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Home My WebLink About2008-07 ADM MINUTES OF THE REGULAR MEETING OF THE ADMINISTRATION COMMITTEE Orange County Sanitation District Wednesday, July 9, 2008, at 5:00 P.M. A meeting of the Administration Committee of the Orange County Sanitation District was held on July 9, 2008, at 5:00 p.m., in the Sanitation District's Administrative Office. (2) Following the Pledge of Allegiance, a quorum was declared present, as follows: ADMINISTRATION COMMITTEE STAFF PRESENT: MEMBERS: Jim Ruth, General Manager DIRECTORS PRESENT: Bob Ghirelli, Assistant General Manager Mark Waldman, Chair Lorenzo Tyner, Director of Finance and Phil Luebben, Vice Chair Administrative Services Jim Ferryman Mike White, Controller Don Hansen Lille Kovac, Committee Secretary Darryl Miller Bob Bell Chris Norby Rich Castillon Brad Reese Norbert Gaia Christina Shea Jeff Reed Sal Tinajero Simon Watson Larry Crandall, Board Vice Chair OTHERS PRESENT: DIRECTORS ABSENT: James Eggart, General Counsel Jon Dumitru Jim Winder Doug Davert, Board Chair p THHFIIELEDL IN THE THEI BE OF (3) APPOINTMENT OF CHAIR PRO TEM oNANGE CWNTY SARD ANITATION DISTSICT No appointment was necessary. JUL 2 3 2008 (4) PUBLIC COMMENTS BY. There were no public comments. (5) REPORT OF THE COMMITTEE CHAIR Chair Waldman did not give a report. (6) REPORT OF THE GENERAL MANAGER General Manager, Jim Ruth, briefly reported on the continued efforts with lobbyists and legislators to retain property tax funding. Mr. Ruth also reported that the Financial Management Division has been awarded the Certification of Excellence Award from the Municipal Treasurer's Association of United States and Canada. Minutes of the Administration Committee July 9, 2008 Page 2 (7) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES Lorenzo Tyner, Director of Finance and Administrative Services, did not give a report. (8) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, did not give a report. (9) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: a. MOVED, SECONDED AND DULY CARRIED: Approve minutes of the June 12, 2008 meeting of the Administration Committee. END OF CONSENT CALENDAR (10) ACTION ITEMS a. ADM08-21 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to: 1)Award a purchase contract to TCS America, a division of Tate America International Corporation,for Installation & Implementation of IBM-Maximo Computerized Maintenance Management System (CMMS), Specification No. CS-2008-36413D,for a total amount not to exceed $874,480; and, 2)Approve an $87,448 contingency(10%). b. ADM08-22 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to approve an agreement with Banc of America Securities as the Orange County Sanitation District's Remarketing Agent for the COP Series 2000A and Series 2000E variable rate debt issues, in a form approved by General Counsel. C. ADM08-23 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to adopt Resolution No. OCSD 08-XX, Authorizing the Orange County Sanitation District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks for FY 2008-09; and Repealing Resolution No. OCSD 07-17. Minutes of the Administration Committee July 9, 2008 Page 3 (11) INFORMATIONAL ITEMS a. ADMO8-24 Alternative Billing Methodologies Director of Finance and Administrative Services, Lorenzo Tyner, briefly reviewed the results of prior studies which focused on developing a more equitable method of billing for actual sewer use. These studies indicated that the options presented at the time were found to be financially ineffective. Staff was given direction to research billing processes used by other agencies and provide additional information at a future committee meeting. (12) CLOSED SESSION There was no closed session. (13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY There were none. (14) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. (15)ADJOURNMENT AND FUTURE MEETING DATES The Chair declared the meeting adjourned at 5:44 p.m. The next regular Administration Committee meeting is scheduled for September 10, 2008, at 5:00 p.m. Submitted by: i _ L�C� Lilia Kovac Committee Secretary H.Wept�gendaV dmin CommitleeV00M708\070908 Admin_Mlnutes do" STATE OF CALIFORNIA) ) SS. COUNTY OF ORANGE ) Pursuant to California Government Code Section 54954.2, 1 hereby certify that the Notice and Agenda for the Administration Committee Meeting of Orange County Sanitation District to be held on July 9, 2008, was duly posted for public inspection in the main lobby of the Districts' offices on July 2, 2008. IN WITNESS WHEREOF, I have hereunto set my hand this 2� day of July 2008. ilia Kovac, Committee Secretary Orange County Sanitation District HMEMAGENDMADMIN COMMITTEEIAGENDA CERTIFICATION.DOC • a" t"rr ORANGE COUNTY SANITATION DISTRICT 0644. Ellis Ilvey.G F NOTICE OF MEETING 927M 7018 Mali*O.Elm al V P.O. ADMINISTRATION COMMITTEE 9 . F° 8'P1�127 Finance, Human Resources and Information Technology 1aN1Y.OGa4.. Plane 1714)9922411 Fax ORANGE COUNTY SANITATION DISTRICT (714)S920356 sars;,a WEDNESDAY, JULY 9, 2008 - 5:00 P.M. Anahesn, Sea DISTRICT'S ADMINISTRATIVE OFFICES eaana Pali 10844 ELLIS AVENUE Q,Me. FOUNTAIN VALLEY, CALIFORNIA 92708 Fountain V 10" W W W.00SD.COM Fullermn Genlan Gtrve Hent,9Wn Baa,:h IN,a A regular meeting of the Administration Committee of the Orange La Halm. County Sanitation District will be held at the above location, date La PaLvn and time. Ln.4 Alemim4 lib,, n Feel, Oanga Pei ante Santa And Saal Saech Sammn Train Va.PeM ",Me Linde C.osm Mesa San",Gismu[ MMWsy flLy Sanitary Gnnvrt Irvine Fanch Wemr omMc; Coun[y at O "d M pvlam public healM and Me sn,eenment by provitling ellerore macs iar collecuan, beaten.and and dling. ADMINISTRATION COMMITTEE MEETING DATES Meeting Date Board Meeting Dates July 9, 2008 July 23, 2008 August 2008 - Dark August 27, 2008 September 10, 2008 *September 17, 2008 October 8, 2008 October 22, 2008 November 12, 2008 *November 19, 2008 December 10, 2008 *December 17, 2008 January 2009 - Dark January 28, 2009 February 11, 2009 February 25, 2009 March 11, 2009 March 25, 2009 April 8, 2009 April 22, 2009 May 13, 2009 May 27, 2009 June 10, 2009 June 24, 2009 July 8, 2009 July 22, 2009 *Meetings being held the third Wednesday of the month. ROLL CALL ADMINISTRATION COMMITTEE Finance, Human Resources and Information Technology Meeting Date: July 9, 2008 Time: 5:00 p.m. Adjourn: COMMITTEE MEMBERS(73) Mark Waldman Chair Phil Luebben ice Chair Jon Dumitm Jim Ferryman Don Hansen Darryl Miller Chris Norb Brad Reese Christina Shea Sal Tina ero Jim Winder Doug Davert Board Chair Larry Crandall Board Vice Chair OTHERS Brad Hogin, General Counsel STAFF Jim Ruth, General Manager Bob Ghirelli, Assistant General Manager Nick Arhontes, Dir. of Operations & Maintenance Jim Herberg, Director of Engineering Ed Torres, Director of Technical Services Lorenzo Tyner, Director of Finance and Administrative Services Lilia Kovac, Committee Secretary Jeff Reed, Human Resources and Employee Relations Mana er Mike hs1te, Controller H:WepMgenday\dmin Comm1ftW2008`A708W2. Roll Call.dmx AGENDA REGULAR MEETING OF THE ADMINISTRATION COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, JULY 9, 2008, AT 5:00 P.M. ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 www.ocsd.com (1) PLEDGE OF ALLEGIANCE (2) DECLARATION OF QUORUM (3) APPOINTMENT OF CHAIR PRO TEM IF NECESSARY (4) PUBLIC COMMENTS (5) REPORT OF COMMITTEE CHAIR (6) REPORT OF GENERAL MANAGER (7) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES (8) REPORT OF GENERAL COUNSEL (9) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows. a. Approve minutes of the June 12, 2008, meeting of the Administration Committee. Book Page 1 July 9, 2008 Page 2 ENP OF CONSENT CALFzNDAR b. Consideration of items deleted from Consent Calendar, if any. (10) ACTION ITEMS a. ADM08-21 Recommend to the Board of Directors to: 1)Award a purchase contract to TCS America, a division of Tata America International Corporation, for Installation & Implementation of IBM-Maximo Computerized Maintenance Management System (CMMS), Specification No. CS-2008-364BD, for a total amount not to exceed $874,480; and, 2)Approve an $87,448 contingency(10°/a). (Book Page 10) b. ADM08-22 Recommend to the Board of Directors to approve an agreement with Banc of America Securities as the Orange County Sanitation District's Remarketing Agent for the COP Series 2000A and Series 2000B variable rate debt issues, in a form approved by General Counsel. (Book Page 12) C. ADMO8-23 Recommend to the Board of Directors to adopt Resolution No. OCSD 08- XX,Authorizing the Orange County Sanitation District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks for FY 2008-09; and Repealing Resolution No. OCSD 07-17. (Book Page 16) (11) INFORMATIONAL ITEMS a. ADM08-24 Alternative Billing Methodologies (Book Page 36) (12) CLOSED SESSION During the course of conducting the business set foM on this agenda se,a regular meeting of the Committee, the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, I pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54955.9, i 54957 or 54957.6,as rated. i Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure j j under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these subjects_the minutes will rebect all r wired disclosures of information___ a. Convene in closed session. b. Reconvene in regular session. C. Consideration of action, K any, on matters considered in dosed session. Book Page 2 July 9, 2008 Page 3 (13) OTHER BUSINESS, COMMUNICATIONS, SUPPLEMENTAL AGENDA ITEMS, OR ITEMS FOR FUTURE AGENDAS, IF ANY (14) ADJOURNMENT: The next regular Administration Committee meeting is scheduled for September 10, 2008, at 5 p.m. Book Page 3 July 9, 2008 Page 4 Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the District's Administrative offices not less than 72 hours prior to the meeting date and time above. All written materials relating to each agenda item are available for public inspection in the office of the Clerk of the Board. Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee for discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or because there is a need to take immediate action, which need came to the attention of the Committee subsequent to the posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 72 hours prior to the meeting date. Public Comments: Any member of the public may address the Administration Committee on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to three minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Committee except as authorized by Section 54954.2(b). Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further explanation, and unless a particular item is requested to be removed from the consent calendar by a Director of staff member,there will be no separate discussion of these items. All items on the consent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the consent calendar shall be considered in the regular order of business. The Committee Chair will determine if any items are to be deleted from the consent calendar. Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held within five(5)days of this meeting per Government Code Section 54954.2(b)(3). Meeting Adioummenl: This meeting may be adjourned to a later time and hems of business from this agenda may be considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955(posted within 24 hours). Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board's office at (714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Notice to Committee Members: For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair or Clerk of the Board ten days in advance of the Committee meeting. Committee Chair: Mark Waldman (714)827-1959 Committee Secretary: Life Kovac (714)593.7124 Ikovac(itocsd.cwn General Manager: Jim Ruth (714)593-7110 iruth0ocsd.wm Assistant General Manager Bob Ghirelli (714)593-7400 mhirelli(&orsd.wm Director of Finance and Lorenzo Tyner (714)593-7550 tivnerOmsd.com Administrative Services Human Resources and Employee Jeff Read (714)593-7144 ireed(a>wsd.wm Relations Manager H:rCept'asd121MCRANEW MINISTRATION COMMITTEEADMIN 20081C0MMITTEE FINAL_OFFICW. DOCUMENTSW70aW3.W09M Admin AWda.d= Book Page 4 July 9, 2008 ADMINISTRATION COMMITTEE AGENDA CALENDAR ITEM ACTION August Dark N/A September Succession Management Program Update Information September Health & Safety Update Information Book Page 5 MINUTES OF THE REGULAR MEETING OF THE ADMINISTRATION COMMITTEE Orange County Sanitation District Thursday, June 12, 2008, at 6:00 P.M. A meeting of the Administration Committee of the Orange County Sanitation District was held on June 12,2008, at 6:00 p.m., in the Sanitation District's Administrative Office. (2) Following the Pledge of Allegiance, a quorum was declared present, as follows: ADMINISTRATION COMMITTEE STAFF PRESENT: MEMBERS: Jim Ruth, General Manager DIRECTORS PRESENT: Bob Ghirelli, Assistant General Manager Mark Waldman, Chair Ed Tortes, Director of Technical Services Phil Luebben, Vice Chair Lorenzo Tyner, Director of Finance and Bill Dalton Administrative Services Rich Freschi Mike White, Controller Don Hansen Life Kovac, Committee Secretary Darryl Miller Rich Castillon Joy Neugebauer Norbert Gaia Christina Shea Randy Kleinman Jim Winder Jeff Reed Jim Ferryman, Board Chair Juanita Skillman Doug Davert, Board Vice Chair OTHERS PRESENT: DIRECTORS ABSENT: Brad Hogin, General Counsel Jon Dumitru Debby Chemey Chris Norby Sal Tinajero (3) APPOINTMENT OF CHAIR PRO TEM No appointment was necessary. (4) PUBLIC COMMENTS There were no public comments. (5) REPORT OF THE COMMITTEE CHAIR Chair Waldman did not give a report. (6) REPORT OF THE GENERAL MANAGER Director of Technical Services, Ed Torres, reported that the Sanitation District received an Administrative Civil Liability Complaint from the Santa Ana Regional Water Quality Control Book Page 6 Minutes of the Administration Committee June 12, 2008 Page 2 Board for the discharge of approximately 28 million gallons of treated and disinfected effluent to the short ouffall during a repair activity on April 29, 2006. This item will be submitted to the June Board meeting for approval of settlement agreement. (7) REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES Lorenzo Tyner, Director of Finance and Administrative Services, distributed the Sanitation District's Investment policy approved in 2007 for the committee members to review for revisions and discussion at a future Administration Committee meeting. Mr. Tyner also reported that an RFP is in process for a bond remarketing agent and will submit a recommendation for approval in the near future. (8) REPORT OF GENERAL COUNSEL Brad Hogin, General Counsel, did not give a report. (9) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: a. MOVED, SECONDED AND DULY CARRIED: Approve minutes of the May 14, 2008 meeting of the Administration Committee. b. ADM08-16 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to approve Amendment No. 2 to the Agreement with OCB Reprographics, Inc., for reproduction of plans, photocopying and related services, extending the contract period from July 1, 2008 to December 31, 2008, for an additional amount of$100,000, increasing the total amount not to exceed $425,000. C. ADM08-17 MOVED, SECONDED AND DULY CARRIED: Approve a purchase order contract with Hewlett Packard, for the Purchase of Fifty (50) Cisco POE Switches, Specification No. E-2008-378BD, for an amount not to exceed $170,019. d. ADMO8-18 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to: 1) Renew the Sanitation District's Excess General Liability Insurance Program for the period July 1, 2008 through June 30, 2009, in an amount not to exceed $370,525; 2) Renew the Sanitation District's Excess Workers' Compensation Insurance for the period July 1, 2008 through June 30, 20D9,with the California State Association of Counties Excess Insurance Authority, at a rate not to exceed .0030 (estimated premium of$175,998 based on current payroll)' Book Page 7 Minutes of the Administration Committee June 12, 2008 Page 3 3) Renew the Sanitation District's All-Risk Property and Flood for the period July 1, 2008 through June 30, 2009, in an amount not to exceed $469,100; and, 4) Renew the Sanitation District's Boiler& Machinery Insurance Program for the period July 1, 2008 through June 30, 2009, in an amount not to exceed $17,000. e. ADM08-19 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to adopt Resolution No. OCSD 08-XX, Establishing Use Charges for the Fiscal Year 2008-09 Pursuant to the Wastewater Treatment and Disposal Agreement with the Santa Ana Watershed Project Authority. END OF CONSENT CALENDAR (10) ACTION ITEMS a. ADM08-20 MOVED, SECONDED AND DULY CARRIED: Recommend to the Board of Directors to approve proposed Operating, Capital, Debt/COP Service and Self-Insurance Budgets for FY 2008-09 and 2009-10 as follows: 2008-09 2009-10 Net Operations, Maintenance&Working Capital $W,771,180 $154,038,030 Worker's Compensation Self Insurance 490,000 535,000 General Liability and Property Self-Insurance 1,508,200 1,606,200 Net Capital Improvement Program 373,657,000 228,907,000 Debt/COP Service 74,623,000 84,297,030 Intra-District Joint Equity Purchase/Sale 3,961,700 (2,099,300) TOTAL $601.00�9.08 $467.283.960 After Mr. Tyner presented a detailed overview of the proposed two-year budget, there was discussion about the possible impacts from the State Budget and its effect on the Sanitation District's budget. Mr. Tyner indicated that until the State Budget is finalized and adopted, it is unknown how the Sanitation District and ratepayers would be adversely affected if property tax revenues are reduced by the State. (11) INFORMATIONAL ITEMS No items were considered. (12) CLOSED SESSION There was no closed session. Book Page 8 Minutes of the Administration Committee June 12, 2008 Page 4 (13) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS. IF .ANY Board Vice Chair and Chair Elect for 2008109 Doug Davert announced that Director Bill Dalton will be leaving the Administration Committee and appointed as Vice Chair of the Operations Committee. Director Freschi announced his departure from the OCSD Board of Directors, as he was elected to the Serrano Water Board. (14) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. (15) ADJOURNMENT AND FUTURE MEETING DATES The Chair declared the meeting adjourned at 6:37 p.m. The next regular Administration Committee meeting is scheduled for July 9, 2008, at 5:00 p.m. Submitted by: xi&-� e Lilia <ovac Committee Secretary Book Page 9 0 /Da t o/fO Dir.ADMINISTRATION COMMITTEE M0 / 0a 0W8 AGENDA REPORT Item Number Item Number ADM08-21 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: IBM-MAXIMO SOFTWARE IMPLEMENTATION GENERAL MANAGER'S RECOMMENDATION 1. Award a purchase contract to TCS America, a division of Tate America International Corporation, for Installation & Implementation of IBM-Maximo Computerized Maintenance Management System (CMMS), Specification No. CS-2008-364BD, for a total amount not to exceed $874,480; and, 2. Approve an $87,448 contingency (10%). SUMMARY The Computerized Maintenance Management System (CMMS) software is used by Operations & Maintenance staff to manage discrete and linear assets, plan/schedule and monitor work order management, and track/monitor maintenance related regulatory issues. On November 28, 2007, the Board awarded a purchase order to IBM Corporation for IBM-Maximo Enterprise Asset Management software. This software will replace the existing application, RJN Group CASSWORKS. OCSD is now seeking services by a qualified consultant for the installation and implementation of IBM-Maximo. These services will include business process development and integration of the CMMS application to existing OCSD business systems, migration of existing maintenance data, and deployment of mobile workforce technology. PRIOR COMMITTEEIBOARD ACTIONS • November 28, 2007; Software Procurement, Replacement of Computerized Maintenance Management System (CMMS). ADDITIONAL INFORMATION The consultant will provide services to install the IBM-Maximo software, migrate data and other information from the existing application into IBM-Maximo, provide integration to existing OCSD data management systems where appropriate, create templates for common maintenance activities and equipment, validate/develop desired workflows into IBM-Maximo to support reliability based maintenance and provide comprehensive training to OCSD staff member groups based on role or responsibility. Page 1 Book Page 10 This consultant has two secondary objectives. In objective one, the consultant will pilot the deployment of a mobile work force solution (hardware/software), evaluate the results of the pilot, and prepare an implementation plan to optimize OCSD's mobile workforce within the Operations & Maintenance organization. In objective two, the consultant will configure and implement integration between OCSD's Geographical Information System (GIS) and IBM-Maximo to support OCSD's linear assets (equipment and work order management modules). These secondary objectives will be completed three (3) to six (6) months after completion of the primary project objectives. A standard Request for Proposal (RFP) was used and the following six consulting firms responded: Tata Consulting Services (TCS America), EMA, Black&Veatch, Old Hickory, Synoptek, and Birlasoft. Black & Veatch, EMA, and TCS America were considered responsive and responsible. TCS America was selected as the best value to the Sanitation District. Staff selected the top three proposals meeting the minimum criteria for continued consideration. The results of the evaluations are listed below. Total Out Firm Evaluator 01 Evaluator#2 Evaluator#3 Evaluator#4 Evdwtor#5 ofpoealble 5000 Pointe Tcs 837 777 827 802 777 aozo EMA 428 593 733 528 558 2840 Black Veatch584 689 879 689 6" 3265 As part of this project, the implementation of IBM-Maximo CMMS and integration with OCSD business applications will provide OCSD the opportunity to meet the following business objectives: • Managing the Asset Lifecycle and capturing the total cost of asset ownership. • Optimization of Operations & Maintenance focused on improvement of asset condition and reliability. • Performance management to support decision making. • Optimization of materials management and control. • Enable and support a flexible, responsible, accountable, and mobile workforce. • Maximize staff time of maintenance activities rather than administrative activities. This complies with authority levels of the Sanitation District's Delegation of Authority. This item has been budgeted. (SP-100,AM/CMMS System Replacement). Award Date: 07/23/08 Contract Amount: $874,480 Contingency: $87,448 (10%) JDR:LT:RC:PB:lc Page 2 Book Page I I ADMINISTRATION COMMITTEE Mee"Die I To ad.of W. 07/09/98 97/33/99 AGENDA REPORT �'""""2�r 1lemNumW aonm Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: SELECTION OF BANC OF AMERICA SECURITIES TO SERVE AS THE ORANGE COUNTY SANITATION DISTRICT'S REMARKETING AGENT FOR THE CERTIFICATES OF PARTICIPATION (COP) SERIES 2000A AND SERIES 2000E VARIABLE RATE DEBT ISSUES GENERAL MANAGER'S RECOMMENDATION Approve an agreement with Banc of America Securities as the Orange County Sanitation District's Remarketing Agent for the COP Series 2000A and Series 2000B variable rate debt issues, in a form approved by General Counsel. SUMMARY The Sanitation District currently has four outstanding variable rate debt issues that are remarketed on a daily basis, as follows: Debt Issue Outstanding Balance COP Series 1993' $26,900,000 COP Series 2000A $92,100,000 COP Series 2000E $104,500,000 COP Series 2006 $196,600,000 'COP series 1993 is a variable rate debt issue that has been converted to a synthetic fixed rate debt through an interest rate swap agreement. Athough the interest rate of this debt issue is reset daily,the Sanitation District pays a fixed 4.56%interest payment to the swap provider and the swap provider is responsible for payments equal to the COP Series 1993 variable rate. Previously, the Sanitation District entered into remarketing agreements with UBS Investment Bank for remarketing the COP Series 1993, Series 2000A, and Series 20006; and with Bear Stearns & Co. for remarketing the COP Series 2006. On June 5, 2008, UBS announced its intention to exit the U.S. municipal securities business and they are currently seeking a replacement firm to take over their remarketings which would include the COP Series 1993, Series 2000A, and Series 2000B. On or about May 30, 2008, Bear Steams & Co. merged with JP Morgan Chase & Co. and, upon completion of the merger of JP Morgan Chase and Bear Steams, J.P. Morgan Securities Inc. (a subsidiary of JP Morgan Chase), was authorized by all Page 1 Book Page 12 necessary corporate action to act on behalf of Bear, Steams & Co. Inc., under the existing agreement between Bear Stearns and the Sanitation District on the remarketing the COP Series 2006, without the necessity of any action on the part of the Sanitation District. Due to the previous agreement between Bear Stearns and the Sanitation District, and the now existing agreement between J.P. Morgan Securities, staff believes it would be beneficial, at this time, to continue this relationship with J.P. Morgan Securities on the remarketing of COP Series 2006. The agreement provides for annual remarketing fees of 5.0 bps (basis points) on the outstanding par while the current market place is requiring fees in the range of 7.5 to 12.5 bps. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION Staff believes that at this time it would be more advantageous for the Sanitation District to seek out and negotiate remarketing agreements with a new remarketing agent for the remarketing of COP Series 1993, Series 2000A, and Series 2000B as opposed to settling for a remarketing agent selected by UBS. Staff also believes that the Sanitation District would best be served by obtaining the services of using a different remarketing agent to supplement the remarketing services provided by J.P. Morgan Securities. Having more than one remarketing agent will provide for a comparison tool to ensure remarketing performance. Public Resources Advisory Group (PRAG), the Sanitation District's financial advisor, assisted the Sanitation District in developing a recommended list of remarketing agents to be considered for the remarketing services on COP Series 1993, COP Series 2000A, and Series 2000B, as follows: • Banc of America Securities • Citigroup Global Markets • Goldman Sachs • Lehman Brothers • Merrill Lynch • Morgan Stanley & Co. • RBC Dain Rauscher Staff, with the assistance of PRAG, developed a request for proposal (RFP) for remarketing services. The RFP required that the proposing remarketing agents demonstrate sufficient capitalization and remarketing experience related to variable rate COP debt issues. On June 13, 2008, the Sanitation District distributed the RFP for Remarketing services to the previously identified seven firms. Responses to the RFP were due by 10:00 a.m. Pacific Standard Time on June 20, 2008. Page 2 Book Page 13 In all, there were five firms (the "Proposers") which submitted written responses to the RFP (the "Proposals,,). Two other firms provided responses acknowledging receipt of the RFP; with one firm indicating that they would not be submitting a Proposal in response to the RFP and the other firm did not submit a Proposal. The f rs ive Propose were: (1) Banc of America Securities; (2) Goldman Sachs; (3) Lehman Brothers; (4) Merrill Lynch; and (5) Morgan Stanley. In their responses to the RFP, the proposers indicated that essentially it would be necessary to refund COP Series 1993. However, refunding the COP Series 1993 would require both the termination of interest rate swap hedging the COP Series 1993, and the procurement of a new bank liquidity facility; both of which would result in significant additional costs to the Sanitation District (similar to the Option 2 rejected by the Board in approving Resolution No. OCSD 08-05 relating to the COP Series 1992). In addition, the proposed fees by the Proposers on the COP Series 1993 were higher than the remarketing fees paid under the Sanitation District's current agreement with UBS. Based on these factors and its relatively small outstanding principal, staff and PRAG together recommend that the Sanitation District continue to use UBS as the remarketing agent for the COP Series 1993. Taking into account the questions in the RFP, the Sanitation District determined a weighted scoring method (the "Scoring Method")which included the qualifications of the proposing firms, the remarketing experience related to variable rate COPs., and the fees proposed by each firm to be given as the evaluation criteria. After adding together the scores for each proposal received, Banc of America Securities was selected as the recommended remarketing agent based on their highest total scores for (1) its strong qualifications as a firm, (2) short and long-term credit ratings demonstrating their financial strength, and (3)the best pricing for daily reset variable rate demand COPs for Series 2000A and Series 2000B among all of the Proposers. FlheSen Nowuifre NOW B e IIWwn LaNnn N,XA AW,yn LXbN Adl..t Amulu am Lys ft" 6to-e VOInN 01me 0gnb Berra IeOM UN, OWnb 5nn NIM 1 CanmeN 10.Hi11Y5N 25 10 M 0 0 10 250 10 1>D 0 0 pi Isey AQxmnl 0•anaoelaml: B•imexlaaW 2 CMI 10•MOA OouOWA IS 10 I50 9 IY 0 to 0 105 0 105 M P e W:•La/ WIn01: 0•M,hil4MA 0 RmMNeB N. ILAnEy 15 9 in 10 a0 0 In 0 1x 0 IN Vtlwe pga 8•1113biW ENI PeT�n: BvLo0a,B01My 41 100 10 100 10 ro0 10 IN RW 1BOnY 906W Af0%N B=RWn Nx010W1 cW SIBWAA50%: O=NWn000e0in S NA 5 rNftWW EquW10 10tlmn Y IgA 1.1 m AU 0 8A 210 B3 !10 rtlblo low1y6n1 1W 006 BU W6 N10 STJ Page 3 Book Page 14 Following is a breakdown of staffs proposal to allocate remarketing series amongst three remarketing agents: Debt Issue Outstanding Balance Remarketing Agent COP Series 1993" $26,900,000 UBS COP Series 2000A $92,100,000 Banc of America Securities COP Series 2000E $104,500,000 Banc of America Securities COP Series 2006 $196.600,000 J.P. Morgan Securities JDR:LT:MW:lc Page 4 Book Page 15 ADMINISTRATION COMMITTEE MmUng Date To Bl of Dir. m/ov/us 07/23/08 AGENDA REPORT IDan Number 1 : Number nDMOs-23 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: ANNUAL REVIEW AND ADOPTION OF THE ORANGE COUNTY SANITATION DISTRICTS INVESTMENT POLICY STATEMENT AND DELEGATION OF INVESTMENT AUTHORITY TO THE DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No- OCSD 08-XX, Authorizing the Orange County Sanitation District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks for FY 2008-09; and Repealing Resolution No. OCSD 07-17. SUMMARY This agenda item presents the annual review of the Orange County Sanitation Districts Investment Policy Statement to the Administration Committee for consideration in the Committee's capacity as the oversight committee for the Investment Policy (Section 16.2). With adoption of the Resolution, the Board of Directors would readopt the Sanitation District's current Investment Policy Statement, portfolio performance benchmarks, and monitoring and reporting requirements for FY 2008-09. The Sanitation District's Investment Policy Statement is recommended for adoption for FY 2008-09 and includes a revision that matches the legislative changes made to the State Government Code since the adoption of the FY 2007-08 Investment Policy. Accordingly, staff is proposing that Section 8.9 of the Sanitation District's Investment Policy Statement be changed to reflect the legislative action to include investments in registered treasury notes and bonds issued by any of the 50 United States. Staff will continue to monitor pending legislative and regulatory proposals in the public finance area for their potential impact on the Sanitation District's existing financial programs. The Sanitation District's Investment Policy Statement has received the Investment Policy Certification of Excellence Award from the Municipal Treasurer's Association of the United States and Canada. PRIOR COMMITTEEIBOARD ACTIONS The Sanitation District's current Investment Policy Statement was adopted by the Board of Directors on July 18, 2007 (Resolution No. 07-17). Page 1 Book Page 16 ADDITIONAL INFORMATION Backaround The Investment Policy governs the investment activities of Pacific Investment Management Company (PIMCO), the Sanitation District's external money manager, on behalf of the District. On April 25, 2005, the Sanitation District's Investment Policy Statement received the Investment Policy Certification of Excellence Award from the Municipal Treasurer's Association of the United States and Canada. A copy of the letter of certification is included each year in the annual Investment Policy document. The Sanitation District received its first Award of Excellence for the Investment Policy Statement in December 1996. The Investment Policy document itself consists of the Investment Policy Statement and the following eight appendices: A. Summary of Investment Authorization B. Treasury Management Procedures C. Investment Manager Certification D. Investment Pool Questionnaire (LAIF) E. Board Resolution No. OCSD-07-17 F. Sample Monthly& Quarterly Investment Program Monitoring Reports G. Sections of the California Government Code Pertinent to Investing Public Funds H. Glossary of Investment Terms This document will be updated and delivered to Administration Committee members following the adoption of the Sanitation District's investment policy statement. Annual Review of Investment Policy The Investment Policy includes the requirement that the Sanitation District shall review its Investment Policy annually (Sections 1.2 and 16.1). 1 Annual Delegation of Investment Authority ` Effective January 1, 1997, Section 53607 of the Code states that governing boards of local agencies may only delegate authority to invest and/or reinvest agency funds to the agency's Treasurer fora one-year period. With adoption of the Resolution, the Board of Directors would renew its delegation of li investment authority to the Director of Finance/Treasurer for a one-year period in compliance with the requirements of Section 53607. Each year, the Board of Directors will consider similar actions along with the annual reconsideration of the Sanitation District's Investment Policy. ATTACHMENTS 1. Exhibit A- OCSD FY 2008-09 Investment Policy Statement 2. Exhibit B - Performance Monitoring & Reporting Summary JDR:LT:MW:lc Page 2 Book Page 17 a 1 XF ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT Proposed for Review and Approval By Administration Committee On July 9, 2008 And for Adoption By Board of Directors On July 23, 2008 Book Pan 18 TABLE OF CONTENTS Section TOPIC paw 1.0 Policy......................................................................................1 2.0 Scope .....................................................................................1 3.0 Standard of Prudence.............................................................1 4.0 Investment Objectives............................................................2 5.0 Delegation of Authority...........................................................2 6.0 Ethics and Conflicts of Interest...............................................3 7.0 Authorized Financial Dealers and Institutions.........................4 8.0 Authorized and Suitable Investments.....................................5 9.0 Collateralization......................................................................9 10.0 Safekeeping and Custody......................................................9 11.0 Diversification .........................................................................9 12.0 Maximum Maturities...............................................................11 13.0 Internal Control......................................................................12 14.0 Performance Objectives and Benchmarks............................12 15.0 Reporting...............................................................................12 16.0 Investment Policy Adoption and Revision..............................13 Appendix A. Summary of Investment Authorization B. Treasury Management Procedures C. Investment Manager Certification D. Investment Pool Questionnaire (LAIF) E. Board Resolution No. OCSD-08-XX, Authorizing the District's Treasurer to Invest and/or Reinvest District Funds, and Adopting Investment Policy and Performance Benchmarks F. Quarterly Investment Program Monitoring Reports G. Sections of the California Government Code Pertinent to Investing Public Funds H. Glossary of Investment Terms Book Page 19 ORANGE COUNTY SANITATION DISTRICT INVESTMENT POLICY STATEMENT 1.0 Policy: It is the policy of the Orange County Sanitation District(OCSD)to invest public funds in a manner which ensures the safety and preservation of capital while meeting reasonably anticipated operating expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds. 1.1. This Investment Policy is set forth by OCSD for the following purposes: 1.1.1. To establish a clear understanding for the Board of Directors, OCSD management, responsible employees and third parties of the objectives, policies and guidelines for the investment of the OCSD's idle and surplus funds. 1.1.2. To offer guidance to investment staff and any extemal investment advisors on the investment of OCSD funds (see Appendix"A"). 1.1.3. To establish a basis for evaluating investment results. 1.2. OCSD establishes investment policies which meet its current investment goals. OCSD shall review this policy annually, and may change its policies as its investment objectives change. 2.0 Scope: This Investment Policy applies to all financial assets of OCSD; except for the proceeds of OCSD's capital projects financing program, which are invested in accordance with provisions of their specific bond indentures; and such other funds excluded by law or other Board-approved covenant or agreement. These funds are accounted for by OCSD as Enterprise Funds as represented in OCSD's Comprehensive Annual Financial Report. 3.0 Standard of Prudence: The standard of prudence to be used by OCSD internal staff, and any authorized investment advisor(s), shall be as described in Section 53600.3 of the California Government Code as follows: Except as provided in subdivision (a) of Section 27000.3, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds Page 1 of 14 Book Page 20 pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence,and diligence under the circumstances then prevailing, including, but not limited to,the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. 4.0 Investment Objectives: The primary objectives of OCSDs investment activities, in priority order, and as described in Section 53600.5 of the California Government Code, shall be: 4.1 Safety: The safety and preservation of principal is the foremost objective of the investment program of OCSD. Investments shall be selected in a manner that seeks to ensure the preservation of capital in OCSD's overall portfolio. This will be accomplished through a program of diversification, more fully described in Section 11.0, and maturity limitations, more fully described in Section 12.0, in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. 4.2 Liquidity:The investment program will be administered in a mannerthat will ensure that sufficient funds are available for OCSD to meet its reasonably anticipated operating expenditure needs. 4.3 Return on Investments: The OCSD investment portfolio will be structured and managed with the objective of achieving a rate of return throughout budgetary and economic cycles, commensurate with legal, safety, and liquidity considerations. 5.0 Delegation of Authoritv: 5.1 Authority to manage OCSD's investment program is derived from the California Government Code Sections 53600 et seq. and Sections 53635 at seq. The Board of Directors herebydelegates management responsibility for the OCSD investment program to its Director of Finance and Administrative Services/Treasurer,who shall establish written procedures for the operation of the investment program, consistent with this Policy. The Controller/Assistant Treasurer shall be responsible for day-to-day administration, monitoring, and the development of written administrative procedures for the operation of the investment program,consistent with this Policy. The current treasury management procedures are presented in Appendix "B." No person may engage in an investment transaction except Page 2 of 14 Book Page 21 as provided under the terms of this Policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken by OCSD internal staff, and shall establish a system of controls to regulate the activities of internal staff and external investment advisors engaged in accordance with Section 5.3. 5.2 The administrative procedures for the operation of OCSD's investment program will provide for, but not be limited to, the following: 5.2.1 Formats for monthly and quarterly reports to the Administration Committee, and the Board of Directors. 5.2.2 Compliance with generally accepted accounting principles of the Government Accounting Standards Board. 5.2.3 Establishment of benchmarks for performance measurement. 5.2.4 Establishment of a system of written internal controls. 5.2.5 Establishment of written procedures for competitive bids and offerings of securities that may be purchased or sold by internal OCSD staff. 5.2.6 Establishment of a Desk Procedures Manual for treasury operations and management. 5.3 The Board of Directors of OCSD may, in its discretion, engage the services of one or more registered investment advisors to assist in the management of OCSD's investment portfolio in a manner consistent with OCSD's objectives. Such external investment advisors, which shall be selected through a competitive process, shall be granted discretion to purchase and sell investment securities in accordance with this Investment Policy. Such advisors must be registered under the Investment Advisers Act of 1940, or be exempt from such registration. 6.0 Ethics and Conflicts of Interest: 6.1 Officers and employees of OCSD involved in the investment process shall refrain from personal business activities that could conflict with proper execution of OCSD's investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the General Manager any material financial interests in financial institutions that conduct business within OCSD's boundaries, and they shall further disclose any large personal financial/investment positions, the performance of which could be related to the performance of positions in OCSD's portfolio. Page 3 of 14 Book Page 22 7.0 Authorized Financial Dealers and Institutions: 7.1 For investment transactions conducted by OCSD internal staff,the Treasurer will maintain a list of financial institutions authorized to provide investment services to OCSD, including "primary" or regional dealers that quality under Securities and Exchange Commission Rule 15C3-1 (Uniform Net Capital rule), and Federal or State of California chartered banks. No public deposit shall be made except in a qualified public depository as established by State law. All financial institutions which desire to become qualified bidders for investment transactions with OCSD must supply the following for evaluation by the Treasurer: 7.1.1. Audited financial statements for the institution's three (3) most recent fiscal years. 7.1.2. A statement, in the format prescribed by the Government Finance Officers Association (GFOA), certifying that the institution has reviewed OCSD's Investment Policy and that all securities offered to the Districts shall comply fully and in every instance with all provisions of the California Government Code and with this Investment Policy. The current statement is presented in Appendix "C." 7.1.3. A statement describing the regulatory status of the dealer, and the background and expertise of the dealer's representatives. Selection of financial institutions, broker/dealers, and banks authorized to engage in transactions with OCSD shall be made through a competitive process. An annual review of the financial condition of qualified institutions will be conducted by the Treasurer. 7.2 Selection of broker/dealers used by external investment advisors retained by OCSD, shall be in compliance with contract provisions between OCSD and any external investment advisors,and shall be in substantially the following form: Use of Securities Brokers: Neither the Investment Advisor nor any parent, subsidiary or related firm shall act as a securities broker with respect to any purchases or sales of securities which may be made on behalf of OCSD, provided that this limitation shall not prevent the Investment Advisor from utilizing the services of a securities broker which is a parent, subsidiary or related firm, provided such broker effects transactions on a "cost only" or "nonprofit" basis to itself and provides competitive execution. The Investment Advisor shall provide the Districts with a list of suitable independent brokerage firms(including names and addresses) meeting the requirements of Government Code Section 53601.5, and, unless otherwise directed by OCSD, the Investment Advisor may utilize the service of any of Page 4 of 14 Book Page 23 such independent securities brokerage firms it deems appropriate to the extent that such firms are competitive with respect to price of services and execution. 8.0 Authorized and Suitable Investments: All investments shall be made in accordance with the California Government Code including Sections 16429.1 etseq., 53600 etseq., and 53684, and as described within this Investment Policy. Permitted investments under this Policy shall include: 8.1 Securities, obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by the US Government, a federal agency, or a US Government-sponsored enterprise pursuant to Section 53601 (e) of the California Government Code. Investment in mortgage-backed bonds and CMOs is not governed by this Section 8.1, even if such bonds are issued by agencies of the US Government. See Section 8.2 for conditions of purchase of mortgage- backed securities. See Section 8.12 for conditions of purchase of CMOs. 8.2 Mortgage-backed securities issued by an agency of the US Government, which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Purchase of mortgage derivatives, which include interest-only payments (lOs) and principal-only payments (POs); inverse floaters, and RE-REMICs (Real Estate Mortgage Investment Conduits), is hereby prohibited. 8.3 Commercial paper of "prime" quality and rated "P1" by Moody's Investor Services(Moody's), and rated"Al"by Standard &Poor's Corporation(S&P), and issued by a domestic corporation organized and operating in the United States with assets in excess of $500 million and having a rating of "A" or better on its long-term debt as provided by Moody's or S&P. Purchases of eligible commercial paper may not exceed 270 days to maturity from the date of purchase. Purchases of commercial paper shall not exceed 15% of the market value of the portfolio, except that a maximum of 25% of the market value of the portfolio may be invested in commercial paper, so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. No more than 5% of the market value of the portfolio, or 10% of the issuer's outstanding paper, may be invested in commercial paper issued by any one (1) eligible corporation. 8.4 Banker's acceptances issued by institutions, the short-term obligations of which are rated a minimum of "P1" by Moody's, or "Al" by S&P provided that: (a) the acceptance is eligible for purchase by the Federal Reserve System; (b)the maturity does not exceed 180 days; (c) no more than 40%of the total portfolio may be invested in banker's acceptances; and (d) no more than 30% of the total portfolio may be invested in the banker's acceptances of any one (1) commercial bank. Page 5 of 14 Book Page 24 8.5 Medium term(or corporate) notes of a maximum of five(5)years maturity issued by corporations organized and operating within the United States, or issued by depository institutions licensed by the United States, or any state, and operating within the United States with assets in excess of$500 million, and which is rated in a rating category of"A" or better on its long-term debt as provided by Moody's or S&P. Notes eligible for investment under this section shall be rated at least"AY or better by Moody's, or "A-"or better by S&P. If, at the time of purchase, an eligible note is rated in a rating category of "A" or better by only one rating agency, the note shall also be rated at least "BBB" by the other rating agency. If, after purchase, the rating of an eligible note in a rating category of"A"or better,is downgraded to"BBB;'the external investment advisor shall notify the District of the downgrade, and shall present an analysis and recommendations as to the disposition of the note consistent with the investment objectives of this Investment Policy. The above restrictions pertain to the "direct issuer" and do not extend to the parent corporation of the direct issuer. No more than 35% of the portfolio may be invested in both medium term notes, as described here in 8.5, and notes, bonds, or other obligations, as described in 8.6. 8.6 Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by California Government Code Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by California Government Code Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. No more than 35%of the portfolio may be invested in securities described in 8.5 and 8.6. 8.7 Shares of mutual funds investing in securities permitted under this policy and under Section 53601 (k) of the California Government Code. Such funds must either: (1) attain the highest ranking, or the highest letter and numerical rating, provided by not less than two of the three largest nationally recognized rating services; or (2) have an Investment Advisor registered with the Securities and Exchange Commission with not less than five (5) years of experience investing in the securities and obligations authorized under this Policy and under California Government Code Section 53601, and with assets under management in excess of$500 million. The purchase price of shares of beneficial interest purchased pursuant to this policy, and the California Government Code may not include any commission that the companies may charge, and shall not exceed 15% of the District's surplus money that may be invested pursuant to this section. However, no more than 10% of the District's surplus funds may be invested in shares of beneficial interest of any one (1) mutual fund pursuant to this section. Page 6 of 14 Book Page 25 8.8 Certificates of deposit: 8.8.1 Secured (collateralized) time deposits issued by a nationally or state-chartered bank or state or federal savings and loan association, as defined by Section 5102 of the California Financial Code, and having a net operating profit in the two(2)most recently completed fiscal years. Collateral must comply with Chapter4, Bank Deposit Law, Section 16500 at seq., and Chapter 4.5, Savings and Loan Association and Credit Union Deposit Law, Section 16600 et seq., of the California Government Code. 8.8.2 Negotiable certificates ofdeposit(NCDs) issued bya nationallyor state-chartered bank or state of federal savings and loan association, as defined by Section 5102 of the California Financial Code; and which shall have a rating of"A"or better on its long-term debt as provided by Moody's or S&P;or which shall have the following minimum short-term ratings by at least two (2) rating services: "P1" for deposits by Moody's, "At" for deposits by S&P, or comparably rated by a nationally recognized rating agency which rates such securities; or as otherwise approved by the District's Board of Directors. 8.8.3 To be eligible to receive local agency money, a bank, savings association,federal association,or federally insured individual loan company shall have received an overall rating of not less than "satisfactory"in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California's communities, including low and moderate income neighborhoods, pursuant to Section 2906 of Title 12 of the United States Code. 8.9 Taxable or tax-exempt municipal bonds issued by any of the 50 United States. Such securities must be rated 'AY or higher by Moody's, or "A-" or higher by S&P; or as otherwise approved by the Districts' Board of Directors. 8.10 The State of California Local Agency Investment Fund(LAIF). The LAW is an investment alternative for California's local governments and special districts managed by the State Treasurer's Office. LAIF is more fully described in the Glossary(See Appendix"H.") The District shall use LAIF as a short-term cash management facility. Investment of District funds in LAIF shall be subject to investigation and due diligence prior to investing,and on a continual basis to a level of review pursuant to Section 3.0, Standard of Prudence, of this Policy. See Appendix "D" for investment pool questionnaire. 8.11 The Orange County Treasurer's Money Market Commingled Investment Pool(OCCIP). The OCCIP is a money market investment pool managed by the Orange County Treasurer's Office. OCCIP is more fully described in the Glossary. (See Appendix"H.") The District has no funds invested in OCCIP at this time. Investment of District funds in OCCIP would be subject to Page 7 of 14 Book Page 26 investigation and due diligence prior to investing,and on a continual basis to a level of review pursuant to Section 3.0, Standard of Prudence, of this Policy. 8.12 Collateralized mortgage obligations(CMOs)issued by agencies of the US Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset- backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (10s) and principal-only payments (POs); inverse floaters, and RE-REMICS (Real Estate Mortgage Investment Conduits), is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of"A" or higher. Combined purchases of mortgage-backed securities, CMOs and asset-backed securities as authorized under within Section 8.0,may not exceed 20%of the total Long-Term Operating Monies portfolio. 8.13 Repurchase agreements provided that: 8.13.1 All repurchase agreements shall be collateralized with securities eligible for purchase under this Policy. In order to anticipate market changes and to provide a level of security for all repurchase agreement transactions, collateralization shall be maintained at a level of at least 102%of the market value of the repurchase agreements, and shall be adjusted no less than weekly. 8.13.2 All repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the repurchase agreement. The Master Repurchase Agreement shall be substantially in the form developed by The Bond Market Association. 8.14 Reverse repurchase agreements provided that: 8.14.1 No more than five percent (5%) of OCSD's portfolio shall be invested in reverse repurchase agreements, and there shall be no long-term reverse repurchase agreements unless otherwise authorized bythe Districts' Board of Directors. 8.14.2 The maximum maturity of reverse repurchase agreements shall be ninety (90) days. 8.14.3 Reverse repurchase agreements shall mature on the exact date of a known cash flow which will be unconditionally available to repay the maturing reverse repurchase agreement. 8.14.4 Proceeds of reverse repurchase agreements shall be used solely to supplement portfolio income or to provide portfolio liquidity, and shall not be used to speculate on market movements. Page 8 of 14 Book Page 27 8.14.5 All reverse repurchase agreements must be the subject of a Master Repurchase Agreement between OCSD and the provider of the reverse repurchase agreement. The Master Repurchase Agreement shall be substantially in the form developed by The Bond Market Association. 8.15 Sales of OCSD-owned securities in the secondary market may incur losses in order to improve the risk or return characteristics of the portfolio, to prevent anticipated further erosion of principal, or when trading for securities that result in an expected net economic gain to OCSD. 8.16 If securities owned by the OCSD are downgraded by either Moody's or S&P to a level below the quality required by this Investment Policy, it shall be OCSD's policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. If a decision is made to retain the downgraded securities in the portfolio, their presence in the portfolio will be monitored and reported monthly to the OCSD General Manager, the Administration Committee and Board of Directors. 9.0 Collateralization: Generally, the value to secure deposits under this Policy shall comply with Section 53652 of the California Government Code. Collateralization will be required for secured time deposits, as more fully described in Section 8.7.1; and repurchase agreements, as more fully described in Section 8.12.1. Collateral will always be held by an independent third- party, as more fully described in Section 10.1. The right of collateral substitution is granted. 10.0 Safekeeping and Custody: 10.1 All securities transactions, including collateral for repurchase agreements, entered into by, or on behalf of OCSD, shall be conducted on a delivery-versus-payment(DVP) basis. Securities will be held by OCSD's third-party custodian bank, which shall be selected through a competitive process, or that agent's representative, or in the agent's account at the Federal Reserve Bank, or within clearing corporations in the U.S., and evidenced by book entry statements. 11.0 Diversification: OCSD will diversify its investments by security type, issuer, and financial institution in accordance with the following: 11.1 There is no limit on investment in securities issued by or guaranteed by the full faith and credit of the U.S. government. Page 9 of 14 Book Page 28 11.2 No more than 20% of the portfolio may be invested in securities of a single agency of the U.S. government, which does not provide the full faith and credit of the U.S. government. 11.3 No more than 5% of the portfolio may be invested in securities of any one issuer, other than the U.S. government or its agencies. Investment in mutual funds is not governed by this Section 11.3. See Section 11.8 for conditions of purchase of mutual funds. 11.4 No individual holding shall constitute more than 5% of the total debt outstanding of any issuer. 11.5 No more than 40%of the portfolio may be invested in banker's acceptances. 11.6 No more than 15% of the portfolio may be invested in commercial paper, except that 25% of the portfolio may be so invested so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. 11.7 No more than 30% of the portfolio may be invested in medium-term (corporate) notes. 11.8 No more than 15% of the portfolio may be invested in mutual funds. However, no more than 10% of the District's portfolio may be invested in shares of beneficial interest of any one (1) mutual fund. 11.9 No more than 30% of the portfolio may be invested in negotiable certificates of deposit. 11.10 No more than 10% of the portfolio may be invested in eligible municipal bonds. 11.11 No more than 20% of the Long Term Operating Monies portfolio may be invested in a combination of mortgage-backed securities, CMOs and asset- backed securities. Mortgage-backed securities, CMOs and asset-backed securities may only be purchased by the Districts'external money managers, Pacific Investment Management Company (PIMCO), with prior Board approval(authorized by Board Minute Order,January 22, 1997),and may not be purchased by the District's staff. 11.12 No more than the lesser of 15% of the portfolio or the statutory maximum may be invested in LAIF. 11.13 No more than 15% of the portfolio may be invested in the Orange County Investment Pool. 11.14 No more than 20% of the portfolio may be invested in repurchase agreements. 11.15 No more than 5% of the portfolio may be invested in reverse repurchase agreements. Page 10 of 14 Book Page 29 12.0 Maximum Maturities: To the extent possible, OCSD will attempt to match its investments with reasonably anticipated cash flow requirements. The Treasurer shall develop a five-year cash flow forecast, which shall be updated quarterly. Based on this forecast, the Treasurer shall designate, from time-to-time, the amounts to be allocated to the investment portfolio. OCSD monies invested in accordance with this Policy are divided into two (2) categories: 12.1 Liquid Operating Monies. Funds needed for current operating and capital expenditures are known as Liquid Operating Monies. 12.1.1 The maximum final stated maturity of individual securities in the Liquid Operating Monies account portfolio shall be one(1)yearfrom the date of purchase. 12.1.2 The average duration of the Liquid Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts'cash flow requirements, but may never exceed 180 days. 12.2 Long Term Operating Monies. Funds needed for longer term purposes are known as the Long Term Operating Monies. 12.2.1 Except for the purchase of securities by the District's external money manager, PIMCO, the maximum final stated maturity of individual securities in the Long Term Operating Monies account portfolio shall be five (5)years from the date of purchase. PIMCO may purchase any security that is permitted under Section 8.0 of this policy, including those which may have a stated maturity of more than five(5)years from the date of purchase when, in the opinion of PIMCO, such an investment meets the investment objectives of this portfolio and the duration requirements are met below. 12.2.2 The duration of the Long Term Operating Monies account portfolio shall be recommended by the Treasurer based on the Districts'five- year cash flow forecast, but may never exceed 60 months. 12.2.3 The duration of the Long Term Operating Monies account portfolio shall never exceed 120% of the duration as established in accordance with Section 12.2.2. 12.2.4 Thedurationof the Long Term Operating Monies account portfolio shall never be less than 80% of the duration as established in accordance with Section 12.2.2 Page 11 of 14 Book Page 30 i I 13.0 Internal Control: 'I 13.1 The Treasurer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. The current treasury management procedures are presented in Appendix "B." 14.0 Performance Objectives and Benchmarks: 14.1 Overall objective. The investment portfolio of OCSD shall be designed with the overall objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and reasonably anticipated cash flow needs. 14.2 The Liquid Operating Monies. The investment performance objective for the Liquid Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index approved by the Administration Committee, and bythe District's Board of Directors,when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-00-16 (see Appendix "E"). 14.3 The Long Term Operating Monies. The investment performance objective for the Long Term Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index selected by the Administration Committee and approved by the Districts' Board of Directors, when the duration of the portfolio is established. This market index is more fully described in Board Resolution No. OCSD-00-16 (See Appendix "E"). 15.0 Reportina: 15.1 Quarterly investment reports shall be submitted by the Treasurer to the Administration Committee which shall forward the reports to the District's Board of Directors. The quarterly reports shall be submitted to the Administration Committee within 30 days of the end of the month in accordance with California Government Code Sections 53607, 53646, and this Investment Policy. The quarterly reports shall provide clear and concise status information on the District's portfolios at the end of each reporting period, including performance measures using the benchmarks described in Section 14.0 of this Investment Policy. Sample quarterly reports are presented in Appendix"F." These reports shall contain listings of individual securities held at the end of each reporting period, and shall disclose, at a minimum, the following information about the risk characteristics of OCSD's portfolio: Page 12 of 14 Book Page 31 15.1.1 Cost and accurate and complete market value of the portfolio. 15.1.2 Modified duration of the portfolio compared to Benchmark. 15.1.3 Dollar change in value of the portfolio for a one-percent (1%) change in interest rates. 15.1.4 Percent of portfolio invested in reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. 15.1.5 For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. 15.1.6 Average portfolio credit quality. 15.1.7 Percent of portfolio with credit ratings below "A" by any rating agency, and a description of such securities. 15.1.E State that all investments are in compliance with this policy and the California Government Code, or provide a listing of any transactions or holdings which do not comply with this policy or with the California Government Code. 15.1.9 Time-weighted total rate of return for the portfolio for the prior three months, twelve months, year to date, and since inception compared to the Benchmark returns for the same periods. 15.1.10 State that sufficient funds are available for OCSD to meet its operating expenditure requirements for the next six months, or if not, state the reasons for the shortfall. 15.2 OCSD's Treasurer shall meet quarterly with the Administration Committee to review investment performance, proposed strategies and compliance with this Investment Policy. External investment advisors may be required to attend said meetings at the discretion of the Chairman of the Administration Committee. 16.0 Investment Policy Adoption and Revision: 16.1 The Investment Policy of OCSD shall be reviewed by the Administration Committee and shall be adopted by resolution of the Board of Directors of OCSD. The Policy shall be reviewed on an annual basis in accordance with California Government Code Section 53646, and this Investment Policy, by the Administration Committee, which shall recommend revisions, as appropriate,to the Board of Directors. Any modifications made thereto shall be approved by the Board of Directors. Page 13 of 14 Book Page 32 16.2 The Administration Committee shall serve as the oversight committee for the District's Investment program and shall adopt guidelines for the ongoing review of duration, quality and liquidity of the District's portfolio. Page 14 of 14 Book Page 33 APPENDIX "A" SUMMARY OF INVESTMENT AUTHORIZATION INTERNAL AND EXTERNAL MANAGERS SHORT TERM OPERATING FUND INVESTMENT INTERNAL EXTERNAL U.S. Treasuries OK OK Federal Agencies Fixed coupon, fixed mat. OK Mortgage-backed NO NO Commercial paper OK OK Banker's Accept OK OK Medium Term Notes Fixed coupon, fixed mat.* OK Mutual Funds Money Market Only** Money Market Only Negotiable CDs Fixed coupon, fixed mat.* OK Municipal Bonds OK* NO LAIF OK NO OCIP OK NO CMOs NO NO Asset-backed NO NO Repurchase Agree. OK OK Reverse Repos OK* OK LONG TERM OPERATING PORTFOLIO INVESTMENT INTERNAL EXTERNAL U.S. Treasuries OK OK Federal Agencies Fixed coupon, fixed mat. OK Mortgage-backed NO OK Mutual Funds Money Market Only** OK Negotiable CDs Fixed coupon, fixed mat.* OK Municipal Bonds OK* OK LAIF OK NO OCIP OK NO CMOs NO With Board Approval Asset-backed NO With Board Approval Repurchase Agree. OK OK Reverse Repos OK* OK *With prior approval of the Administration Committee. **Using financial institutions approved by the Administration Committee. N:WOM%e IMCFANF INISTMTION COA4NRTEE IN 300 ZU MITTEE RI OFFICM OOCWEWSQ709 23ImW FuMs PgIryM10.^w Book Page 34 EXHIBIT "B" ORANGE COUNTY SANTIATION DISTRICT PERFORMANCE MONITORING & REPORTING SUMMARY FOR THE DISTRICT'S INVESTMENT PROGRAM POLICY REFERENCE PERFORMANCE CHARACTERISTIC REPORTING PARTY* PIMCO MELLON CALLAN 15.1.1 Cost and market value of the portfolio(monthly mark-to-market). M,Q M, Q Q 15.1.2 Modified duration of the portfolio compared to benchmark. M,Q Q 15.1.3 Dollar change in value of the portfolio for a 1% change in interest rate. M, Q Q 15.1.4 Percent of portfolio invested in reverse repurchase agreements, and a schedule which M, Q matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. 15.1.6 For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 M,Q Q o days. 0 F 15.1.6 Average portfolio credit quality. M, Q Q ac N 15.1.7 Percent of portfolio with credit ratings below"A" by any rating agency, and a description M, Q Q of such securities. 15.1.8 Listing of any transaction or holdings which do not comply with this policy or with the M, Q California Government Code. 15.1.9 Time-weighted total rate of return for the portfolio for the prior three months, twelve M, Q Q months, year-to-date,and since inception compared to the benchmark returns for the same periods. ADDL" Comparison of portfolio performance to market Index benchmark. M, Q Q ADDL" Comparison of Manager's performance to peer group benchmark. Q ADDL" Monitoring of organizational and structural changes of investment management firm. Q ADDL•' Audit portfolios for compliance with investment policy guidelines. L= Q 15.1.10 OCSD will report if sufficient funds are available for it to meet operating expenditure requirements for the next six months, or if not, state the reason for the shortfall. Notes 'M = Monthly 'Q =Quarterly "ADDL= Monitoring of Additional Performance Characteristics ADMINISTRATION COMMITTEE "emno/os Toed.o�rovoaee a AGENDA REPORT moo' AOMO&29 Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: ALTERNATIVE BILLING METHODOLOGIES GENERAL MANAGER'S RECOMMENDATION Informational item. SUMMARY In November 2007, the Sanitation District approved a five-year strategic plan and the related funding schedule to support this plan. During this process, the issue of rate equity was raised, specifically as it pertains to the use of a flat fee for all single-family residences. As a result, staff was directed to review previous rate equity efforts, outreach efforts, and internal and external studies regarding this matter and to provide an overview to the Administration Committee. PRIOR COMMITTEEIBOARD ACTIONS N/A ADDITIONAL INFORMATION In March 1992, the Sanitation District engaged a consultant (James M. Montgomery) to review proposed alternatives to the existing flat rate billing system used for single-family residences (SFR). While different methodologies were discussed, it was concluded that the cost of implementing a system that initially appeared to be more fair and equitable would result in costs that far exceed the equity benefits. In 1998, a Rate Advisory Committee (RAC) was established to discuss the advantages and disadvantages of moving to a water meter-based system for sewer user charges. This RAC reviewed internal policies, methodologies of other agencies and solicited public input. Based on the recommendation of the RAC, it was determined that benefits of moving to a water-metered based system did not appear to outweigh the costs of implementing such a system. Staff was directed to continue to implement the existing flat rate fee system. Subsequently, all revenue areas were consolidated and financial plan was established. The flat rate system continued to remain in effect. Page 1 Book Page 36 Following are two excerpts from the RAC feedback to Board and public input: 1) Discuss pros and cons of water metered-based annual sanitary sewer user charges: Over the years we have studied various forms of water meter based charges. It would seem fair at first glance that sewer use could be directly related to water use, and that it would be easy to use. Water meters are accurate and direct use of the data seems reasonable. However, for our agency, which has about 40 local water agencies in the service area, it becomes more complicated. Many of these agencies do not have a standardized approach to billing. Some agencies use account numbers, water meters, owner addresses, etc. for billing. To translate and eventually standardize the various billing methods would be a monumental task. It would require considerable up-front cost and staff time. It would also require cooperation from the water retailers, who remain un-open to the idea of having their bills increased to reflect sewer charges. Another problem with direct collection of water bills is that the cities (or water agency) would not be able to enforce the collection. If a customer paid only the water charge and not the regional sewer fee, the water could not be turned oft A second way to address the water meter-based fees is to collect them on the property tax bill, which must be paid, this would ensure enforcement. However, this method of collection would also require an increase in the cost of collecting the fee, and the water agencies would have to be reimbursed for their added work. The coordination between the many water agencies and the Sanitation Districts would continue to be great. In the long run, the added benefits of the water meter-based annual charges would be greatly offset by the added cost in collections. Finally, there is the issue of accuracy. Would water meter based flow increase accuracy? Landscaping, pools and car washing probably take a large proportion of the delivered water as opposed to sanitary sewer service, particularly in a one or two person dwelling units. Therefore, those with heavy landscaping would request exemptions and adjustments, increasing the cost of collection. While a flat residential change cannot be fair to all, neither can a water meter based charge. The question of collection type and benefits of accuracy must be balanced against the size of the change versus the cost of added collection efforts. 2) Discuss the ratios between the multi-family and single-family annual sanitary sewer service charges. What are the actual values: Currently, the annual sewer service charges vary between districts with$73 per year per single family housing unit, an approximate average of all the districts that collect annual fees. The annual fee for multi-family housing units is now 60%of the fee for single family housing units in each of the districts based on metering and experience. Historically, sewer use and water use decrease per dwelling unit as densities increase. The reason for this is typically more services are provided outside of the dwelling unit, such as greater use of restaurant and commercial laundries. However, our most recent population projections and flow metering indicate that multi-family densities are now higher and the ratio may need to be updated based on new information. - Page 2 Book Page 37 Additionally, the study provided the following comments in its "Conclusion and Recommendations" section of the report: EPA regulations require rates to be fair and equitable. There is no unique set of rates that will be fair and equitable to all customers. If such a system could be designed, the cost of implementing it would far exceed any benefits. With this perspective in view, it should be noted that the existing system of rates is acceptable. It could be improved if costs can be spread more equitably by reclassifying customers depending upon their flow and strength and making improvements to the allocation methodology. Rates impacting residential customers, who account for over 90 percent of users in the system, would be minimally impacted. Commercial customers such as restaurants, hotels, supermarkets, would experience significant increases in charges. Adjusting the allocation may help to dampen the impact on the higher strength users to some extent. Our conclusions and recommendations regarding existing rates and the proposed attematives are summarized below. RESIDENTIAL RATES On average, the flat rate user charges assessed to the residential sector, both single- family and multi-family, fairly and equitably reflect the costs of service. Efforts to increase fairness and equitabildy in the residential sector would require that CSDOC (OCSD) review each user's water bills or keep a count of the number of people in each residence. Both of these practices would be unworkable. It is therefore recommended that no change be made to the manner in which residential user charges are assessed. In April 2005, OCSD staff evaluated implementing rebate programs. It was determined that these programs were not cost effective. An excerpt of the staff report that was present to the Committee and the Board is shown below: We have had single-family residence owners ask if we have a low income or low- usage program. The homeowners are generally elderly or retired homeowners who may useless water than an average single-family residence. We have investigated the reduced rate program used by the CSDLAC. CSDLAC SFR rate assumes an average discharge of 260 gallons per day. A homeowner within their service area may submit water consumption for a one year period and, if the consumption is 200 gpd or less, they qualify for a reduced rate that is equal to the apartment sewer service fee rate (currently 60%of the SFR rate at LA County). Currently, we assume 253 gallons per day for a single family residence. The Board may adopt a reduced rate program where a homeowner that proves they use less than 200 gallons per day would qualify for a reduced rate equal to the District's apartment sewer service fee rate, or 70% of the SFR rate. The financial impact of implementing such a program is unknown at this time. Although the individual refund amount under the current fee structure would only amount to$34.50 a year(30 percent of the current annual SFR rate), or$2.88 per month, the broad base of homeowners qualifying for refunds could be great. The SFR rate may have to be increased even further down the road to absorb the foss in revenues resulting from refunds. Also, such a program would probably generate a Page 3 Book Page 38 substantial increase in the number of refund claims submitted, requiring additional staffing resources. In addition, many, if not most of the same refunds would be generated annually since the user fee on the property tax bill would not change. Due to the relatively small inequities amongst all single-family residences, staff believes the additional costs to implement, monitor and administer a low-income or low-usage program outweighs the positive benefits to be derived. ATTACHMENTS 1. Rate Advisory Study— Executive Summary JDR:LT:AB:Ic Page 4 Book Page 39 Chapter 1 EXECUTIVE SUMMARY 1. Introduction County Sanitation Districts of Orange County (CSDOC) is currently embarked on a new strategic planning effort. The purpose of this planning effort Is to help CSDOC more cost-effectively direct their resources to achieve their environmental goals and objectives. The Strategic Plan will identify the facilities and programs necessary for CSDOC to accommodate future service needs, to continue to Improve the quality of service and to increase productivity. The strategic planning process addresses two basic questions. The first Is whet should CSDOC do to accomplish their mission?The second is how is CSDOC going to pay for it?the second question is the primary focus of this report. The purpose of this report Is to summarize the essential findings, conclusions, and recommendations for the Determination of Financial Rates and Charges for CSDOC. 2. Background CSDOC raises funds for operating, maintaining, replecing/improving and expending wastewater treatment and major conveyance facilities primarily through three funding sources: 1. A share of the 1%Ad Valorem taxes; 2. User Charges; and, 3. Connection Fees. Operation, maintenance and replacement/improvement costs are primarily funded through ad valorem tax allocations and user charges. Connection fees are collected to pay for expansion of facilities needed to accommodate growth. The overall methodology for determining how costs are allocated to residential, commercial and industrial users as well as to new and existing users, is termed the "rate structure."There are a number of major assumptions and considerations Involved In developing the methodology for tracking costs back to the residential, commercial and Industrial users. This study consisted of a review of the existing rate structure, and an evaluation of these major assumptions and considerations in an effort to improve fairness while preserving simplicity of administration. 3. Rate Advisory Committee Process As part of the CSDOC Strategic Plan process, a Rate Advisory Committee (RAC) was formed to obtain Input from each of the major user categories (residential, commercial and Industrial). a:W=B0MXEPDaf%MTWNPD 1-1 Book Page 40 The RAC was designed to be a collaborative process InvoMng all the major stakeholders potentially impacted by the new rate structure. The opportunity was offered at each of the workshops to allow for feedback, as well as dialogue among the RAC members so resolution could be reached on key rate structure issues. The RAC process Involved 9 workshops which were held over a period of 13 months. While the RAC reached substantial agreement on most Issues, minority views were expressed and advocated strongly. These minority views can be found In Chapter 9. The reader is encouraged to read the whole report In order to gain a full understanding of the RAC process and the recommendations that were made by the RAC. 4. Overall Philosophy In general, RAC members agreed with the governing philosophy of sources and uses of funds as shown In Table 1.1. Table 1.1 Overall Philosophy of Sources and Uses of Funds CSDOC Wastewater Rate Structure J Use of Funds ` '.'Sourw of Nnds .. Operations and Maintenance of Existing Existing Users Facilities Capital Replacement of Existing Facilities Existing Users Capital Construction of New Facilities to New Users Accommodate Growth Capital Construction to Improve Level of Both New and Existing Users Treatment 5. Sewer User Charges It is important to note that the recommendations made by the RAC address the rate structure (how the costs are allocated back to each user) only,and not the level of funding. A revenue neutral evaluation was conducted during the comparison of alternative rate structures and sewer user charge methodologies. There was broad agreement among the RAC members that the rate structure should shift from the existing practice of charging commercial users on the basis of square footage of Improved property, to charging based on wastewater flow and strength of discharge. This recommendation to move to a wastewater flow and strength billing basis significantly changes the user charges for some commercial businesses. It raises the rates for some businesses, and lowers it for others, while raising approximately the same total amount of revenue from the commercial user group or category. For example, restaurants, carwashas and supermarkets would see a relatively significant increase in their annual user charges. eA4WB=RMR MT8D1NPD 1-2 Book Page 41 Whereas warehouses, churches and theaters would see a significant reduction In their annual user charges. This recommendation will also increase administrative costs for CSDOC. Currently, CSDOC does not distinguish between classes of commercial users. Developing commercial categories will require CSDOC to develop a monitoring program to verify the flow and strength for each category. The RAC also recommends continuing to charge multi-family residential units in proportion to single-famlly residential units. Currently, the charge for multi-family units is 60 percent of the single-family residential unit charge. New flow data developed as pert of the Phase I strategic planning process shows that the ratio should be approximately 70 percent. This recommendation and revised data will mean that multi-famlly rates would Increase by approximately 14 percent. 6. Connection Fees Connection fees we paid by new users when they connect to the system to cover the casts of the new facilities required to convey, treat and dispose of the new users'wastewater. Similar to sewer user charges,the RAC recommended a flow and strength basis in determining connection fees. This would cause Increased connection fees for some categories of commercial users and decrease them for some. It would also cause an increase In administrative fees for the same reasons cited In the user charge discussion. This recommendation was based on the conclusion that wastewater flow and strength is a better measure of the cost impact of a user on the system than is square footage. In general, the RAC thought It was appropriate to assign most of the costs for wet weather facilities to residential users. This is, In part, because residential lateral systems are the primary source of rainfall-dependent Infiltration and Inflow which contributes to peak wet weather flows. This recommended change in methodologies would increase the percentage of total connection fee costs allocated to the new residential user category from 61 percent up to as high as 70 percent, with proportionate reductions for new users in the commercial and Industrial categories. Because estimated capital costs for new facilities have not yet been finalized, It is not known If this increased percentage will result in higher at lower residential connection fees. 7. Recommended Action/Next Steps It Is recommended by the RAC that the CSDOC Board of Directors review and consider these recommended methodologies for the development of a rate structure for sewer user charges and connection fees. This will allow CSDOC staff to move forward with the calculation of sewer user charges and connection fees as the new Strategic Plan and the associated Capital Improvement Plan and the estimated construction and operation and maintenance costs eta' BMe RS Oersvurzol wva 1.3 Book Page 42 become better defined. This will also allow the staff to proceed with the development of rate structure evaluations such as tiered residential connection fees and the number and type of commercial user charge categorles. Following this consideration of the methodologies for the development of a new structure,the preliminary user charges and connection fees are anticipated to be completed In draft form by early spring 1998, in coordination with the development of the overall Strategic Plan. 8. Rate Structure Implementation Process The last RAC workshop was held on October 9, 1997. In the Interim, Carollo has assisted staff and the Board of Directors to implement a rate structure based on the RAC recommendations. This has included implementation of a new rate structure for both user charges and connection fees (capital facilities capacity charge). The user charges are based on the elements that were recommended by the RAC. In general, the new user charge rate structure charges users in proportion to their demand on the system. This concept has led to new user charges for single-family residential, multi-family residential, and 121 non-residential (commercial and industrial) user groups. Because user charges for non-residential accounts were previously all the same, on a square foot basis, when the structure was adjusted based on demand, some user groups received rate increases and some received rate reductions. In addition, multi-family residential units received a rate increase because sampling showed that their proportion of demand on the system was greater than their previous charge accounted for. The details of the user charge rate structure that was implemented are contained in Chapter 10 and Appendix G. The user charge rate structure was approved by the Board of Directors on July 29, 1998. The connection fees are also based on the elements that were recommended by the RAC. The new connection fee rate structure includes a tiered rate structure for residential units, a method to allow significant dischargers to pay their connection fee on an "on going" basis, a method that distributes the cost of wet-weather flows on the basis of contribution to the system, and ensures that new users pay for the new capacity that is required because of their discharges. The details of the connection fee rate structure that was implemented are contained in Chapter 10 and Appendix G. The connection fee rate structure was approved by the Board of Directors on July 21, 1999, 516'l0 M=RE Rib\MA 1.WD 1-4 Book Page 43 to- ORANGE COUNTY SANITATION DISTRICT (714) 962-2411 www.ocsd.com Mailing Address: P.O. Box 8127 Fountain Valley, California 92728-8127 Street Address: 10844 Ellis Avenue Fountain Valley, California 92708-7018