1. Call to Order.
Directors Amoroso and Comstock; General Manager Jennifer Blackman also present
3. Draft Five-Year Capital Improvement Plan; Draft Financial Reserve Policy
The Committee deferred consideration of the Five-Year CIP until the next scheduled meeting of the Finance Committee to allow staff additional time to revise the presentation of the plan and incorporate comments submitted by the committee directors.
Director Amoroso noted two typos in the draft financial reserve policy; staff promised to correct the typos in the final draft. As for the “Endowment Fund” label for one of the special purpose funds described in the policy, director Amoroso requested that it be more specifically described. Discussion ensued about the origin of this particular fund, which was created at a special Board meeting in June 2010 when the Board made decisions as to how to allocate the moneys received from the sale of its Pine Gulch Creek property to the National Park Service. Staff suggested that a cross-reference to the meeting be included in the description of the Endowment and other special purpose funds. After a brief discussion, the committee settled on specific language for staff to include in the final draft of the policy; staff agreed to include the final draft for Board approval at the March 18th regular meeting.
The committee discussed the scheduling of a meeting to be devoted to the development and finalization of the Five-Year CIP; the committee tentatively agreed to meet on March 24, 2015 at 10:00 a.m., subject to confirmation after a review of home calendars.
4. Draft Fiscal Year 2015-16 Budget.
Staff raised the topic of the capitalization of staff time and noted that in last year’s budget, staff estimated that approximately 8 weeks of staff time (for each employee) would be eligible for capitalization due to the nature of the work performed toward the installation of capital improvement projects. Staff has discussed this with the district’s auditor, who cautions in favor of a very conservative approach to ensure that only time “reasonable and necessary” to the physical installation of the capital improvement is properly capitalized. As such, administration, planning and management time is not eligible for capitalization and an adjustment should be made in the budget for FY 2015-16 to reflect this. For the current fiscal year, the district is tracking all of the time the operations staff devotes toward the installation of capital improvement projects and staff will confer with the district’s bookkeeper and CPA to determine whether all or only a portion of this time may be capitalized, and also to confirm that all projects currently classed as “capital improvement projects” meet the accounting standards for such projects (vs. repair or replacement projects that must be expensed). Overall, staff said the budget as drafted may overstate the amount of time anticipated to be capitalized, but this should be able to be corrected once an evaluation of the current year’s work is conducted. Director Comstock agreed that it is important for the budget to include the best estimate of staff time that will be able to be capitalized, which should line up with the capital investment in the district’s financial statements; in addition, the estimated capitalized staff time also should be included in the Five-Year CIP (at least for the upcoming fiscal year) – all of which should be consistent with the relevant accounting standards.
The committee agreed that the format for the district’s budget probably should be changed to better correlate with its books, financial statements and capital investment plan, which is a significant task that should be undertaken after the current budget planning process is completed.
The committee turned to a line-by-line examination and discussion of the operating budget. Director Amoroso asked several questions about specific percentages on wage and benefit expenses and staff explained that those have changed from the prior year due to the hire of temporary staff for specific projects, as well as the staff time on the chlorine disinfection byproduct project (all of the staff are not in CalPERS, so the district does pay social security taxed on those employees). Director Amoroso noted that the budget identifies “capital projects” under septic/drainage, but those projects usually are the installation of culverts which likely won’t qualify for capitalization under the accounting standards; staff agreed. Director Comstock commented that if the culverts aren’t listed as assets of the district and carried for purposes of depreciation, then they should not be capitalized. On a separate project, director Amoroso asked staff to confer with the district’s CPA as to the appropriate capitalization of the infrastructure installed per the Mesa Park Ballfield Irrigation and Public Restroom project; is this project properly capitalized by the BCPUD (as owner of the land and grantee) or by Mesa Park (as lessor/park agency)?
Director Amoroso asked if the district was below budget on legal expenses in the prior fiscal year and staff confirmed that it was ($13,000 was budgeted for legal expenses and the district expended less than $8,000). Director Amoroso inquired about the “other contract services” line item, and staff explained that this item is intended to capture payments made to outside service providers, usually professionals such as the district’s consulting hydro-geologist, or specialized equipement operators such as Fahy tree service (for the quarterly grinds at Resource Recovery). Director Comstock inquired about the “plant” line item and staff explained that all of those expenses are necessary to operate and maintain the water treatment plant and sewer treatment plant. Director Amoroso asked about the planned expenditures for “vehicles” and staff explained these are projected costs, such as service visits, battery replacement, etc.; the planned expenditure for a new utility vehicle is in the capital section of the budget.
Director Comstock said that he finds the budget to be confusing to the extent it shows contributions to reserves in one section, and planned expenditures from reserves in another section – it is the net effect that matters, which is why he requested the reserve table to accompany the budget. He said he doesn’t want to digress on this topic now, but this could be a topic to be discussed in connection with the reformatting of the budget presentation once the FY 2015-16 budget process is completed. Staff suggested it might be helpful in the near term for a footnote to be included for each line on the reserve table to explain how the projections are derived. Overall, the committee agreed that reformatting the budget will be helpful not only to the committee, but for other directors and members of the public. Director Amoroso said it also would be helpful to better present the bond transactions (which are a wash in the district budget), as well.
Director Comstock inquired about the $5,000 annually contributed to the “beach” reserve fund. Director Amoroso explained that the BCPUD agreed to establish this fund for maintenance purposes (for the groin on Brighton Beach) as part of its obligations as the lessee of the State Lands Commission; the Commission granted permission for the installation of the groin on its land and the BCPUD served as the project sponsor (the project itself was funded by grants).
Director Comstock inquired about the solar projects and discussion ensued about how these projects were financed, with Clean Renewable Energy Bonds, and how those bonds are repaid, with funds from the district reserves (which are a combination of rebates from the California Solar Initiative and amounts contributed from “power savings”, i.e., amounts the district otherwise would have paid for power if the solar arrays were not installed). Staff agreed to include a written explanation of this process as a footnote to the budget and/or memo to the Finance Committee. The committee noted that this is a complicated process that should be more transparently reflected in the budget itself.
Discussion then turned to the revenue side of the budget; Director Comstock inquired whether the Board has discretion as to how to allocate certain of the revenue received from property taxes and from the various “other income” categories. Staff said that the Board does have discretion (between the water and sewer enterprises); the property tax allocations from the County have increased significantly over the last ten years and all of the increase has been allocated to the water side of operations. Staff suggested the allocation be reconsidered and staff offered to realign the distribution consistently with the other revenue the district receives (on a percentage basis) from its annual charges and water sales for the committee consideration in the next version of the proposed budget.
Director Comstock said it is his sense that the annual service charges likely will need to be increased significantly over the upcoming years to pay for the capital improvement projects that the district should be installing, barring an unexpected grant or other source of revenue. He said this is why the development of the Five-Year CIP is so important to the budget process now and in future years. Staff commented that the district’s debt repayment obligation will be reduced in 2018 and also in 2022, which will “free up” revenue for dedication to capital projects and/or reserves at those times.
5. Community Expression