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HomeMy WebLinkAbout11. Receive Fiscal Year (FY) 2023-24 Pre-audit year-end financial statement summary report and consider alternatives for handling various pre-audit budget variancesO��ENTRAL MEETING DATE: NOVEMBER 21, 2024 BOARD OF DIRECTORS POSITION PAPER Page 1 of 20 Item 11. SUBJECT: RECEIVE FISCAL YEAR (FY) 2023-24 PRE -AUDIT YEAR-END FINANCIAL STATEMENT SUMMARY REPORT AND CONSIDER ALTERNATIVES FOR HANDLING VARIOUS PRE -AUDIT BUDGET VARIANCES SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION -FINANCE REVIEWED BY: PHILIP LEIBER, DEPUTYGM -ADMINISTRATION Roger S. Bailey General Manager ISSUE The Board of Directors (Board) approves the Operations and Maintenance (O&M), Capital Improvement (CI B), Self -Insurance, and Debt Service budgets on an annual basis. After fiscal year-end, staff reviews and compares the final revenues and expenditures, based on the pre -audit financial reports and provides an update to the Board on the budget -versus -actual results. If there is a favorable budget variance, staff typically provides alternatives for the Board's consideration for allocating the unspent funds. BACKGROUND Consistent with long-standing practice and pursuant to Central San's Board Policy BP 048 - Budget, following the close of the fiscal year, a report of year-end results shall be provided to the Board for disposition of overall favorable or unfavorable budget variances, along with the impacts on reserve requirements as specified in BP 015 - Fiscal Reserves. This annual report shall also specify the amount of Capital Improvement Budget (CI B) carryforward appropriations. This Position Paper fulfills this annual reporting requirement, and attached hereto is a District -wide summary of FY 2023-24 budget -to -actual results (Attachment 1). This summary includes the revenue and expense budgetary variances for each major sub -fund of Central San, which includes the O&M, Sewer Construction, Self -I nsurance, and Debt Service funds. A more detailed line -level report of FY 2023-24 O&M and Sewer Construction fund budget -to -actual revenue and expense variances is also provided in Attachment 2 and Attachment 3 respectively. November 21, 2024 Regular Board Meeting Agenda Packet - Page 75 of 164 Page 2 of 20 Relevant Principles I n terms of proposing an optimal recommendation, the following principles are relevant for consideration: 1. Maintain adequate funding availability to ensure reliable operations (Fiscal Reserves Policy); 2. Keep long-term Sewer Service Charge (SSC) rates as low as possible (Budget Policy); 3. Provide SSC rate stability by minimizing significant unplanned fluctuations year to year (Fiscal Reserves Policy); 4. Keep borrowing within specified policy -level constraints (Debt Management and Continuing Disclosure Policy, BP 029); 5. Maintain progress in reducing employee -related pension and Other Post -Employment Benefits (OPEB) liabilities as specified in relevant Board policies (Pension Funding Policy, BP 041; OPEB Funding Policy, BP 042) 6. Maintain consistent treatment for funds that have already been allocated in the current fiscal year's budget and associated reserve calculations (Board direction per adopted FY 2024-25 budget) FY 2023-24 Budget Variance Actions: Keeping the above principles in mind, staff recommends the following actions as viable, balanced alternatives, given the pre -audit budget variances for FY 2023-24: • O&M Fund Favorable $5.8 Million Budget Variance - Retain in Working Capital Reserves ($3.3M), Contribute to Pension Prefunding Trust ($1.0M) and Rate Stabilization Reserve ($1.5M) (Principles 1, 2, 3, 5, and 6) Consistent with the Fiscal Reserves Policy, the FY 2024-25 budget adopted by the Board was structured to close the prior fiscal year with targeted minimum working capital reserves of $40.0 million. To achieve this working capital reserves target, it was necessary for staff to project year-end FY 2023-24 O&M fund revenue and expenditure results prior to the close of the fiscal year. This projected year-end result ultimately determined how much of FY 2024-25 total sewer service charges (Central San's primary operating revenue source) is allocated between the O&M, Sewer Construction, and Self -I nsurance funds. Since the Board -approved budget already projected the O&M fund would close with a positive variance, staff recommends that $3.3 million of the favorable O&M budgetary variance remain in O&M working capital reserves, which will bring actual working capital reserves as of June 30, 2024 to the $40.0 million projected in the FY 2024-25 adopted budget. Doing otherwise, without also changing the sewer service charge allocation percentages already approved by the Board for FY 2024-25 budget would result in non-compliance with the reserve requirements. This leaves a residual amount of FY 2023-24 O&M budgetary variance of $2.5 million for further consideration. While this favorable variance could be used for various purposes, given the adverse inflationary and financial market circumstances observed over the past few years, it is the recommendation of staff to first consider the funded status of post-retirement benefit plans when considering responsible dispositions of budgetary variances. Regarding Central San's OPEB plan, the most recent biennial actuarial report dated July 1, 2022 (issued April 11, 2023) estimated the plan would close with a funded position of 98.6 percent as of July 1, 2023. Healthy OPEB trust returns through the first quarter of fiscal year 2025, growing assets to $93.5 million as of September 30, 2024 indicate the OPEB plan may not be a top priority for this available budget variance funding. In contrast, regarding Central San's pension plan's funded status, Contra Costa County Employees' Retirement Association's (CCCERA) latest actuarial report dated December 31, 2023 (issued August 15, 2024) reported a moderate decrease in Central San's funded position by approximately - 1.6 percent. This results in a new funded position of approximately 97.4 percent, which equates to an unfunded actuarially accrued liability (UAAL) of approximately $13.4 million on an actuarial value of November 21, 2024 Regular Board Meeting Agenda Packet - Page 76 of 164 Page 3 of 20 assets (AVA) basis. Accordingly, staff recommends contributing $1.0 million to the pension prefunding trust in response to the minor increase in the pension plan UAAL. To retain sufficient reserves in the O&M fund necessary to meet minimum working capital reserve requirements, there remains an additional $1.5 million in favorable budgetary variance which the Board can direct towards a different financial priority. As noted in the April 2024 Board financial planning workshop, Central San has gradually built up its rate stabilization reserve fund account to an amount of $10.7 million since being established in 2020. It was discussed that this level of funding falls within a "good" range, which opens the door for several potential use opportunities such as helping to meet debt service coverage in a future year, partial mitigation of a rate increase, addressing revenue and expenditure volatility and addressing unforeseen circumstances. While adding an additional $1.5 million contribution would not immediately result in Central San achieving an estimated excellent" funded range of $15 million, it is still a prudent measure considering other/conflicting priorities, limited resources, and uncertainties regarding the impact of regional nutrients regulations on future rates. • Sewer Construction Fund Favorable $10.7 Million Budget Variance - Retain in Capital Reserves (Principles 4 and 6) As highlighted in Attachment 1, the Sewer Construction Fund is reporting a favorable FY 2023-24 revenue variance of approximately $10.7 million attributable to favorable variances from investment income and annual capital cost sharing from the City of Concord. It is recommended that this positive budgetary variance be retained in the Sewer Construction Fund as bolstering reserves will help reduce future borrowing needs that are currently anticipated in the long-term financial model. The adopted FY 2024-25 budget anticipated the Sewer Construction Fund would close FY 2023-24 with working capital reserves well above the minimum policy level, which is necessary in future years to reduce borrowing and provide stability to SSC rates. The total amount of budgetary carryforward from capital project spending below levels anticipated in the FY 2023-24 budget and prior years is $49.0 million, which is net of $8.2 million directed to CI B reserves per the FY 2024-25 adopted budget as well as $0.4 million in savings from projects completed during FY 2023-24. Pursuant to BP 048, this net carryforward amount shall roll into the current year increasing authorized capital spending from the $80.7 million authorized in the adopted FY 2024-25 CI B to an amended FY 2024-25 CI B of $129.7 million. Staff will be conducting a detailed analysis of anticipated capital program expenditures in connection with the budgeting process for next year (FY 2025-26) in the upcoming annual Board financial workshop to ensure a realistic spending plan is adopted. Self -Insurance Fund Favorable $0.2 Million Budget Variance - In line with Year -End Projections of FY 2024-25 Budget and No Immediate Action Needed (Principles 1 and 6) Each year, the budget incorporates an allocation of SSC to the Self -Insurance Fund to cover operational expenses (i.e., insurance premiums, uninsured losses, legal fees, etc.) as well as meet the minimum reserve requirements stipulated by Central San's Fiscal Reserves Policy. Actual year- end results for the Self -Insurance Fund are largely in line with the adopted FY 2024-25 budget, which anticipated the fund would close FY 2023-24 with favorable revenue and expenditure budgetary variances netting to approximately $0.1 million. This favorable variance was already considered when allocating SSC to the various sub -funds and is recommended to remain within the self-insurance fund reserves in accordance with the FY 2024-25 budget. November 21, 2024 Regular Board Meeting Agenda Packet - Page 77 of 164 Page 4 of 20 ALTERNATIVES/CONSIDERATIONS The Board may elect to allocate the favorable FY 2023-24 budget variance toward the staff -recommended alternatives being proposed or may elect to fund these choices at different levels. Absent specific Board action, any favorable budget variance of the O&M Fund would, through operation of the Fiscal Reserve Policy and mechanics of the financial plan, ultimately be allocated to the Sewer Construction Fund. This allocation is accomplished by modifying the proportional split of SSC between the O&M and Sewer Construction funds in the following fiscal year's budget. FINANCIAL IMPACTS The actions being recommended are in line with Central San's FY 2024-25 budget and long-term financial plan. Funding the reserves to policy required levels (or beyond in the case of the Sewer Construction Fund) will help provide flexibility to mitigate SSC rate volatility and future reliance on debt financing. Furthermore, augmenting the Pension Prefunding trust should increase its funded position in accordance with Board policies. COMMITTEE RECOMMENDATION The Finance Committee reviewed this matter at its meeting on October 29, 2024 and recommended the matter be presented to the Board for further deliberation. While the committee is supportive of the staff recommendation, it concluded a discussion with the full Board was necessary regarding the pros and cons of various alternatives utilizing available prior year favorable budgetary variance. Directing available O&M variance funds ($2.5 million) in full to the Rate Stabilization Account (RSA) rather than $1.5 million to RSA and $1 million to the Pension Prefunding Trust) was one alternative discussed to maximize flexibility. RECOMMENDED BOARD ACTION The following Board actions are being recommended at this time: 1. Receive the Pre -Audit Year -End Financial Statement Summary Report and direct staff on the following FY 2023-24 net budgetary variances totaling $16.7 million: o O&M Fund favorable budgetary variance of $5.8 million designated for the following purposes, ■ $3.3 million - Retain in O&M working capital reserves consistent with adopted FY 2024- 25 budget; ■ $1.5 million - Contribute to O&M rate stabilization reserve account; ■ $1.0 million -Transfer to Pension Prefunding trust. • Sewer Construction Fund favorable budgetary variance of $10.7 million to be retained in working capital reserves; • Self -Insurance Fund favorable budgetary variance of $0.2 million to be retained in working capital reserves consistent with the adopted FY 2024-25 budget. 2. Amend the FY 2024-25 O&M Fund budget to increase appropriations by $1.0 million to facilitate an unbudgeted contribution to the Pension Prefunding trust ($1.0 million). Strategic Plan Tie -In GOAL FOUR: Governance and Fiscal Responsibility Strategy 1 - Promote and uphold ethical behavior, openness, and accessibility, Strategy 3 - Maintain financial stability and sustainability November 21, 2024 Regular Board Meeting Agenda Packet - Page 78 of 164 Page 5 of 20 ATTACHMENTS: 1. Overall Variance Summary 2. O&M Fund Variance Analysis 3. Sewer Construction Fund Variance Report 4. Presentation - Pre -audit CI B Year -End Status Report 5. Utilization of FY 2023-24 Variance Funds Presentation November 21, 2024 Regular Board Meeting Agenda Packet - Page 79 of 164 Pre -Audit - Fiscal Year Ending June 30, 2024 (FY 23-24) Overall Variance Summary Budget Actual FY 2023-24 FY 2023-24 Variance Comments Operations & Maintenance 2,660,000 2,513,068 146,932 F Revenues $ 89,722,943 $ 90,324,574 $ 601,631 F Expenses 91,446,671 86,263,363 5,183,308 F Total (1,723,728) 4,061,211 5,784,939 Sewer Construction 2,070,142 778,700 1,291,442 F Revenues 79,126,163 89,864,966 10,738,803 F Expenses 150,021,461 92,430,226 57,591,235 F Total (70,895,298) (2,565,260) 68,330,038 Self Insurance 180,026,300 190,150,523 10,124,223 F Revenues 2,017,052 2,086,484 69,432 F Expenses 2,660,000 2,513,068 146,932 F Total (642,948) (426,584) 216,364 Debt Revenues 9,160,142 7,874,500 (1,285,642) U Interest & Other 2,070,142 778,700 1,291,442 F Principal Payment 7,090,000 7,090,000 - Total - 5,800 5,800 District Totals (4 Funds) Revenues 180,026,300 190,150,523 10,124,223 F Expenses/Debt Principal 253,288,274 189,075,357 64,212,917 F Total $ (73,261,974) $ 1,075,166 74,337,140 Exclusion(s): 1. Sewer Construction Fund spending variance attributable to timing of expenditures (49,020,244) on multi-year capital projects carried forward to FY 2024-25 budget 2. Decrease in CIB carryforward per adopted FY 2024-25 budget (8,200,000) 3. Savings from capital projects completed under budget in FY 2023-24 (370,991) (Retained in reserves per BP 048) District -wide net variance to be considered $ 16.745.905 Legend F = Favorable U = Unfavorable November 21, 2024 Regular Board Meeting Agenda Packet - Page 80 of 164 See Attachment 2 See Attachment 2 Attachment 1 Attributable to favorable variances in investment income, and concord capital reimbursements. Anticipating sizable carryforward, the FY 23-24 CIB re -prioritized projects and adopted a reduced budget (from $91.OM in the PY to $71.2M) directing $18.51VI in FY 22-23 carryforward to reserves for future year CIP needs. Largely due to higher than anticipated investment income Attributable to liability and property insurances as well as self-insured losses lower than projected. Sufficient revenues allocated to cover cash expenditures Variance due to annual amortization of premium, excluded from budget Attachment 2 Pre -Audit - Fiscal Year Ending June 30, 2024 (FY 23-24) Operations and Maintenance (O&M) Fund Variance Analysis ($ in thousands) 1 November 21, 2024 Regular Board Meeting Agenda Packet - Page 81 of 164 Variance Budget Actual Variance ($) (%) Variance Explanation Implications for FY 24-25 Budget (if applicable) Revenues Sewer Service Charges $66,051 $66,126 75 0.1% Immaterial variance; actuals largely in line with budget None - Conservative assumptions for development and flow projections in all material respects. assumed for upcoming year incorporating known/adopted rates effective for FY 24-25. City of Concord 17,900 17,828 -72 -0.4% Immaterial variance; actuals largely in line with budget None - Budget based on assumed steady flow rate and budgeted projections in all material respects. expenditures eligible for reimbursement. HHW Reimbursements 1,009 1,058 49 4.9% Reimbursement revenue from Concord, MVSD, and Clayton Next year's budget forecasts an 8.9% based on a budgeted increase reflects an increase in HHW program expenses. in HHW expenses of 3.5% and the current year favorable variance. Recycled Water 515 549 34 6.6% Higher than anticipated usage; Recycled Water O&M costs Conservative estimates for recycled water revenue were applied in continue to exceed revenues, so no excess revenue FY 24-25 budget, assuming growth of approximately 3% over prior transferred to Sewer Construction Fund. year budget. Other Service Charges 676 592 -84 -12.4% Includes septic tank dumping, stormwater program billing, None - Current year trend expected to be isolated and non - and other miscellaneous service charges. Variance recurring. attributable to lower than anticipated other service charges for a specific customer. Permit & Inspection Fees 1,828 1,953 125 6.8% More permit and inspection activity than anticipated in FY 23- Next year's budget incorporates a 10% increase over prior year 24 as prior year had been largely flat. budget to reflect actuals and steady growth. Other Nonoperating 884 1,092 208 23.5% Attributable largely to auction sales proceeds and other None - Not budgeting increase in auction sales next year as that is Income difficult to predict nonrecurring miscellaneous income considered non-recurring. Largest increase next year applicable to sources. latest buffer property lease agreements. Investment Income 860 1,126 266 30.9% Higher than anticipated interest rates on fixed income Expecting rates to reduce slightly resulting in FY 24-25 budgeted investments from FY 22-23 persisted throughout FY 23-24. investment income being lower than actual but higher than what was conservatively budgeted in FY 23-24. Total Revenues $ 89,723 $ 90,324 $ 601 0.7% Overall favorable revenue variance 1 November 21, 2024 Regular Board Meeting Agenda Packet - Page 81 of 164 Expenditures Salaries & Benefits Unfunded Liabilities Utilities & Fuel Chemicals Other Operating Supplies Professional & Technical Services Contracted Repairs & Maintenance Hauling & Disposal Attachment 2 Pre -Audit - Fiscal Year Ending June 30, 2024 (FY 23-24) Operations and Maintenance (O&M) Fund Variance Analysis ($ in thousands) Variance Budget Actual Variance ($) (%) Variance Explanation Implications for FY 24-25 Budget (if applicable) $58,799 $56,861 1,938 1,201 1,204 -3 8,300 8,863 2,960 2,725 3,039 2,805 7,246 4,996 5,071 4,897 1,218 1,070 -563 235 234 2,250 3.3% Favorable variance largely attributable to actual vacancy factor (6.4% at year-end) exceeding the assumed vacancy factor in FY 23-24 budget (3%). -0.3% Immaterial variance; actuals largely in line with budget projections. -6.8% Primarily attributable to electricity caused by an increase in electrical rates and electrical grid usage over the prior year. Kept vacancy factor at 3% to be conservative, although this may be too low considering actual experience in recent years. To consider vacancy factor increase in next year's budget (FY 25-26) None - No additional contributions currently budgeted for FY 24- 25. Budget incorporates sizeable increases in all major energy sources necessary to operate the plant. However, despite budgeted increase, actual electrical costs for FY 23-24 may indicate FY 24-25 budget is too low. Staff to continue to monitor and will recommend budgetary action if necessary during the year. 7.9% Lower than expected spending on hypochlorite and other Budget projects noteworthy increase in hypochlorite supply costs, miscellaneous chemicals. Actual chemical spending increased which may be overly conservative based on actual FY 23-24 final compared to FY 22-23, however budgeted increases spending. Staff to continue to monitor and will recommend attributable to hypochlorite were not fully realized. budgetary action if necessary during the year. 7.7% Primarily attributable to lower than expected spending on repairs and maintenance supplies in plant maintenance division. 31.1% Attributable to lower than anticipated spending in several divisions. Budgetary savings realized in several line items, including: CCTV inspection services, reprographic services, legislative and advocacy consulting, professional consulting, and other technical services. Overall, budgeted expenditures for general supplies reduced slightly from prior year budget to better reflect actual spending in FY 23-24 and plans for FY 24-25. Overall budget increase in this category of nearly 12% primarily attributable to election services costs. Other line items held largely flat with PY budget, which may be too conservative considering actual spending trends. Staff will continue to monitor spending to ascertain whether budgetary savings can be realized in FY 25-26 budget in this category. 174 3.4% Immaterial variance; actuals largely in line with budget None. projections. Comprised primarily of contracted repairs and maintenance within the treatment plant maintenance division. 148 12.2% Hauling costs for household hazardous waste (HHW) and Current year drop is not expected to continue, however HHW sludge lower than anticipated, largely attributable to hauling budget largely flat next year. Budgeted increase in this decreases in waste volumes/participation experienced state- category next year mainly attributable to increases in sludge and wide. spoils removal consistent with service agreements. 2 November 21, 2024 Regular Board Meeting Agenda Packet - Page 82 of 164 Attachment 2 Pre -Audit - Fiscal Year Ending June 30, 2024 (FY 23-24) Operations and Maintenance (O&M) Fund Variance Analysis ($ in thousands) Variance Budget Actual Variance ($) (%) Variance Explanation Implications for FY 24-25 Budget (if applicable) Other Contracted Services 1,409 1,604 -195 -13.8% Largely attributable to higher than anticipated spending for Budget increased to reflect actual spending trend for equipment equipment rentals/leases. Other expenditures captured here rentals and leases. largely in line with budgetary assumptions (i.e., security, cleaning and other contracted services connected to property owned or used). Other Expenses 1,704 1,237 467 27.4% Lower than expected spending for travel/training, Slight reduction in budget on this line item planned next year employee/agency membership dues, and credit card fees. based on spending trend in FY 23-25. Total Expenses* $ 90,947 $ 86,263 $ 4,684 5.1% Overall favorable variance expenses variance Net Increase $ (1,224) $ 4,061 $ 5,285 (Decrease) *Budget reflects adopted budget and excludes $0.5 budget amendment to transfer FY 22-23 pre -audit variance funds from O&M to Self -Insurance fund. This amendment is included in overall variance analysis report (Attachment 1) 3 November 21, 2024 Regular Board Meeting Agenda Packet - Page 83 of 164 FY 2023-24 O&M Expenses $70,000 $60,000 $50,000 $40,000 v c 3 $30,000 0 s c $20,000 Attachment 2 $10,000 gene{\ts Sa\ar\es & d�%ab\\t%es ta\es &Fue C\�emca\s Sunpp\\es a\ Serv\pces Mantenan H &p\sposa Serv\ce er Expense Onfunde uOther Opeatnga\ &n\c a\rs& au\ng OtherC00tracted Oth profess\odorracted Re ■ Budgeted Expenses ■ Actual Expenses November 21, 2024 Regular Board Meeting Agenda Packet - Page 84 of 164 FY 2023-24 O&M Revenues $50,000 $45,000 $40,000 $35,000 $30,000 N M $25,000 N 3 s $20,000 C $15,000 $10,000 Attachment 2 $5,000 Sealer Sery\ce Charges Oty o{ Concof NNW Re\rnbursenrents Recyc\ed Water Other SeCv"ee Char Peet & \rSPe&OV\ der Nonopefat\ng \ncOme \,\\jestMert \ncome Ot ■ Budgeted Revenues ■ Actual Revenues November 21, 2024 Regular Board Meeting Agenda Packet - Page 85 of 164 Page 12 of 20 Attachment 3 Pre -Audit Fiscal Year (FY) 2023-24 Capital Improvement Budget (CIB) Year -End Status Report Sewer Construction Fund Fund 20): *Revenues in this table exclude budgeted and actual SRF debt proceeds, which are non -revenue budgetary funding sources excluded from the annual pre -audit variance analysis. FY 2023-24 FY 2023-24 (Varianc 2023-24 mpr (Variance) FY 2023-24 Actual ..- Actual Lprog J1 Revenue Sewer Service Charge $50,251,805 $50,274,268 0.0% Ad Valorem Taxes $14,433,358 $16,211,143 12.3% Capacity Fees $4,225,000 $4,807,746 13.8% Developer Fees $395,000 $161,891 -59.0% Interest Income $2,250,000 $6,290,414 179.6% City of Concord $7,570,000 $11,581,690 53.0% Other Revenue Sources $1,000 $537,814 >100% Total Revenue* $79,126,163 $89,864,966 13.6% *Revenues in this table exclude budgeted and actual SRF debt proceeds, which are non -revenue budgetary funding sources excluded from the annual pre -audit variance analysis. FY 2023-24 FY 2023-24 (Varianc 2023-24 Carry Lprog J1 * Forward- BudgeFY • • Actual to -Actual Expenditures Collection System $35,734,000 $65,733,484 $34,889,170 -2.4% -46.9% Treatment Plant $31,300,000 $62,764,276 $49,437,638 57.9% -21.2% General Improvements $3,350,000 $7,694,036 $4,135,937 23.5% -46.2% Recycled Water $818,000 $6,558,658 $3,967,481 385.0% -39.5% Totals $71,202,000 $142,750,454 $92,430,226 29.8% -35.2% *Authorized spend in this table excludes contingency transfers from project close-outs and unspent budgetary carryforward not expected to be used until after FY 24-25 and transferred to reserves at the close of FY 23-24. November 21, 2024 Regular Board Meeting Agenda Packet - Page 86 of 164 Page 13 of 20 Attachment 4 November 21, 2024 PRE -AUDIT FISCAL YEAR (FY) 2023-24 16A � CAPITAL IMPROVEMENT BUDGET YEAR -ENDS STATUS REPORT Board Meeting Edgar J. Lopez, P.E. 9 Capital Projects Division Manager PRE -AUDIT FY 2023-24 EXPENDITURES L, Expenditures $31,300,000 $62,764,276 Collection System $35,734,000 $65,733,484 $34,889,170 -2.4% -46.9% $4,135,937 23-5% Treatment Plant Recycled Water $818;000 $6,558,658 $3,967;481 385.0% -39-5% Totals $71,202,000 $142,750,454 $92,430,226 29.8% -35.2% Authorized spend in this table excludes contingency transfers from project close-outs and unspent budgetary carryforward not expected to be used unci! after FY 24-25 and transferred to reserves at the close of FY 23-24 IN November 21, 2024 Regular Board Meeting Agenda Packet -Page 87 of 164 1 $31,300,000 $62,764,276 $49,437,638 57.9% -21.2% General Improvements $3,350,000 $7,694,036 $4,135,937 23-5% -46-2% Recycled Water $818;000 $6,558,658 $3,967;481 385.0% -39-5% Totals $71,202,000 $142,750,454 $92,430,226 29.8% -35.2% November 21, 2024 Regular Board Meeting Agenda Packet -Page 87 of 164 1 Page 14 of 20 MAJOR PROJECT VARIANCES (42 MILLION) - COLLECTION SYSTEM PROGRAM 8457 Pumping Station Upgrades, $24,650,000 $18,937,201 76.8% Construction ongoing and funds Phase 2A committed into 2025. Collection System Sewer o Project funding for Sewer Renovation 100039 Renovation, Phase 2 $9,353,000 $183,063 2.0 /o work. Bids delayed due to permitting. 100042 Pumping Station Upgrades, $5,700,000 $1,962,026 34.4% Construction ongoing and funds Phase 2B committed into 2025. 100066 Martinez Urgent Force Main $3,962,000 Replacement $766,733 19.4% Construction delayed due to Railroad coordination and permitting. MAJOR PROJECT VARIANCES (42 MILLION) —TREATMENT PLANT PROGRAM 7348 Solids Handling Facility $41,518,687 Improvements, Phase 1A funds committed into 2027. 100012 Uv Disinfection $5,500,000 Replacement 61.5% Construction ongoing and 100019 Aeration Basins Diffuser $13,480,000 Replacement, Phase 1A Project phased to A and B Recycled Water Program 100032 Steam Renovations, Phase 1 $7,000,000 (A and B) $50,787,238 122.3% Construction ongoing and funds committed into 2027. $2,722,934 49.5% Final design in progress. $8,292,002 61.5% Construction ongoing and funds committed into 2025. Project phased to A and B due to conflict with $1,956,328 27.9% construction within the Solids Conditioning Building and additional specialty design for boiler feedwater systems. November 21, 2024 Regular Board Meeting Agenda Packet - Page 88 of 164 2 Page 15 of 20 CAPITAL PROGRAM - MAJOR REASONS FOR PROJECT VARIANCES IN FY 2023-24 • Overall, major construction projects are catching up and spending improved. • Collection system sewer construction has been impacted by staffing changes and vacancies. Several projects delayed for permits and easement acquisitions. In FY 2024-25, vacancies have been addressed and included one additional position (Associate Engineer). • Carry forward budgets lowered by $8.2 million, and plan is to reach acceptable levels, 80-90%, by FY 2025-26. November 21, 2024 Regular Board Meeting Agenda Packet - Page 89 of 164 3 Page 16 of 20 Attachment 5 Objectives Consider past guidance on use of variances from PFM (Financial 1 Advisor) Review variances from close of FY,' 2023-24 Review alternatives and directs available funds towards optimal use 4 r Provide direction on disposition of budgetary variance and amending budget, if applicable li November 21, 2024 Regular Board Meeting Agenda Packet - Page 90 of 164 April 2024 Workshop Financial Alternatives for Excess Reserves 1. Contribute to Potential to earn higher equity -based return (with greater potential for volatility) • For Pension Trust, significant flexibility on use of funds (can be used to fund the Pension/OPEB Trusts normal pension contribution or additional). 2. Move to Rate Stabilization Can be used for any purpose directed by the Board. Account Investments limited to debt (per Government Code) 3. Transfer to Sewer Once in Sewer Construction fund, can only be used towards Capital Expenditures Construction Fund Would offset future debt, or mitigate rate adjustments 4. Fund Services Not proposed; just noting that funds can could be spent in the nearer term on various needs/services. 5. Direct to Self -Insurance Available for uninsured catastrophic losses or unexpected natural disasters in lieu of Fund FEMA or other emergency funds. 3 Budget Variances to Address: �' • Total budgetary variance of $16.7 million attributable to the following sub funds: • $5.8 million - O&M Fund favorable • Both expenditure and revenue variances • $10.7 million - Sewer Construction Fund favorable • Revenue variances (excludes expenditure variances attributable to timing of project spending to be carried forward) • $0.2 million - Self -Insurance Fund favorable • Both expenditure and revenue variances. 4 Page 17 of 20 November 21, 2024 Regular Board Meeting Agenda Packet - Page 91 of 164 2 Page 18 of 20 5 Recommmended Allocations --- ($ 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 - ($ millions) Year -End Variances Operating $5.8 $3.3 - $1.5 $1.0 Capital 10.7 - 10.7 - Self -Insurance 0.2 0.2 Total $16.7 $3.3 $10.7 $1.5 $0.2 $1.0 Budgeted 2024-25 UAAL Liabilities O&M Reserve Acct 6/30/24 Funding Status Fully More than Fully No Target Fully 98.6%1 97.4%2 Funded Funded Established Funded IIIIIIINSWU 1 Latest funded status available from biennial actuarial report estimated for 7/1/23 on an actuarial basis - 2 Funding status derived from CCCERA's 12/31/23 actuarial valuation, including pension prefunding trust assets as of 12/31/23. 5 I November 21, 2024 Regular Board Meeting Agenda Packet - Page 92 of 164 3 Reserve Status ($ millions) Rate Stabilization O&M Reserve Acct Reserve SC-CIB ( including Pension Assets in Total os2 Reserve Self O&M and OPEB Prefunding CCCERA Variance and 50% CIB Insurance Capital) Trust (1) Trust (2) Reserves as of 6/30/24 * $42.5 $134.5 $9.2 $10.7 $90.1 $ 1.1 $504.2 7 Policy Required Level 40.0 41.7 9_0 - - - - �. Difference 2.5 92.8(3) 0.2 - - - - E Proposed Reallocations (2.5) 1.5 1.0 Balances After Reallocations 40 134 92 12 2 LqQA21 24 Reserve balances per pre -audit financial statements and external sources as applicable. (1) OPEB trust reported a balance of $93.5 million as of September 2024, the most current balance known immediately prior to the a r - completion of this presentation/position paper. (2) Actuarial value of assets per 12/31/23 CCCERA valuation. rLA (3) Balance is higher than the policy required level due to unspent CIB carryforwards (total authorized spending less actual - - spending) I November 21, 2024 Regular Board Meeting Agenda Packet - Page 92 of 164 3 History of OPEB Pension (S Millions) CCCERA Actuarial Value of Assets % Per Bartel 2 -year Valuation Assets0) Funded(') 7/1/2012 $22.5 22.4% 7/1/2014 33.7 32.4% 7/1/2016 43.8 44.0% 7/1/2018 59.4 56.3% CaIPERS Medical Transition $2.5 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 $83.7 98.6% (1)Source is Foster & Foster (formerly Bartel Associates) OPEB biennial actuarial report, unless specified otherwise (2) Market value of assets per PARS OPEB Trust statements as assets for specified year not available in biennial funding valuation. Accordingly actuarial smoothing was not utilized. (3) Calculated using PARS OPEB Trust statements and revised 7/1/18 AAL per 2/8/19 Bartel letter preceding transition to CalPERS healthcare. Bartel did not provide a revised AAL estimate as of 7/1/19 reflecting figures from the transition to Ca1PERS healthcare (4) Not actuarially smoothed. Calculated internally using market value of assets per trust statements and projected UAAL per biennial OPEB'Yunding" valuations. 7 Page 19 of 20 History of Past Additional UAAL Payments ($ 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 2023-24 Various 70.8 Various 1.25 Various 1.0 Various 1.0 Subtotal 583.3 510.2 $8.5 Total Source of Funds Budgeted Budgeted $102.0 Budgeted -Board decision PY favorable budgetary variance Budgeted -Board decision PY favorable budgetary variance Budgeted -Board decision _ Budgeted (OPEB Trust) and PY favorable 'I �. budgetary variance (pension prefunding) 4 IM Sewer service charges and pension prefunding trust (liquidated) Budgeted -Board decision PY favorable budgetary variance n Budgeted -Board decision *Excludes additional $1.0 million contribution to pension pre -funding trust recommended by staff in FY 24-25 utilizing PY favorable 0&M budget variance. I November 21, 2024 Regular Board Meeting Agenda Packet - Page 93 of 164 4 Pension CCCERA Prefunding Date of Payment Trust Trust* OPEB Trust 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 Various 1.25 Various 1.0 Various 1.0 Subtotal 583.3 510.2 $8.5 Total Source of Funds Budgeted Budgeted $102.0 Budgeted -Board decision PY favorable budgetary variance Budgeted -Board decision PY favorable budgetary variance Budgeted -Board decision _ Budgeted (OPEB Trust) and PY favorable 'I �. budgetary variance (pension prefunding) 4 IM Sewer service charges and pension prefunding trust (liquidated) Budgeted -Board decision PY favorable budgetary variance n Budgeted -Board decision *Excludes additional $1.0 million contribution to pension pre -funding trust recommended by staff in FY 24-25 utilizing PY favorable 0&M budget variance. I November 21, 2024 Regular Board Meeting Agenda Packet - Page 93 of 164 4 Page 20 of 20 Recommendation on Variance Funds Direct staff to utilize the FY 2023-24 variances as follows: _ A. Retain portion of O&M budgetary variance in reserves necessary to $3.3 million meet working capital reserve requirements B. Contribute portion of O&M budgetary variance to fund's rate $1.5 million l stabilization reserve account _ a r' C. Contribute remaining portion of O&M budgetary variance to $1.0 million Pension PrefundingTrust D. Retain Sewer Construction revenue and spending variance in $10.7 million reserves, which remain above policy required levels. E. Retain favorable Self -Insurance Fund budgetary variances in reserves $0.2 million consistent with FY 24-25 adopted budget I Questions? 10 Total $16.7 million November 21, 2024 Regular Board Meeting Agenda Packet - Page 94 of 164 5