Supplies&Materials,14.6%l Other Purchased I Services,9.3%-, Salaries&Wages, 50.3% Purchased Property Services,8.1% OPEB URAL UAAL,1. Pension UAAL UAAL, 0.1% Employee Benefits,14.5% • Approximately two-thirds(66.5%)of next year's O&M budget is for labor-related costs(including UAAL,which is not a current employee benefit) OPERATING EXPENSE TREND $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,0$0 U YY bw 19 $5,000,000 — Salaries&Wages Employee Pension UML OPEB UANL Additional UML Purchased Other Purchased Supplies& Other Expenses Benefits Comributions PropertY5e ices Services Materials ■H 20-21 Budget ■FY 20-21 Actual ■FY 21-22 Budget ■FY 21-22 Projedion ■FY 22-23 Budget • Budgeted labor costs overall are increasing 2.7%($1.5 million) • Salaries&Wages up$3.0 million(7.6%) • Benefits down$0.4 million(3.0%) • UAAL costs down$1.2 million(46.2%) • All other Non-labor costs up$4.0 million(16.4%) 17 O&M SPENDING BY DEPARTMENT $35,000,000 $30,000,000 $25,000,000 $20,000,000 — $15,000,000 — — $10,000,000 $5,000,000 — — $0 Executive Engineering& Collection System Recycled Water Governance Atlministration Technical Services Operations' Plant Operations" program 11 FY 20-21 Budget $3,064,387 $22,084,363 $18,623,383 $14,916,566 $30,506,348 $1,471,290 ■FY 21-22 Budget $2,454,169 $19,901,049 $14,880,026 $12,865,365 $27,808,771 $1,610,750 q1Y 22-23 Budget $2,7]8,212 $20,283,342 $15,208,366 $13,480,048 $31,571,861 $1,697,217 • Largest increase is in Operations Department, primarily attributable to the Treatment Plant Operations division • New FTEs positions reflected in Engineering &Technical Services and another in Plant Operations department .' . 18 BUDGETED STAFFING: • Staffing of 294 proposed full-time equivalent positions • Most significant staffing changes from the prior year budget include: - Planning & Development Services Division - Engineering Assistant Position added (increased total budgeted headcount by one position) - Office of the Director of Operations - Innovation and Optimization Program Manager added (increased total budgeted headcount by one position) - Plant Maintenance Division —Vacant Utility Worker reclassified to Lead Maintenance Crew Member - Purchasing & Materials Services— Deleted one Contract& Procurement Specialist and addition of a Lead Contract and Procurement Specialist 19 O&M LABOR-RELATED BUDGET HIGHLIGHTS • Salaries &Wages: Overall increase of$3.0 million (7.6%) - Cost of Living Adjustment(COLA) is 5.0%for all bargaining units, lower than February 2022 SF-Oakland-Hayward annual CPI of 5.2% - Assumed vacancy factor of 3.0%. - Increase of in total headcount by 3 positions to a total of 294 • Benefits (Current Employee Costs): Overall decrease of$0.4 million (3.0%) - CCCERA(Normal Cost)contributions (as%of payroll)decreasing 0.08%for legacy employees to 16.88% and increasing 0.22%for PEPRA employees to 11.46% (per December 2020 actuarial valuation) - Base plan medical premium increase of 5.3% in calendar year 2023 Capitalized administrative overhead rate increasing by$1.1 million 24.4%)to$5.6 million O&M LABOR-RELATED BUDGET HIGHLIGHTS (CONTINUED) • UAAL Costs Overall decrease of just over$1.2 million (46.2%) OPEB: ADC is$3.3 million,consistent with the prior year Retiree healthcare premiums estimated at$4.6 million,reflecting a 7.4% increase over the prior year. Retiree healthcare costs in excess of ADC budgeted to be reimbursed from OPEB trust consistent with the prior year Pension (CCCERA) Near elimination of UAAL payments to CCCERA following issuance of 2021 COPs in June 2021 and payoff of pension UAAL UAAL contribution rate of only 0.16%for admin charges to CCCERA Debt service of COPs reported in Debt Service fund No"additional UAAL contributions" planned in FY 2022-23 given healthy 'No of OPEB and pension plans and other budget priorities next year 21 PENSION AND OPEB LIABILITY AND FUNDING STATUS Pension Actuarial Results OPEB Actuarial Results $160 l00% $90 100% $140 90% $80 90% c$120 80% $70 s0% 0 70% o$60 70% $100 60% - 60% $50 C $80 50% ,£$40 50% $60 40% 40% 30% Q$30 30% $40 20% D$20 20% $20 10% $10 $0 0% $0 0% py'L 01� O,yA 015 �,yb �1A �.y6 X19 pti0 Dy'L oy'e OyA oy5 Dyb oy'1 oy4�y9 O,yO�.�1 Year ended 12/31 Year ended 6/30 UAAL —Funded% UAAL —Funded% • Official pension actuarial reports do not yet incorporate UAAL payoff;this we be reflected in the next valuation report available in September 2022 Pension actuarial valuation showed Central San funded at 85.8%(88.4%using Pension Pre-Funding Trust assets) OPEB funded at 85.7%as of 7/1/21 per latest actuarial valuation on an tuarial valuation(not"market valuation")basis. 116a -- 22 - I OPERATING FUND - FUNDING SOURCES $MILLIONS) Budgeted FY 2021-22:$120.1 Budgeted FY 2022-23$69.8 Permits& Other$2.0 2% Inspection Fees Permits& $1.9 2% HHW$1.0 Inspection Fees City of Concord 1% Other $1.8 3% HHW$1.0 $15.5 13% Income$2.2 I 1% wer Service City of Concord Charge$96.3 $17.6 25% •Sewer Service 82% Charge$47.2 68% • Reduction in SSC reflects return to normal allocation following replenishment of O&M reserves for pension UAAL payoff in June 2021 • City of Concord O&M reimbursement second largest revenue source, fluctuating with O&M budget and projected share of treatment plant flow Investment income captured in'other"reflects growth in Fed interest rates 23 f 23 CAPITAL BUDGET HIGHLIGHTS: INFRASTRUCTURE INVESTMENT • Infrastructure Investment Over Past Ten Years: $430.7million s�o xw u ux a.o. A s�s.c sn Ana six 'wo �y011-11 cY X13 t� FY�p1w.1S �]Otf10 �1p16t� �ZOl�•� �ia�,19 �1019p fY t��1 oNQeT ..m.siw+rvaF�^` FY 11.13� W'AW�ni w r�iYn ...Jn.Agr.m 24 ' 24 CAPITAL IMPROVEMENT PROGRAM EXPENDITURES FY 2022-23 $91.0 MILLION General Improvements$3.6 4% ontineencv S2.0 2% Recycled Water$8.7 10% Treatment Collection Plant $40.0 system$36.6 44% 40% • Reduction in budgeted capital spending of$17.0 million (-15.7%) • Budget again incorporates 90% non-spend factor for cash flow projection purposes, reducing funding need by$9.1 million • Anticipated cash funded capital expenditures of$39.9 million • Net budgeted contribution to reserves of$46.9 million for increase in CIP over next three fiscal years OVOIsVr_ 25 CAPITAL IMPROVEMENT PROGRAM FUNDING SOURCES FY 2022-23 $128.8 MILLION (INCLUDING DEBT PROCEEDS City of Concord Capital Capacity Fees Other$0.6 Reimbursement$7.5 6% $4.6 4% ` 0% Ad Valorem Tax$8.3 \ / 6% lill �. Sewer Service Charges Debt Proce 51% Sl% 33 • Increase of$28.0 million(27.7%)over the prior year due to normalization of SSC allocation to Sewer Construction Fund • Significant funding source next year is SRF loan proceeds, impacting/reducing reimbursement from City of Concord(they will pay share of debt service,when that begins) • Contribution to reserves of$46.9 million necessary to address increase in CIB over next three fiscal years - ,. _ 26 - I SELF INSURANCE BUDGET FY 2022-23 Operating Revenue Operating Expense $1,734,501 $2,170,000 HHW Interest$47,400 Contribution Technical& Legal Services, x$25,000 Other $375,000 Services, 1 $70,000 1 Expected ` Insurance Losses, Premiums, :Sewerervice Charges $425,000 $1,300,000,662,101 • Net impact is a draw-down of reserves of$435,499 • Budgeted Self-Insurance Operating Expense reflects an increase of $885,000(68.9%),due to higher insurance premiums(due to"hard market'conditions) • Reserve target increased by$2.5 million during FY 2021-22 by Board to total of$9 million 27 DEBT SERVICE BUDGET FY 2022-23 Operating Revenue Operating Expense $13,251,922 $13,251,922 Interest Payments Trustee& $2,499,422 Other Costs $2,500 Ad Valorem do Property Tax Principal $13,251,922 Payments $10,750,000 • Ad valorem property taxes are first applied to debt service with any excess available to Sewer Construction fund • Now includes debt service on Certificates of Participation (COPs), resulting in significant increase over the prior year 28 - I RESERVE BALANCE PROJECTIONS JUNE 303 2022 • Reserves: • (1) Comply with policy specified minimums(to ensure we have adequate resources) • (2) Affects allocation of sewer service charge to various sub-funds • (3) Affects rate setting,in conjunction with drivers from 10-year financial plan ®00M® Reserve PolicyTarget end of 2 June 30,20222 $35,424,602 $24,488,000 $9,000,000 $68,912,602 Projected Balance as of June 30,2022 $52,882,253 $89,707,244 $9,435,499 $152,024,996 Projected Balance Minus Reserve Policy Target at June $17,457,651 $65,219,244 $435,499 $83,112,394 30,2022 • Reserves projected to meet or exceed the policy required levels at year end. • O&M reserves temporarily above policy following Board-approved SSC reallocation after 2021 COPs issuance and pension UAAL paydown. • Sewer Construction reserves available to meet financial policy goals and to address ramp up in capital expenditures over next three fiscal years. Definition of"Working Capital Reserves'includes current assets and liabilities in addition to'bash and investments". 29 ' 29 RESERVE BALANCE PROJECTIONS JUNE 309 2023 Projected Balance as of June 30,2022 52,882,253 89,707,244 9,435,499 152,024,996 Projected Balance as of June 30,2023 37,626,114 72,676,486 9,000,000 119,302,600 Change in Reserve (15,256,139) (17,030,758) (435,499) ($32,722,396) Reserve Policy Target end of June 30,2023 37,626,114 43,235,552 9,000,000 89,861,666 Projected Balance Minus Reserve Policy Target at $- $29,440,934 $- $29,440,934 June 30,2023 • Allocation of SSC to O&M designed for O&M fund to precisely meet required working capital reserve level based on preliminary projected FY 2023-24 O&M budget. Sewer Construction Fund reserves above policy required level,necessary for meeting future year capital cash flow requirements per 10-year financial plan. JUNE % 2022 PUBLIC HEARING Approve and Adopt Budgets 1 Operations & Maintenance 2Capital Improvement 3 Self-Insurance 4Debt Service 5 Insurance Renewal ..�. _. _ 1491 f 31 NEXT STEPS FOR SSC RATES • The latest Board-approved 4-year rate schedule expires on July 1, 2023. • Next important directives for staff include the following: Cost of Service Project Commences Spring 2022 Cost of Service Project Results Available Fall-Winter 2022 Board approves rates for FY 2023-24(and Spring 2023 potentially additional years) t . 32 _ ' BUDGET RECAP Budget is balanced and financial health of Central San remains strong Budget projections for FY 2022-23 are generally consistent with the long-term financial plan Staff will continue to monitor inflation situation A big "thank you" to all staff involved in the important budget development process, as well as ongoing monitoring during the year 33 QUESTIONS & DISCUSSION