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HomeMy WebLinkAboutFinance MINUTES 10-27-23 (Special)Page 2 of 17 110ENTRAL SAN SPECIAL MEETING OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT FINANCE COMMITTEE MINUTES Friday, October 27, 2023 9:30 a.m. Committee: Chair Barbara Hockett Member Mariah Lauritzen Guests: Eric Heidel, PFM (left after Item 3.b.) Nicholas Jones, PFM (left after Item 3.b.) BOARD OF DIRECTORS: BARBARA D. HOCKETT President MARIAHN LAURITZEN President Pro Tent MICHAEL R. MCGILL TAD J PILECKI FLORENCE T WEDINGTON PHONE: (925) 228-9500 FAX.- (925) 372-0192 www.central.van.org Staff. - Roger S. Bailey, General Manager Philip Leiber, Deputy General Manager — Administration Charles Mallory, Information Techology Manager (arrived during Item 4.b.) Danea Gemmell, Planning and Development Services Division Manager Edgar Lopez, Capital Projects Division Manager Benjamin Johnson, Internal Auditor Kevin Mizuno, Finance Manager Christopher Thomas, Supervising Accountant Shari Deutsch, Risk Management Administrator Stacey Durocher, Administrative Services Assistant 1. Call Meeting to Order Chair Hockett called the meeting to order at 9:30 a.m. 2. Public Comments None. A request was made to hear Item 4.b. as the first order of business, followed by Item 3.d. November 16, 2023 Regular Board Meeting Agenda Packet - Page 154 of 175 Page 3 of 17 Finance Committee Minutes (Special) October 27, 2023 Page 2 3. Items for Committee Recommendation to the Board a. Review and recommend approval of expenditures incurred September 8, 2023, through October 12, 2023 At the conclusion of Item 3.d. on the agenda, the Committee moved to hear Item 3. a. as the next order of business. The Committee had no questions for staff and recommended Board approval. COMMITTEE ACTION: Recommended Board approval. b. Receive Budget -to -Actual Expenditure overview through the month of September 2023 Mr. Mizuno gave an overview of the presentation included in the agenda materials. Mr. Mizuno pointed out that staff has started using the Oracle Enterprise Performance Management (EPM)system which is allowing the Finance Division to work more collaboratively with the Capital Projects and Planning & Development Services Divisions on the Capital Improvement Budget (CIB) for the current year and the long-term Capital Improvement Program (CIP). Mr. Lopez said all the numbers are in but, staff is still fine-tuning the schedules for intra-year project budget distributors. President Hockett commended Amal Lyon on her work with getting this system up and running. COMMITTEE ACTION: Recommended Board receipt. *c. Receive Pre -Audit Fiscal Year 2022-23 Capital Improvement Budget Year- end Status Report Mr. Lopez provided an overview of the presentation included in the agenda materials. He pointed out corrections made in blue on Slide 2, to the Fiscal Year Actual column to say Fiscal Year (FY) 2022-23 and in the (Variance) Budget -to -Actual, Developer Fees column, was updated to negative 7.5 percent. Member Lauritzen asked why the report shows an increase in the Interest Income. Mr. Leiber said this increase is from earned interest on funds invested under the provisions of the California Government Code. November 16, 2023 Regular Board Meeting Agenda Packet - Page 155 of 175 Page 4 of 17 Finance Committee Minutes (Special) October 27, 2023 Page 3 Given the significant increase in interest rates over the past year, funds are earning in the five percent range, versus less than one percent a year or two ago. The Committee had no further questions. COMMITTEE ACTION: Recommended Board receipt. d. Review draft Position Paper to receive Fiscal Year (FY) 2022-23 Pre -Audit Year-end Financial Statement Summary Report and consider alternatives for handling various pre -audit budget variances This item was heard immediately following Item 4.b. Mr. Leiber provided an overview of the presentation included in the agenda materials. In response to a question posed by Member Lauritzen regarding the need for bonds in order to have a rate stabilization account, Mr. Leiber advised that the bond documents authorized the concept of a rate stabilization account which could be used to manage debt service coverage, which has to be maintained at specified levels. Member Lauritzen asked if the pension trust could be super funded. Mr. Leiber responded that by having the pension trust, the District can set aside funding designed for pension obligations without sending those funds to the Contra Costa County Employees Retirement Association, where the issue of "superfunding" (being required to make contributions even when the funding ratio is above 100%) is possible. Member Lauritzen asked for clarification regarding Item 3 on Slide 7, Reserve Status. Mr. Leiber explained the dollar amount shown is not surplus money in the Capital fund, it has already been accounted for and is being set aside based on the future Capital needs in the 10-year plan. Mr. Leiber stated directing funds to the Pension trust and Other Post Employment Benefits (OPEB) trust comes with some risks at this time and discussed directing these funds to a rate stabilization fund as an alternative. Mr. Bailey said the flexibility that a rate stabilization fund provides would be more advantageous to Central San rather than putting the funds in the OPEB trust. President Hockett agreed that taking a more conservative strategy with less risk sounds appropriate. Member Lauritzen asked if staff would likely pursue this strategy while the short-term return possibility of investing under the California Government November 16, 2023 Regular Board Meeting Agenda Packet - Page 156 of 175 Page 5 of 17 Finance Committee Minutes (Special) October 27, 2023 Page 4 Code is relatively high in comparison to the long-term returns expected in the OPEB and Pension Trusts. Mr. Leiber said yes that is the appropriate way to view the situation. Further discussion ensued. COMMITTEE ACTION: Recommended Board approval. At the conclusion of this item, the agenda moved to Item 3.a. and continued in the original order. e. Review draft Position Paper to authorize a budget amendment for the Self - Insurance fund for $425,000 due to higher than anticipated legal expenses Mr. Leiber provided a verbal update on the Position Paper included in the agenda materials. He stated a budget amendment was needed for the self- insurance fund due to larger than expected litigation expenses. Staff is proposing that this item be funded from the Fiscal Year 2022-23 favorable budget variances as discussed in Item 3.d. The Committee had no questions. COMMITTEE ACTION: Recommended Board approval. 4. Other Items a. Review Risk Management Loss Control Report as of October 9, 2023 Ms. Deutsch reviewed the report included in the agenda materials. She stated that the Hayden legal claim has been settled. Member Lauritzen asked for more information regarding the Chapel Drive item. Ms. Deutsch said this claim was due to a landslide from 2017 and East Bay Municipal Utility District (EBMUD) has recently decided to include Central San in the lawsuit. The potential liabilities are low, but the case is not moving quickly. Mr. Leiber asked for more information regarding the overflow claims from Rosebury Car Care and Franco's Pool & Spa. Ms. Deutsch stated the reserve numbers may go up due to reimbursement costs from loss of business and damaged property. President Hockett asked if staff knows why this overflow happened. Ms. Deutsch said it was caused by roots in Central San's line. COMMITTEE ACTION: Received the report. November 16, 2023 Regular Board Meeting Agenda Packet - Page 157 of 175 Page 6 of 17 Finance Committee Minutes (Special) October 27, 2023 Page 5 *b. Receive update and impact analysis on the most recently completed Actuarial Valuations for Contra Costa County Employees' Retirement Association (CCCERA), Central San's defined benefit pension plan administrator, and the anticipated saving from the 2021 unfunded actuarial accrued liability paydown transaction This item was heard as the first order of business immediately following Item 2. Mr. Mizuno provided a verbal overview of the report included in the agenda materials. He stated Conta Costa County Employees' Retirement Association (CCCERA) released the funding valuation report used to analyze the actual numbers which then uses that data to determine the required contribution rates for the upcoming fiscal year. The second report that CCCERA is now required to provide is the Government Accounting Standards Board (GASB) 68, used to report Central San's net pension liability as reported in the audited Annual Comprehensive Financial Report (or ACFR). Mr. Bailey mentioned Central San's obligations to fund the pension and OPEB accounts and how important it is to stay focused on staying 100 percent funded. He also noted that some fluctuations in funding levels are normal based on investment market results and should not be viewed as a structural problem at this point. Mr. Leiber added that the Board previously adopted policies that will direct certain actions to take place if those numbers get off track. Further discussion ensued. COMMITTEE ACTION: Received the information. At the conclusion of this Item, the agenda moved to hear Item 3.d. 5. Announcements Mr. Leiber advised the Committee that Russell Watts from the Contra Costa County Treasurer -Tax Collector's office will be retiring at the end of the year. 6. 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 and provided input to staff. November 16, 2023 Regular Board Meeting Agenda Packet - Page 158 of 175 Page 7 of 17 Finance Committee Minutes (Special) October 27, 2023 Page 6 7. Future Scheduled Meeti Monday, November 27, 2023 at 9:30 a.m. (Special) Tuesday, December 19, 2023 at 9:30 a.m. 8. Adjournment — at 10:55 a.m. *Attachments (2) — Presentations November 16, 2023 Regular Board Meeting Agenda Packet - Page 159 of 175 Page 8 of 17 Item 3.c. (Handout) Attachment 2 PRE -AUDIT FY 2022-23 REVENUE Sewer Construction Fund (Fund 201: Budget Actual Actual Revenue Sewer Service Charge $65,832,492 $67,227,158 2.1% Ad Valorem Taxes $8,332,078 $11,028,136 32.3% Capacity Fees $4,445,000 $6,734,381 51.5% Pumped Zone Fees $134,000 $394,764 194.6% Developer Fees $403,000 $372,482 -7.5% Interest Income $140,000 $2,940,938 2000.7% City of Concord $7,500,000 $9,956,648 32.8% Other Revenue Sources $1,000 $122,136 >100% Sub -total Revenue $86,787,570 $98,776,643 13.8% State Revolving Fund Loan Proceeds $14,000,000 $15,588,706 11.3% Total Revenue Projected $100,787,570 $114,365,349 13.5% November 16, 2023 Regular Board Meeting Agenda Packet - Page 160 of 175 Page 9 of 17 PRE -AUDIT FY 2022-23 EXPENDITURES 2022-23 (Variance) (Varian ProgramFY Budget' Approved Budget- Budger* to -Actual to-Actuij Expenditures Collection System $36,850.000 $51,773,217 $21.653,217 -41.2% -58.2% Treatment Plant $39,981,000 $64,666,513 $25,953,891 -35.1% -59.9% General $32795,000 $7,345,517 $3,099,336 -18.3% -57.8% Improvements Recycled Water $8,715,000 $14,131,693 $8,391,035 -37% -406% Total Expenditures $89,341,000 $137,916,940 $59,097,479 -33.9% -57.1% -includes a reduction of carryfonvard of $18_5 Million CAPITAL PROGRAM - MAJOR REASONS FOR PROJECT VARIANCES IN FY 2023 • Several major construction projects have started, and funds are committed. • Timelines are being adjusted and slower starts due to equipment and or materials delivery. • Schedule adjustments made moving forward in FY 2023-24. • Carry forward budgets lowered by $18.5 Million and plan is to lower previous budgets in FY 2023-24. November 16, 2023 Regular Board Meeting Agenda Packet - Page 161 of 175 2 Page 10 of 17 MAJOR PROJECT VARIANCES (42 MILLION) - COLLECTION SYSTEM PROGRAM Pleasant Hill Sewer Renovation Phase 2, $8,252,000 $850,216 Construction ongoing and District Project (DP) 5991 funds committed into 2024. Pumping Station Upgrades $14,650,000 $7,967,271 Construction ongoing and Phase 2A, DP 8457 funds committed into 2025. Pumping Station Construction ongoing and Upgrades, Phase 2B, DP $3,200,000 $125,802 funds committed into 2025. 100042 -TREATMENT PLANT PROGRAM Solids Handling Facility $27,518,687 $23,944,964 Construction ongoing and Improvements, DP 7348 funds committed into 2027 UV Disinfection Planning completed, final Replacement, DP 100012 $6,000,000 $1,608,375 design in FY 2023 to FY 2024 Aeration Basins Diffuser $7,480,000 $2,403,362 Construction ongoing and Replacement DP 100019 funds committed into 2025 SRoli9�a eundlvmvag Paci iioyii3iil ry Improvements, Phase 2, $5,700,000 DP 100030 Steam Renovations, $5,000,000 Phase 1, DP 100032 $1,605,220 Planning ongoing $982,075 Design delayed and bid in FY 2023 November 16, 2023 Regular Board Meeting Agenda Packet - Page 162 of 175 3 Page 11 of 17 -RECYCLED WATER PROGRAM Filer Plant and Clearwell Improvements, Phase $40,389,000 $36,677,028 Construction ongoing and 1A, DP 7361 funds committed into 2024 November 16, 2023 Regular Board Meeting Agenda Packet - Page 163 of 175 4 October 27. 2023 Utilization of FY 2022-23 Variance Funds Finance Committee Philip R. Leiber, Deputy General Manager, 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 2022-23 Review alternatives and direct available funds towards optimal use Provide direction on additional trust contribution already included in FY 2023-24 budget 2 Page 12 of 17 Item 3.d. (Handout) Attachment 3 November 16, 2023 Regular Board Meeting Agenda Packet - Page 164 of 175 1 Page 13 of 17 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 CCCERA 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) Budget Variances to Address: • Total budgetary variance of $18.2 million attributable to the following sub funds: • $5.8 million - O&M Fund favorable • Both expenditure and revenue variances • $12.0 million - Sewer Construction Fund favorable • Revenue variances (excludes expenditure variances attributable to timing of project spending to be carried forward) • $0.4 million - Self -Insurance Fund favorable • Both expenditure and revenue variances. 4 4 ' -. 3 November 16, 2023 Regular Board Meeting Agenda Packet - Page 165 of 175 2 Page 14 of 17 Potential Variance Uses A. For O&M, retain in O&M reserve B. For Sewer Construction, leave variance in Sewer Construction Reserve If favorable, to reduce future debt or rate increases If negative, offset with reduced spending or increased revenue/debt proceeds C. Contribute to Rate Stabilization Reserve Account D. Restore Self -Insurance Fund to targeted balance for FY 2023-24 (after higher expenses anticipated this year) E. Contribute to OPEB or Pension Prefunding Trusts Make contribution directly to pension administrator (CCCERA) for any new UAAL 5 I Recommended Allocations ($ Millions) A. B. C. D. E. E. F. _ Pension Recommended O&M SC-CIB Rate Self OPEB Prefunding CCCERA Reserve Reserve Stabilization Insurance Trust Trust Trust Allocation of Funds: Total Reserve Acct Year -End Variances r Operating $5.8 $2.1 - $0.5 $1.6 $1.6 :� Capital 12.0 - 12.0 - - - Self-Insurance 0.4 - 0.4 - - Total $18.2 $2.1 $12.0 $0.9 $1.6 $1.6— r �l Budgeted 2023-24 LIAAL Liabilities $1.0 6/30/23 Funding Status Fully More than Fully No Target Fully 95.4% 99.0% Funded Funded Established Funded *Funding status derived from CCCERA's 12/31/22 actuarial valuation. I 6 November 16, 2023 Regular Board Meeting Agenda Packet - Page 166 of 175 3 Page 15 of 17 r Reserve Status Rate ($ millions) Stabilization O&M Reserve Acct Reserve SC-CIB ( including Pension Assets in • Total t"12 Reserve Self O&M and OPEB Prefundin 9 CCM } .� Variance a d et 50% CIB Insurance Capital) Trust ill Trust Reserves as of 6/30/23 * $43.0 $137.8 $9.1(5) $7.46 $81.3 $ - $492.7 w Policy Required Level 37.6 43.2 9_0 - - _ Difference 5.4(4) 94.6(3) 0.1 i t Proposed Reallocations (3.7)(3.7) - 0.5111.6 2.611.6 2.6 Balances After Reallocations LIU 13Z. $9.6 7.4 $82.4 2.6 4 2.7 * Reserve balances per pre -audit financial statements and external sources as applicable. (1) OPEB trust reported a balance of $78.5 million as of September 30, 2023, most current balance known immediately prior to the presentation of this position paper to the Board (2) Actuarial value of assets per 12/31/22 CCCERA valuation. (3) Balance is higher than the policy required level due to unspent CIB carryforwards (total authorized spending less actual spending) (4) Higher balance at 6/30/23 will be reduced over the course of FY 2023-24 through a lower allocation of SSC (consistent with adopted budget) so that the 6/30/24 balance meets the policy targeted level. (5) Exceeds $9.0 million reserve requirement. Given $0.4 million in additional legal expenses anticipated for FY 2023-24, additional $0.5 million allocation will be used to absorb unanticipated budget increases. 7 History of OPEB ($ Millions) Actuarial Value of Assets % Per Bartel 2-year Valuation Assets0) Funded0) 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% CaIPERS 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 $80.3 96.3% 7/1/2023 $81.3(2) 95.4%(4) (1) Source is Bartel OPEB biennial actuarial report, unless specified otherwise (2) Market value of assets per PARS OPEB Trust statements as assets for specified year not available in biennial funding valuation. Accordingly actuarial smoothing was not utilized. (3) Calculated using PARS OPEB Trust statements and revised 7/1/18 AAL per 2/8/19 Bartel letter preceding transition to CalPERS healthcare. Bartel did not provide a revised AAL estimate as of 7/1/19 reflecting figures from the transition to CalPERS healthcare (4) Not actuarially smoothed. Calculated internally using market value of assets per trust statements and projected UAAL per biennial OPEB "funding" valuations. F 8 7 November 16, 2023 Regular Board Meeting Agenda Packet - Page 167 of 175 4 Page 16 of 17 History of Additional UAAL Payments ($ Millions) FY 2013-14 2014-15 2015-16 2016-17 2017-18 2017-18 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 0 Pension CCCEKA Prefunding Date of Payment Trust Trust OPEBTrust Dec 2013 $5.0 Dec 2014 5.0 Dec 2015 2.5 Feb 2017 $2.5 Aug 2017 $3.4 Various 2.5 Various 2.0 Various 2.5 Various 1.25 1.25 Various $70.8 (12.8) Various 1.25 2.6 1.60 Various Subtotal $83.3 $2.6 * $9.1 Total $9s.0 Source of Funds Budgeted Budgeted Budgeted -Board Decision Funded by FY 2015-16 variances Budgeted -Board Decision Funded by FY 2016-17 variances Budgeted -Board Decision Budgeted $1.2511 to OPEBTrust, and $1.2511 Variance from FY 2018-19 to Pension Prefunding Trust Payoff of Pension UAAL (included earnings of $3.65 M) Budgeted $1.2511 to OPEBTrust Prior year variance allocated, plus direction on $1 M already budgeted in FY 2023-24 Recommendation on Variance Funds Direct staff to utilize the FY 2022-23 variances as follows: A. Retain O&M budgetary variance in reserves increasing amount of $2.1 million SSC directed to sewer construction fund as assumed in the adopted budget for FY 23-24. B. Contribute O&M budgetary variance to OPEB Trust $1.6 million C. Contribution O&M budgetary variance to Pension Prefunding Trust $1.6 million D.Transfer O&M budgetary variance to Self -Insurance Fund $0.5 million E. Retain minor Sewer Construction revenue and spending variance in $12.0 million reserves, which remain above policy required levels. F. Retain favorable Self -Insurance Fund budgetary variances in reserves $0.4 million consistent with FY 2023-24 adopted budget Total $18.2 million 10 9 10 November 16, 2023 Regular Board Meeting Agenda Packet - Page 168 of 175 5 Page 17 of 17 Questions? 11 0 November 16, 2023 Regular Board Meeting Agenda Packet - Page 169 of 175 6