HomeMy WebLinkAbout01. Financial Planning Workshop Page 1 of 48
Item 1.
CENTRAL SAN BOARD OF DIRECTORS
POSITION PAPER
MEETINGDATE: JANUARY12, 2023
SUBJECT: FINANCIAL PLANNING WORKSHOP IN WHICH THE FOLLOWING WILL BE
PRESENTED AND DISCUSSED:
• PROPOSED FISCAL YEARS 2023-24 AND 2024-25 CAPITAL
IMPROVEMENT BUDGETS AND CORRESPONDING UPDATED TEN-
YEAR CAPITAL IMPROVEMENT PLAN;
• COST OF SERVICE UPDATE, INCLUDING PROPOSED ADDITION OF
AN ACCESSORY DWELLING UNIT (ADU) SEWER SERVICE CHARGE
CUSTOMER CATEGORY;
• UPDATED OPERATIONS AND MAINTENANCE BUDGET
ASSUMPTIONS; AND
• SEWER SERVICE CHARGE AND RECYCLED WATER RATE IMPACT
SCENARIOS AND PROPOSED IMPLEMENTATION SCHEDULES
SUBMITTED BY: INITIATING DEPARTMENT:
DANEA GEMMELL, PLANNING AND ENG-PDS-DIVISION MANAGER
DEVELOPMENT SERVICES DIVISION
MANAGER
PHILIP LEIBER, DIRECTOR OF FINANCE AND
ADMINISTRATION
Roger S. Bailey Kenton L. Alm
General Manager District Counsel
ISSUE
January 12, 2023 Special Board Meeting Agenda Packet- Page 4 of 57
Page 2 of 48
This workshop is a follow-up to the December 15, 2022 Financial Planning Workshop discussion item on
ADUs and addresses Sewer Service Charge (SSC) and Recycled Water(REW) rate issues and outlook.
Staff will present updated information for the Board of Directors (Board) consideration on the following:
1. Proposed FY2023-24 and FY2024-25 Capital Improvement Budgets (CIB) and Ten-Year Capital
Improvement Plan (C I P);
2. Cost of Service update, including proposed addition of an ADU residential SSC customer category;
3. Operations and Maintenance (O&M) Budget assumptions; and
4. Rate Stabilization Account (RSA)funding options.
Staff will also present updated SSC and REW rate impact scenarios and proposed rate implementation
schedules. Upon conclusion of the presentation, staff will be requesting Board direction on proposed
addition of the SSC residential customer category, establishing the rate schedule for future SSC and
REW rate increases, select a preferred rate scenario for purposes of preparing Proposition 218 notices,
and confirm the proposed rate cycle timetable, including holding a public hearing on rate increases on April
20, 2023.
BACKGROUND
Central San's long-term financial plan is updated at least annually and discussed with the Board. The
attached presentation provides updates on the 2019 Cost of Service study and includes a proposed
addition for the residential SSC customer categories. This presentation also provides options for funding
the RSA, updated O&M budget assumptions, updated rate impact scenarios and proposed
implementation schedules.
Cost of Service Study
With regard to the Cost of Service update, the initial Cost of Service Study was conducted in FY 2014-15
and updated in FY 2018-19. Staff has worked with rate consultant, Raftelis &Associates to update the
cost of services and review residential customer classes. The attached presentation summarizes the
findings and assumptions in the Cost of Service update.
Financial Plan Update
With regard to the financial plan update, staff has updated the long-term financial plan and has developed
various rate scenarios to share with the Board. Updates to the spending profile for O&M and capital have
been entered into the financial model. O&M updates will be highlighted in the presentation; economic
uncertainties and the likelihood of inflation have produced increases to O&M. Proposed capital spending
has been reduced over the next ten years, shifting spending further out into the 20-Year Cl P, helping
reduce near-term rate pressure. Assumptions for the usage of debt, including principal amount, type and
interest rate will be highlighted. As background and context, a discussion on the external economic
environment, and potential impacts on our costs and revenues are also included. Several alternatives for
the size and duration of required rate increases will be presented, along with resultant required debt
issuances. Proposed recycled water rates, with a planned three-percent (3%) increase, are also
overviewed.
ALTERNATIVES/CONSIDERATIONS
With regard to the Cost of Service Study updates and the resultant SSC residential customer categories,
the Board could direct staff to maintain the status quo, adopt staff's recommended updates or provide
some other direction to staff.
With regard to the financial forecasts updateand rate outlook, the Board can provide direction that staff
should focus on one of the scenarios for implementation for the next fiscal year or years; or request that
additional scenarios be developed.
January 12, 2023 Special Board Meeting Agenda Packet- Page 5 of 57
Page 3 of 48
FINANCIAL IMPACTS
The economic uncertainty and timing of a few major future projects can impact Central San's rates and
debt issuances. Additionally staff is evaluating how to optimize capital project priorities. With these
uncertainties, staff is recommending a two-year SSC rate schedule.
The Cost of Service addresses the overall revenue requirement, how those costs are allocated between
customer classes, and how those costs are recovered from each class. The presentation will provide
information on the following key issues:
1. Due to changes in usage patterns, there is a shift of costs from residential to non-residential
customers. Proposed changes to the customer classes are designed to be revenue neutral to Central
San overall, but SSC rates can increase or decrease between -5% to +6% for individual customer
classes.
2. The cost of service justifies the addition of an ADU residential SSC customer class.
The presentation provides a more detailed rate schedule for review.
COMMUNITY OUTREACH
Central San takes its responsibility to provide customers with clear and detailed information on proposed
rate changes very seriously. These outreach efforts far exceed the requirements of Proposition 218,
including:
• Providing an expanded Proposition 218 notice that is more readable, engaging, and accessible to
customers by including graphics, maps, locations of projects and summarizing information
• Incorporating the notice of the proposed rate increase and public hearing in the Pipeline newsletter
in an effort to reach additional customers, including both property owners and tenants
• Receiving protests and customer rate inquires through traditional mail, email, fax, and hosting a
Community Information Line
• Publishing a calendar of rate related events, holding public workshops, distributing Proposition 218
notices that comprehensively describe the proposed rate changes, and holding a public hearing
regarding the changes
Central San also publishes comprehensive budget documents describing the proposed change in
revenue requirements. Additionally, Central San will conduct specific outreach to customers that would be
affected by the proposed changes in SSC rate categories. The presentation will describe the planned
outreach for this rate cycle.
COMMITTEE RECOMMENDATION
No Committee recommendation was sought for these matters. Given their agency-wide significance, they
have been brought forward for discussion with the entire Board.
RECOMMENDED BOARD ACTION
Take action by motion or provide direction to staff with respect to each of the following items, which may
include directing staff to bring back any or all of these items for consideration at a future meeting:
1. With regard to addition of the SSC ADU residential customer category as a result of the updated
Cost of Service study results, direct staff to:
January 12, 2023 Special Board Meeting Agenda Packet- Page 6 of 57
Page 4 of 48
• Maintain the status quo; or
o Adopt staff's recommended updates; or
• Provide some other direction to staff.
2. Establish whether the rate schedule will be for two years (staff recommendation), or four years.
3. For purposes of preparing Proposition 218 notices, select preferred rate scenario for:
o Sewer Service Charge; and
• Recycled Water Charge.
4. Consider proposed rate cycle timetable, including holding public hearing on rate increases on April
20, 2023, and provide direction to staff as to how to proceed.
5. Provide direction on Rate Stabilization Funding options.
Strategic Plan Tie-In
GOAL ONE: Customer and Community
Strategy 1—Deliver high-quality customer service, Strategy 2- Promote initiatives to advance affordable and equitable
access to services
GOAL FOUR: Governance and Fiscal Responsibility
Strategy 1 - Promote and uphold ethical behavior, openness, and accessibility, Strategy 2- Encourage and facilitate
public participation, Strategy 3- Maintain financial stability and sustainability
GOAL SIX:Infrastructure Reliability
Strategy 1 - Manage assets optimally, Strategy 2- Execute long-term capital renewal and replacement program
ATTACHMENTS:
1. Presentation
January 12, 2023 Special Board Meeting Agenda Packet- Page 7 of 57
Item 1. (Handout)
Updated Presentation
January 12,2023
Annual � d
Financial Planning
Workshop -mom
Board Workshop _e .
1 ,
1
1
Introduction
Roger S. Bailey,
General Manager
w
DCENTRALSAN
2
1
1
�
Toda s Objectives for , -
Today's sVI 1lf�/,��'�
Board Discussion a�
Provide guidance on Sewer Service Charge
(SSC)rates for Fiscal Year(FY)2023-24 and
beyond,and proposed recycled water rates
Confirm rate schedule time horizon (2 or 4 years) �\
Discuss alternatives for Rate Stabilization
Account Funding Levels
Confirm Financing Alternatives of Capital " {
Improvement Program (CIP)
3
7Overview of Today's Presentation 4
Current Financial Condition Review(including debt overview)
Financial Plan Update �•
1. CIP Outlook
2. CIB Analysis
3. Inflation _la
4. Interest Rate All
5. Recession
6. Mitigation ~ -
III. Rate Term
IV. Cost of Service&SSC Rate Structure Changes
j
V. Recycled Water
VI. General Manager Concluding Remarks
VI I. Appendix: Rate Stabilization Account Funding Adequacy
4
2
I. Current Financial
Condition Review
Philip Leiber,
Director of Finance and Administration
5
SAN".
5
Recent Financial
7 - -
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 Plano
switch;$5.5 million savings annually started in FY 2019-20
2018 Bond Refinancing:$8 million interest savings through 2030 �s
2021 UAAL Payoff: —$15(+/-)million projected interest savings through 2029
(actual being monitored annually)
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 y
i
FLA
• Spending Control after Budget Adoption
• FY 2021-22$2.6 million O&M savings
• FY 2022-23 anticipated--$2+million O&M spending savings
6
3
7Recent Financial
Accomplishments -
• Customer Rate Relief
• Deferral of FY 2020-21 adjustment:maintained$598 SSC,postponing$629 SSC
• Participating in LIHWAP program for payment of COVID period SSC for eligible low-income him
customers
• 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 Pension UAAL and 85.4%on a market value basis of assets for
Other Past-Employment Benefits(OPEB) ,
• Recovery of—$1 million of COVID response costs from State,with additional funds
anticipated from FEMA application submitted 12/30/22
• Optimization and Benchmarking
• Creation of Operations&Organization-Wide Optimization Division and manager appointed
• Continuation of national/state benchmarking study participation
• Annual Optimization report documents continual improvement efforts
• Process optimization improvements a key focus in next two years 7
7
FY 2022-23 Central San
Funding Sources
$213.5 Million (M) Total
C.Pddty Fees, AIIOther Revenue
• SSC is the main"controllable" $4579000 Sources,$5,616,900
(through setting rates)revenue Ta.Revenue.
source, used cover projected s21sa4.000
expenses not funded from other
revenue sources. City of
• Borrowing can also be used to Szsioo,000
cover capital funding needs.
sewer Service
Charges,
$114,657,000
Debt Proceeds,
542,000,00
Revenue provides$171.5M of the revenue requirement;balance from SRF Loan
8
4
,t
SSC Annual Review
Requirement
While not binding for FY 2023-24, the Ordinance for this
year indicated "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 � r
maintenance costs; - -
C. Its financial condition;
D. Other factors which bear on the .a �
revenue requirements of the District. a =
9
A. Proposed FY 2023-24
Budget Q
• Budget Process Not Yet Started. (Budget to be presented 4t
in early May)
O&M for FY 2023-24 E
• Per Financial Plan: $90.9 million per Financial Plan as of January 2023
Capital Budget for FY 2023-24
• Per Prior 10 Year CIP $120.4 million ,
• Per Current 10 Year CIP $78.7 million _t
(Reduced given current status of carryforward)
10
5
B. Historical & Projected O&M Costs
5140,0001000
$120,000,000
$100,000,000 — - - - - -
$80,000,000 - - - -
$60,000,000 - - - -
$20,000,000
0 0 0 0 rl rl v-I rl rl rt rl rl rl .d N N N N N N N N N t+�
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O O
N N N N N N N N N N N N N N N N N N N N N N N N N
y } } } } } } Y Y Y } } Y } y } } Y Y Y } } } } }
■Budget ■Projection O 2021 Debt
Takeaway: Eight years of O&M budget stability at an average of about$89M.
Future cost growth to be mitigated through optimizations and other efforts
(bars represent Financial Plan placeholders for now)
11
B. Historical & Projected Capital Costs
Capital Budget
("Estimated Expenditures"pre FY37/18)
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000 I I I
20,000,000
O pp Op� �C ti
-O !If ti er-1 N Fi N fi N N b
o m
— — — to W to W W — W
Takeaways: Left: Maintain
Middle: Ramp-up to replace aging infrastructure
Right: Replace aging infrastructure;
but recognize economic/operational/contracting
constraints 12
12
6
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%actuarial basis funded.
(Subject to change based on poor 2022 returns)
Favorable variances are anticipated from FY 2022-23.
YTD Results through November 2022
O&M Variances
Total revenue variance: $1.1 million
(likely$1.5 million for full year)
Total spending variance: $1.4 million --^-^d^�^° b--°
Net Variance: $2.5-$2.9 million favorable --
Capital Variances ^�
Total revenue variance: $5.5 million
(Perhaps$3.9 million for full year)
Total capital project spending of$158 "
million with carryforward.
Only$17.3 million spent to date.
Detailed capital forecast conducted
(discussed subsequently) -----m -,�-"
13
13
C. Financial Condition-Debt Overview
Outstanding Debt:
Original Issuance Currently Outstanding
2018 Revenue Bonds: $19,4509000 $11,875,000
2021 Certifications of Participation: $50.570.000 $33,060,000
Total $70,200,000 $44,935,000
Debt Service Chart(Principal and Interest per Year)
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14
7
C. Financial Condition-Debt Overview
Debt (Liabilities) to Total Assets: $100,621,583/ $1,046,518,092 =9.6%
Debt used to Fund CIP (last 10 years; projected 10 years)
$in millions Debt Funded Capital Spending
51,20o l00%
90%
$1,000
SO°h
$800 70%
60%
5500 S0%
40%
$400 3WA
$zoo
zo%
lo%
so o%
Past 10 Years Current Through Next 10 years
�Capital Spending IiiiiiiiiiiiiDebt -%
15
15
C. Financial Condition : Reserves
BOARD POLICY (BP) 017 FISCAL RESERVESm ..°'°
Defines and governs use of.-
O&M Reserve
Sewer Construction Reserve
Self-Insurance Reserve
Rate Stabilization Account _ �-~ -
OPEB Trust and Pension � �
Prefunding Trusts `
Analysis in Appendix
16
16
8
C. Financial Condition:
Reserves On Track / Healthy
Reserve Status MrIMMMM
($ millions) MMMMM�I�IMM
Reserves per 6/30/22* $53.3 $83.9 $9.1 $7.46 $75.1 $0 $482.4
Policy Required Level at 6-30-22 35.4 24.5 9.0
Difference (17.9)(4) 59.5(5) .I
Reallocations (1.0) 1.0
Balances After Reallocations $52.3 83.9 $9.1 $7.46 $76.1 S-0 $482.4
" Reserve balances per pre-audit financial statements and external sources as applicable.
(I)Amounts per Balance sheet,and for CCCERA the actuarial value of pension assets.
(2)Pension Prefunding Trust had a trivial balance as of 6/30/22 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'6/30/23 balance meets the policy targeted level.
17
D. Other Factors that Bear on the
Revenue Requirements of the District
Economic uncertainty:
COVI D/Russia/Ukraine/Inflation-->
Fed Actions-->Recession? -
Covered subsequently
Project Uncertainty: UNCERTAINTY
Solids Project(Finalize Phase 1a, AHEAD
Establish Phase II scope)
Size of CIB Carryforward
Nutrients/Water Exchange I
18
9
Summary Assessment
Commentary Conclusion
A.District's proposed budget; Process not yet commenced. Budgets Inflation continues;O&M costs about
anticipated to be consistent with financial /z revenue requirement.
plan. Reduced CIB to reflect actual pace of
spending.
B.Projected capital and Capital needs in the next remain Rate adjustments still needed; but
operations and maintenance heightened,though slower pace expected opportunity to moderate them.
costs; versus last year's financial plan. Significant
uncertainty as to timing of major projects.
Water Exchange/Nutrient Issue Pending.
C. Its financial condition; Good Maintain fiscal and rate adjustment
discipline
D.Other factors which bear External economy reasonably strong, but Caution warranted
on the revenue requirements mounting uncertainties
of the District.
Need for rate increase remains
19
II. Financial Plan Update
Danea Gemmell,
Planning and Development Services Division Manager
-
20
10
7Trajectory Of FY 2023-24 and Future Rates As of Last Year
$31 not $906 $938
$1,000 collected $880 + (+3.5%)-
$807 $831 $i% (+3%)(3 %) DEBTASSUMPTIONS
$900
approved $776 (+3%) (_) I I I I
$629 $718 $746 (+4%) (+4%)
$800 (+5.25%) (+4%) (+4
$690 %) r� 13 I �1 �1 I I I I I Secured
$700 $59 eHecrive $660
SRF Loan $173.1 M
it$600Planned
$soo I Future SRF $190.0 M
$40oLoans
$300 i i i$20o$100
$0 L L L I I I I_I I_I Li 1-1
2019-20 2020-212021-222022-23 2023-24 2024-25 2025-26 2026.27 2027-28 2028-29 2029-30 2030-31203 1-32
■Approved Single-Family Rate
21
Major 2022 Factors Affecting Financial Plan
Status&Timing of
Solids Handling,
Nutrients,
CIP Project—
Outlook Aeration Basins,& Growing for
UV Projects past 3 years
Major
Carryfomard projects
CIB
and smallerRate "
undesignated"
Fatigue projects
Need to
moderate rate Central
adjustments in light San Impact on
of all factors InflationLabor,Benefits,
Other Costs
Economic 4.
Uncertain
Soft Landing or Interest_ Significant increase
Recession since March
Inverted Interest
Rate Curve
22
22
11
11.1 CIP Projects
Edgar J. Lopez, P.E.
Capital Projects Division Manager
fit
23
Current Year 10-Year CIP
FY 2022-23: $1,135.7 Million
Ten-Year CIP
1 2 3 4 5 6 7 8 9 30
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
$ 40.0 $ 68.5 $ 78.6 $ 98.9 $ 71.2 $ 75.7 $ 72.3 $ 72.1 $ 84.9 $ 62.1
$ 36.9 $ 43.8 $ 40.4 $ 30.3 $ 30.3 $ 28.3 $ 28.4 $ 28.4 $ 28.4 $ 29.2
$ 3.8 $ 2.9 $ 2.0 $ 2.1 $ 2.1 $ 2.1 $ 2.1 $ 2.1 $ 2.1 $ 2.1
$ 8.7 $ 3.8 $ 4.3 $ 2.4 $ 9.3 $ 9.8 $ 5.4 $ 0.3 $ 0.3 $ 0.3
00$ 1.6 $ 1.4 $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 2.0
2022-23 Proposed CIP $ 91.0 $ 120.4 $ 127.3 $ 135.7 $ 114.9 $ 117.9 $ 110.2 $ 104.9 $ 117.7 $ 95.7 $1,135.7
$140.0
$120.0
rioo.o -
$80.o
$6o.o
$40.0
$20.0
$_
FY 22-23 FV 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FV 31-32
24
■Treatment Plant ■Collection System ■General Improvements ■Recycled Water ■Contingency
24
12
Proposed Year 10-Year CIP
FY 2023-24: $985.4 Million
Ten-Year CIP
1 2 3 4 5 6 7 8 9 10
oFY 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 FY 32-33
$ 36.5 $ 62.3 $ 65.0 $ 68.7 $ 62.1 $ 56.1 $ 57.9 $ 67.2 $ 67.7 $ 67.2
$ 38.9 $ 42.1 $ 35.8 $ 29.6 $ 30.2 $ 29.1 $ 28.1 $ 28.1 $ 28.7 $ 26.7
$ 2.6 $ 2.1 $ 2.2 $ 2.1 $ 2.1 $ 2.1 $ 2.1 $ 2.1 $ 2.1 $ 2.1
$ 0.5 $ 2.8 $ 4.8 1$ 0.3 $ 2A I $ 9.3 1$ 9.8 1$ 5.4 $ 0.3 $ 0.3
$ 5.0
2023-24 Proposed CIP $ 78.5 $109.3 $107.81 $100.7 1 $ 96.7 1 $ 96.5 1 $ 97.8 $102,81 98.9 $ 96.3
$120.0
5100.0
$so.o
$60.0
$40.0 -
$20.0
$- _
FY 23-24 FY 24-25 M5-26 FY 26-27 FY 27-28 FY 28-29 FY 2330 FY 30-31 FY 31-32 FY 32-33
25
■Treatment Plant ■Collection System ■General Improvements ■Recycled Water Il Contingency
25
Capital Improvement Plan 10-Year Updates:
Total net reduction of$150 million to 10-Year Plan
Why the change? The past two years have been challenging in delivering construction projects
due to several reasons including equipment and material delays. Biggest impact has been on the
Treatment Plant program as longer delivery times have overlapped with other project schedules.
Major changes include:
• Solids Project, Phase 1A: Updated Project Estimate
• UV Disinfection Replacement: Schedule changed-SRF funding
• Aeration Basins Diffuser Replacement: Schedule changed for constructability
• Annual Infrastructure Project Reduced Budgets
• Filter Plant&Clearwell Improvements, Phase 1 B: Continue Phase approach/SRF funding
• Nutrient Removal Project: Continue Planning. Funding for optimization
• Other Treatment Plant Projects Schedules changed to avoid
constructability concerns
These and previously known factors have been incorporated in ALL new financial
model scenarios 26
26
13
Overview of Projects included in FY 2023-24 CIB
F-- Planning/S
tudies
• Large Diameter Pipeline Inspection
• Nutrient Removal(MABR)Pilot
• Collection System Masterplan Update
• Solids Phase 2
• UV Disinfection Replacement
• Sewer Renovation
• 39-inch Pipe R&R
• Filter Plant PH I B
• Solids Handling PH IA
• Aeration Basin Diffuser Replacement Phase I
• Fairview&Maltby Pumping Station(PS)PH 2
• Martinez PS Electrical Rehab
• Several sewer renovation projects
27
27
Capital Improvement Projects C
Costs Not Included in CIP
Assumption:Projects will include Revenue Offsets
Water Exchange Project
Concord Community Reuse Project
5.
Collection System Upsize - -
Concord Industrial Pump Station Upgrade
Recycled Water Plant Upgrades
Caltrans A-Line Relocation (Design)
9
rk
�i.
28
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111.2 CIB Carry-forward
Adjustments and Contingency
_43CENTRALSAN
1
29
What is Carry-Forward?
Previous year(s) allocations are carried forward into new -
fiscal year in order to spend planned Capital Project Budgets
Money is committed to specific project and can be
transferred to manage overall program budget.
FY 2022-23 Approved CIB a _
CIB Allocation Carry-Forward Allocations Total
76,000 $67,008,029 $157,984,029
30
30
15
55�
Carry-forward Analysis
Treatment Plant $ 41,517,900 $22,873,000 $16M in Solids reallocated
for SRF cashflow
Planning and Inspection
Collection System 18,132,200 5,138,000 projects adjusted to reflect
delays
General Improvements 3,241,200 400,000 Reallocated to future
Recycled Water 4,1 16,700 500,000 Reduced budgets
Projects were evaluated for likely cashflow in FY 2022-23 and with recommendation to return
allocations to Sewer Construction fund.
31
Carry-forward Analysis - Remaining
Revised Design Construction Construction
FY 2021-22 Commitments Commitments* Carry
Carry-forward Forward%
Treatment Plant $ 18,644,900 $ 6,073,900 $ 12,571,000 67%
Collection System 12,994,200 2,921,200 10,073,000 78%
General 2,841,200 278,200 2,563,000 90%
Improvements
Recycled Water 3,616,700 376,700 3,240,000 90%
38,097,000 $ 9,650,000 $ 28,447,000
* Construction commitments includes,but not limited to,awarded projects,
equipment/ vehicle procurements,and construction support services.
32
16
New method
to manage CIB Contingency this Fiscal Year
Existing Plan for Contingency New Proposed Plan
Yearly allocation of$ 2 Million One-time seeding using close out savings or
At year end, remaining amount goes into additional funds from FY 2022 carryforward
Fund 20 (sewer construction fund) Contingency account will carry maximum of$5
Potential savings from closed projects are Million and will roll over yearly
included into account at year end Potential savings from closed projects are
Amount is used in spending target included into account at year end, however any
(90% metric)
amount over$5 M will be returned to Fund 20
10-Year CIP Impact:$20 Million
Will not be included in spending target
10-Year CIP Impact:$0-5 Million
1
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11.3 In and General
Rate Model Assumptions
Danea Gemmell,
Manager of Planning & Development
, f
"JW MINI-
� a
w
1_
CENT-NTRA COM SAN-DISTRICT��
34 - -- -
17
Rate Model Assumptions
O&M Budget:
Utilize FY 2022-23 budget as BaseYear
Salary: Memorandums of Understanding;5%for
FY 2022-23,and 3.75%Consumer Price Index Capital Budget:
(CPI)for following 4 years 2024-5%escalation;2025-5%escalation;2026
Number of employees:294 4%escalation;thereafter 3%
Updated 10-Year Cl P:$985 M based on revised
Retirement(CCCERA data) cash flow
Ca1PERS Medical per current employee contract
SRF issuances at 2.0%to 2.6%interest
Includes UAAL Certificates of Participation debt Bond Interest at 4%to 4.5%over next 10 years
service for 6 years(0.38%overall interest)
New Contingency Process funded with savings
Reserves:Targets per Board Policy Debt Service Coverage
Basis of Model:December 2022 Cost of Service Study by Raftelis
k1 CENTRAL SAN
35
SRF Background and Strategy
Historical SRF Rates range from 0.8%to 2.7%since 2010
SRF Loans (Preference for Debt)
Previous Financial Model Assumed$190M in
SRF funding for Solids Phase 2 and UV California SRF Interest Rate
Disinfection projects due to low interest rates 30%
Loans must be project scope and budget 2.5%
specific 2.0%
Loans are competitive and approved by Water 1.5%
Board 1.0%
0.5%
Dec-2022 CASA SRF Working Group
00%
informed that State program is oversubscribed M"'e, Mach8, Marche, M—h% Marchar Mach B, M-1`81
2016 2012 2018 2019 2020 2021 2022
up to 3-years
36
Continue to apply for SRF Loans,but assume Bond Financing for 10-Year Financial Model
Apply any savings upon successful application
1
36
18
Capital Debt Assumptions
Secured SRF Loan on Solids Project 1A ($173.1 M)
0.90% Interest Rate
30-Year Term
Debt payments start 1-year after construction complete
Received Reimbursement of$13.8M for previous
planning/design expenditures.
Revenue Bond Issuances ($170M)
$80 Million Bond for Treatment Plant/Recycled Water Programs
in FY 2028-29 (Year 6).
$90 Million Bond for Treatment Plant/Recycled Water Programs ,
in FY 2031-32 (Year 9).
n.
r '
37
111.4 Interest Rate and Debt Update
Philip Leiber,
Director of Finance and Administration
w
38
19
Debt Financing
Debt is a key financial planning tool.
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 CIR
Borrowing Types:
SRF Loan through State (Interest rate is 50% of State's
latest borrowing rate; but program is oversubscribed)
Direct Borrowing by Central San through either
Certificates of Participation(COPS)
Revenue Bonds(Requires JPA)
We presented in March 2022 on the topic of the timing F%A
of borrowing. There was a substantial increase
in interest rates in the following months to combat
inflation.
39
7sRF
rest Rates:
vs. Agency Direct Borrowing
1¢5RF —3oY mmo
5% lan 202271��%
Mln Dec 20214% ""c' ''fs Nov 2021.m s4% O[t 20213% Sep 20213% Aug 2011
2% Jul 2021 1.37%
2% Jun 2021 1.46%
1% * *ilf * *>Ik * * * ** May 2021 1.57%
1% Apr 2021 1.61%
06, Mar 2021 1.74%
Feb 2021 1.48%
Jan 2021 1.43%
Note:The tables on the right show monthly averages of short-term indices and tax-eaempt feted interest rates.As of[Ds January 12,2022
Disclaimer:Mello&Company has prepared this material for informational purposes only.Mello&Company obtained this information from multiple sources believed to be reliable as of the date of
publication;Mello&Company,however,makes no representations as to the accuracy or completeness of such third parry information.Mello&Company has no obligation to update,modify or
amend this information or to otherwise notify a reader thereof in the event that any such information becomes outdated.inaccurate.or incomplete.
40
40
20
. 1 • . ..
ISO 11111111111 1111 1111111 1
PFM Analysis conducted in Early 2022
Analysis considered whether to borrow in 2022 (foregoing the 50% SRF interest rate discount),
or later.
Considered a forecast of future interest rates (used Bloomber BVAL Municipal AAA rate curve;
with forward rates 10-93 basis points higher than today) and other factors.
Results: Borrow later appeared to have a lower overall cost to Central San.
Major Sensitivity: Change in Forward Interest Rate Curve.
OVAL Muni AAA CurveCal able)
From F—h 5,2D22.this function wi it no ipnBer support export to fucei/P-
02 15 22 M+ 02 36 R
o lrvlied WrNary
0 65A6 lr33143 1,53328 1.69552 1.70e
1767� 1,91M
l Yr Pro tx[ed 2 Yr Pro e[ted
3Yr Pro'a,ted 5Yr Prp'ected
So,what happened next?
41
7Rateslimbed Sharply After March 2022 workshop
THE 20-BOND INDEX
(20 year Muni Bond Index)
4.35%
4.15%
3.95%
3.75%
3.55%
3.35%
3.15%
295%
2.75%
2.55%
2.35%
2.15% NNW Pf
1.95%
B' �tid�ti�,tic"ti a�L`)yti` e�`Lc�`ryB,;>rc, 0-10,9�1 fol 0Jryti o,10, 7
42
42
21
ISO 111111111111 1111 1111111 1
. � • . M .
7 Current Borrowing Plan
1. Next borrowing needs are 6 and 9 years away.
2. Pursue SRF by filing applications plications with State for UV Project
and Phase II of solids handling
3. Revenue bonds as back-up. Join JPA in 2023.
4. Interest Rates may be lower in 2023-24 than now: - - _
MAW �Mper San0ler�, Mr&et _—
PSH F—tt R Wi, - —
MO 2021 1D221013 YE 2013YE
FF 0.25% 0.25% 4.50% 375% 470%
3m 0.07% 0.04% 4.30X; 3.60% i 4A2%
2y 0.32% 0.73% 6.43%� 3..31% i 3.Bd%
Sy 0.36% 1.16% 4.00%, 7.90% 3.50%
10y 0.92% 151% 3.97%�� 3A0% 3.53% `- —�•
a�
90Y 1.64% 1.90% 3.96% ' 3.23% 3.60%
Competing pressures of
inflation vs. recession
43
43
111.5 Economic Uncertainty:
Caution Ahead?
• Interest rate hikes * High inflation
slowing economy *Consumer confidence down
* Housing market slowing from a year ago, but increased
•Stock market declines in December
• Impact of Ukraine/Russia Low unemployment
conflict 3.2%GDP growth in Q3 of 2022
• ....Recession? (2 quarters of
negative growth in Q1, Q2 2022)
f
-Ala LOO,
9p
- w
WM
D1111-
-_*43CbNTRALSAN
_
44
22
GDP and Other Indicators
1/4/2023:Manufacturing activity contracted for the
12/22/2023:Real gross domestic product(GDP)increased at an annual rate of 3.2 second consecutive month,hitting its lowest level since
percent in the third quarter of 2022,according to the"third"estimate released by the the pandemic outbreak,back in April and May of 2020
Bureau of Economic Analysis.In the second quarter,real GDP decreased 0.6 percent. rsnn neanur.cnrrinernae.
1
sss
S
Thursday,Oecember22.2022 SEA22-64 -------- --------- ---------
j
ReaIGDP:Percent change from preceding quarter below 30
4030
b
wnao, rwn.e na�as wpria ro���
20 12/15/2022:Retail sales contracted in November hitting
10 their worse level in I I months. Resiliency of the American
a consumer is feeling the impact of the Fed's rate hikes.
-10
20 4.0- Feuil Ssles�,All Items{N FbM1
3,0
-30
-4p2,0LIA n
I X11 (ll CIA
Eli q) Il; «A C�1 ryJ iGi (1.1 fl1 (1) it i0 'LJa
2018 20199 2020 2021 2022
IILJII
0.0
1.5.bureau er Ecenemic Malysir Sce�enetty edlueted annual rates
-1.0 lowest in It—
"
1 s
•2.0- mmft
Sep21 38.22 Mer-22 Sep-22
• Impacts
• Limited direct impact to Central San; impacts overall
inflation rate, health of economy.
45
Inflation: High, But Likely Cooling
7C,,.,t: nnua�[Wfiauon Rates(2012 10 2022]
0 r �y041 ,� f "$a�� '0ry.�,�.4t. vi,e;•�,,�,�+•�'��,
2012 2014 201fi 2018 2020 2022`
2013 2015 2017 2019 2021
*r Jen Feb Mar Apr MW Jun Jul Aug Sep Oct NW Dec An
2022 7.3 7.9 83 8,3 8A 9.1 83 83 U 7.7 7.1
2021 L4 1.7 26 41 1.0 lA 5.4 33 74 61 68 7.0 47
• Impacts
• Affects all components of expenditures, and indirectly, interest 46
rates/borrowing costs, and pension/OPEB costs.
46
23
' ' 0 Unemployment and Consumer Confidence
Contra Costa County Unemployment
at November:3.4% consumer confidence lndox®
FRED -. ....c...rm.ca.4--. ne...+sea.,m
�Ad,,,„» January 6,2023: Nationally: Surveys C 1s1sigt1j.a
December Jobs Final Results for December 2022
Report: 223,000 new jobs,
w° Unemployment rate falls from m zoz, rn a cna�r
3.6%to3.5%. HOurlywage p0- � .°uanwmH smnmenl ssa ss.e gas s,x .,s.ax
growth cooled to 4.6%from a o1onem1Con4"b"` sa9�� "� +°
a°fcrosumv[.pman°nz .5 68.3 •].]x
5.6%pace in March. w
s22 TECH LAYOFFS Surveys of Consumers Director
Lynn Franco,Senior Director of Joanne Hsu.Consumer sentiment
Economic Indicators atThe Conference rose 5%above November.
stripe Board:Consumer confidence bounced back in Sentiment remains relatively
December to 108.3,up from 101.4 in downbeat at 15%below a year ago,
November,to reach its highest level since April but consumers'extremely negative
2022. Improved due to consumers'more attitudes have softened this month
- and other Big Tech companies favorable view regarding the economy and jobs. due to easing pressures from
announce layoffs Inflation expectations retreated in December to inflation.One-year business
their lowest level since September 2021,with conditions surged 25%,and the
December 31: Despite the notable job cuts announced in November by recent declines in gas prices a major impetus. long-term outlook improved a more
large tech,the labor market remains resilient. However, with several Vacation intentions improved but plans to modest but still sizable 9%.Still,
economic indicators suggesting a recession is very likely to hit the purchase homes and big-ticket appliances both measures are well below 2021
economy in 2023,we expect a broader cooling of the labor market to cooled further. readings.
take place over the next few quarters. (Piper Sandler)
• Impacts 47
• Affordability/ ability to pay rate increases
47
01011 irons Housing
(November 30,2022 data)
Existing home sales iYoY,%j M°rtgaaeapplicatiau 7
40 340 .pv h+ ase Index 1880' HOrnebrylriflpdiEWly
&aEding IM.mhs f000s1 Ifioed ngrgase idea
20 290 6
15110 j CA
0
ara twn°mt 1200- 1 120
-20 19[1 Existing home sales ne 4 +hs side
{rznllians�2m lagl an<irypui Kw hISeKK4P
-40 new record 140 3 g00� — gp� +T
Mar-0fi Mar-11 Mu-16 Mar-21 SeF.18 Sep-19 Sep-20 Se1-21 5e1-22 Mar 16 laay!8 aa1YX1 Mgr-23 18 a."Sep-94 soY,W Jar'm seyll MW-17
Piper Sandler Economist on 12/21/22:Home resales fell in Piper Sandler Economist on 12/20/22: Despite incentives offered
November for the tenth consecutive month and are now near by builders,higher borrowing costs are significantly curtailing the
their lowest levels since 2010,when one excludes the COVID ability of potential buyers to afford a new home,with the
related low points.On an annual basis,the pace of sales was down affordability index deteriorating to a new low Housing has further
by a new record low of 35.4% room to fall in the months ahead,especially as the Fed remains on
its aggressive tightening path.Overall,activity in the housing
market continuous to weaken with little evidence that it has
reached a bottom.
• Impacts
• Development levels affect Capacity Fees / Permit Fees
• Housing prices affect Ad Valorem taxes
(lagged/moderated)
48
48
24
Financial Market Indicators: Interest Rates
2022 Fed Rate Hikes:Taming Inflation
lanuary 2 commentary from Piper Sandler:
Given growing disinflationary pressures,the Fed's next
rate hike will push monetary policy into restrictive
sec,s.zozx >> A00%m935% territory for the first time since the Fed embarked on its
a.� z our current rate hiking campaign.Almost 500 by of expected
ro,n�a sero cumulative rate hikes are having their intended effect on
�vazoa a uc:=lam the economy with the odds of a recession rising.The Fed
—1,.z— may terminate its tightening cycle in Q 1 2023 and based
2020 Fed Rate Cuts:Coping with Covid-19 on past historical tightening cycles,we expect the Fed to
remain on hold until the end of Q3 2023 with rates
declining across the curve over the next 12 months.
o�,oaz— Furthermore,the yield curve should remain deeply
inverted as monetary policy remains tight and I Oyr
Treasury yields fall as low as 3%.
Treasury Yield Curve InvertsYield inversion does not always predict a recession.But
a recession is always proceeded by an inversion.So it's
To Deepest Level Since 1981 a correlation,not causation.80'/correlation.
• Impacts
• Interest rates affect borrowing costs and overall economic conditions 49
49
7� Financial Market Indicators: Equity Markets
S&P500: I year(as of 1/3/23) S&PP500: 5 years(as of 1/3/23)
3,824.14 USD ♦-942.04(-19.779;)past year 3,$24.14 USD ♦+1,150.53(+43.030 past 5years
January 3,4:70 PM tsT market closed -
00o a wu
6.500
3.w0
9.000
Prevleus 2.w0
Class:
�sw 5 �� IIIIIIIIIIIIIlIII11111u1111�1 �llllllllllllnlllllllllllllll
l l i l l l l l l l l l l l l l�l l 2017 2015 2015 2020 021 2072
52wk High 4,818.62
52wk High 4,81862
52wk Low 3,491.56
52wk Low 3.491,56
• Impacts
• Financial Markets provide some indicator of overall economic conditions
• Equity market returns affect Pension/OPEB funding costs
50
50
25
Summary of Impacts of a
Recession to Central San
1 . Expenditures: UAAL payments higher (market returns below target)
2008 major impact
2. Revenues: Commercial SSC (lower water usage)
3. Expenditures: Construction Costs (lower)
4. Expenditures: Inflation (lower)
M 5. Revenues: Capacity Fees (reduced development)
M 6. Revenues: Ad Valorem (lower growth of property values)
M 7. Revenues: Permit Counter Fees (lower development)
51
51
111.6 Rate Mitigation
Danea Gemmell,
Manager of Planning & Development
x
_ w
52
26
History of SSC increases
Infrequent,large increases or regular, modest increases Rate Increases have Mirrored
Low: 0%, High 12%, average 5%, median 5.1% Increasing Capital Investments
SSC Rates and Annual Increase% 10 Year Cumulative Increases and
Average Annual Capital Investment
5600 14.CeS
$700 12�� $millions
100% $57 $60
$600 10.p� 90'A % $50
80%
a
5400 60" t5.
1540
5300 5.0% � $30
5200 4.0x6 30% $20
201° sic
$100 I I I 2.0% 10%
$0 0.0% 0% 10yearsto 2002/03 10 years to 2012113 10 years to 2022(23 $0
A� Ah O� A°j 01 O'� O� 01 CSS 1,'
wiry 1�v ti°°w tib$tic ti�ry ti�a v��ti��ti°tea ti°4ry ti°�v ti°tiw ti°y$ti°ry°ti°yry
Cumulative 10 Yr Rate Increase
Single-Family Rate -Increase% -A-S.A-al Lapital Investment in 5 milli-
53
53
Use of Debt will mitigate future SSC increases
Ten-Year CI
1 2 3 4 5 6 7 8 9 30
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 FY 32-33
$ 63.7 $ 71.3 $ 66.6 $ 59.8 $ 76.3 $ 11.2 $ 98.4 $ 104.3 $ 17.2 $ 96.3 $ 665.2
$ 1s.0 $ 38.0 $ 41.0 $ 41.0 $ 15.0 $ $ $ $ $ $ 150.0
$ 80.0 $ 90.0 $ 170.0
2023.24 Proposed CIP $ 78.7 $109.3 $ 107.6 $ 100.8 $ 91.3 $ 91.2 $ 98.4 $ 104.3 $ 107.2 $ 96.3 $ 985.2
Debt Financing Plan
FY 2023-24
5120.0
_sloo.o
sfo.a
E 560.0
a $40.0
V
$20.0
s
FY 23-2a FY 24.25 FY 25-2b FY 26-27 FY 27.28 FY 28-29 FV 29-30 FY 30-31 FV 31-32 FY 32-33 54
•Cash NN,Gni Noierrs -SK F.ndnd N.ircts -acrd Fundrd Pr.0-
32.5%of Proposed Ten-Year Capital Plan is funded with Debt
54
54
27
Mitigation Efforts Applied
Project screening
Project timing
Reduce contingency funding
Realistic assessment of CIB carryforward and ability to deliver
Cost control efforts (optimization, benchmarking, benefit costs)
Use of targeted borrowing
Pursuit of lowest cost debt (SRF) and next best alternative (revenue bonds)
Holistic approach to rate setting: Top-down approach to rate setting in
addition to bottoms up needs assessment
Annual check-ins for multi-year rate schedules to lower rate if appropriate
55
III. Rate Proposal Term
Philip Leiber,
Director of Finance and Administration
� a
w
56
28
Rate Term Options
2Year • More precision with a formal update after two years
• Realistic choice given some uncertainty on major CIP
project costs and timing L ommendation
• Uncertainty around inflation mmmm
• Downside:More conversations about rates
4Year Save cost of second Proposition 218 mailing effort
• Reduced staff time in avoiding a second major rate
effort
• Annual check-ins can allow for adjustments downward
while providing rate levels for years 3 and 4 sufficient to
support work on key projects with less than certain
timing or costs (Nutrients/Water Exchange/Solids)
• Set CIP limits and manage within those limits
• Major cost(labor) agreements specified in MOUS
• More clarity of rates for businesses,who appreciate
certainty 57 '
CENTRALSAN
57
V. Cost of Service &
Rate Structure Changes
Danea Gemmell,
Manager of Planning & Development
Thomas Brightbill,
Senior Engineer-Financial Planning
� �- ' . • _ .
58
29
•
Overall Central San Customer Profile
r
Single Family Residential (SFR) 96,621 59%
r
SFR+ADU 1,936 2%
Multi-family and Condos 17,635 24%
Non Residential 2,592 15%
Total 118,784 100%
Source:FY 2022-23 tax roll
Takeaways
Parcels with ADUs are a relatively small portion of the total parcels
Non-residential Sewer Service Charge (SSC) revenue is about 15%of
total SSC revenue
59
•
Non-Residential Customers
Billed on water consumption and business type
Low Medium Medium Medium High
Low High
Up to 350 mg/L 351 to 700 mg/L 701-1000 mg/L 1001-1300 mg/L Over 1300 mg/L
Std.Commercia
Churc
Schools:Daycar Shop
Preschool, ® - - -
Automotive,
Aviation,Marin
50%by flow
Milligrams per liter(mg/L)
60
30
Each Customer User Group is Allocated Costs
Proportional to Treatment Plant Flow and Strength
•
-409
• ,
Cost
Biochemical oxygen demand(BOD)
Total suspended solids(TSS)
61
Cost of Service Analysis
7
Finding #1 i
i
➢ Adding a new Accessory Dwelling
Unit SSC Rate Class is warranted
➢ ADU Flow is about 50% of an SFR ', r-
➢ Fixed Costs included in SFR �.
bL
62
31
Accessory Dwelling Unit Rate >>!
➢ Intent is not to charge units that
have been reviewed by Central
San and were not classified as an
ADU under prior criteria
➢ Specific criteria for ADUs can be
revisited following the workshop
➢ District Code update is planned
for ADUs based on 3 previous
appeals
i
63
In order to highlightADUs and other key customer information
Pipeline: Home Improvement
Special Edition (June 2023) D'
Tips for keeping your sewer lateral in top shape i► �� �� 4r
Need sewer repairs? Get multiple bids/find the right Are +
contractor f,V
What to know about easements _ ,<
Buying a new home? Do your due diligence
ADUs 2�
ADUs defined P
Options for connecting your new ADU to the public sewer system
Bringing existing structures into compliance
}
What are capacity charges?
64
64
32
•
Cost o
ff Service Analysis Finding #2
Cost of Service calculations show a slight shift of rates from
Residential Customers to Non-Residential Customers based on
changes in water consumption and wastewater flow.
Treatment Plant Influent Flow: Concord/Clayton Flows:
12,741 million gallons annually decreased slightly from 33% to 31%:
35 million gallons per day (MGD) 3,973 million gallons annually
11 MGD
Annual Plant Influent
(million gallons)
16,000
15,000
14,000
13.000 .................„
12,000
11,000
10,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 65
65
7•
Sewer Service Charge
Revenue Requirements
FY 2022-23 FY 2023-24 FY 2024-25
SSC Single-Family Rate $690 $697 $725
+ 1.0% +4.0%
1 2 2
Total SSC Revenue Required $114,657,000 $117,176,000 $121,863,000
+ 2.2% +4.0% .. R
From Budget Book
2 Projected
66
33
•
6661
FY 2023-24 rates hold flat,
then generally follow previous plan for first 5 years
Sewer Service Charge Rates DEBT ASSUMPTIONS
1200
$1049
2-Year Rate
I I $Ii 995
I 5iI
.44%
Secured
$ 5944 5.4%
$173.1 M
1000 $ 5.4% 5.5% SRF Loan
84 5 4.2X 8 __1 982
800 7% 4% $856 -7I I I$940 .5Planned$697 $ 5 $754 $4 -4% $882 3.5%
$690 1% x$807 $831 3% 3
is6 3% 3%
$718 $74 4% Future SRF $170.0 M
600 4% I i Li
%
Loans
I II II I I II II II II I��I I I I I I I I I I
400 7 I I
I I I I I I I I I I I I I I I I I I I I
200 I I I I I I I I I I I I I I I I I I I
I I I I I I I I I I I I I I I I I I I I
I I I I I I I I I I I I I I I I I Projected CIP Debt is$20 M less than plan
0
2022-23 2023-24 2024-25 25-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33
Approved Single-Family Rate r 7Previous Plan -Proposed Plan
67
67
Residential
Single Family(SFR) $690 $697 1.0% $725 4.0%
Accessory Dwelling $654 $339 (48.2%) $353 4.0%
Unit*(ADU)
Multifamily(MFR) $654 $622 (4.9%) $647 4.1%
Non-residential
Rate Low $7.20 $7.63 6.0% $7.94 4.1%
Medium Low $8.83 $9.32 5.6% $9.69 4.0%
Scenario
Medium $11.07 $10.99 (1.0%) $11.43 4.0%
Medium High $12.35 $12.04 (2.5%) $12.52 4.0%
High $16.37 $14.48 (11.5%) $15.06 4.0%
Schools-Elementary $8.58 $8.94 4.2% $9.30 4.0%
(per student)
Schools-
Intermediate/High $16.95 $17.89 5.5% $18.61 4.0%
(per student)
FY 2023-24 percentage increases vary due to Cost-of-Service
calculations and rounding
FY 2024-25 percentage increases vary due to rounding of rates
'New Customer Class 68
68
34
7V• Recycled Water
Danea Gemmell,
Manager of Planning & Development
4�
4kv!— i
FCCSD�a SAN
69
Recycled Water 569 Million Gallons in FY 2021-22
Residential
Consumption Fill Station
Class II I.0%
Categories 24.8%
Utility Water-Treatment Plant ass Truck Fill
13.1% 0.6
Residential Fill Station
*Class I Truck Fill '
*Class I Meters(Former Treated Customers)
*Class 11 Meters(Former Untreated Customers)
Utility
60.5
*FY 2021-22 Recycled Water Revenue is$545,048
70
•Utility •Class I •Class II Residential Fill Station •Truck Fill
1
70
35
7Proposed Recycled Water
3% Rate Increase
Zone 1 ReW customers are billed based on measured use
$5.00
$4.50
$4.00 �� $4.27 $4.40 $4.53 $4.67
$3.50 $3.80 $3.91 $4.03 $4.15
$3.00
$2.50
$1.81 $1.86 $1.92 $1.98 $2.04 $2.10 $2.16
$2.00
$1.50
$1.00
$0.50
$0.00
FY 2019- FY 2020- FY 2021- FY 2022- FY 2023- FY 2024- FY 2025- FY 2026-
2020 2021 2022 2023 2024 2025 2026 2027
f Class I(Former Treated) —Class II(Former Untreated)
71
71
VI. Staff Recommendation:
Recommend Adoption of
Sewer Service Charge Rates
7,
ISM
72
36
Our Rates Continue to be Below the Average
san Franrism(SFPuq
Berkeley(EernuD for f real meni7
soma Rosa
Petaluma
RRhmand
Ben a
Rodeo Sanitary DIAnct
a-ked Sanitary Department
San leandro
Dakland(EBMtID fartreatment)
Rd[View Sanitary Distract
_rage Average of Agencies Surveyed
rvennore
Vallejo Sanitation and Flood Contra)
Napa Sanitation Diste
Brentwood
Stege SD(EMUD for treatment)
Median Median ofAlien—5urveyed
Concord(CCCSOf—iiealmeM)
west COu"Wash ate,Diste
Central san PROPOSED FY2023-2a Central San FY 7023-24(proposed)
Centrel5an Centre)Sen FY 2022-23
Sunnyvale
Novato Sanitary Disfdcl
Ardiodi(Deka Diablo iwtreatrnent)
Pittshurg(Defia nwhlofartmatmerd)
Bay Pant(Del ta Doblofc tnrafinent)
San Mise
Fairfield-Suisun Sewer District
Union Sanitary District
PleasarRon(DSRSD iwtreatrnent)
Dublln San Ramon Services—DAnd
",to Valley sanitary Distract
Hayward
One Irma Sanitary DBtnct
5D $2W $411) $6W $800 $1,000 $1,200 $1,a0D $1,600 $1,800 $2,I111D
FY 2022-23 Sewer Service Charge per Single-Family Home 7
73
Central San's Rates are Below Average Even When Property Tax is Included
San Frareism[SFPUG)
Berki,ley(EBMUD for[reatrnent)
Santa Pma
Bn&n Inaony Di3nct
Petaluma
cmrlrett sam�ry DePartm�nt
Richmond
Denicia
San L®ntro
Akland(Eri UD for treatment)
ivae—Sanitary Distort
average ❑ Average of Agen es surveyed
-l San PROPOSED FY 202329 1 Central SanF =3-24(proprd)
1ntm1sao Central San FY 2022-23
Va31go Saritation and Flood-d
Stege SD(EBMUDfor n,a nt)
Uvermwe
Median ❑ Median of Agencies Surveyed
Novat rifaryDi-irt
vv 6t�Prt waaewatzroimfn
NapaS WoUrn Dis6iU
Brentwood
Concord(CCCSD fu'treatment)
Antiodi[Dell Diablo fortreatment)
Pgtsbvg(Deaa Diablofortrte6nent] ■FY 2022-235ewea Service Charge
Srmm�nle
Day Point(Delta Diablofortrtahnrnt] aMiimaN4 paPaM la.
5anlose
Faidield-So Sewer Dts6id
Union 5aNtey f15tnd
pie_
i—D for treatment)
Castro Valley I ni tory DiAnd
D.U.San Ramon 5tttices Dhtnct
fkryward
Oro Eoma San itary Dism[t
$D Sem $am $600 $em $1,000 $1,200 $1,400 $1,600 $1,800 $2A.
FY 2022-23 Sewer Service Charge per Single-Family Home 74
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37
Staff recommends 2-Year Rate Plan
Sewer Service Charge Rates
12W
$1049
$995
2-Year Rate $944 5 5..4% 5.4%
4%
1000 $849 $895 5.5% ___
$815 5.4% ___ I F $982
$725 $754 $4%4 4% 4.2% --1 1 $908 I 1 $940 1 4.5%
800 $697 4% 496 — $831 1 $856 I 1 $3%2 I 3.5% I I
$690 1% -- $776 I $807 I 3% I I 3% 1 1 I I I I 1 1
I I I I I 4% 1 I 1 I 1 1 I I I I 1 1
1 $718 1 $746 I 74 I I 4% 1 I 1 I 1 I 1 I I I I I 1 I
600 1 4% 1 I 1 I 1 I 1 I 1 I 1 I I I I I 1 I
I 1 I 1 I 1 I 1 I 1 I 1 I I I I I 1 I I
I 1 I 1 I 1 I 1 I 1 I I I I I I I I 1 I
400 U 1 I 1 A II--I 1� LI I I N LI
I 1 I 1 I 1 I I 1 I I I I I I I 1 I I
I 1 I 1 I 1 I 1 I 1 I I I I I I I 1 I I
200 I I1 1 I LI LI LI H h II H
I
I 1 I 1 I 1 I 1 I 1 I 1 I I I I I 1 I I
I 1 I 1 I 1 I 1 I 1 I 1 I I I I I 1 I I
o —
2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33
Approved Single-Family Rate r=1 Previous Plan —Proposed Plan
7$
75
Summary of
Recommendations and
Closing
Roger S. Bailey,
General Manager
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'00-
_ I
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38
Summary of Key Points
1
Central San's financial position is favorable, reflecting
strong financial policies and discipline to date. -
Cost of Service study updates allocation between
residential and non-residential classes
A moderate rate adjustment is needed
i
Established framework of multi-year rate proposal with
annual check-ins has worked well in the past
77
a
7Next Steps Related to --
FY 2023-24 Budget and Rates
Set Public Hearing for 4/20/23 January 19,2023q
Set Rates at Public Hearing for Fiscal Year 2023-24 April 20,2023
through 2024-25 or 2026-27
Draft Budget Released May 4,2023
Engineering&Operations Committee Review of May 8,2023
Capital Budget
Finance Committee Review of Budgets May 9,2023
Budget Presentation May 18,2023
Budget Hearing and Adoption June 1,2023
�F R
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39
QUESTIONS, COMMENTS, AND DISCUSSION
s
CLCD CENTRAL SAN
:1
L '
Background on RSA
Authorized as part of adoption of 2018 Bond
Documents.
Established as sub-accounts of the Running j
Expense and Sewer Construction Funds �-
r1F
Operationoverned by BP 015 Fiscal
Reserves Policy.
Deposits and withdrawals require Board '
r J
approval.
Current balance of$7.5 million. �� '
How can we assess adequacy of this
reserve?
i
81
7 What
is an Appropriate Targeted Funding Level?
Approach 1: Level Based On Providing Adequate Debt Service Coverage(DSC)
Rate stabilization concept included in bond documents is to avoid the need for rate adjustments from falling short of Debt
Service Coverage("DSC")requirements(with a rather complex definition)
1.25x of debt service based on a"net revenues"covenant
1.00x debt service based on"gross revenues covenant'
2.00x targeted.
Bond Document Language: The District may...withdraw from any amounts on deposit in the Rate Stabilization Fund...for
the purpose of paying debt service on the Bonds coming due and payable in such Fiscal Year. Amounts so transferred
from the Rate Stabilization Fund to the Wastewater System Funds shall constitute Gross Revenues for such Fiscal
Year...The District has the right at any time to withdraw any or all amounts on deposit in the Rate Stabilization Fund and
apply such amounts for any lawful purposes of the District relating to the Wastewater System.
Results:
Annual debt service is$13.3 million in FY 2022-23.
Could target RSA at some portion(say 50%to 100%of 1.25x debt service or$16.6 million). This would range from
$8.3 to$16.6 million.
Rationale: regardless of what is happening with other revenues and expenses,coverage requirement could ALWAYs
be met for one year if the reserve contained 1.25x DSC.
However,through the 2020s,we have NO issue with projected DSC levels.
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41
What is an Appropriate Targeted Funding Level?
Approach 2a: Amount sufficient to avoid a typical Sewer Service Charge ("SSC") rate
increase for one year
A rate increase Is ongoing....
Calculation: SSC budgeted at$114.7 million in -
FY 2022-23. So, a 1% Increase is $1.147 million
PER YEAR.
The financial impact of delaying an increase a year is
$1.147 million,but the financial impact of avoiding it altogether is a
continuing revenue loss of$1.147 million each year.
.Yea,I eRenwease W 1%
.YPd121ileinRee6e°I l%
SSC increases over past 30 years ranged from 0 to 12.11)
averaging 5%. In only years with rate Increases, average
was 6.8°g, with minimum of 1.6%
Avoid the average increase(6.8%)for one year: $7.8 million
Avoid highest increase for one year: $13.9 million
Avoid prospective financial plan's
average(-4%)increase for one year: $4.6 million
Avoid the average increase of 5%for one year: $5.7 million
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83
What is an Appropriate Targeted Funding Level?
Approach 2b: Amount sufficient to avoid an "above the average" portion of a potential SSC
rate increase for one year (i.e. moderate a spike)
Avoid the portion of increase over 5% (using an 8% need as an example)and phase in over
subsequent two years: requires $5.25 million of funding from RSA
Year I Year 2 Year 3 Total
3%, 0% 3% 1.5% 3% 3%
IV-
Revenue Loss $3.5M + $1.75 + $0 = $5.25MM
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42
What is an Approach 3: Cover typical volatility in
Appropriate revenues and O&M spending
Targeted Funding A couple of ways to think about volatility:
Level? 1. O&M spending variances for the past
three years averaged $5.3 million
(favorable). O&M revenue variances averaged
$1.9 million (favorable). If we assume the
Variances volatility could also swing negatively, and we
Z° want to cover the absolute value of the variance,
1W we would need $7.2 million.
G° 2. SSC: Volatility is mainly in nonresidential
zo A«Wr, SSC (about 20% of total SSC; so 20% of
PE $114MM is$22.8MM, and 20% of that (drop in
1 2 commercial volumes seen during COVID) is
■PEan .auui $4.6 million)
NONNI
logors }.;. •
85
MIN
Approach 4: Cover Significant Unforeseen
What
7is an circumstance
Appropriate
Targeted Funding Regulatory requirement or extraordinary costs
Level? (high-inflation, court rulings, etc.)
Self-insurance fund could cover some types
of catastrophic losses.
Regulatory Accounting Policy (BP 046) could
allow for amortization of costs over several
years to mitigate impact on O&M budget.
Results: RSA Sizing impact indeterminate
NONNI
r= - Wim.} •
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43
Rate Stabilization Account Adequacy: Summary Slide
Suggests Need for Shortfall vs.Current
a Reserve Level of- $7.SMM
1:Debt Service Coverage $8-16 million -0.5 to$8.5
2a:Avoid rate increase for a year $4.6 to$13 million ($2.9)to$5.5 million
2b:Partially mitigate an increase by
spreading the excess over two years —$5.25 million n/a(it's covered)
3:Volatility of revenues and expenses $4.647.2 million n/a(it's covered)
4.Unforeseen Circumstances Indeterminant
Summary $4.6 to$16 million ($2.9)to$8.5 million
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Rate Stabilization Account Adequacy: Conclusion
Rn
RSA$in millions
Conclusions:
• RSA is reasonably covered using two of the four EXCELLENT
approaches considered.
• Could benefit from another$5.5 to$8.5 million. GOOD
• Overall conclusion: "FAIR"funding level We are here
• Caveat: RSA is split into O&M and Capital 7 FAIR
components. That split isn't reflected in the
analysis above;which would warrant higher
funding, primarily for the O&M component. POOR
• Pension Pre-Funding Trust can also serve as
a flexible tool to manage volatility of revenues UNACCEPTABLE
and expenses(although presently it only has
$40,000).
• Ability to control several elements of O&M
spending and capital spending are also important
tools to manage volatility.
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44