1. Call to Order.
Directors Amoroso and Comstock present; General Manager Jennifer Blackman also present.
3. Draft Fiscal Year 2014-15 Budget
General Manager Jennifer Blackman presented an overview of a first draft of the budget for fiscal year 2014-15 with a cover memo detailing the following highlights of the draft budget.
1. Staff applied a 2.6% cost-of-living adjustment to the district’s operations and maintenance costs based on the CPI for the San Francisco Bay Area for 2013.
2. Staff applied a PERS employer contribution rate of 11.264% of payroll, based on the 2013 actuarial report from CalPERS.
3. Staff assumed an employee wage adjustment of 3% based on the CPI for the San Francisco Bay Area and historic past practice. The operations staff currently is preparing a negotiation proposal for the Personnel Committee’s consideration.
4. Staff assumed the district will renew Lewie Likover’s limited duration employment contract to continue his work on drainage projects (8 hrs/wk or 416 hours per year) and the chlorine disinfection byproduct reduction project (about 556 hours per year). These hours will be paid from the septic/drainage annual service charge and from water reserves, respectively.
5. Staff has made adjustments to all operations and maintenance accounts given (1) reduction in personnel (Lewie), (2) retirement of debt (one bond, one loan), (3) end of CSI rebate program, and (4) actual costs for FY 2012-13.
6. Staff included the estimated loan repayment obligation for the Terrace Avenue Water Main Relocation project.
7. Staff budgeted for the following capital improvement projects:
a. Water main replacement (Birch, between Elm and Ocean Parkway)
b. Water main replacement (Fern, between Elm and Alder) ($25,000 for both projects)
c. Continue the DBP reduction project ($25,000)
d. Rehabilitate the lift station wet well ($25,000)
e. Replace (not upgrade) the control panels at the sewer ponds ($15,000)
f. Purchase a “gently used” utility vehicle ($16,000)
8. Staff has doubled the amount to be devoted to water and sewer reserves ($60,000 to water reserves and $18,000 to sewer reserves).
9. Staff is NOT recommending an increase in the annual service charges or water rates.
Discussion ensued about the specifics of some of the recommended capital improvement projects. Staff explained that the district still intends to slipline the sewer main under Wharf Road between the beach and the lift station, but wants to focus first on the rehabilitation of the wetwell because the County of Marin will be working on this section of Wharf Road to repair the seawall. The County’s seawall repair work is tentatively scheduled for the summer of 2014. Staff said the recent repairs to sewer laterals on this same section of Wharf Road appear to have significantly addressed the problem of seawater intrusion during high tides. The committee discussed the details of some of the other proposed capital projects such as the replacement (rather than upgrade) of the control panels at the sewer ponds. Director Comstock asked how the recommended capital projects fit into the district’s Five-Year Capital Plan; staff explained that the Plan will be informed by the asset inventory analysis – a process that is currently underway – and that the recommended projects for the upcoming year are based on staff’s existing knowledge of the district’s needs and prioritization of improvements. Director Comstock said that if the asset inventory analysis ultimately indicates that the district’s capital budget is inadequate, then the operating budget should come down or rates should go up in order to supplement the capital budget. He said that the operating budget could potentially be brought down via the reallocation of staff time away from operations and toward capital projects; staff agreed and acknowledged a past practice at the district of expensing rather than capitalizing staff time on projects, which staff is in the process of revising. Staff performs a significant amount of capital improvement work in-house and that to the extent the district’s bookkeeping practices do not reflect this, those practices should be improved. Director Comstock concurred, noting that it will enable the district to compare its operations to other districts’ operations on an “apples to apples” basis (assuming those districts are, in fact, capitalizing their employee services costs where appropriate).
Director Comstock suggested that staff time planned for capital improvement projects should be in the capital section of the budget, not the operations section of the budget. Discussion ensued about how the district’s budgetary process would need to be revised in light of this suggestion. Director Comstock noted that the district’s audited financial statements are not broken down by “line of business”, meaning water, sewer, septic/drainage, Resource Recovery; as such, the best place to track and monitor the district’s performance across these separate enterprises is via the budgetary process, which is broken down by line of business (and then track budget-to-actual performance during the year, as is currently done). Director Amoroso said he would prefer to track the anticipated employee time on capital projects in the employee services section of the budget rather than the capital section – perhaps in new line items in this section. Director Comstock said that the district should investigate how other districts handle this topic and what the “best practices” are; he said the district’s bookkeeper and accountant may also have good advice. He emphasized that he is not seeking to “reinvent the wheel” or impose more work on staff, but he feels that it is important for the district to be able to better track its capital improvement expenditures.
Director Comstock said he is interested in how the district makes decisions to “repair vs. replace” its infrastructure and what goes into that analysis. For example, he saw the staff repairing a water line on Walnut Road recently and, based on his observation of the condition of the water line, perhaps it should be replaced rather than repaired. Staff agreed that this water line should be replaced and said that it is a high priority pipe for replacement (right after replacing the water lines on Birch and Fern); however, when there is a leak the staff must repair it immediately. Director Comstock suggested the staff may need to look more closely at its decision-making regarding replacement vs. repair – he said that by simply repairing the pipe and then not coming back to replace it, the district de facto is deciding not to replace it. He said that he is interested in the pace at which other, comparable water districts conduct their pipeline replacement. Staff agreed that the prioritization of the pipeline in need of replacement should happen and it is underway; the operations staff is very knowledgeable about the conditions of the district’s pipeline and will help inform this process.
Director Comstock noted that the BCPUD’s operating costs appear to be high relative to other districts in West Marin and acknowledged that there are several reasons why this might be the case: it could be a function of accounting processes, it could be that the district is inherently more expensive to run, or any number of other explanations. He said it is important to analyze other districts’ operations and identify areas for potential improvement at the BCPUD; Director Comstock said that to the extent the BCPUD needs to charge its customers more to provide them safe and reliable water service, the customers deserve to know why. Staff agreed and noted that the Marin water districts are collaborating right now over drought response issues and that staff has reached out to other managers to begin a conversation on these and other topics.
Discussion continued as the Committee members reviewed the draft budget on a line-by-line basis. Staff explained the breakdown and formulas behind the budget numbers for each employee’s compensation and benefits, as well as general maintenance and operations costs. Staff noted that the maintenance and operations wages and benefits costs have gone down as a result of Lewie Likover’s recent retirement and also as a result of the district’s transition to a less expensive health plan. The Committee reviewed the projected sub-budgets for the water, sewer, septic/drainage and Resource Recovery enterprises. Staff explained that all maintenance costs were reviewed to explore whether funds previously budgeted in these categories could be redirected to bolster the district’s reserves and pay for capital projects.
The Committee reviewed the district’s current debt service schedule; director Comstock requested a breakdown of the principal and interest on each of the outstanding loans. Staff noted that the district recently retired a significant amount of debt, although the repayment obligation for the Terrace Avenue Water Main Relocation Project loan will begin in 2014. The Committee also discussed the repayment of the Clean Energy Renewable Bonds and the upcoming end of the 5-year rebate program under the California Solar Initiative. The district has built up its reserves over time to repay these bonds (because the amount of the rebates each year exceeds the amount of the annual bond repayment obligations), supplemented each year by the amount the district “saves” in power costs. The Committee next reviewed the district’s budgeted capital improvement projects and reiterated that in-house labor costs need to be included here to fully reflect the cost of this work (and, correspondingly, reduce operations costs). Staff noted that the budget also includes the purchase of a new utility vehicle, which will be paid from revenue collected via the water and sewer enterprises. Discussion ensued about different projects planned for improvements to drainage on the Mesa and a bulkhead at the Resource Recovery site.
The Committee next reviewed the proposed amounts budgeted for the district’s reserves. Staff proposed $60,000 to water reserves, which is a doubling of the historic $25,000 amount, plus a supplemental $10,000 to repay the amount spent on the Wharf Road Service Saddle Replacement project, and a similar doubling of the amount of the district’s sewer reserves. Director Comstock noted that there are two issues at hand: (1) the adequate maintenance and upgrade of the district’s infrastructure via a multi-year capital plan – i.e., identifying the projects that should be completed during a specific timeframe, and (2) how to pay for it. Director Comstock said he is concerned about increasing the district’s debt load to finance ongoing capital projects; he advocated instead bolstering the district’s reserves significantly to pay for these projects. Director Amoroso said the district historically has not borrowed money for ongoing capital projects, rather the district has only taken on debt to finance very large projects, such as the construction of the water treatment plant and the rehabilitation of the sewer system; smaller projects have been self-financed by the district out of its reserves. Director Comstock said he is glad to hear this, but remains concerned that the size of the district’s asset base is such that the current reserve practice may not be sufficient to finance foreseeable needed improvements. He acknowledged staff’s ongoing work on the asset inventory analysis, as well as staff’s plans to engage with other districts about their operational and capital improvement approaches, and said both efforts should result in better information for the district to assess whether it is moving forward at an appropriate pace on its capital improvements. Staff reminded the Committee about a recent spreadsheet provided to the Board demonstrating that the district completed approximately $1.5 million worth of capital improvements, not including in-house staff time over the last eight years.
Finally, the Committee reviewed the projected revenue section of the budget. Staff assumed the same level of water sales as the prior year, but noted that in light of the drought, that number may need to be revisited. Staff also assumed that the annual service charges will not be increased in either the water or sewer enterprises. Discussion then ensued about the revenue to be derived from the district’s reserves (meaning the amount the district will spend out of its reserves). Director Comstock said it would be helpful, in addition to a more detailed breakdown of the amount going to repay debt (distinguishing between principal and interest) and the amount of total debt, to have more detail noted in the budget about money coming into reserves and the total amount of reserves. Discussion then ensued about the outstanding bond debt, which is shown as a “pass through” in the district’s budget (and appears as the bond debt on the district’s financial statements), some of which will be retired at the end of 2014, and will inure to the benefit of the district’s customers (by reducing the total amount charged to district customers, albeit indirectly via the bond levy process). Director Comstock said it would be helpful to be able to note this somehow for the benefit of customers.
The next meeting of the Finance Committee is scheduled for March 4, 2014 at 10:00 a.m.
4. Community Expression.