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HomeMy WebLinkAbout02 Administration Agenda Package Wednesday, February 13, 2013 a6 5:30 P.M. Orange County Sanitation District Administration Building Regular Meeting of the Board Room Administration Committee 10844 Ellis Avenue Fountain Valley, CA 714 593-7130 AGENDA PLEDGE OF ALLEGIANCE: DECLARATION OF QUORUM: PUBLIC COMMENTS: If you wish to speak, please complete a Speaker's Form and give it to the Clerk of the Board. Speakers are requested to limit comments to three minutes. REPORTS: The Committee Chair and the General Manager may present verbal reports on miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: CONSENT CALENDAR: 1. Approve Minutes of the December 12, 2012 Administration Committee Meeting. ACTION ITEMS: 2. Recommend to the Board of Directors to: Adopt Ordinance No. OCSD-XX, an Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges and Repealing Ordinance No. OCSD-35: ADOPTING REVISED TABLE A RE RESIDENTIAL USER FEES AND REVISED TABLE B PROPERTY USE CLASSIFICATIONS A. Motion to read Ordinance No. OCSD-XX by title only and waive reading of said entire ordinance on February 27, 2013. B. Motion to introduce Ordinance No. OCSD-XX, and pass to second reading and public hearing on March 27, 2013. 0211 W13 Administration Committee Agenda Page 1 of 3 3. Recommend to the Board of Directors to: Adopt Ordinance No. 00SD-XX, An Ordinance of the Board of Directors of Orange County Sanitation District, ; Adopting Miscellaneous Charges and Fees relating to Industrial Charges, Source Control Permittees and Wastehaulers; and Repealing Article III and Article IV of Ordinance No. OCSD-40: Adopting Revised Table F Re Class I And Class II Permittees and Special Purpose Discharge Permittees Charges For Use and Reaffirming All Other Charges. ADOPTING REVISED TABLE F RE INDUSTRIAL USER FEES A. Motion to read Ordinance No. OCSD-XX by title only and waive reading of said entire ordinance on February 27, 2013. B. Motion to introduce Ordinance No. OCSD-XX, and pass to second reading and public hearing on March 27, 2013. 4. Recommend to the Board of Directors to: Approve the FY 2013-14 budget assumptions and direct staff to incorporate these parameters in preparing the FY 2013-14 budget update. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: The next Administration Committee meeting is scheduled for Wednesday, March 13, 2013. 02 W13 Administation Committee Agenda Page 2 of 3 Accommodations for the Disabled: Meeting Rooms are 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. Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2,this agenda has been posted outside the main gate of the Sanitation District's Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all,or a majority of the Board of Directors,are available for public inspection in the office of the Clerk of the Board. NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting. Maria E.Ayala Clerk of the Board (714)593-7130 mavala(alocsd.com For any questions on the agenda,Committee members may contact staff at: General Manager Jim Ruth (714)593-7110 imthaocsd.cem Assistant General Manager Bob Ghirelli (714)593-7400 ruhirelliCdocsd.com Assistant General Manager Jim Herberg (714)593-7300 iherbenjitbocsd.com Director of Finance and Lorenzo Tyner (714)593-7550 Itvnerfalocsd.com Administrative Services Director of Human Resources Jeff Reed (714)593-7144 ireedRDocsd.com 02113113 Administration Committee Agenda Page 3 of 3 Glossary of Terms and Abbreviations AQMD Air Quality Management District ASCE American Society of Civil Engineers BOO Biochemical Oxygen Demand CARB California Air Resources Board CASA California Association of Sanitation Agencies CCTV Closed Circuit Television CEQA California Environmental Quality Act CRWQCB California Regional Water Quality Control Board CWA Clean Water Act CWEA California Water Environment Association EIR Environmental Impact Report EMT Executive Management Team EPA U.S. Environmental Protection Agency FOG Fats, Oils, and Grease FSSD Facilities Support Services Department gpd Gallons per day GWR System Groundwater Replenishment System (also called GWRS) LOS Level of Service MGD Million gallons per day NACWA National Association of Clean Water Agencies NPDES National Pollutant Discharge Elimination System NWRI National Water Research Institute O&M Operations and Maintenance OCCOG Orange County Council of Governments OCHCA Orange County Health Care Agency OCSD Orange County Sanitation District OCWD Orange County Water District OOBS Ocean Outfall Booster Station OSHA Occupational Safety and Health Administration POTW Publicly Owned Treatment Works ppm Parts per million RFP Request For Proposal RWQCB Regional Water Quality Control Board SARFPA Santa Ana River Flood Protection Agency SARI Santa Ana River Inceptor SARWQCB Santa Ana Regional Water Quality Control Board Glossary of Terms and Abbreviations SAWPA Santa Ana Watershed Project Authority SCADA Supervisory Control and Data Acquisition system SCAP Southern California Alliance of Publicly Owned Treatment Works SCAQMD South Coast Air Quality Management District SOCWA South Orange County Wastewater Authority SSMP Sanitary Sewer Management Plan SSO Sanitary Sewer Overflow SWRCB State Water Resources Control Board TDS Total Dissolved Solids TMDL Total Maximum Daily Load TSS Total Suspended Solids WDR Waste Discharge Requirements WEF Water Environment Federation WERF Water Environment Research Foundation Activated-sludge process — A secondary biological wastewater treatment process where bacteria reproduce at a high rate with the introduction of excess air or oxygen, and consume dissolved nutrients in the wastewater. Biochemical Oxygen Demand (BOD)—The amount of oxygen used when organic matter undergoes decomposition by microorganisms. Testing for BOD is done to assess the amount of organic matter in water. Biosolids — Biosolids are nutrient rich organic and highly treated solid materials produced by the wastewater treatment process. This high-quality product can be recycled as a soil amendment on farm land or further processed as an earth-like product for commercial and home gardens to improve and maintain fertile soil and stimulate plant growth. Capital Improvement Program (CIP) — Projects for repair, rehabilitation, and replacement of assets. Also includes treatment improvements, additional capacity, and projects for the support facilities. Coliform bacteria—A group of bacteria found in the intestines of humans and other animals, but also occasionally found elsewhere used as indicators of sewage pollution. E. coli are the most common bacteria in wastewater. Collections system — In wastewater, it is the system of typically underground pipes that receive and convey sanitary wastewater or storm water. Certificate of Participation (COP) — A type of financing where an investor purchases a share of the lease revenues of a program rather than the bond being secured by those revenues. Contaminants of Potential Concern (CPC) — Pharmaceuticals, hormones, and other organic wastewater contaminants. Dilution to Threshold (DR) — the dilution at which the majority of the people detect the odor becomes the D(f for that air sample. Glossary of Terms and Abbreviations Greenhouse gases — In the order of relative abundance water vapor, carbon dioxide, methane, nitrous oxide, and ozone gases that are considered the cause of global warming ("greenhouse effect'). Groundwater Replenishment (GWR) System — A joint water reclamation project that proactively responds to Southern California's current and future water needs. This joint project between the Orange County Water District and the Orange County Sanitation District provides 70 million gallons a day of drinking quality water to replenish the local groundwater supply. Levels of Service (LOS)—Goals to support environmental and public expectations for performance. NOMA— N-Nitrosodimethylamine is an N-nitrosoamine suspected cancer-causing agent. It has been found in the Groundwater Replenishment System process and is eliminated using hydrogen peroxide with extra ultra-violet treatment. National Biosolids Partnership (NBP) — An alliance of the National Association of Clean Water Agencies (NACWA) and Water Environment Federation (WEF), with advisory support from the U.S. Environmental Protection Agency (EPA). NBP is committed to developing and advancing environmentally sound and sustainable biosolids management practices that go beyond regulatory compliance and promote public participation in order to enhance the credibility of local agency biosolids programs and improved communications that lead to public acceptance. Plume—A visible or measurable concentration of discharge from a stationary source or fixed facility. Publicly-owned Treatment Works (POTW)— Municipal wastewater treatment plant. Santa Ana River Interceptor (SARI) Line — A regional brine line designed to convey 30 million gallons per day (MGD) of non-reclaimable wastewater from the upper Santa Ana River basin to the ocean for disposal, after treatment. Sanitary sewer — Separate sewer systems specifically for the carrying of domestic and industrial wastewater. Combined sewers carry both wastewater and urban run-off. South Coast Air Quality Management District (SCAQMD) — Regional regulatory agency that develops plans and regulations designed to achieve public health standards by reducing emissions from business and industry. Secondary treatment — Biological wastewater treatment, particularly the activated-sludge process, where bacteria and other microorganisms consume dissolved nutrients in wastewater. Sludge—Untreated solid material created by the treatment of wastewater. Total suspended solids (TSS)—The amount of solids floating and in suspension in wastewater. Trickling filter — A biological secondary treatment process in which bacteria and other microorganisms, growing as slime on the surface of rocks or plastic media, consume nutrients in wastewater as it trickles over them. Urban runoff — Water from city streets and domestic properties that carry pollutants into the storm drains, rivers, lakes, and oceans. Wastewater—Any water that enters the sanitary sewer. Watershed —A land area from which water drains to a particular water body. OCSD's service area is in the Santa Ana River Watershed. ADMINISTRATION COMMITTEE Meeting Date TOBd.of Dir. 02/13/13 02/27/13 AGENDA REPORT ItemNumber Item Number z Orange County Sanitation District FROM: James D. Ruth, General Manager Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: PROPOSED FIVE-YEAR SEWER SERVICE USER FEE SCHEDULE GENERAL MANAGER'S RECOMMENDATION Adopt Ordinance No. OCSD-XX, an Ordinance of the Board of Directors of Orange County Sanitation District Establishing Sanitary Sewer Service Charges and Repealing Ordinance No. OCSD-35: ADOPTING REVISED TABLE A RE RESIDENTIAL USER FEES AND REVISED TABLE B PROPERTY USE CLASSIFICATIONS A. Motion to read Ordinance No. OCSD-XX by title only and waive reading of said entire ordinance on February 27, 2013. B. Motion to introduce Ordinance No. OCSD-XX, and pass to second reading and public hearing on March 27, 2013. SUMMARY At the December 2012 Operations and Administration Committee meetings and the December 2012 Board meeting, staff presented a proposed financing plan in support of the Sanitation District's operations. The financing plan addressed the Sanitation District's operating and capital programs for the period covering FY 2013-14 through FY 2020-21. On December 19, 2012, the Board gave direction to staff to issue proposed rate adjustment notices to affected rate payers in compliance with Proposition 218 requirements. The net effect of adopting this financing plan and subsequent five-year rate ordinance will be to increase annually the single family residential rate (SFR), the basis for all sewer service charges, 4.8 percent on July 1, 2013, followed by annual increases of 2.4%for the next four years. cWe \yadenZestlpWM1OCSD OWinance,u m 1oN W.ocsa05,dm aeheed: OW4W Page 1 of 4 ANNUAL OCSD RESIDENTIAL USER FEE FISCAL YEAR 20013-14 2014-15 2015-16 2016-17 2017-18 SFR* $308.00 $316.00 $323.00 $331.00 $339.00 MFR** $215.60 $221.20 $226.10 $231.70 $237.30 SFR = SINGLE FAMILY RESIDENTIAL MFR = MULTI FAMILY RESIDENTIAL *The SFR fee is the underlying rate for all other OCSD sewer service user fees. **The MFR is 70 percent of the SFR rate times the number of units. ADDITIONAL INFORMATION The Board of Directors last adopted a five-year rate plan in 2008 to support its $2.0 billion capital improvement and rehabilitation, refurbishment and replacement program and operational activities. During this period, annual rate increases of 10percent were required to support larger construction efforts, specifically for the completion of Full Secondary and Groundwater Replenishment System (GWRS) projects. Now that these larger construction projects are complete, the Sanitation District will change its focus to rehabilitation and refurbishment efforts, the general maintenance of assets and ongoing operations. The cost adjustments associated with these efforts are primarily inflationary in nature. As a result, increases at the 10 percent level are no longer required, only increases that align with inflation. Based on projected inflationary costs, staff is recommending rate adjustments of 4.8 percent effective July 1, 2013, followed by annual increases of 2.4 percent for the next four years where increases to the SFR rate will be approximately $8 per year. This revenue plan represents a balanced approach that implements a strategy of no additional debt issuances, prudent reduction of reserves and achieving various operational efficiencies of more than $15 million per year. Without the use of reserves and cost saving measures, additional rate increases would have been required. Staff believes that, while the reduction in reserves is warranted at this time, this reduction will result in reserve levels below that required by Sanitation District Reserve Policy and will require Board action to revise it. Without a Board action (by 2/3 majority), the Single Family Residential (SFR) rate will remain at the current $294 per year. The proposed rate adjustment will generate approximately $150 million in revenue over the next five years. If the rates are not adjusted to cover inflationary increases and maintenance costs, cuts to projects and programs resulting in service level reduction may be required. Additionally, most of the Sanitation District's revenues are user fees listed on and collected through the County property tax bill. As we receive payments through eight apportionments from December through June, we hold funds in reserve specifically to pay operating and capital expenses during the "dry" period (July-November). Reducing cWe \yadenZestl pWM1O SD OWinance Wm 10 W.o Ss 35dw aeweed: 0"4M Page 2 of 4 reserve levels to mandatory minimum level would leave no funds to address payment of expenditures during the "dry" period. It is estimated that without the proposed five-year rate adjustments, 13 percent annual increases for the following four years would be required for reserve levels to be in compliance with the Board-approved policy. Alternatives using reserves By policy, operational need and legal requirement, the Sanitation District maintains a specified level of reserves. To address the consideration of using those reserves to avoid any rate adjustment, staff has identified additional alternatives that use OSCD reserves: 1) Proposed Rate Adjustment Schedule This proposed schedule includes a 4.8% rate increase effective July 1, 2013 followed by four annual increases of 2.4%. Rates would increase by $14 in the first year and $8 each of the next four years. This schedule has been presented to the Committees and the Board. Under this plan, the Capital Improvement Program (CIP) is funded at its current recommended levels and service levels are maintained. However, reserves are reduced from $600 million to $495 million at the end of the five years. 1a) Equal Annual Five-Year Rate Adjustment This rate schedule includes annual rate increases of 2.4% for each of the five years. Under this plan, the Capital Improvement Program (CIP) is funded at its current recommended levels and service levels are maintained. However, reserves are reduced from $600 million to $455 million at the end of the five years, dropping to a level that has been reached only twice since 2000. This would also be below the figure determined by the Sanitation District's current Reserve Policy. The Board would need to take action to change the policy. Annual 4.5% rate increases would be required for the next four years to return reserves to the approved-policy levels. 2a) No Rate Increases during the Five Year Period —Subsequent Rate Adjustment If no rate increase is adopted, the Sanitation District will reach the reserve level required by bond covenants and other requirements at the end of the five-year period. However, by the end of the third year, reserves would drop to pre-2000 levels. By the end of the fifth year, annual 6% rate increases would be required for the next four years to maintain mandatory minimum reserve levels. However, this increase would only maintain the reserve level stated above. OCSD would effectively have zero operational reserves. There would be no funds for the "dry" period between apportionments from the County and no funds for a "Catastrophic Loss". Annual 13% rate increases would be required for the next four years to return reserves to the approved-policy levels. cWe \yadenMestl pWM1O SD OWinance Wm 10 W.o Sa 35dw aeheed: OM4W Page 3 of 4 2b) No Rate Increase during the Five Year Period —Service Level Reduction If no rate increase is adopted, to delay the reserve level dropping below the level required by bond covenants and other requirements, the Sanitation District would have to cut $100 million in projects out of the Capital Improvement Program and increase rates by 2.5% for four years after the initial five-year rate program. However, this increase would only maintain the reserve level stated above. OCSD would effectively have zero operational reserves. There would be no funds for the "dry" period between apportionments from the County and no funds for a "Catastrophic Loss". Annual 9.5% rate increases would be required for the next four years to return reserves to the approved-policy levels. Based on the review of the above-stated options, staff continues to recommend the proposed rate plan. Alternatives 1a, 1b and 1c are not recommended. Each of these alternatives would result in reserve levels dropping below the level designated in the Board-approved Reserves Policy. More important, without large future rate increases, there would be insufficient funds to address catastrophic loss, "dry" revenue periods, or other anticipated expenses. These reserve levels also would likely result in a reduction of the Sanitation District's AAA bond rating. Schedule for Implementing Sewer Service Fee Increase 1" Reading of Fee Ordinance February 27, 2013 2nd Reading, Public Hearing, &Adoption of Fee Ordinance March 27, 2013 Ordinance is effective in 30 days, or in the new fiscal year July 1, 2013 Fees per parcel due to County Auditor-Controller August 12, 2013 ATTACHMENTS 1. Orange County Sanitation District Reserve Policy Summary 2. Agency Sewer Service User Fee Comparison Chart cWe \yadenZestl pWM1O SD OWinance Wm 10 W.o Ss 35dw aeheed: OW4W Page 4 of 4 Return to Agenda Report The Committee asked if OCSD's reserve were funded to an adequate level OCSD has a Board Reserve Policy that sets forth seven criteria to be used to determine its reserve level. As part of the OCSD financial and operating process,we have developed a Reserve Policy which governs the establishment of our reserve level and the use of those funds. To ensure an adequate and diverse reserve policy,we have established seven different criteria. These are not seven different reserves, but seven criteria used to set the total reserve level. Reserves can only use used with the approval of the Board. Below is a brief summary of the OCSD Reserve Criteria. Reserve Polity Summary 1) Debt Covenants and Other Requirements—Required by OCSD bondholders—$175 million—RESTRICTED This level is set by various bond covenants. As OCSD issues debt, it is required to maintain certain levels of reserves held specifically for repayment of that debt and cannot be reduced or used prior to repayment of all outstanding debt issuances. 2) "Dry Period—Property Tax Payments—Operating Costs The largest portion of OCSD revenues are user fees,approximately$300 million. These fees are listed on and collect through the County property tax bill. Since we receive payments twice each year,we hold funds in reserve specifically to pay operating expenses pending receipt of those payments. 3) "Dry Period"—Property Tax Payments—Debt Service Costs The largest portion of OCSD revenues are user fees,approximately$300 million. These fees are listed on and collect through the County property tax bill. Since we receive payments twice each year,we hold funds in reserve specifically to pay debt service pending the receipt of those payments. 4) Operating Budget—10%of the total Operating Budget as a Contingency We hold ten percent of our operating budget as an operating contingency for non-recurring and unanticipated expenditures. 5) Capital Improvement Budget—5%of the total$2 billion Program OCSD is beginning a ten-year, $2 billion Capital Improvement effort. We hold the equivalent of 5%of that total as a contingency specifically related to these Capital Improvement Program efforts. 6) Rehabilitation and Refurbishment In 2002,OCSD established a reserve level related to rehabilitation efforts at$50 million based on the rehabilitation or replacement costs at that time. Although the total costs for rehabilitation or replacement has increased substantially since 2002 as a result of the move to Full Secondary Treatment and the Construction of GWRS,this reserve guideline has only been increases 2%annually,making it potentially under-funded. 7) Catastrophic loss/Self-insurance OCSD is Self-Insured for Catastrophic Loss. $57 million of the District's total reserves are related to holding funds for this category. Although,OCSD now has more than$6 billion in assets,this level has not been increased since its establishment more than 10 years ago,making it potentially under-funded. Current 2012-13 Reserve Policy Requirement $518 million July 1,2012 Beginning of year Reserve Balance $604 million Beginning Balance exceeds Policy as a result of timing of recent Debt Issuance. Ending Balance will more closely align with Reserve Policy Return to Agenda Report Comparison of SFR Rates (July 2012) $700 668 $600 n $500 T o $400 m e $300 $294 0 $200 $249 $0 ~r xxn� We're here M e 90 �WZ ' you. kIM ADMINISTRATION COMMITTEE meeting Date T1.1 IDir. 02/13/13 2/27/13 AGENDA REPORT Item Number Item Number 3 Orange County Sanitation District FROM: James D. Ruth, General Manager Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: PROPOSED FIVE-YEAR INDUSTRIAL FEE SCHEDULE INCREASE GENERAL MANAGER'S RECOMMENDATION Adopt Ordinance No. OCSD-XX, An Ordinance of the Board of Directors of Orange County Sanitation District, ; Adopting Miscellaneous Charges and Fees relating to Industrial Charges, Source Control Permittees and Wastehaulers; and Repealing Article III and Article IV of Ordinance No. OCSD-40: Adopting Revised Table F Re Class I And Class II Permittees and Special Purpose Discharge Permittees Charges For Use and Reaffirming All Other Charges. ADOPTING REVISED TABLE F RE INDUSTRIAL USER FEES A. Motion to read Ordinance No. OCSD-XX by title only and waive reading of said entire ordinance on February 27, 2013. B. Motion to introduce Ordinance No. OCSD-XX, and pass to second reading and public hearing on March 27, 2013. SUMMARY At the December 2012 Operations and Administration Committee meetings and the December 2012 Board meeting, staff presented a proposed financing plan in support of the Sanitation District's operations. The financing plan addressed the Sanitation District's operating and capital programs for the period covering FY 2013-14 through FY 2020-21. On December 19, 2012, the Board gave direction to staff to issue proposed rate adjustment notices to effected rate payers in compliance with Proposition 218 requirements. In January 2013, the Administration Committee received a Wastewater Revenue and Rate Study completed by Carollo Engineers that included the appropriate allocation of costs between and among pollutants (BOD, SS and Flow), including the basis for allocation of non-assignable costs, maintaining a "net cost of service" rate structure for high industrial dischargers (permittees) that is fair and equitable to all rate payers. The rate study did not note any material functional cost allocation change between BOD, SS, and Flow and that it would be fair and equitable to increase each of these cost components by the overall rate increase established by the Board. Rama: 0"4W Page 1 of 2 The net effect of adopting this financing plan and subsequent five-year rate ordinance will be to increase annually all of the Sanitation District's user fees 4.8 percent on July 1, 2013, followed by annual increases of 2.4% for the next four years. ANNUAL INDUSTRIAL USER FEE Class I. Class II and Special Purpose Discharger Rates 2013-14 2014-15 2015-16 2016-17 2017-18 FLOW $1,284.74 $1,315.58 $1,347.15 $1,379.48 $1,412.59 BOD $610.67 $625.33 $640.33 $655.70 $671.44 TSS $649.55 $665.14 $681.10 $697.45 $714.19 (*) Flow per Million Gallons ("*) BOD per Thousand Pounds ("*") SS per Thousand Pounds ADDITIONAL INFORMATION The Board of Directors last adopted a five-year rate plan in 2008 to support its $2.0 billion capital improvement and rehabilitation, refurbishment and replacement program and operational activities. During this period, annual rate increases of 10% were required to support larger construction efforts, specifically for the completion of Full Secondary and Groundwater Replenishment System (GWRS) projects. Now that these larger construction projects are complete, the Sanitation District will change its focus to rehabilitation and refurbishment efforts, the general maintenance of assets and ongoing operations. The cost adjustments associated with these efforts are primarily inflationary in nature. As a result, increases at the 10 percent level are no longer required, only increases that align with inflation. Based on projected inflationary costs, staff is recommending rate adjustments of 4.8 percent effective July 1, 2013, followed by annual increases of 2.4 percent for the next four years on all of the Sanitation District's sewer service user fees. This revenue plan represents a balanced approach that implements a strategy of no additional debt issuances, prudent reduction of reserves and achieving various operational efficiencies of more than $15 million per year. Without the use of reserves and cost saving measures, additional rate increases would have been required. Staff believes that, while the reduction in reserves is warranted at this time, this reduction will result in reserve levels below that required by Sanitation District Reserve Policy and will require Board action to revise it. ATTACHMENTS N/A JDR:LT:MW:AB Rew� 0"4,03 Page 2 of 2 ADMINISTRATION COMMITTEE Meeting Date TOBA.Or .Dir. 02/13/13 02/27/13 AGENDA REPORT IemNumber Item Number a Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance &Administrative Services SUBJECT: CONSIDERATION OF BUDGET ASSUMPTIONS AND BUDGET CALENDAR FOR PREPARATION OF THE FY 2013-14 BUDGET UPDATE. GENERAL MANAGER'S RECOMMENDATION Approve the FY 2013-14 budget assumptions and direct staff to incorporate these parameters in preparing the FY 2013-14 budget update. SUMMARY For the budget update process, the Administration Committee establishes the Budget Assumptions and approves the Budget Calendar. Staff will make a brief presentation at the Committee meeting. PRIOR COMMITTEE/BOARD ACTIONS None. ADDITIONAL INFORMATION Currently, there are no proposed changes to the District Fiscal Policy. The Fiscal Policy is published in the FY 2012-13 and 2013-14 Budget document (Section 3, Pages 1-8), and is available on the Sanitation District's website. CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS 1. Preliminary Budget Assumptions Highlights (Pages 2-6) 2. Budget Update Calendar (Pages 7-9) JR:LT:MW:jf Page 1 of 9 Return to Agenda Report FY 2013-14 Preliminary Budget Assumptions Economic Assumptions • Inflation for Orange County in FY 2013-14 is projected to be 2.8 percent based on the 2013 projected percentage change in consumer price index obtained from the November 2012 Economic and Business Review report prepared by Chapman University. This approximates the 2.9 percent inflation factor that was used in the FY 2013-14 budget. Revenue Assumptions • Year 1 of the recently proposed five-year Sewer Service Fee Rate Schedule that will be presented to the Board for ratification in April 2013. • A Proposition 218 rate increase notification will be required to be mailed to all Revenue Areas except 14 regarding the new proposed rate schedule. • Staff is proposing a 4.8 percent increase to the single-family residence (SFR) annual rate to $308 in FY 2013-14. • Note that each $1 increase in the SFR rate generates approximately$900,000 per year. • The capital facilities capacity charge (CFCC) fee captures only those infrastructure costs that relate to additional capacity. Other infrastructure costs such as improved treatment, rehabilitation, refurbishment, and replacement, will be supported through user fees. • With the new Facilities Master Plan adopted in December 2009, a new CFCC rate study was completed in April 2010 to ensure that the CFCC fee methodology remains equitable and to confirm that an appropriate share of system costs would be recovered from new development. • Revenues will be budgeted to reflect small growth in Equivalent Dwelling Unit (EDU) connections that have remained flat over the past five years. • Permit user rates for flow, Biochemical Oxygen Demand (BOD) and Total Suspended Solids (TSS) will follow the most recent Rate Study completed in January 2013. • Annexation fees capture both the net current assets and the equivalent property tax allocations totaling $4,235 per acre. • Annexable property in the District's service area sphere is minimal; consequently, no FY 2013-14 income from annexation fees is anticipated. • Property tax revenues of$64,025,000 are proposed to remain unchanged from FY 2012-13. Although an annual increase in Assessed Value of 2% or CPI, whichever is less, is authorized by the state constitution, CPI is expected to remain flat. Assessed valuations are believed to have bottomed out from the most recent economic recession and are anticipated to remain flat through FY 2013-14. • Earnings on the investment of the District's operating cash and reserves will be budgeted at 1.0% of the average cash and investment balance projected for the fiscal year. • No"new money' debt issuance is scheduled for FY 2013-14. Page 2 of 9 Return to Agenda Report FY 2013-14 Preliminary Budget Assumptions Operating Assumptions • Dry weather urban run off up to 4 mgd will continue to be treated at no charge. Above this threshold, there is a charge of$1,440.42 per mgd up to a maximum of 10 mgd permitted. • Operating expenses are expected to be up to $4 million, or 3 percent less than the adopted FY 2013-14 budget of$156,434,870. • All secondary treatment facilities are completed and fully operational. • Average daily flow for FY 2013-14 is projected to be 208 mgd. This projection reflects an expected increase of 2% per year based on increased economic activity and the potential for moderate rainfall. The FY 2013-14 flow projection is 6 mgd above the actual for the first six months of the current year. The final actual flow for FY 2011-12 was 201 mgd. Employee/Staffing Assumptions • Staffing level is expected to remain flat. The total FY 2013-14 authorization level is 627.75 FTEs. • Vacant positions as of 12/31/12 are budgeted at 50 percent of step 1 for the remainder of FY 2012-13 and at 100 percent of step 2 for FY 2013-14. • New positions will be projected at 100 percent of step 1 for FY 2013-14. • A 3% vacancy factor on authorized positions has been budgeted for FY 2013-14. The actual vacancy factor for 2011-12 was 7.65%. This vacancy factor accounts for time spent for recruitment and turnover. • The Memorandum of Understanding (MOU) for the Supervisor and Professional (SPMT) group will expire June 30, 2013. Pending the completion of the negotiation process, no salary adjustments will be included in the budget (neither COLA nor for step increases) for periods beyond the expiration of the current MOU. • The MOUs for both OCEA and Local 501 will expire June 30, 2014. Salary adjustments based on the current MOUs for OCEA and Local 501 include range adjustments of 2.0 percent and 2.5 percent, respectively, as of the first pay period beginning in July of FY 2013- 14. Additionally, employees within OCEA and Local 501 bargaining units not already at the top step will be budgeted to receive a 5.0 percent step/range increases in FY 2013-14. • Pending the completion of the negotiation process, no salary adjustments will be included in the budget (neither for COLA nor for step increases) for periods beyond the expiration of current MOUs. • FY 2013-14 retirement costs for employees enrolled in Orange County Employees Retirement System (OCERS) Plans G and H are estimated at a rate of 31.95 percent, of the employee's based salary, up from 27.47 percent in FY 2012-13. The rates for plan Plans G and H include the District's pickup of 3.5 percent of employees' required contributions. Employees enrolled in OCERS Plan B are estimated at a rate of 30.77 percent of the employee's base salary, up from 26.69 in FY 2012-13. All employees hired on or after January 1, 2013 are enrolled in OCERS Plan U and are estimated at a rate of 24.89 Page 3 of 9 Return to Agenda Report FY 2013-14 Preliminary Budget Assumptions percent. Interns are not enrolled in OCERS so their retirement benefits are calculated at 6.2 percent(FICA rate). • Medical and dental insurances will be budgeted to increase 11 percent and 8 percent, respectively, based on insurance industry trends. The cost for vision care insurance is expected to be unchanged. A moderate but yet to be determined increase for life and disability insurances will be budgeted for FY 2013-14. Materials, Supplies, &Services Assumptions • The proposed operating budget will continue to reflect an emphasis on safety, technical, and management training. In FY 2013-14, the training budget will be based on recent actual costs rather than on a percentage of regular salaries and wages. • An amount equal to half of one percent of the operating materials and supplies budget will be a contingency for prior year re-appropriations. Since the current year's budget lapses on June 30, a contingency is needed in the succeeding budget year for goods or services ordered at the end of one budget year but not delivered until the following year. • An amount equal to one half of one percent of the operating materials and supplies budget will be the General Manager's contingency budget. These funds will be allocated to appropriate line items during the year after requests and justifications for unanticipated needs are approved by the General Manager. • Resource needs for strategic initiatives will be included in the budget. Capital Improvement Program Assumptions • The FY 2013-14 cash flow budget is based on the Validated Capital Improvement Program (CIP) is the target. • The baseline CIP cash flow for FY 2013-14 is$156.3 million. • Continual evaluation of the CIP by the Asset Management Team may result in deferral or reduction of some projects and a resultant increase in O&M repair costs for materials and services, if the net cash flow impact is a decrease. • The FY 2013-14 CIP budget will only increase for critical projects which were not previously identified in the Strategic Plan Update. • It is anticipated that 85% of the FY 2012-13 CIP budget will be expended by June 30, 2013. Debt Financing • The District will issue new debt in the form of COPS as needed to fund the CIP and to maintain reserves. • No additional "new money" debt issuance is scheduled for FY 2013-14. • Debt will only be used for CIP and capital expenses, not for operating expenses. • Capital financing plans over the next five years include no future borrowings. Page 4 of 9 Return to Agenda Report FY 2013-14 Preliminary Budget Assumptions • Borrowing is proposed only for facilities which do not add capacity and that are funded by all users for replacement, rehabilitation, and improved treatment. Reserve Assumptions • The current reserve policy was reviewed by Public Resources Advisory Group and the Board during FY 2003-04. No changes were proposed and direction was given to continue to maintain reserve levels at a level that is adequate to offset exposure to variable rate COPs due to interest rate increases. • The current reserve policy is summarized as follows: ► A cash flow reserve will be established to fund operations, maintenance and certificates of participation expenses for the first half of the fiscal year, prior to receipt of the first installment of the property tax allocation and sewer service user fees which are collected as a separate line item on the property tax bill. The level of this reserve will be established as the sum of an amount equal to six months operations and maintenance expenses and the total of the annual debt (COP) service payments due in August each year. ► An operating contingency reserve will be established to provide for non-recurring expenditures that were not anticipated when the annual budget and sewer service fees were considered and adopted. The level of this reserve will be established at an amount equal to ten percent of the annual operating budget. ► A capital improvement reserve will be maintained to fund annual increments of the capital improvement program. The long-term target is for one half of the capital improvement program to be funded from borrowing and for one half to be funded from current revenues and reserves. With this program in mind, the target level of this reserve has been established at one half of the average annual capital improvement program through the year 2020. ► Catastrophic loss, or self-insurance, reserves will be maintained for property damage including fire, flood and earthquake, for general liability and for workers' compensation. These reserves are intended to work with purchased insurance policies, FEMA disaster reimbursements and State disaster reimbursements. The potential infrastructure loss from a major earthquake has been estimated at $1.3 billion. The level of this reserve has been set to fund the District's non-reimbursed costs, estimated to be$57 million. ► Accumulated capital funds will be set aside for certain specific, short-term capital improvements as the need and availability arise. ► A capital replacement/renewal reserve policy has been established to provide thirty percent of the funding to replace or refurbish the current collection, treatment and disposal facilities at the end of their useful economic lives. The FY 2011-12 Asset Management Plan as estimated the current replacement value of the collection facilities to be $3.14 billion and for the treatment and disposal facilities to be $3.12 billion. The initial reserve level has been established at $50 million, which will be augmented by interest earnings and a small portion of the annual sewer user fee, in order to meet projected needs through the year 2030. Page 5 of 9 Return to Agenda Report FY 2013-14 Preliminary Budget Assumptions ► Provisions of the various certificates of participation (COP) issues require debt service reserves to be under the control of the Trustee for that issue. These reserve funds are not available for the general needs of the District and must be maintained at specified levels. The current level of required COP service reserves is projected to be$228.7 million. ► Accumulated funds exceeding the levels specified by District policy will be maintained in a rate stabilization fund. These funds will be applied to future years' needs in order to maintain rates or to moderate annual fluctuations. There is no established target for this reserve. Page 6 of 9 Return to Agenda Report FY 2011-12 Budget Update Calendar Tasks Responsibility Event/Due Date PHASE I—BUDGET PREPARATION Preliminary Budget Assumptions Identified Financial Planning 12/04/12 Preliminary Budget Assumptions Presented to MT Financial Planning 12/06/12 Draft Budget Calendar Presented to MT Financial Planning 12/06/12 CIP—Final Project Submittals to Project Clearinghouse CIP Budget 12/06/12 for Inclusion in New Budget Coordinators Preliminary Budget Assumptions Presented to EMT Financial Planning 12/10/12 Draft Budget Calendar Presented to EMT Financial Planning 12/10/12 CIP—New Project Recommendations to EMT Project Clearinghouse 12/10/12 CIP—Database, Forms& Instruction Manual Developed CIP Process Team 01/07/13 CIP—CIP Database Opened for Input Financial Planning 01/14/13 CIP - Budget Preparation Training CIP Database Financial Planning As needed CIP—New Project"Go/No Go" Decisions EMT 01/14/13 Preparation for Budget Kickoff/Training Session: Financial Planning 01/17/13 • Develop line item worksheets with adopted FY13/14 budget • Prepare/update budget instruction manual Budget Kickoff/Training Session: Financial Planning 01/24/13 • Distribute budget manual update • Conduct budget training session • Describe budget worksheet data required for each division CIP Validation Completed Engineering Planning 1/22/13 Operating Divisional Budgets: New Position Decision Divisional Budget 02/07/13 Packages, Equity Adjustment/ Position Reclassification Coordinators Decision Packages, and Position Upgrade Decision Packages Due to Human Resources (Richard Spencer, Ext. 7164)with copies to Financial Planning (John Ralston, Ext. 7568 Capital Equipment Budget: Vehicle Capital Equipment Divisional Budget 02/07/13 Decision Packages Due to Fleet Services (Chuck Coordinators Forman, Ext. 7867) Computer Equipment Decision Packages Due to Divisional Budget 02/07/13 Information Technology (Rich Castillon, Ext. 7283) Coordinators Budget Assumptions Presented to Admin Committee Financial Management 02/13/13 Mid-Year Financial Report to Admin Committee Financial Management 02/13/13 Page 7 of 9 Return to Agenda Report FY 2011-12 Budget Update Calendar Tasks Responsibility Event/Due Date Division Budget Update Packages Due to Finance: Divisional Budget 02/15/13 • Update 2012-13 projected costs Coordinators • Proposed operating costs for 2013-14 • Operating Budget Expense Detail • Preliminary Contractual Material & Services Form • Capital equipment decision Packages (other than computer and vehicle decision packages which were due on 02107/13) • New program decision packages (Financial Planning will compile this information into packages for use during the budget review process.) Complete the Compilation of the Preliminary Division Financial Planning 02/20/13 Budget Update Packages Mid-Year Financial Report to Board Financial Management 02/27/13 CIP—Project Request with Project Information Entered CIP Budget 03/01/13 in CIP Database Completed Coordinators CIP—New Project Numbers Assigned Engineering Planning 03/01/13 CIP—Completed CIP Budget Delivered to Finance CIP Budget 03/08/13 Coordinators Department Budgets—Update the department text from Department Budget 03/08/13 the Executive Summary: Coordinator o General Manager, pages 20—21 o Human Resources, pages 22—23 o Administrative Services, pages 24—25 o Facilities Support Services, pages 26—27 o Engineering, pages 28-29 o O&M, pages 30—31 PHASE II -BUDGET REVIEW CIP - Review Workshop Financial Planning & 01/11/13 Department Heads CIP - Resource Availability Review Engineering & O&M 01/28/13 Divisional Budgets- Distribution of Preliminary Line Item Financial Planning 02/28/13 Requested Budget Updates to Department Heads and Managers along with Analysis/Questions for Review CIP—Committee Review—CURentCIPPerformance Operations Committee 03/06/13 Review Operating Budget- Budget Review Meetings with Financial Planning & 03/04/13-03/07/13 Finance and Department Representatives Department Representatives Operating Budget— Information on Position Upgrades & Human Resources 03/08/13 Reclassifications Submitted to the General Manager Page 8 of 9 Return to Agenda Report FY 2011-12 Budget Update Calendar Tasks Responsibility Event/Due Date Operating Budget— Recommendations to General Financial Planning 03/11/13 Manager Final Operating Budget—General Manager Review of Financial Planning, GM, 03/14/13-03/19/13 Budget Update Recommendations & Department Heads CIP—General Manager and Designee(s)Approval General Manager 03/21/13 CIP Schedules Through 2020 Completed Financial Planning 04/04/13 PHASE III-BUDGET PRESENTATION CIP—Operations Committee Review of FY 2013-14 Engineering 04/03/13 Budget Operating Budget— Presentation of Preliminary Budget Financial Planning 04/08/13 Update by Division/Department to EMT Operating Budget Update—Overview to Administration Financial Planning 04/10/13 Committee CIP - Final CIP Budget Document Preparation and Financial Planning 04/15/13 Incorporation into Final Budget Document Initial - Proposed Budget Update Finalized Financial Planning 04/22/13 Initial—Proposed 2013-14 Budget Update Presented to CIP— Engineering Ops—05/01/13 Committees Operating — Finance Admin—05/08/13 General Managers Budget Message Completed GM/ Financial Planning 05/08/13 Approval of General Manager's Budget Message General Manager 05/13/13 Final - Proposed Budget Update to Printer Financial Planning 05/16/13 PHASE IV-BUDGET DELIBERATIONS Final Draft- Proposed 2013-14 Budget Update Financial Planning Ops—06/05/13 Presented to Committees Admin—06/12/13 Public Hearing & Board Adoption Board of Directors 06/26/13 PHASE V—DISTRIBUTION OF BUDGET Final line item budget and equipment budgets posted in Financial Planning 07/12/13 H:\ntglobal Page 9 of 9