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HomeMy WebLinkAbout18.c. Committee Minutes-Finance 08-23-2022 Page 1 of 7 Item 18.c. CENTRALSAN jdf A- hom CENTRAL CONTRA COSTA SANITARY DISTRICT September 1, 2022 TO: HONORABLE BOARD OF DIRECTORS FROM: KATIE YOUNG, SECRETARYOF THE DISTRICT SUBJECT: AUGUST23, 2022 - FINANCE COMMITTEE - CHAIR MCGILLAND MEMBER PILECKI (ALTERNATE) Attached are minutes of the above Committee meeting. ATTACHMENTS: 1. Minutes of 08-23-22 meeting September 1, 2022 Regular Board Meeting Agenda Packet- Page 78 of 86 Page 2 of 7 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, August 23, 2022 FAX.- (925)372-0192 2:00 p.m. www.eentralsan.org (All attendees participated via videoconference) Committee: Chair Mike McGill Member Tad Pilecki (alternate for Member D. Williams) Guests: Andrew Brown, HighMark Capital Management (left after Item 5.a.) Angela Tang, PARS (left after Item 5.a.) Staff.- Roger S. Bailey, General Manager Katie Young, Secretary of the District (left during Item 4.a.) Philip Leiber, Director of Finance and Administration Steve McDonald, Director of Operations (joined during Item 5.a.) Benjamin Johnson, Internal Auditor Danea Gemmell, Planning and Development Services Division Manager Edgar Lopez, Capital Projects Division Manager (joined during Item 5.a.) Kevin Mizuno, Finance Manager Christopher Thomas, Accounting Supervisor Shari Deutsch, Risk Management Administrator 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 361 and adopted on August 4, 2022, by the Central San Board of Directors. The agenda included instructions for options in which the public could participate. 2. Call Meeting to Order Chair McGill called the meeting to order at 2:00 p.m. September 1, 2022 Regular Board Meeting Agenda Packet- Page 79 of 86 Page 3 of 7 Finance Committee Minutes August 23, 2022 Page 2 3. Public Comments None. Chair McGill announced Item 5.a. would be heard as the first item of business. 4. Items for Committee Recommendation to the Board a. Review and recommend approval of expenditures incurred July 16, 2022 through August 11, 2022 This item was heard at the conclusion of Item 5.a. Staff responded to questions posed by the Committee of various expenditures. The Committee was satisfied with the information provided and no further follow-up was required. COMMITTEE ACTION: Recommended Board approval. b. Receive Financial Overview through the month of June 2022 (unaudited) Mr. Mizuno reviewed the preliminary, unaudited June month-end graphs provided in the agenda materials and noted the final month remains in a closing process and may have continued adjustments up until the annual audit is completed. For example, as of today, the O&M expenditures-to-date since agenda posting have increased to $76.2 million compared to the $75.4 million shown on the graph. In the Sewer Construction fund, although expenditures were expected to fall short of the target as discussed at prior Finance Committee meetings, $5.2 million of the $39.5 million favorable spending variance is attributable to completed projects coming in under budget. Mr. Mizuno commended the Capital Projects team for this accomplishment. He stated the pre-audit year-end report will be presented at either the September or October Committee meeting and provide more accurate and final year-end spending variance figures. COMMITTEE ACTION: Recommended Board receipt. C. Review assessment of Central San's current treasury function and exploration of alternatives Mr. Leiber explained this agenda item was to discuss the future of the District's treasury function and a proposed approach to consider other options. He shared that staff may propose a change from the long-standing September 1, 2022 Regular Board Meeting Agenda Packet- Page 80 of 86 Page 4 of 7 Finance Committee Minutes August 23, 2022 Page 3 practice of using the County as its treasury provider. The goal for today was to gain Committee endorsement to continue evaluating alternatives to result in a recommended approach for the District going forward. Mr. Mizuno reviewed the presentation included with the agenda materials in depth, providing a background of the drivers for this discussion, an overview of challenges faced in the current arrangement, a review of the results of a peer agency benchmarking study, staff recommendation, and an outline of what the path forward would look like should the recommended action be approved by the Board. In addition to internal audit findings and recommendations, staff's assessment depicted more disadvantages than advantages for the District to remain with the County as a voluntary pool participant. The presentation provided a summary of the findings based on an internal assessment and peer agency survey, and outlined several potential opportunities for optimizations should treasury services be taken in-house. For example, having a pooled cash structure, consistent with other multi-fund agencies and cities, is one effective optimization that staff would consider (slide 8). Other optimizations include the ability to perform bank reconciliations using the functionality of the enterprise resource planning system, eliminating the need for travel related to check issuance, and more efficient payment approaches, all while maintaining suitable internal controls. Mr. Mizuno reviewed the five-part proposed staff recommendation, which included a Committee recommendation for staff to move forward to explore banking alternatives, and report back with various items as depicted in the staff report for Board approval in the future. Member Pilecki requested staff also consider a secondary account with a different bank to have some funds available in an urgent situation (i.e., situation of a bank security breach). Mr. Bailey confirmed that consideration will be a part of the evaluation. Mr. Mizuno also replied that the California Government Code has a statute requiring banks of municipal clients to provide collateral for the balance on deposit at the bank. COMMITTEE ACTION: Recommended Board approval for staff to move forward as presented. At the conclusion of Item 4.c., the agenda moved to hear Item 5.c. as the next order of business. September 1, 2022 Regular Board Meeting Agenda Packet- Page 81 of 86 Page 5 of 7 Finance Committee Minutes August 23, 2022 Page 4 5. Other Items a. Receive Highmark Other Post-Employment Benefits (OPEB) and Pension Prefunding Sub-trust Reports for the Second Quarter of calendar year 2022 Mr. Mizuno introduced Mr. Brown and Ms. Tang. He stated that after the positive returns and peak of the market at the end of calendar year 2021, adverse returns have been building over the last six months of 2022 that reflect the current market overall; however, some recovery has been seen since mid-June. Ms. Tang and Mr. Brown reviewed the presentation material respectively. Ms. Tang began the overview and shared the discount rate remained at 5.75%. The Pension Account that was adopted in July 2017 is being managed under a conservative strategy. Mr. Brown reviewed the economic forecast. He reaffirmed Mr. Mizuno's opening comments that despite some losses experienced in the first two quarters, there has been some positive news in July. Overall, the gross domestic product (GDP) numbers are looking more encouraging for the balance of the 2022 calendar year. Inflation has been at high levels that are impacting consumers in various ways. The first two quarters had a negative GDP run rate; however, some growth is anticipated for the balance of the year. On slide 15, the July figures reflect a positive portfolio return of 5.10% compared to a negative loss range in the first two quarters of-10.38%. The Committee stated the discussion material provided a good explanation and they had no questions. Member Pilecki opined the Board may want to consider adding funds to the OPEB/Pension accounts should it be recommended after a review of unfunded actuarial accrued liability (URAL) and the year-end variance disposition process; Chair McGill agreed. Mr. Mizuno added that staff would reach out to its trust advisors prior to any recommended action to ascertain whether it makes sense to provide additional contributions during a market downturn, or hold those in reserves until the market appears to be rebounding on a more positive direction. COMMITTEE ACTION: Received the reports. At the conclusion of Item 5.a., the agenda reverted back to the original order, beginning with Item 4.a. September 1, 2022 Regular Board Meeting Agenda Packet- Page 82 of 86 Page 6 of 7 Finance Committee Minutes August 23, 2022 Page 5 b. Receive annual report on status of loans under Board Policy No. BP 001 - Employee Computer Purchase Assistance Program This agenda item was presented at the conclusion of Item 5.c. Mr. Mizuno stated that the loan threshold had not been reached during the fiscal year and hence no loan had been rejected for that reason. The Committee had no questions. COMMITTEE ACTION: Received the report. C. Review Risk Management Loss Control Report as of August 2, 2022 Ms. Deutsch announced a recent status update to report line item "E" regarding a carryover claim for a trip/fall incident. The claimant complied with the terms and conditions of a settlement, which has been paid in full. This item will be removed from the next Committee Report as it is a prior year claim. COMMITTEE ACTION: Received the report. d. Discuss opportunity to join a Joint Powers Authority for Revenue Bond Issuance This matter was heard at the conclusion of Item 4.c. Mr. Leiber reviewed the details provided in the staff report. Overall, the need for about $200 million of additional external financing is contemplated for the Capital Improvement Program based on the current financial plan. He opined that revenue bonds may be a better option than Certificates of Participation (COP), which COPS are a more complex structure and may, at some point, receive a negative market response. As a special district, Central San cannot issue revenue bonds for new money without a public vote. An alternative that would not require a public vote and, therefore, be less expensive, would be a participation in a Joint Powers Authority (JPA). Recently, staff was approached with an offer to join a JPA in the region. Mr. Leiber opined this is a good and cost effective option to be able to make use of revenue bonds. There would be some matters to reconcile, such as JPA meeting location coordination, representation, and cost share. Staff requested Committee concurrence that this approach has value and, if so, support staff to meet with the JPA participant to amend the JPA agreement for Central San Board approval. He concluded there were no downsides to pursing this direction, and that the JPA would be available if and when needed for revenue bond issuance in the future. September 1, 2022 Regular Board Meeting Agenda Packet- Page 83 of 86 Page 7 of 7 Finance Committee Minutes August 23, 2022 Page 6 The Committee concurred on the stance and recommended staff proceed. COMMITTEE ACTION: Held discussion and recommended staff proceed with obtaining JPA participation arrangements for Board approval. At the conclusion of Item 5.d., the agenda moved back to Item 5.b. of the agenda order. 6. Announcements None. 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, September 27, 2022 at 2:00 p.m. Tuesday, October 25, 2022 at 2:00 p.m. Monday, November 21, 2022 at 2:00 p.m. 9. Adjournment— at 3:29 p.m. September 1, 2022 Regular Board Meeting Agenda Packet- Page 84 of 86