1. Call to Order.
Directors Amoroso and Comstock; General Manager Jennifer Blackman also present
3. Draft Fiscal Year 2015-16 Budget
At Director Amoroso’s request, the Committee turned first to a review of the draft FY 2015-16 budget. Staff explained the assumptions with regard to wages and benefits in the draft budget, including a wage increase of 3% (based on the San Francisco/Oakland/San Jose CPI) and an employer contribution of 11.9% of wages to CalPERS (per the latest estimate by CalPERS, as compared to 11.2% in the prior fiscal year). Discussion ensued about the district’s participation in CalPERS, and staff explained that CalPERS sets the employer contribution percentage each year to fund the pension plan (the BCPUD has no discretion on the percentage). Importantly, per a new accounting standards rule effective this fiscal year, GASB Rule 68, CalPERS will be providing the district with the valuation information required to be included in the district’s annual financial statements for a fee of $800.00. Director Comstock noted that CalPERS controls and manages the district’s pension plan, so to the extent the plan is unfunded in any way, that is CalPERS’ responsibility (and not because of a decision by the BCPUD not to fully fund its plan). Staff concurred, but said the responsibility for reporting the valuation per GASB 68 is with the district, so it is a good thing that CalPERS is providing this service to its members. Director Comstock said that it is his understanding that the unfunded liability attributable to the district’s plan is relatively small, which is a good thing, particularly considering the status of other Marin public entity plans, such as the County (which has a very large unfunded pension liability).
Director Comstock noted that in addition to escalating unfunded pension liabilities, many public agencies also are facing escalating health care costs. Staff noted that the district, under the leadership of prior director Bobbi Kimball, examined its health care benefits several years ago and transitioned to another employer pool offered by ACWA/JPIA, which reduced the district’s health care costs by approximately 30%. The district also implemented a flexible spending plan as a new benefit for employees to enable them to pay certain health care costs on a pre-tax basis. As for worker’s compensation, the district’s rates have been stable or even reduced in the past ten years and district employees participate in many safety training programs offered by ACWA/JPIA to reduce the risk of work-related injuries.
Staff said the budget assumes a renewal of Lewie Likover’s limited duration employment agreement to continue his work on the district’s chlorine disinfection byproduct reduction project, as well as drainage project consultion and implementation. With regard to the chlorine disinfection byproduct reduction project, the focus in the upcoming year will be on running a coagulation pilot study to determine whether adding a coagulant to the district’s water on a pre-filtration basis will sufficiently reduce the organics prior to chlorination. This project is, of course, a capital project and the other capital projects included in the draft budget on the water side are: fire hydrant replacement ($10,000), water meter replacement ($10,000), water supply study ($10,000), and the sliplining of the overflow pipe at Woodrat #1 ($75,000). Staff noted that the budget also contemplates $60,000 dedicated to the district’s water system reserves and $27,000 to the district’s sewer system reserves.
With regard to the revenue side of the budget, staff proposes a 6% increase in water rates to cover the the district’s operating costs, as well as the planned capital improvement projects, loan repayment and contributions to reserves. Director Comstock said that the operating side of the proposed budget essentially carries forward existing costs, adjusted by cost-of-living adjustments; staff agreed. Director Comstock said that the two focal points of interest for him are: (1) the capital plan; and (2) the impact on reserves and debt reduction. With regard to the latter, he noted that a reduction in debt is the functional equivalent of an increase in reserves. He asked staff to prepare a table for the committee that will show the impact of the proposed budget on the level of district reserves, and the impact on the district’s outstanding debt, as was done last year.
Director Amoroso said that he will need to spend time on his own to review the operating side of the budget on a line-by-line basis to make sure he does not have any questions or concerns about the specific proposed budget amounts. He noted that the budget does not currently propose to increase the quarterly metered water rates and questioned whether it was time for the Board to consider doing so.
4. Draft Five-Year Capital Improvement Plan; Draft Financial Reserve Policy
Director Comstock said that in his view, the Five-Year Capital Improvement Plan should reflect the district’s actual needs, not what the district currently can “afford”; in that respect, he analyzes the plan differently than he conducts his personal affairs at home (i.e., at home, he doesn’t replace something unless and until it breaks, rather than on a scheduled basis). First, he said that it will be more expensive for the district if it waits to replace assets until they break. Second, there is an inconvenience to customers if assets needs to be replaced in an emergency, unplanned basis rather than a planned basis. Third, replacing assets on an emergency basis is also a strain on staff and likely leads to unplanned overtime costs. Fourth, the district is a regulated public agency and regulators and/or grand juries do not like it when agencies are not planning their asset replacement on a scheduled basis. Fifth, it is a very small cost to the district if it should replace an asset “early” vis-à-vis the cost of waiting too long.
Director Amoroso said he did not disagree, but there are certain assets that are more important to replace or rehabilitate than others; for example, the staff can repair a leak or a break on a water main. As such, assets such as the water storage tanks, or the sewer force main, or certain components of the water and/or sewer treatment plants, for example, should be a higher priority for replacement. Discussion ensued about the condition of the water mains on the Mesa and all agreed that the steel water mains are the top priority water mains for replacement due to their age and material.
Director Comstock reiterated that he wants the capital improvement plan to be based on a professional assessment of the district’s needs, i.e., what the district ought to do. Staff noted that the draft plan is based on the prioritization list that staff developed after developing an inventory of all of the district’s assets. Director Comstock said that it would be helpful if staff could provide a narrative to accompany the capital improvement plan that will explain how it was developed; the asset inventory and prioritization worksheet can be exhibits to the plan. Also, it will be important to include notes to explain each of the proposed projects and how they will be scheduled out. Director Comstock said the plan should include everything the district should upgrade or replace within the next five years as determined by someone professionally qualified to do so such that the district is completely caught up by 2020; if the district then concludes that it cannot afford to do all of those projects, then the plan can be pared back at that point. Director Amoroso questioned whether the district should consider engaging outside engineers to conduct this analysis given limited staff time.
Director Comstock said he would like to know whether, for example, if cost and staff time were not constraints, the district should replace all of its steel water mains within the next five years, even if some of those mains have not posed problems for the district to-date. He said that the district should base that decision on a professional evaluation of the district’s distribution system rather than base that decision on affordability – financing the needed work is a separate question. He noted that the district has a large infrastructure for a small agency and he wants to understand how well the district is doing on keeping that large infrastructure upgraded. Staff said that many of these questions should be answered if a narrative is included to explain how the specific projects scheduled out in the capital improvement plan were selected and organized (i.e., derived from the entire asset inventory, which then was distilled into a prioritization spreadsheet) because the plan was developed based on the chief operator’s assessment of the district’s infrastructure; however if, after the plan is better drafted, the committee determines more work is needed, perhaps then the Board should consider issuing an RFP to obtain proposals from engineering firms to undertake this work.
Discussion ensued about a line item in the draft capital improvement plan which depicts a projected cost of more than $400,000 to replace the irrigation pumps and control panels at the sewer treatment plant. Staff explained that this is a placeholder while staff investigates a recommendation by the original treatment plant engineer, Bailey Greene, to consider upgrading the pond transfer/spray disposal process to transfer wastewater between ponds from the surface water levels and also to take wastewater from pond 3 at the surface level for disposal throughout the spray fields. Staff is researching the actual potential cost of a new pumping system and will update this number when better information is available.
The committee turned to a review of the draft Financial Reserve Policy. Director Comstock inquired about the difference between the district’s reserves as laid out on a table prepared by staff and the district’s total cash position – he noted that the total cash as of 6/30 on the district’s balance sheet is much higher (approximately $2.2 million) than the total amount in the district’s reserves (approximately $1.6 million). Staff explained that the difference is due to timing of the district’s receipt of its annual revenue via the County tax assessment process; the bulk of the district’s revenue is disbursed in December and April of each year (a small percentage trickles in between April and June), so the district has a greater amount of cash on hand in, for example, June than it does in the beginning of December. Director Comstock said this cash essentially functions as an “operating reserve” and should be described in the district’s financial reserve policy; he said it is important to state that the district does not have to expend its designated reserves to meet cash flow requirements because it’s operating reserves are adequate to meet the district’s budgeted expenses, which is a very good thing. He commented that the district also should articulate its goals for the minimum amount of reserves to be maintained in the operating reserve account. Director Comstock said it will be helpful to include a description of which reserves the Board has discretion to move around vs. which reserves are dedicated/legally obligated for other purposes.
Discussion ensued about the overall approach to take with the financial reserve policy. Staff described exemplars obtained from other districts, as well as from ACWA and other special district associations, all of which are very different. The directors requested that staff recommend general formulas for the district’s reserve minimum balances and goals for future contributions rather than delineate specific dollar amounts; the policy should provide direction to but also flexibility for the district. The Committee agreed to schedule a meeting prior to the next regularly scheduled Finance Committee meeting for the dedicated purpose of further developing the five-year capital plan and the financial reserve policy (and defer discussion of the draft 2015-16 budget to the regularly scheduled meeting). The Committee tentatively agreed to next meet on February 24th, subject to a review of the members’ respective personal calendars.
Director Comstock inquired about the current status of the district’s budget-to-actual expenditures. Staff said that based on a draft of the second quarter financials prepared by the district’s bookkeeper (which cannot be finalized until the County posts certain information about the district’s accounts there), the district is on track with regard to expenditures so far this year. Staff anticipates that the second quarter financials will be finalized by the next Board meeting. Director Comstock asked if the solar projects continue to “pay for themselves” as anticipated when the district financed the projects in 2008 via the CREBs; staff said that both projects are on track financially and directed the Committee’s attention to a spreadsheet prepared by director Smith that specifies the variables and assumptions behind the 17-year financing plan. Staff noted that the district has received all of the rebates to which it is entitled under the California Solar Intiative; the final rebates were paid in 2014.
5. Community Expression