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HomeMy WebLinkAbout05.d. Review draft Position Paper to receive Fiscal Year (FY) 2021-22 Pre-Audit Year-End Financial Statement Summary Report and consider alternatives for handling various pre-audit budget variancesPage 1 of 16 Item 5.d. MEETING DATE: SUBJECT BOARD OF DIRECTORS POSITION PAPER OCTOBER 25, 2022 REVIEW DRAFT POSITION PAPER TO RECEIVE FISCAL YEAR (FY) 2021- 22 PRE -AUDIT YEAR-END FINANCIAL STATEMENT SUMMARY REPORT AND CONSIDER ALTERNATIVES FOR HANDLING VARIOUS PRE -AUDIT BUDGET VARIANCES SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION -FINANCE PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION REVIEWED BY: ROGER S. BAILEY, GENERAL MANAGER ISSUE The Board of Directors (Board) approves the Operations and Maintenance (O&M), Capital Improvement (CI B), Self -Insurance, and Debt Service budgets on an annual basis. At fiscal year-end, staff reviews and compares the final revenues and expenditures, based on the pre -audit financial reports and provides an update to the Board on the budget -versus -actual results. If there is a favorable budget variance, staff typically provides alternatives for the Board's consideration for allocating the unspent funds. BACKGROUND Consistent with long-standing practice and pursuant to Central San's Board Policy BP 048 - Budget, following the close of the fiscal year, a report of year-end results shall be provided to the Board for disposition of overall favorable or unfavorable budget variances, along with the impacts on reserve requirements as specified in BP 015 - Fiscal Reserves. This annual report shall also specify the amount of Capital I mprovement Budget (CI B) rollover appropriations. This position paper fulfills this annual reporting requirement, and attached hereto is a District -wide summary of FY 2021-22 budget -to -actual results (Attachment 1). This summary includes the revenue and expense variances for each major sub - fund of Central San, which includes the O&M, Sewer Construction, Self -I nsurance, and Debt Service funds. A detailed analysis as well as graphical illustrations of FY 2021-22 O&M fund budget -to -actual revenue and expense variances is also provided (Attachment 2). Relevant Principles I n terms of proposing an optimal recommendation, the following principles are relevant for consideration: 1. Maintain adequate funding availability to ensure reliable operations (Fiscal Reserves policy, BP 017); 2. Keep long-term Sewer Service Charge (SSC) rates as low as possible (Budget policy, BP 048); 3. Provide SSC rate stability by minimizing significant unplanned fluctuations year to year (facilitated by October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 74 of 105 Page 2 of 16 Fiscal Reserves policy, BP 017); 4. Keep borrowing within specified policy -level constraints (Debt Management and Continuing Disclosure Policy, BP 029); 5. Maintain progress in reducing employee -related pension and OPEB liabilities as specified in relevant Board policies (Pension Funding policy, BP 041; OPEB Funding policy, BP 042) 6. Maintain consistent treatment for funds that have already been allocated in the current fiscal year's budget and associated reserve calculations. FY 2021-22 Budget Variance Actions: Keeping the above principles in mind, staff recommends the following actions as viable, balanced alternatives, given the pre -audit budget variances for FY 2021-22: • O&M Fund Favorable $7.36 M illion Budget Variance - Contribute Portion to OPEB Trust and Retain Remainder in Working Capital Reserves (Principles 1, 2, 3, 5 and 6) Consistent with the Fiscal Reserves policy (BP 017), the FY 22-23 budget adopted by the Board was structured to close the fiscal year (6/30/2023) with targeted minimum working capital reserves of $37.6 million. To achieve this working capital reserves target, it was necessary for staff to project year-end FY 2021-22 O&M fund revenue and expenditure results prior to the close of the fiscal year. This year-end result then drives how much of total sewer service charges (Central San's primary operating revenue source) is allocated between the O&M, Sewer Construction and Self -I nsurance funds. Since the Board -approved budget already projected the O&M fund would close with a positive variance of approximately $6.35 million, staff recommends that this favorable O&M budgetary variance remain in O&M working capital reserves consistent with the budget plan. Doing otherwise, without also changing the sewer service charge allocation percentages already approved by the Board in the FY 22-23 budget would results in non-compliance with the reserve requirements. This leaves a residual amount of FY 2021-22 O&M budgetary variance of $1.0 million. Considering the Board already took action to pay off the pension UAAL in June 2021 it is recommended that this residual amount be contributed to the OPEB Trust. This will partially offset unrealized investment losses that have been realized in the OPEB Trust during a challenging year of market results in 2022 driven by the residual effects of a 2+ year COVI D-19 pandemic, inflation, and economic uncertainty exacerbated by the ongoing Russia -Ukraine conflict. These world-wide issues have had impacts on complex global supply chains, and the economic outlook which have impacted financial markets, and both debt and equity returns. It was noted that 2022 produced the worst "balanced portfolio" (debt and equity) returns since 1969, as both debt and equity returns were significantly negative, whereas in most circumstances these returns are inversely correlated. With the OPEB Trust fund investments consisting of both debt and equity, the returns were negative. • Sewer Construction Fund Favorable $3.0 M illion Budget Variance - Retain in Capital Reserves (Principles 4 and 6) The combination of a modest favorable revenue variance of just over $0.1 million and capital project closeout savings of just over $2.8 million results in a net favorable budgetary variance of approximately $3.0 million in the Sewer Construction fund. It is recommended that this positive budgetary variance be retained in the Sewer Construction fund as bolstering reserves will help reduce future borrowing needs currently anticipated in the long-term financial model. It should be noted that the Reserve Calculation in the FY 2022-23 budget assumed a modest negative Sewer Construction revenue variance of approximately -$0.1 million, while the actual revenue variance was a favorable $0.1 million ($0.2 million difference). The adopted FY 2022-23 budget assumed the Sewer Construction fund was expected to close the fiscal year with working capital reserves well above the minimum policy level, which is necessary in future years to reduce borrowing and provide stability to sewer service charge rates. The total amount of budgetary rollover from capital project October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 75 of 105 Page 3 of 16 spending below levels anticipated in the FY2021-22 budget and prior years is $69.4 million. Pursuant to BP 048, this amount will roll into the FY 2022-23 budget increasing the total capital spending authorized from $91.0 million to $160.3 million. Staff will be conducting a detailed analysis of this in connection with the budgeting process for FY 2023-24 to ensure a realistic spending plan is adopted. • Self -Insurance Fund Unfavorable $0.4 Million Budget Variance -No Immediate Action Needed (Principles 1 and 6) Each year, the budget incorporates an allocation of sewer service charges to the Self -I nsurance fund to cover operational expenses (i.e., insurance premiums, uninsured losses, etc.) as well as meet the minimum reserve requirements stipulated by the District's Fiscal Reserves Policy. While the adopted FY 2022-23 budget anticipated the Self -I nsurance fund would close FY 2021-22 with an unfavorable budgetary variance of approximately -$0.1 million, the actual unfavorable budgetary variance was approximately -$0.4 million (difference of $0.3 million). No action is needed to address this unanticipated shortfall, however, as Self -Insurance fund reserves as of June 30, 2022 exceed policy -specified minimum levels, at approximately $9.1 million. The next true -up of the reserve level can performed as part of the budgeting process for FY 2023-24, and the allocation of sewer service charge between the sub -funds. ALTERNATIVES/CONSIDERATIONS The Board may elect to allocate the favorable FY 2021-22 budget variance toward the staff -recommended alternatives proposed previously or may elect to fund these choices at different levels. Absent specific Board action, any favorable budget variance of the O&M fund would, through operation of the Fiscal Reserve Policy and mechanics of the financial plan, ultimately be allocated to the Sewer Construction Fund. This allocation is accomplished by modifying the proportional split of sewer service charges between the O&M and Sewer Construction funds in the following fiscal year's budget. FINANCIAL IMPACTS The actions being recommended are generally in line with Central San's FY 2022-23 budget and long- term financial plan. Funding the reserves to the required levels (or beyond in the case of sewer construction) will help provide flexibility to mitigate Sewer Service Charge rate volatility and reliance on debt financing. Furthermore, augmenting the OPEB Trust should increase its funded position in accordance with objectives specified in BP 042 — Other Post -Employment Benefits (OPEB) Funding. COMMITTEE RECOMMENDATION The Finance Committee reviewed this subject at its October 25, 2022 meeting. The Committee recommended receipt of the Pre -Audit Year -End Financial Statement Summary Reports and supported the staff recommended actions to address year-end budget variances. RECOMMENDED BOARD ACTION Receive the FY2021-22 Pre -Audit Year -End Financial Statement Summary Report and direct staff to take action on the following FY 2020-21 budgetary variances totaling $9.94 million: O&M fund favorable budgetary variance designated for the following purposes:(a) $1.0 million to the OPEB Trust; and (b) $6.36 million residual amount retained in O&M working capital reserves. Sewer Construction fund favorable budgetary variance of $2.95 million to be retained in working capital reserves. October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 76 of 105 Page 4 of 16 • Self -Insurance fund negative budgetary variance of -$0.37 million to be retained without action, to be addressed in next fiscal year's sewer service charge allocation. Strategic Plan Tie -In GOAL FOUR: Governance and Fiscal Responsibility Strategy 1 - Promote and uphold ethical behavior, openness, and accessibility, Strategy 3 - Maintain financial stability and sustainability ATTACHMENTS: 1. District -Wide Variance Overview 2. O&M Fund Variance Analysis 3. Presentation October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 77 of 105 Page 5 of 16 Attachment 1 Pre -Audit - Fiscal Year Ending June 30, 2022 (FY 21-22) Overall Variance Summary Budget (Amended) Actual FY 2021-22 FY 2021-22 Variance Comments O&M Revenues $ 116,681,763 $ 121,464,319 $ 4,782,556 F See Attachment 2 Expenses 79,520,131 76,946,792 2,573,339 F See Attachment 2 Total 37,161,632 44,517,527 7,355,895 Capital Excludes cost reimbursements from debt Revenues 32,243,421 32,343,693 100,272 F proceeds Project close savings amounted to $2.8 Expenses 145,836,673 73,636,093 72,200,580 F million; remainder rolling to FY 22-23 Total (113,593,252) (41,292,400) 72,300,852 Self -Insurance Largely in line with projections; shortfall less Revenues 1,651,419 1,632,998 (18,421) U than projection by $12,379 Insurance costs higher than projected; costs Expenses 1,285,000 1,640,303 (355,303) U exceed projections by $281,282 Total 366,419 (7,305) (373,724) Debt Allocated property tax revenues equal to Revenues 12,891,059 12,403,716 (487,343) U costs incurred less investment earnings Budget is on cash basis; actuals includes full - accrual transactions (premiums Interest & Other 2,441,059 1,953,716 487,343 F amortization, accruals, etc.) Principal Payment 10,450,000 10,450,000 - Total - - District Totals (4 Funds) Revenues 163,467,662 167,844,726 4,377,064 F Expenses/Debt Principal 239,532,863 164,626,904 74,905,959 F Total $ (76,065,201) $ 3,217,822 79,283,023 Exclude: 1. Sewer construction fund under -spend carried forward to FY 22-23 Budget (excludes $2,846,519 million in savings from projects completed under budget) (69,354,061) 2. 0&M fund variances already projected and addressed through FY 22- 23 SSC allocation. (6,347,635) 3. Self -Insurance negative variances already projected and funded 104,821 Net District -wide variance to be addressed $ 3,686,148 Kev F = Favorable U = Unfavorable October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 78 of 105 Attachment 2 Revenues: Sewer Service Charge City of Concord HHW Reimbursements Recycled Water Other Service Charges Permit & Inspection Fees Other Nonoperating Income Investment Income Total Revenues Pre -Audit - Fiscal Year Ending June 30, 2022 (FY 21-22) Operations and Maintenance (O&M) Fund Variance Analysis ($ in thousands) Variance Variance Budget Actual ($) (%) Variance Explanation Implications for FY 22-23 Budget (if applicable) $ 96,332 $ 99,104 2,772 15,446 16,087 641 977 958 (19) 432 545 113 669 661 (8) 1,894 2,048 154 752 1,930 1,178 180 164 (16) $ 116,682 $ 121,497 $ 4,815 2.9% Higher than projected development in service area and volumes for commercial customers. 4.1% Actual revenue reflects Concord's proportionate share of reimbursable treatment costs, now reflecting a share of the 2021 COPS. -1.9% Immaterial variance; actuals largely in line with budget projections. 26.2% Higher than anticipated usage; Recycled Water O&M expenses continue to exceed revenue, so no excess revenue was transferred to Sewer Construction Fund. -1.2% Immaterial variance; actuals largely in line with budget projections. 8.1% Primarily attributable to side sewer inspection revenue with more private lateral inspections than conservatively projected during pandemic environment. 156.6% Unbudgeted special district COVID-19 relief funding applied by and awarded to Central San in FY 21-22. -8.9% Governmental investment pools largely limited to fixed income investment instruments, which were adversely impacted by low interest rate environment persisting through first half of FY 21-22. Also impacted by lower than usual investable liquidity following pension UAAL payoff in June 2021. 4.1% Overall favorable revenue variance None - Conservative assumptions for growth used slightly less than approved rate increase percentage. None - Budget based on expected flow and estimated treatment plant expenditures. Conservative estimates for recycled water revenue were applied in FY 22-23 budget, assuming growth of approximately 3% over prior year budget. Conservative assumptions for growth are used; employing multi- year averages for budget projections expected to yield higher than budgeted results. Conservative assumptions for growth are used; 3 year expected to pick up higher than budgeted results. None -This is a non -recurring revenue source. None - Following several Fed rate increases commencing in 2nd half of FY 21-22, significant increase in investment returns projected in FY 22-23. October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 79 of 105 Attachment 2 Pre -Audit - Fiscal Year Ending June 30, 2022 (FY 21-22) Operations and Maintenance (O&M) Fund Variance Analysis ($ in thousands) Variance Variance Budget Actual ($) (%) Variance Explanation Implications for FY 22-23 Budget (if applicable) Expenditures: Salaries & Benefits $ 52,400 $ 52,929 (529) Unfunded Liabilities 2,567 2,609 (42) Utilities & Fuel 4,988 6,524 (1,536) Chemicals 1,682 1,820 (138) Other Operating Supplies 3,842 2,628 1,214 -1.0% Immaterial variance; actuals largely in line with budget projections. Overage largely attributable in-service leave payouts being higher than projected as well as leave accruals. -1.6% Immaterial variance; actuals largely in line with budget projections. Line includes CCCERA admin rate following payoff of pension UAAL in June 2021 and actuarially - determined OPEB UAAL contributions. -30.8% Largely attributable to higher than expected spending on landfill and natural gas due to price volatility in 2nd half of FY 21-22. -8.2% Largely attributable to higher than expected spending on treatment chemicals such as lime, polymer, and hypochlorite due to petroleum price volatility in 2nd half of FY 21-22. Price for these and other chemicals are correlated with price fluctuations in petroleum. 31.6% Primarily attributable to lower than projected supplies consumption in the mechanical, instrumentation, and machine shops of the Plant Maintenance Division as well as field operations unit of the Collection System Operations division. None - Actual largely in -line with budget in all material respects. None - Actual largely in -line with budget in all material respects. Budget incorporates increases for landfill and natural gas as well as electricity based on extreme price volatility in 2nd half of FY 21- 22. Staff will continue to monitor sufficiency of planned budget increases and recommend Board action to current budget and long-term forecast if necessary. Budget incorporates increases for treatment chemicals based on extreme price volatility in 2nd half of FY 21-22. Staff will continue to monitor sufficiency of planned budget increases and recommend Board action to current and future budget plans as appropriate. Savings considered non -recurring and bulk of incomplete jobs deferred to FY 22-23 for completion. October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 80 of 105 Attachment 2 Pre -Audit - Fiscal Year Ending June 30, 2022 (FY 21-22) Operations and Maintenance (O&M) Fund Variance Analysis ($ in thousands) Variance Budget Actual ($) Variance (%) Variance Explanation Implications for FY 22-23 Budget (if applicable) Expenditures (Continued): Professional & Technical 6,935 3,667 3,268 47.1% Attributable to lower than anticipated spending in several Savings considered non -recurring and bulk of incomplete Services divisions. Over half of it pertaining to the deferral of planned projects/initiatives deferred to FY 22-23 for completion. initiatives/projects in the following four functions: Information Technology, Collection System Operations, Treatment Plant Operations, and Planning & Development Services. Deferred initiatives/projects include CCTV inspection services, the 75th anniversary event, in -school outreach and educational programs, etc. Contracted Repairs & 3,711 3,682 29 0.8% Immaterial variance; actuals in line with budget projections. Maintenance Largely includes contracted repairs budgeted in the treatment plant maintenance division. Hauling & Disposal 1,057 887 170 16.1% Hauling costs for household hazardous waste and sludge Savings considered non -recurring with increases in household lower than budgeted. hazardous waste and sludge hauling planned for in FY 22-23. Other Contracted Services 1,159 1,135 24 2.1% Immaterial variance; actuals largely in line with budget projections. Includes security, rentals, cleaning and other contracted services connected to property owned or used. Other Expenses 1,179 1,066 113 9.6% Primary driver for budgetary savings is the limited amount of While reduced travel/conference costs were budgeted over the travel, lodging, and registrations for conferences and training past two years considering pandemic restrictions, this level of during the pandemic. budgetary savings is not considered recurring. Total Expenditures $ 79,520 $ 76,947 $ 2,573 3.2% Overall favorable variance expenses variance Net Increase $ 37,162 $ 44,550 $ 7,388 October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 81 of 105 Attachment 2 $60,000 $52,400 $50,000 $40,000 c c cA $30,000 s c $20,000 $10,000 FY 2021-22 O&M Expenditures $6,524 _ $6,935 988 $3,667 � $1,820 $3,842 $3,682 $887 $1135 $1,682 $2,628 $3,711 ,$1,066 1 i i Ii $�m / $1mg� $i9 caries $`Benefits d �`abiUt%es Chemicaxs `& e`hn`c,X ser��ces P sa fu de ,fVyCjes & Fue supp R & Maintenance & eir Cos tra d ,Ices EX ernes �ln pth OPeratiag a ePairs %A340% n cte ether er groiess100Contracted oth ■ Budgeted Expenses ■ Actual Expenses October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 82 of 105 Attachment 2 $96,332 $99,104 $100,000 $90,000 $80,000 $70,000 $60,000 c c $50,000 s c $40,000 $30,000 FY 2021-22 O&M Revenues $20,000 $15,446 $16,087 $10,000 $977 $958 $432 $545 $669 $661 $1,894 $2,048 $752 $1,930 $180 $164 Seer Serv`ce Charge 0" 01 COr\cHwovd Re\mbUr5ements Re°Y°\edwaOther ServrGe C�ar�` g'\r\,pecf1o'n a°�°peratir`g\ncOm\,,vestment\ncOme H per Other N ■ Budgeted Revenues ■ Actual Revenues October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 83 of 105 Page 11 of 16 Attachment 3 October 25, 2022 Utilization of FY 2021-22 Variance Funds Finance Committee Philip R. Leiber, Director of Finance & Administration and Kevin Mizuno, Finance Manager 1 Objectives Consider past guidance on use of variances from PFM (Financial Advisor) Review variances from close of FY 2021-22 Review alternatives and direct available funds towards optimal use 2 October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 84 of 105 1 Page 12 of 16 November 10, 2016 Workshop Financial Alternatives for Excess Reserves PFM's Review of Excess PFM's Recommendation and Fund Alternatives: Direction Given by the Board: 1. Pay down Cl unfunded pension liabilities (UAAL) (done) 2. Pay down other post - employment benefits (OPEB) unfunded liabilities and shorten amortization period from 22 to 18 years (done) 3. Set up and fund IRS Sec 115 Pension Prefunding Trust (done) 4. Allocate to CIB program 5. Use to cover 0% rate increase FY 2017-18 3 Allocate all currently available dollars to reduce pension UAAL and OPEB liability. $2.5M budgeted in FY 2016-17 toward OPEB Trust (done Feb. 2017 by unanimous vote) $3.359M initial funding of Pension Prefunding Trust using FY 2015- 16 budget variances (done Aug. 2017 by majority vote) r Budget Variances e i; Favorable II i • $7.36 M: Operations & Maintenance (O&M) fund from expenditure and revenue variances • $2.95 M: Sewer Construction (SC)/Capital Improvement Budget (CIB) from projects closing under budget* - Unfavorable� - • $0.37 M for Self -Insurance higher expenses. �xl sl �. lY_gce, $69.35 million underspending variance for Capital Improvement Program will be carried forward to FY 2022-23 consistent with Board Budget policy 3 4 October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 85 of 105 2 Page 13 of 16 Potential Variance Uses A. For O&M, leave in O&M reserve B. For Sewer Construction, leave variance in Sewer Construction Reserve If favorable, to reduce future debt or rate increases If negative, offset with reduced spending or increased revenue/debt proceeds C. Contribute to Rate Stabilization Reserve Account D. Restore Self -Insurance Fund to targeted balance E Pay down employee related liabilities (OPEB or Pension) 5 N Wa Recommended Allocations =� ($ Millions) A. B. C. D. E. E. E. - Pension Recommended O&M SC-CIB Rate Self OPEB Prefunding CCCERA Reserve Reserve Stabilization Insurance Trust Trust Trust C") Allocation of Funds: Total Reserve Acct Year -End Variances f F Operating $7.36 $6.36 $1.00 Capital 2.95 2.95.' Self -Insurance 0.37 0.37 Total $9.94 $6.36* $2.95 $ 0.37 * $1.00 Budgeted 2022-23 UAAL Liabilities Funding Status Fully More than Fully No Target Fully g5.4% 101.2% Funded Funded Established Funded *Approx. $ I00k negative variance already projected for FY 21-22 and addressed through FY 22-23 SSC allocation. **Funding status per CCCERA 12/31/21 actuarial valuation. [: 5 October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 86 of 105 3 Page 14 of 16 Reserve Status ($ millions) Reserves as of 6/30/22 * Policy Required Level at 6-30-22 Difference Proposed Reallocations Balances After Reallocations Rate Stabilization O&M Reserve Acct Reserve SC-CIB ( including Pension Assets in Total 08M Reserve Self O&M and OPEB Prefunding CCCERA aaance Bud a 50 % CIB Insurance Capital) Trust(') Trust ill 131 $53.3 $83.9 $9.1 $7.46 $75.1 $0.0 $482.4 35.4 24.5 9_0 17.9(5) 59.5(4) 0.1 1.0 $52.3 $83.9 $9.1 $7.46 $76.1 $0..0 $482.4 * Reserve balances per pre -audit financial statements and external sources as applicable. (1) Amounts per Balance sheet, and for CCCERA the actuarial value of pension assets. (2) Pension Prefunding Trust had a trivial balance as of 6/30122 following CCCERA pension UAAL payoff in June 2021. (3) $482.4 M actuarial value of assets per December 31, 2021 CCCERA valuation. (4) Balance is higher than the policy required level due $69.3M attributable to budgetary carryforwards (total authorized spending less actual spending) (5) Higher balance at 6/30/22 will be reduced over the course of FY 2022-23 through a lower allocation of SSC (consistent with budget) so that the (6) 6/30/23 balance meets the policy targeted level. 6 VA History of OPEB ($ Millions) Actuarial Value of Assets % Per Bartel 2-year Valuation Assets(') Funded') 7/1/2012 $22.5 22.4% 7/1/2014 33.7 32.4% 7/1/2016 43.8 44.0% 7/1/2018 59.4 56.3% CalPERS --- Medical Transition 7/1/2019 65.9(2) 82.9%(3) 7/1/2020 69.8 82.0% 7/1/2021 $84.6(2) 96.9%(4) 7/1/2022 $75.1(5) 85.4%(5) (1) Bartel OPEB biennial actuarial report, unless specified otherwise (2) Market value of assets per PARS OPEB Trust statements as assets not yet available in biennial funding valuation. Accordingly actuarial smoothing was not utilized. (3) Calculated using PARS OPEB Trust statements and revised 7/1/18 AAL per 2/8/19 Bartel letter preceding transition to CalPERS healthcare. Bartel did not provide a revised AAL estimate as of 711/19 reflecting figures from the transition to CalPERS healthcare (4) Not actuarially smoothed. Calculated internally using market value of assets per trust statements and projected UAAL per biennial OPEB "funding" valuations. (5) This is reported on a market valuation basis per the 711/22 GASB 75 report as funding valuation is not yet available. Accordingly, this does actuarial smoothing is note used as was the case with otherfunded ratios on this page. 8 October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 87 of 105 4 Page 15 of 16 History of Additional UAAL Payments ($ Millions) Pension Date of CCCERA Prefunding FY Payment Trust Trust OPEBTrust Total Source of Funds 2013-14 Dec2013 $5.0 Budgeted 2014-15 Dec 2014 5.0 Budgeted 2015-16 Dec 2015 2.5 Budgeted -Board Decision 2016-17 Feb 2017 $25 Funded by FY 2015-16 variances 2017-I8 Aug 2017 $3.4 Budgeted -Board Decision 2017-I8 Various 2.5 Funded by FY 2016-17 variances 2017-I8 Various 2.0 2018-19 Various 2.5 Budgeted -Board Decision Budgeted $1.2511 to OPEBTrust, and $1.2511 2019-20 Various 1.25 1.25 variance from FY 2018-19 to Pension Prefunding Trust 2020-21 Various $70.8 (12.8) Payoff of Pension UAAL (included earnings of $3.65 M) 2021-22 Various 1.25 Budgeted $1.2511 to OPEBTrust Subtotal $83.3 $0.0 * 7.5 Total $83.3 $0.0 $7.5 $90.8 I Recommendation on Variance Funds Direct staff to utilize the FY 2021-22 variances as follows: A. Retain O&M budgetary variance in reserves increasing amount of SSC directed to sewer construction fund as assumed in the adopted budget for FY 22-23. B. Retain minor Sewer Construction revenue and spending variance in reserves, which remain above policy required levels. C. Contribute to Rate Stabilization Reserve Account D. Acknowledge unfavorable Self Insurance Fund budgetary variances (reserve still above required level) E. Direct higher than expected O&M budgetary variance to OPEB Trust given recent market conditions $6.36 million $2.95 million N/A ($0.37 million) $1.00 million Total $9.94 million 10 lo 8 9 October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 88 of 105 5 Page 16 of 16 Questions? 11 10 October 25, 2022 Regular FINANCE Committee Meeting Agenda Packet - Page 89 of 105