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HomeMy WebLinkAbout07.a. RECEIVE THE FISCAL YEAR 2010-2011 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2010-2011 DEBT SERVICE FUND BUDGETCentral Contra Costa Sanitary District ' BOARD OF DIRECTORS - POSITION PAPER Board Meeting Date: May 20, 2010 No.: 7,a. Budget and Finance Type otAction: BUDGET REVIEW Subject: RECEIVE THE FISCAL YEAR 2010-2011 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2010-2011 DEBT SERVICE FUND BUDGET Submitted By: Initiating Dept./Div.: Debbie Ratcliff, Controller Administrative/Finance & Accounting REVIEWED AND RECOMMENDED FOR BOARD ACTION: ~(~t- D. Ra iff sgraves K. Alm aina elly, General Manager ISSUE: The fiscal year (FY) 2010-2011 Operations & Maintenance (O&M) Budget and Debt Service Fund Budget are being submitted for review at the May 20, 2010 Board Meeting, and are scheduled for approval and adoption at the June 3, 2010 Board Meeting. RECOMMENDATION: Review the FY 2010-2011 O&M Budget and Debt Service Fund Budget and provide District staff with comments and guidance leading to the public hearing, approval, and adoption of the Budgets at the June 3, 2010 Board Meeting. FINANCIAL IMPACTS: The FY 2010-2011 O&M Budget was prepared using an assumption that any increase in the Sewer Service Charge (SSC) approved by the Board will be allocated to the Sewer Construction Fund (Capital Budget). If the Board passes a rate increase for FY 2010-2011, the additional revenue will be allocated to the Capital Budget. The SSC allocation in FY 2009-2010 is: O&M $292; Capital $19 per Residential Unit Equivalent (RUE). The FY 2010-2011 budget includes an increased allocation of $300 to O&M and a decreased allocation of $11 to Capital. The FY 2010- 2011 SSC O&M allocation is $8/RUE higher, and shifts approximately $1.3 million in revenue from Capital to O&M. The FY 2010-2011 O&M Budget results in a decrease of $0.6 million to O&M reserves, and total O&M reserves are projected to be $5.5 million. The allocation of $11 to Capital will result in a drawdown of capital reserves of $7.1. Even with an increase of $16 in the SSC allocated to the Capital Budget; the Capital reserves will still decline for FY 2010-11. Property tax is currently used for Debt Service and Capital. If the District were not to receive any property tax, a SSC rate increase of $77/RUE (25%) would be needed. N:W000UNTING\GMTEMPI\BUDGET\2010-2011 BUDGET\BUdget Review 0&M 2010-11 PP.DOC Page 1 of 6 POSITION PAPER Board Meeting Date: May 20, 2010 Subject. RECEIVE THE FISCAL YEAR 2010-2011 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2010-2011 DEBT SERVICE FUND BUDGET ALTERNATIVES/CONSIDERATIONS: At the Board Workshop in January, different SSC rate scenarios were considered that impact District revenues as well as the fiscal year-end reserve balances. At that time, a rate increase of $16/RUE was recommended by staff. Since that time there has been no clear Board consensus on a rate increase. The Board may choose to implement a SSC rate increase for FY 2010-2011. Also, the Board may choose the option of not making, or reducing payment towards, the unfunded liability associated with GASB 45 post retirement benefits. Finally, the Board may choose an alternative that was not presented. The O&M and Capital draft budgets will be revised, as necessary, to reflect Board action. BACKGROUND: Staff has developed a 10-year financial model for forecasting revenues, expenses and fund balance. The model assists the District in setting and projecting SSC rates. The model funds in the following order: Debt Service, O&M/Self- Insurance and lastly, the Sewer Construction Fund. Staff made a presentation at the January 21, 2010 Board Workshop recommending a $16 increase for FY 2010-2011. In April, 2010, the District ratepayers received a Proposition 218 Notice of Proposed Increase in Annual SSC of up to $16 for a total of up to $327/RUE for FY 2010-2011. The FY 2010-2011 proposed budget includes the allocation of $7.5 million from the O&M Fund towards the unfunded liability associated with GASB 45 post employment benefits and current year retiree premiums. This amount is based on preliminary results of a new actuarial study to be completed later this year. The $7.5 million includes an approximate payment of $3.2 million for retiree medical, dental and life insurance premiums annually with the difference of $4.3 million to be deposited in a GASB 45 PARS investment trust to fund future retiree benefit costs. There were also increases in Salaries, Health Insurance Premiums, Retirement and election expense. The O&M portion of this position paper focuses on variances between projected FY 2009-2010 expenses and the proposed FY 2010-2011 Budget. The position paper also notes any significant variances between the budgets. Attachment I summarizes the Debt Service Fund budget. Attachment II summarizes the O&M revenues, expenses, and reserve balances for seven years - FY 2004-2005 through FY 2010-2011 (five years of actual expenses plus FY 2009-2010 projected and FY 2010-2011 proposed budget numbers). N:V+000UNTING\GMTEMPI\BUDGET\2010-2011 BUDGET\Budget Review O&M 2010-11 PP.DOC Page 2 of 6 POSITION PAPER Board Meeting Date: May 20, 2010 subject: RECEIVE THE FISCAL YEAR 2010-2011 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2010-2011 DEBT SERVICE FUND BUDGET O&M Revenue: The following table compares Projected FY 2009-2010 to Budget FY 2010-2011 O&M Revenue: Projected Budget Increase/Decrease (-) Variance 2009-2010 2010-2011 Variance $ °h Sewer Service Charge $ 48,600,000 $ 50,143,000 1,543,000 3.2% City of Concord 8,550,000 9,'100,000 550,000 6.4°/ All Other 3,001,096 3,083,300 62,204 2.7% Total $ 60,151,098 $ 62,326,300 2,175,204 3.6% Total District O&M revenue for FY 2009-2010 is projected to be $60.1 million compared to the FY 2010-2011 budget amount of $62.3 million, resulting in an increase of $2.2 million, or 3.6%. This is due to: The internal allocation between O&M and Capital shifts more SSC revenue from the Sewer Construction Fund to O&M to cover operating costs and stay close to the O&M prudent reserve target of 10% of next year's expenses. The O&M SSC allocation increases from $292 to $300; the SSC allocation to the Sewer Construction Fund decreases from $19 to $11, drawing down Capital Reserves. The increased allocation ($1.3 million) to O&M and 1,000 anticipated new connections ($0.2 million), results in an increase to O&M SSC revenue of $1.5 million compared to projected FY 2009-2010. Concord primarily shares a flow portion of Treatment Plant expense and is charged administrative overhead and a finance charge. City of Concord revenue is expected to be $0.6 million or 6.4% more than projected FY 2009-2010, mainly due to higher Treatment Plant expenses in FY 2010-2011 compared to planned expense savings in FY 2009-2010. O&M Expense: The table below compares Projected FY 2009-2010 to Budget FY 2010-2011 O&M Expense: N:W000UNTING\GMTEMPi\BUDGET\2010-2011 BUDGET\Budget Review O&M 2010-11 PP.DOC Page 3 of 6 POSITION PAPER Board Meeting Date: May 20, 2010 subject. RECEIVE THE FISCAL YEAR 2010-2011 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2010-2011 DEBT SERVICE FUND BUDGET Projected Budget Increase/Decrease (•) Variance Variance 2009-2010 2010-2011 $ Salaries $ 23,744,712 24,837,669 1,092,977 4.6% Benefits 8 Cap OIH Credit 16,964,082 19,486,037 2,523,955 14.9° Chemicals 1,571,000 1,771,000 200,000 12.7° Utilities 4,640,450 4,630,000 (210,450) -0.3% Repairs & Maintenance 3,036,700 3,494,766 458,086 15.1% Hauling 8 Disposal 935,460 1,033,461 98,001 10.5° Professional & Legal 422,660 500,160 77,300 16.3 Outside Services 1,883,344 2,139,600 256,256 13.6% Self-Insurance 1,383,000 650,000 (533,000) -38.5% Materials 8: Supplies 1,772,643 1,939,725 167,082 9.4°/ All Other 1,490,680 2,281,263 790,583 53.0° Total $ 58,044,931 62,965,721 4,920,790 8.5% Total District O&M expenses are projected to be $58.0 million in FY 2009-2010 compared to a FY 2010-11 O&M budget of $63.0 million. This reflects a $4.9 million, or 8.5%, increase in expenses. Variances are discussed in detail below: O&M Savings for FY 2009-2010: Total FY 2009-2010 expenses are projected to be under-budget by $1.7 million due to staffs commitment to obtaining expense savings and lower natural gas prices. O&M Salaries: District O&M salaries are projected to be $23.7 million in FY 2009-2010 compared to a budget of $24.8 million in FY 2010-2011 resulting in an increase of $1.1 million or 4.6%. This increase is mainly due to filling vacant positions, assumed cost of living adjustments and merit increases for newer or promoted employees within their salary ranges, offset by a 3% salary vacancy factor reducing expense by -$0.7 million. Benefits Including Capitalized Administrative Overhead Credit: District O&M benefits including the capitalized administrative overhead credit for FY 2009-2010 are projected to be $17.0 million compared to a budget of $19.5 million in FY 2010-2011 resulting in N:W000UNTING\GMTEMPI\BUDGET\2010-2011 BUDGEiIBudget Review O&M 2010-11 PP.DOC Page 4 of 6 POSITION PAPER Board Meeting Date: May 20, 2010 Subject. RECEIVE THE FISCAL YEAR 2010-2011 OPERATIONS & MAINTENANCE BUDGET; RECEIVE THE FISCAL YEAR 2010-2011 DEBT SERVICE FUND BUDGET an increase of $2.5 million or 14.9%. This is mainly due to increasing the total OPEB retiree healthcare premiums and future contributions from $5.0 million to $7.5 million based on preliminary actuarial results. The amount allocated to the PARS trust to fund future benefits increased by $2.0 million and the amount for retiree premiums increased by $0.5 due to more retirees and premium rate increases. There were also increases in medical, healthcare and dental premiums for active employees and an increased rate for retirement costs. Capitalized administrative overhead charged to District capital projects and credited to O&M, accrued compensated absence, and workers' compensation costs are less in FY 2010-11. Benefit rate assumptions are provided in the following bulleted list: Increases: • Kaiser - 11.2% rate increase for active employees; 7.55% weighted average retiree rate increase • HealthNet - 12.5% rate increase for actives employees; 16.09% weighted average retiree rate increase • CCCERA - 1.31% rate increase • Delta Dental - 10.7% rate increase; a guaranteed 2-year rate • Long Term Disability (LTD) - 10.9% rate increase • Employee Assistance Program (EAP) - 2% rate increase • Workers' Compensation -estimated 8% rate increase and confirmed savings in experience modification factor moving from .97 to .90 • Accrued Compensated Absence decreased by $100,000, assuming less Tier 1 employees with higher terminal payout amounts. The remaining O&M expenses total $17.3 million in FY 2009-2010 compared to $18.6 million in FY 2010-2011 resulting in an increase of $1.3 million or 7.5%. Expense category variance explanations are provided in the budget document at a District and Department level. Significant variances between projected FY 2009-2010 and budgeted FY 2010-2011 are noted below: • Election Expense is budgeted in FY 2010-2011 in the amount of $450,000 compared to no election expense in FY 2009-2010. • Repairs and Maintenance expenses were reduced in FY 2009-2010 due to crown spraying and POD maintenance items being anticipated but not required. The FY 2010-2011 budget reflects regular and deferred items from FY 2009- 2010 and is higher than 2009-10 projected expense by $0.5 million. N:\ACCOUNTING\GMTEMPI\BUDGET\2010-2071 BUDGET18udget Review O&M 2010-1 i PP.DOC Page 5 of 6 POSITION PAPER Board Meeting Date: May 20, 2010 subject: RECEIVE THE FISCAL YEAR 2010-2011 OPERATIONS & MAINTENANCE. BUDGET; RECEIVE THE FISCAL YEAR 2010-2011 DEBT SERVICE FUND BUDGET Outside Services are $0.3 million higher in FY 2010-2011 than projected FY 2009-2010, mainly due to planned savings in FY 2009-2010. • Utilities -Favorable market conditions have allowed the pre-purchase of natural gas at a lower cost, resulting in a favorable variance. This is minimally offset by small increases in electrical and telephone costs. Total savings for this expense category are $0.2 million. Self-Insurance Contribution -The FY 2010-2011 contribution is $0.5 million less than projected FY 2009-2010. The FY 2009-2010 Self-Insurance contribution is made up of the annual budgeted contribution of $0.9 million for FY 2009-2010 plus acatch-up amount of $0.5 million that was earmarked to be transferred in FY 2007-2008, but did not occur. The FY 2010-2011 contribution is per the Self- Insurance Fund budget. Any revisions to the FY 2010-2011 O&M Budget determined at the May 20, 2010 Board Meeting will be incorporated in the Budget submitted for approval at the June 3, 2010 Board Meeting, at which the following actions are scheduled for Board consideration: Conduct a public hearing to receive comments on the FY 2010-2011 O&M Budget, Self-Insurance Fund Budget and Debt Service Fund Budget. Conduct a public hearing to receive comments on the Sewer Service Charge rates for FY 2010-2011 and for the collection of the FY 2010-2011 Sewer Service Charge on the County Tax Rolls. Approve and adopt the FY 2010-2011 O&M Budget, Self-Insurance Fund Budget and Debt Service Fund Budget, and approve an ordinance which establishes a SSC increase of up to $16/RUE for a total SSC of up to $327/RUE for FY 2010- 2011. RECOMMENDED BOARD ACTION: Review the FY 2010-2011 O&M Budget and Debt Service Fund Budget and provide District staff with comments and guidance leading to the approval and adoption of the Budgets at the June 3, 2010 Board Meeting. N:W000UNTING\GMTEMPI\BUDGET\2010-2011 BUDGET\Budget Review O&M 2010-11 PP.DOC ~ Page 6 of 6 Attachment I CENTRAL CONTRA COSTA SANITARY DISTRICT DEBT SERVICE FUND 2010-2011 Debt Service Revenue: Sewer Service Charge Reserve Account Bond Interest Income Ad Valorem Tax Total Debt Service Revenue Debt Service Expense: 2009 Bond Interest Payment and Amortized Costs, less Tax Subsidy on BAB Recycled Water Loan Interest Payment Total Interest Payment and Amortization Costs 2009 Bond Principal Payment Recycled Water Loan Principal Payment Total Principal Payments Total Debt Service Interest, Amortized Costs and Principal Payments Fund Balance -Beginning of Year Revenue over Expense Transfer from/(to) O&M or Capital Fund Balance -End of Year 44, 336 5,629,951 $ 5,674,287 $ 2,027,168 34,735 $ 2,061,903 $ 3,460,000 152,384 $ 3,612,384 $ 5,674,287 $ - c~ - 0 0 0 0 O O ~' d' ~ r - T - O """ r O O O O CO OO d' •- T- N cV OO '~.~ CO r ~ O O ('7 C~ N r Lf) C7 d' I~ :. 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O ~ '(3 U ~ N C~ c~3 ~ ~~ ~ ~ ~ ~ '- ~ N Q- ~ (A '~ ~ ~ ~ m O Q ~ X ~ ±- N = Q O ~ c~ ~ ~ U ~ ~ ^^,, (~ ~ W ~ ~ L ~ ~ O C .~ ~• .~ ~ ~^, C ~ W G W .~. ~ o O ~ O C~ ~ N N O .Q ~ O = O O '~ Q N O ~ U ~~ ~ ~ CIS ~ ~ ~, U ~ L . ~ O .--~ ~~,, O W ^~ ~ ~^^`` Y.i ~ i X _ U w c~ .~ O U ~ Z Q Q T" N C`') iii a~ 0 Z X U [~ Q T _O O N Q N s 2010-2011 08~M BUDGET ASSUMPTIONS REVENUE ASSUMPTIONS: Sewer Service Charge - $311 $300 Allocated to O&M $11 Allocated to Sewer Construction Total Budgeted Ad Valorem Tax $12.9 million: $5.7 Million Allocated to Debt Service Fund $7.2 Million Allocated to Sewer Construction Fund EXPENSE ASSUMPTIONS: $7.5 Million allocation for GASB 45 post retirement benefits ($4.3 Million to Trust, remainder is retiree health premiums) Retirement Expense -1.31 % increase in rate Increases to Healthcare costs for active employees: - Healthnet- 12.5% - Kaiser -11.2% Increases to Healthcare costs for retirees Healthnet -16.1 % Weighted Average - Kaiser - 7.6% Weighted Average Administrative Overhead percentage- 117% (Of Capitalized Salary) Vacancy Factors: ' - 3~ for Salaries - 4% for Benefits 7e Cc-. . N:WDMINSUPWDMIN\RATCLIFF18udget Overheads 2010-2011.doc W y W X W F ~ W W m ~_ >~~ r- cc O O N U ~ °o Foo y O ~ N, J O y c m +~ ~ N ~ o 0 ~ ~ ~ ~ ~ ~ 0 c ~ r ~ C . ~ 3 c ~ a ~o v ~o C N M ~ O ~;- u ,~ N ~ N ~ ,o ~~ 3 ~ y ~ `u H C t C 0 ~ U 3 ~o o ~ (~ ~ ~ O` ~ ~ v• oma G ~ 3 c C y G1 U ~ p ~ '~° ff 3~~y '° v o . ... ~ N ~ (~ " o: r ao N ~ 0 3 c yr U ~ m C C M a ~ c a ~ ~ ~ '~ a t/} ` C n ' . a CS O i N m N C a x W 0 ~ ~ ~ ~ N ~ C C C Gl N G1 W ~ ~ a N a N D 10 d d a i .~ OPERATING AND MAINTENANCE 2009-201.0 BUDGET COMPARED TO 2010-2011 BUDGET (000 Omitted) Revenues Expenses Revenues Over Expenses Fund Balance 06/30/10 Sewer Service Charge Rate (08~M Portion Only) Total Sewer Service Charge $5,523 $292 $300 $321' $311-$327 'Budgeted a $10 SSC increase, however the Board chose to hold the SSC at $31 1. N:\.4DMINSUPWDMIN\RATCLIFF\Budget Overheads 2010-2011.doc 2009-2010 2010-2011 ~° Increase Budget Budget (Decrease) $61,668 $62,326 1.1% 59,746 62,966 5.4% 1923 640 KEY LABOR COSTS - 08M e (000 Omitted) Salaries 8 Wages Salary Vacancy Factor Retirement Medical Insurance Dental Insurance Workers' Compensation Benefit Vacancy Factor Capitalized Adm. Overhead All Other Total Labor Costs 2009-2010 2010-2011 Increase Budget Budget (Decrease) $24,557 $25,543 $986 (682) (705) (23) 8,148 8,754 606 6,188 7,042 854 716 855 139 628 560 (68) (830) (965) (135) (3,460) (3,654) (194) 5,062 6,896 1,836 4 2 44 26 53,999 N:WDMINSUPWDMIN~RATCLIFF\Budget Overheads 2010-2011.doc .~ KEY INCREASES 2009-2010 BUDGET TO 2010-2011 BUDGET (000 Omitted) Dollar Increase (Decrease) % Increase 2009-2010 Budget $59,746 Salaries (Includes 3% vacancy 963 4.0% factor) Benefits (Includes 4% vacancy 3,036 18.5 factor) Chemicals 162 10.1 Utilities (665) (12.6) Repairs & Maintenance 163 4.9 Hauling & Disposal 3 .3 Professional & Legal (191) (27.6) Outside Services (139) (6.1) Self Insurance (533) (38.5) Materials & Supplies 52 2.8 All Other 369 19.3 2010-2011 Budget $62,966 5.4% N:\ADMINSUPWDMIN\RATCLIFF\BUdget Overheads 2010-2011.doc DEBT SERVICE FUND 2010-2011 BUDGET (000 Omitted) Revenue Debt Service $5, 674 Interest Expense 2,062 Principal Payments ~ 3,612 TOTAL $5,674 l N:WDMINSUFWDMIN~RATCLIFF\Budget Overheads 2010-2011.doc