1.
Call to Order.
10:15 a.m.
2.
Roll.
Directors
Amoroso and Comstock; General Manager Jennifer Blackman also present
3.
Draft Five-Year Capital
Improvement Plan; Draft Financial Reserve Policy
Director
Comstock said he preferred to begin with the Five-Year Capital Improvement Plan
as he thinks the reserve policy will require extensive discussion. With regard to the plan, he said he
understands that it is based on the prioritized list of projects distilled by
staff from the inventory of all district assets. Director Comstock emphasized that he wants to
be sure the plan includes, from a technical analysis standpoint, the full scope
of projects the district should do within the next 5 years, without regard to
cost. He noted that a line is included
for “unanticipated capital expenditures” and staff said this is the amount to
be dedicated to reserves for each applicable year. Director Comstock questioned whether this
should be part of the reserve analysis rather than delineated in the plan
itself; he said the plan perhaps should
be confined to specific projects the district intends to install (recognizing
that unexpected projects will arise and need to be paid for by the
district). Director Comstock said his
goal is to craft the plan to enable the district to make the best possible
management decisions.
Discussion
ensued about the level of appropriate contingency reserves and the type of
projects such reserves may be needed to finance. Director Comstock said that he would like to
see the district be debt-free; director
Amoroso noted that the district has only borrowed from state or federally
funded, low-interest programs. Director
Comstock said that while such programs offer low-interest funds, it still needs
to be paid back and that places a burden on the district.
With
regard to the capital improvement plan (“CIP”), director Comstock said he would
like to see the specific water main replacement projects scheduled out so that
he can see the interrelationship between the prioritization worksheet and the
CIP. He acknowledged that this is a
topic of primary concern to him. Director Comstock also said he would like to
have Bill Pierce attend a meeting of the Finance Committee so that the
committee members can ask questions about the technical analysis he has used to
identify and prioritize the water main replacement projects. Staff directed the Committee’s attention to
the asset inventory which identifies, among other things, the entirety of the
district’s water distribution system by location, pipe size, pipe material and
condition. Staff prioritized all pipe
not rated in “good” condition for the spreadsheet, and then included all
prioritized pipe receiving “1” or “2” for the 5-year CIP. Director Comstock asked staff to include
notes in the plan to explain this process so it is more clear to a casual
reader; he says such notes will make the plan a much more substantive document
and demonstrate the amount of work and extensive analysis that is going into
it. He suggested a preamble be included
to narratively explain the process of how the plan was created, as well as
notes to explain each specific project and how the estimated cost of that
project was derived (i.e., engineering estimates, staff estimate, etc.). If the numbers are preliminary, make a note
of that as the plan can be updated from time to time. In addition, the plan should be specific as
to exactly when (i.e., in which fiscal year) the district anticipates that each
of the projects will be installed.
Discussion
then turned to the draft Financial Reserve Policy and director Comstock
inquired about the possibility of shifting operating reserves to capital
reserves. Director Comstock said he
feels strongly that the district should not have more money sitting in its
operating reserves than is necessary; based on an analysis he has done on the
amount of funds in operating reserves at fiscal year end, the district may be holding as much as $200,000 more
than necessary in its operating reserves – money that could be transferred to
capital reserves. Discussion ensued on
this topic; director Comstock advocated that the district analyze this question
because he feels that overall, the district is in very good shape in terms of
its operational reserves, but not in as strong a position in terms of its
capital reserves. Director Comstock said
that the distinction between operating and capital reserves is critical on a
managerial basis to help the district decide how to fund the capital
improvement projects it has decided (based on a professional, technical
analysis) to bring the district up-to-date on its capital needs (as expressed
in the 5-year CIP).
Director
Comstock then advocated that once the district identifies, on a technical
basis, the capital projects that it should
implement to bring the district up-to-date on its infrastructure by 2020, the
district then needs to analyze the total cost of those projects and decide
whether it can pay for those projects, based on an understanding of its
operating reserves, capital reserves, and contingency reserves, and the charges
it imposes on its customers. If the
district does not have enough revenue/reserves projected to pay for the full
array of projects needed, then the list of projects will need to be pared back
by the Finance Committee. So, it is
important that the committee determine what the district’s target levels of
reserves should be. Director Comstock
noted that the district has a $500,000 “endowment” reserve; what is this
reserve intended to pay for and should some or all of those funds be dedicated
to capital needs? Director Amoroso
explained that this reserve (and the others established by the money received
by the district from the sale of its land to the National Park Service) were
established by the Board at a special meeting in June of 2010. Director Comstock noted that the district’s
debt burden is projected to decrease significantly over time (with a portion of
the overall debt retiring in 2018 and in 2022), which is the functional
equivalent of bolstering the district’s reserves.
Director
Comstock noted that the draft reserve policy proposes a target minimum capital
reserve equal to one year of capital spending (i.e, $500,000). He said this is a reasonable number, but it
assumes the district will pay for current CIP projects from the current budget
so that the target reserve stays intact.
In reviewing the district’s balances in its various funds, only certain
of them are available as capital reserves while others are specifically designated
for other purposes. However, if only the
dedicated reserves for water and sewer are taken into account, the total is
approximately $500,000, so the district is about on target.
Director
Amoroso commented that some of the district’s most significant capital
expenditures have been necessitated by regulatory changes and emergency events
(i.e., were not planned capital improvement projects). For example, the district was mandated to
improve its water treatment process in the 1990’s to meet drinking water
standards and it was mandated to construct the sewage treatment plant in reponse
to an order from the Regional Board to cease discharging waste to the Bolinas
lagoon (which were funded by a combination of grants and loans from state and
federal sources); in addition, the
district has implemented water main replacement projects in response to
wash-outs caused by El Nino rain event years (which ultimately were reimbursed
by FEMA/CalOES). Director Comstock said
that the district’s contingency reserves should be used for these purposes. Director Amoroso said the district’s decision-making
also should be guided by evaluating the risk/cost of the failure of a
particular asset; director Comstock
agreed this is a good point.
Discussion
focused on the district’s $500,000 Endowment Fund and director Comstock asked
director Amoroso whether it is available for capital projects and, if so, if it
would need to be restored after being expended in capital projects – or, can it
more accurately be regarded as a contingency fund that does not need to be
restored? Director Amoroso said that in
his view, this fund should stay intact and would need to be replenished if
funds were “borrowed” for capital purposes. He noted, however, that the Board agreed that
the designation of this fund (and the others financed from the money received
from the sale of district property to the National Park Service) can be changed
by a 4/5 vote of the Board; in other
words, a super majority of the Board must agree in order to re-direct these
funds. Director Comstock asked how much
money is available in the district’s proposed budget for capital projects; staff said the answer to that depends on the
final determination as to the capital projects that will be implemented in the
upcoming fiscal year, but the current draft envisions $1 million in operating
costs; $261,000 in capital expenditures; $87,000 in reserve contributions; and
$137,000 in debt reduction. These will
be paid for via a combination of a proposed rate increase of 6% and draw-down
on reserves; however, the overall impact
on water reserves will be a net increase of $20,000 (given the planned
contributions) whereas the overall impact on sewer reserves will be a net
decrease of $50,000. Director Comstock
said that if the district wants to keep reserves at the same levels (i.e, and not
draw down reserves in any way to pay for current capital projects), it sounds
like capital spending would need to be reduced by $30,000, to a level more like
$230,000. He noted that the 5-Year CIP
has identified projects totaling closer to $500,000 per year in needed capital
projects, so those projects will need to be pared back if the Board elects not
to reduce current reserves to pay for them.
Staff said that grants may be available to help close the financing
gap; directors Comstock and Amoroso
agreed it will be well worth the time needed to investigate sources of grant
funding, particularly on the sewer system.
Staff
will revise the financial reserve policy to reflect the committee comments, and
work on the 5-Year CIP to incorporate the presentation suggestions, such as a
narrative preamble and notes for specific projects.
4. Draft Fiscal Year 2015-16 Budget
Deferred
to the next scheduled Finance Committee meeting, which is tentatively scheduled
for March 17, 2015.
5.
Community Expression
None.
6.
Adjournment
1:05 p.m.