1. Call to Order.
Directors Amoroso and Comstock present; General Manager Jennifer Blackman also present.
3. Approve Minutes of the February 4, 2014 Committee Meeting.
Director Comstock offered clarifying corrections to the draft minutes.
L. Comstock/V. Amoroso all in favor to approve the minutes of the February 4, 2014 Finance Committee meeting.
4. Draft Fiscal Year 2014-15 Budget
Director Comstock requested that staff present additional information about the capital side of the budget for the Committee’s consideration. Ideally, he would like staff to confer with other districts to ascertain “best practices” on this topic, but he acknowledged that process is time-consuming and the district’s budget cycle should not be delayed or slowed down. Staff suggested that it may be most efficient to confer with the district’s outside CPA and the Committee agreed. Discussion ensued about the important of capitalizing staff time devoted to capital improvement projects. The Committee then turned it’s focus to the employee services section of the budget; staff proposed to divide this section into operations and capital projects, assuming that staff will devote approximately eight weeks of time per fiscal year to capital projects. Director Comstock said the goal should be to present the most accurate reflection of the district’s actual operations; to the extent the staff is engaged in capital projects, that time should be capitalized and reflected in the budget and in audited financials. A lengthy discussion ensued about the best way to revise the budget spreadsheet to achieve this goal. Staff said that the internal processes at the district have been revised to ensure that the district captures and capitalizes all eligible expenses (including but not limited to staff time) throughout the year and that beginning with FY 2014-15, all necessary processes should be in place. Staff noted it is much more difficult to prospectively predict how much staff time will be devoted to capital projects for budget purposes. Director Comstock suggested that the district develop a list of the planned capital projects for the upcoming fiscal year, with a cost estimate for each one. Director Amoroso said he still wants to know how much money is spent overall on employee services, whether those services are devoted to operations or to capital improvements. The committee discussed how to revise the budget presentation in light of historical practice and the district’s objectives. At the conclusion of this discussion, the committee directed staff to prepare “sub-budgets” for each of the capital projects proposed for the upcoming fiscal year, acknowledging that the preparation of these budgets will require the input of the chief operator and likely other staff for employee and materials cost estimates.
The committee then focused on the “Capital” section of the budget and directed staff to separate out the debt service payable for past capital improvement projects to a new section of the budget entitled “Debt Service”. The committee reviewed the CREBs repayment presentation in the draft budget to ensure the revenue to be received and payments to be made are properly reflected. Discussion turned to the district’s reserves; staff noted that the draft budget proposes a tripling of the amount to be dedicated to district reserves. Director Comstock said he would like to review the projected change to the district’s reserves and the projected change to the district’s debt during the upcoming fiscal year. Staff agreed to prepare this information as one-page addenda to the budget. Director Comstock said that it is important for him to understand what level of capital improvement the district can undertake each year, relative to the size and age of the district’s infrastructure, without having to borrow money from outside sources (thereby increasing the district’s debt). Director Amoroso said the district historically does not borrow money for routine capital projects; to the contrary, the district has sought outside financing only for the most significant of its past projects such as the construction of the new water treatment plant, or the installation of the wastewater treatment facility.
Director Comstock said a key question is whether the levels of capital improvement and district reserves are adequate in light of the size/status of the district’s infrastructure. He believes that the district’s assets have a $15-20 million replacement value and he is concerned that the district may not be investing enough to replace/improve its assets. He urged staff to complete the asset inventory analysis in order to quantify the district’s position. Staff reported that the prioritization worksheet is in process; this document will identify and quantify the asset replacement that needs to be done in the next 5 – 10 years. For example, of the district’s 110,000 linear feet of water distribution pipeline, approximately 12,600 linear feet (or less than 12%) – the steel piping -- needs to be replaced within that timeframe.
Director Comstock inquired whether the district has any “off-balance sheet” items, noting that big financial companies are loaded with such items. Director Amoroso and staff said the district does not have any such items. Director Comstock inquired about the deferred compensation payable liability on the district’s Balance Sheet; staff responded that this is the amount accrued on behalf of the employees in the district’s 457 plan, which is the local government equivalent of a 401k plan, but will check with the district’s CPA to be sure. Director Comstock inquired about the district’s annual audit process and whether the Finance Committee is responsible for reviewing auditor comments. Staff responded that that staff generally prepares a draft response to the Management letter which is then approved by the full Board at a regular meeting. Director Comstock inquired whether there is a specific process for review of the district’s insurance coverage and the adequacy of that coverage. Staff said that the coverage amounts for property insurance are reviewed annually and adjusted as necessary. Director Comstock suggested that staff make an annual report to the Board about the district’s insurance coverage.
In response to questions from the Committee, staff noted that if the district proposes to increase any of its rates for FY 2014-15, the Board will need to approve a Proposition 218 mailing at the regular monthly meeting in April and the mailing must be sent out to all residents on or before May 2, 2014. Staff emphasized that a rate increase is not recommended at this time. Staff offered to meet on an interim basis on March 18, 2014 if sufficient progress can be made on the draft budget to warrant such a meeting. If not, the next meeting of the Committee is scheduled for April 1, 2014 at 10:00 a.m. In addition, a tentative special meeting of the Finance Committee is scheduled for April 15, 2014 in advance of the April 16th regular Board meeting.
5. Community Expression.