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HomeMy WebLinkAbout10-12-2016 Administration Committee Meeting Agenda Orange County Sanitation District Wednesday, October 12, 2016 Regular Meeting of the 5:00 P.M. ADMINISTRATION - Administration Building COMMITTEE Board Room 10844 Ellis Avenue w` Fountain Valley, CA 714 693-7433 AGENDA CALL TO ORDER: PLEDGE OF ALLEGIANCE: DECLARATION OF QUORUM: (Clerk of the Board) PUBLIC COMMENTS: If you wish to address the Committee on any item, please complete a Speaker's Form (located at the table outside of the Board Room) and submit it to the Clerk of the Board or notify the Clerk of the Board the item number on which you want to speak. Speakers will be recognized by the Chairman and 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: The Consent Calendar Items are considered to be routine and will be enacted, by the Committee, after one motion, without discussion. Any items withdrawn from the Consent Calendar for separate discussion will be considered in the regular order of business. 1. APPROVAL OF MINUTES (Clerk of the Board) RECOMMENDATION: Approve Minutes of the September 14, 2016 Administration Committee Meeting. 10112J16 Administration Committee Agenda Page 1 of 4 2. TEMPORARY EMPLOYMENT SERVICES (Celia Chandler) RECOMMENDATION: Recommend to the Board of Directors to: A. Authorize the General Manager to enter into contracts with various staffing firms for Temporary Employment Services (Specification No.CS-2009- 421 BD); and B. Authorize the General Manager to add or remove staffing firms from the available pool as needed, to meet work requirements identified by the Human Resources Department, with no change to the approved total budget, at a cost not to exceed $814,400. 3. DEFERRED COMPENSATION PROGRAM UPDATE (Celia Chandler) RECOMMENDATION: Recommend to the Board of Directors to: A. Adopt Resolution No. OCSD 16-XX, entitled: "A Resolution of the Board of Directors of the Orange County Sanitation District Acknowledging the Change in Title of the Current Deferred Compensation Plan Administrator to Voya Financial Services and Authorizing Voya Financial Services to Continue Serving as Plan Administrator of the Deferred Compensation Plan for Officers and Employees of the Orange County Sanitation District; and, Repealing Resolution No. OCSD 09-02"; and B. Authorize the General Manager, or his designee, to execute all documents necessary to effect said Deferred Compensation Plan, in a form approved by General Counsel. 4. RENEWAL OF ESRI GIS ENTERPRISE LICENSE AGREEMENT (Lorenzo Tyner) RECOMMENDATION: Authorize the renewal of the Sole Source ESRI GIS Enterprise License Agreement for a two-year period commencing December 31, 2016 through December 30, 2018 for a total amount not to exceed $191,000. NON-CONSENT: 5. CONTRACTED INTERNAL AUDIT OF CAPITAL IMPROVEMENT PROJECT CONTRACTS (Lorenzo Tyner) RECOMMENDATION: Recommend to the Board of Directors to: Receive and file the Accountants' Report on Agreed-Upon Procedures Review on Capital Improvement Project Contracts. 10/12/16 Administration Commiftee Agenda Page 2 of 4 6. INVEST AND/OR REINVEST DISTRICT'S FUNDS (Lorenzo Tyner) RECOMMENDATION: Recommend to the Board of Directors to: Adopt Resolution No. OCSD 16-XX, entitled: "A Resolution of the Board of Directors of the Orange County Sanitation District,Authorizing the District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks; and Repealing Resolution No. OCSD 15-25." 7. ELIMINATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITY WITHIN THE ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM (Lorenzo Tyner) RECOMMENDATION: Recommend to the Board of Directors to: Direct staff to pay off the Orange County Sanitation District's unfunded actuarial accrued pension liability (UAAL) in its defined pension plan administered by the Orange County Employees Retirement System (OCERS) in an amount not to exceed $40 million. INFORMATION ITEMS: 8. ORANGE COUNTY SANITATION DISTRICT BIOSOLIDS PROGRAM (James Colston) CLOSED SESSION: None. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: ADJOURNMENT: The next Administration Committee meeting is scheduled for Wednesday, November 9, 2016 at 5:00 p.m. 10112J16 Administration Committee Agenda Page 3 of 4 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)593-7433 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 majority of the Board of Directors,are available for public inspection in the office of the Clerk of the Board. Agenda Description: The agenda provides a brief general description of each item of business to be considered or discussed. The recommended action does not indicate what action will be taken. The Board of Directors may take any action which is deemed appropriate. 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. Kelly A.Lore Clerk of the Board (714)593-7433 klore(a)ocsd.com For any questions on the agenda, Committee members may contact staff at: General Manager James Herberg (714)593-7300 iherberatt0csd.com Assistant General Manager Bob Ghirelli (714)593-7400 rohirelliamsd.com Director of Finance and Lorenzo Tyner (714)593-7550 Itvner0ocsd.com Administrative Services Director of Human Resources Celia Chandler 714 593-7202 cchandler ocsd.com 10/12/16 Administration Commiftee Agenda Page 4 of 4 ITEM NO. 1 MINUTES OF THE ADMINISTRATION COMMITTEE Orange County Sanitation District Wednesday, September 14, 2016 at 5:00 P.M. A regular meeting of the Administration Committee of the Orange County Sanitation District was called to order by Committee Chair Curry on September 14, 2016 at 5:00 p.m. in the Administration Building of the Orange County Sanitation District. Director Katapodis led the Flag Salute. A quorum was declared present, as follows: COMMITTEE MEMBERS PRESENT: STAFF PRESENT: Keith Curry, Chair Jim Herberg, General Manager Lucille Kring, Vice-Chair Bob Ghirelli, Assistant General Manager Steven Choi Celia Chandler, Director of Human Resources Jim Ferryman Jim Colston, Director of Environmental Services Jim Katapodis Rob Thompson, Director of Engineering Peter Kim Lorenzo Tyner, Director of Finance & Greg Mills Administrative Services Joy Neugebauer Kelly Lore, Clerk of the Board Teresa Smith Jennifer Cabral John Nielsen, Board Chair Al Garcia Greg Seboum, Board Vice-Chair Randy Kleinman Mark Manzo COMMITTEE MEMBERS ABSENT: Laura Maravilla Glenn Parker Gerry Matthews Sal Tinajero George Rivera Richard Spencer Warren Sternin Mike White OTHERS PRESENT: Brad Hogin, General Counsel PUBLIC COMMENTS: None. REPORT OF COMMITTEE CHAIR: Committee Chair Curry did not provide a report. 09/14/2016 Administration Committee Minutes Page 1 of 6 REPORT OF GENERAL MANAGER: General Manager Jim Herberg did not provide a report. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: Director of Finance and Administrative Services Lorenzo Tyner reported that an RFP for as needed investment advisory services was recently completed and the incumbent, Callen Associates, was selected. Mr. Tyner also briefly reported on the status of the District's unfunded liability and stated that he will be providing a full report in the near future. CONSENT CALENDAR: 1. APPROVAL OF MINUTES (Clerk of the Board) MOVED, SECONDED AND DULY CARRIED TO: Approve Minutes of the July 13, 2016 Administration Committee Meeting. AYES: Choi, Curry, Katapodis, Kim, Kring, Neugebauer, Nielsen, and Sebourn NOES: None ABSTENTIONS: Mills ABSENT: Ferryman, Parker, T. Smith and Tinajero 2. GENERAL MANAGER APPROVED PURCHASES (Lorenzo Tyner) MOVED, SECONDED AND DULY CARRIED TO: Recommend to the Board of Directors to: Receive and file District purchases made under the General Manager's authority for the period of April 1, 2016—June 30, 2016. AYES: Choi, Curry, Katapodis, Kim, Kring, Mills, Neugebauer, Nielsen, and Sebourn NOES: None ABSTENTIONS: None ABSENT: Ferryman, Parker, T. Smith and Tinajero 3. REIMBURSEMENTS TO BOARD MEMBERS AND STAFF (ANNUAL) (Lorenzo Tyner) MOVED, SECONDED AND DULY CARRIED TO: Recommend to the Board of Directors to: Receive and file report of reimbursements to Board Members and Staff per Government Code Section 53065.5 for the period of July 1, 2015 through June 30, 2016. 09/14/2016 Administration Committee Minutes Page 2 of 6 AYES: Choi, Curry, Katapodis, Kim, Kring, Mills, Neugebauer, Nielsen, and Sebourn NOES: None ABSTENTIONS: None ABSENT: Ferryman, Parker, T. Smith and Tinajero 4. PRODUCTION STORAGE ARRAY SYSTEM (Lorenzo Tyner) MOVED, SECONDED AND DULY CARRIED TO: Recommend to the Board of Directors to: A. Authorize the purchase of a production storage system to accommodate future system performance and capacity needs with Nimble Storage Array system, using the approved U.S. General Services Agreement (GSA) IT Schedule 70 (M.O. 5/25/16, Item #13) for a total amount not to exceed $284,941.49, in accordance with OCSD Ordinance OCSD-47, Section 2.03(B) Cooperative Purchases; and B. Approve a contingency of$28,494 (10%). AYES: Choi, Curry, Katapodis, Kim, Kring, Mills, Neugebauer, Nielsen, and Sebourn NOES: None ABSTENTIONS: None ABSENT: Ferryman, Parker, T. Smith and Tinajero Director Ferryman arrived at 5:05 p.m. At the request of staff, Committee Chair Curry brought Item No. 7 forward. 7. 2017 BENEFITS INSURANCE RENEWAL (Celia Chandler) Celia Chandler, Director of Human Resources provided a brief introduction of Item No. 7. MOVED, SECONDED AND DULY CARRIED TO: Recommend to the Board of Directors to: Approve the Orange County Sanitation District 2017 benefits insurance renewal for the not-to-exceed amounts specified below: A. Employee Benefit Specialists (medical, dental, and vision plans; Employee Assistance Program)— Not to Exceed $11,121,627; B. Prudential (basic life, short- and long-term disability) — Not to Exceed $685,560; and C. The Standard (EMT & Manager disability)— Not to Exceed $30,000. 09/14/2016 Atlminisaation Committee Minutes Page 3 of 6 AYES: Choi, Curry, Ferryman, Katapodis, Kim, Kring, Mills, Neugebauer, Nielsen, and Seboum NOES: None ABSTENTIONS: None ABSENT: Parker, T. Smith and Tinajero Director Teresa Smith arrived at 5:07 p.m. INFORMATION ITEMS: 5. ORANGE COUNTY SANITATION DISTRICT SECURITY PROGRAM (Celia Chandler) Directorof Human Resources Celia Chandler provided a brief overview of this item and introduced Human Resources & Risk Manager Richard Spencer, who provided a PowerPoint presentation on the Sanitation District's security program. The presentation included security plans, policies, and procedures; video surveillance; perimeter security; contract security services; access control system; and various additional strategies used in the Sanitation District's security program. Mr. Spencer addressed concerns and responded to questions from the Committee regarding monitored video surveillance; armed guards; statistics of past security problems and other additional security strategies. NON-CONSENT: 6. CONTRACT SECURITY SERVICES (Celia Chandler) Mr. Spencer provided information regarding this contract and the need for the additional budget as provided to the Committee in late communication. Discussion ensued regarding the need for additional security measures and an alternate recommendation was made. MOVED. SECONDED AND DULY CARRIED TO: Recommend to the Board of Directors to: A. Approve a Service Contract to Securitas Security Services, U.S.A., Specification No. 5-2016-775BD, for the period November 1, 2016 through October 31, 2017, for a total annual amount not to exceed $776,704, with up to four (4) one-year renewals; B. Approve an increase of $62,681 to Purchase Order 105775 OA, a bridge purchase contract issued to Securitas Security Services, U.S.A., for a total amount not to exceed $160,723, for the period October 1, 2016 through October 31, 2016; C. Approve a contingency of$77,670 (10%); 09/14/2016 Administration Committee Minutes Page 4 of 6 D. Authorize a budget increase of $257,055 to Security Services, to be transferred from other Human Resources budgeted line items or the General Manager's contingency fund; and E. Direct staff to return next month to present for the Board's consideration the addition of armed guards at both plants. AYES: Choi, Curry, Ferryman, Katapodis, Kim, Kring, Mills, Neugebauer, Nielsen, Sebourn and T. Smith NOES: None ABSTENTIONS: None ABSENT: Parker, and Tinajero 8. GANN LIMIT RESOLUTION CORRECTION FOR FISCAL YEAR 2015-16 (Lorenzo Tyner) Mr. Tyner provided a brief overview of this item. MOVED. SECONDED AND DULY CARRIED TO: Recommend to the Board of Directors to: Adopt Resolution No. OCSD 16-XX entitled, "A Resolution of the Board of Directors of the Orange County Sanitation District Establishing the Annual Appropriations Limit for Fiscal Year 2015-16,for the District in accordance with the Provisions of Division 9 of Title 1 of the California Government Code; and Repealing Resolution No. OCSD 15-14." AYES: Choi, Curry, Ferryman, Katapodis, Kim, Kring, Mills, Neugebauer, Nielsen, Sebourn and T. Smith NOES: None ABSTENTIONS: None ABSENT: Parker, and Tinajero 9. REVENUE REFUNDING CERTIFICATE ANTICIPATION NOTES, SERIES 2016B (Lorenzo Tyner) Mr. Tyner provided a brief overview of this item. MOVED. SECONDED AND DULY CARRIED TO: Recommend to the Board of Directors to: A. Adopt Resolution No. OCSD16-XX entitled, "A Resolution of the Board of Directors of the Orange County Sanitation District authorizing the execution and delivery by the District of an Installment Purchase Agreement, a Trust Agreement and a Continuing Disclosure Agreement in connection with the execution and delivery of Orange County Sanitation District Revenue Refunding Certificate Anticipation Notes, Series 2016B, such Notes evidencing principal in an aggregate amountof notto exceed $120,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the 09/14/2016 Administration Committee Minutes Page 5 of 6 offering and sale of such Notes and authorizing the execution of other necessary documents and related actions"; and B. That the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Notes in an aggregate amount not to exceed $120,000,000; and C. The proposed financing is structured as another two-year fixed rate maturity that will be sold in a competitive sale. AYES: Choi, Curry, Ferryman, Katapodis, Kring, Mills, Neugebauer, Nielsen, Sebourn and T. Smith NOES: None ABSTENTIONS: Kim ABSENT: Parker, and Tinajero CLOSED SESSION: None. OTHER BUSINESS AND COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY: None. ADJOURNMENT: Committee Chair Curry declared the meeting adjourned at 5:33 p.m. to the next regularly scheduled meeting of Wednesday, October 12, 2016 at 5:00 p.m. Submitted by: Kelly A. Lore Clerk of the Board 09/14/2016 Administration Committee Minutes Page 6 of 6 ADMINISTRATION COMMITTEE Meeting Dare TOBd.OfDir. 10/12/16 10/26/16 AGENDA REPORT ItemNumber IemNumber z Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Celia Chandler, Director of Human Resources SUBJECT: TEMPORARY EMPLOYMENT SERVICES GENERAL MANAGER'S RECOMMENDATION A. Authorize the General Manager to enter into contracts with various staffing firms for Temporary Employment Services (Specification No.CS-2009421 BD); and B. Authorize the General Manager to add or remove staffing firms from the available pool as needed, to meet work requirements identified by the Human Resources Department, with no change to the approved total budget, at a cost not to exceed $814,400. SUMMARY The Orange County Sanitation District's (Sanitation District) strategic plan includes utilizing full-time and part-time employees and, when needed, contract and temporary workers. This report specifically focuses on temporary workers who are utilized to supplement the regular workforce to accommodate workload demands and fluctuations. The Board approved the FY 2016-17 Operating Budget, allocating an amount not to exceed $814,400 for temporary staffing services. Every year, the General Manager requests Board approval to enter into agreements with various staffing firms for the purpose of meeting the Sanitation District's temporary staffing needs. The General Manager requests authorization to identify and select the staffing firms that will be utilized by the Sanitation District moving forward, without the need for additional Board approval, as long as the Board continues to allocate funds for temporary staffing services within the Operating Budget. BACKGROUND Temporary workers are hired,for a limited duration, through third-party staffing firms when regular employees are not available to cover for employee absences due to illness, vacation, and leave of absence; or for unforeseen circumstances such as increased work demands due to regulatory changes. In addition, temporary workers are also used for approved special projects and budgeted capital improvement projects (CIP)that are non- engineering related. Page 1 of 3 The cost of a temporary worker includes the worker's hourly rate in addition to a "mark- up" rate, which is payment to the staffing firm to cover the benefits provided to the temporary worker and overhead costs. The mark-up rates for the current staffing firms utilized by the Sanitation District range from 30% to 70%. The key advantage associated with temporary staffing is Flexibility, since temporary workers are used for adjusting staffing levels quickly and for a limited timeframe. RELEVANT STANDARDS • Ensure that the public's money is wisely spent PROBLEM Every year, the General Manager requests Board approval to enter into agreements with various staffing firms, which could change throughout the year, based on quality of service, caliber of candidates, and competitive rates. PROPOSED SOLUTION Authorize the General Manager to identify and select the staffing firms that will be utilized to meet the changing staffing needs of the Sanitation District. For FY 2016-17, the General Manager has identified a total of 11 staffing fines, 10 of which are currently utilized by the Sanitation District. The agencies are listed below: 1. Aerotek Inc.: (General, Engineering, Laboratory) 2. AppleOne Employment Services: (General) 3. Material and Contract Services - Procurement Services Associates: (Contract Services) 4. On Assignment Staffing Services- Lab Support: (Laboratory) 5. TEG Staffing: (Human Resources) 6. TekSvstems: (Technical) 7. Project Partners: (Technical) 8. Xvon Business Solutions: (Technical) 9. Robert Half, Inc. 10. Procurement Services Associates 11. Elwood Staffing* *Elwood Staffing is being added to the pool of staffing firms to be utilized by the Sanitation District in FY16/17. The Sanitation District anticipates utilizing additional staffing firms in the future to meet its organizational needs; therefore, staff is requesting authorization for the General Manager to enter into similar agreements with other staffing firms, as needed. HR staff interviews each staffing firm prior to entering into a contract for services to ensure administrative requirements are met for doing business with the Sanitation District. Purchasing staff works with the staffing firm to obtain the proper signatures and ensure all requirements Page 2 of 3 are met prior to entering into a contract with the Sanitation District. The contract includes specific information related to work hours, billing rates, invoicing and payment, confidentiality, etc. TIMING CONCERNS Board approval is necessary to ensure the Sanitation District meets its changing staffing needs and workload demands are met. RAMIFICATIONS OF NOT TAKING ACTION The Sanitation District will not have access to temporary staffing services to offset staffing needs that were not pre-planned during the budget process. PRIOR COMMITTEE/BOARD ACTIONS June 2016 — Board approved proposed FY 2016-17 and 2017-18 Budget, allocating $814,400 to temporary services. May 2014— Board approved entering into contracts for Temporary Employment Services (Specification No. CS-2009421 BD)with 12 temporary service firms for a total amount of $550,000 per year, for a one-year period (July 1, 2014 through June 30, 2015), with a one-year renewal option. ADDITIONAL INFORMATION N/A CECA N/A FINANCIAL CONSIDERATIONS This request complies with authority levels of the Sanitation District's Purchasing Ordinance OCSD-47. This item has been budgeted in the FY 2016-17 approved budget. ATTACHMENT The following attachment(s) may be viewed on-line at the OCSD website (www.ocsd.corn with the complete agenda package: N/A Page 3 of 3 ADMINISTRATION COMMITTEE Meeting Date TOBE.Or .Dir. 10/12/16 10/26/16 AGENDA REPORT Item Item Number 3 Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Celia Chandler, Director of Human Resources SUBJECT: DEFERRED COMPENSATION PROGRAM UPDATE GENERAL MANAGER'S RECOMMENDATION A. Adopt Resolution No. OCSD 16-XX, entitled: "A Resolution of the Board of Directors of the Orange County Sanitation District Acknowledging the Change in Title of the Current Deferred Compensation Plan Administrator to Voya Financial Services and Authorizing Voya Financial Services to Continue Serving as Plan Administratorof the Deferred Compensation Plan for Officers and Employees of the Orange County Sanitation District; and, Repealing Resolution No. OCSD 09-02"; and B. Authorize the General Manager, or his designee, to execute all documents necessary to effect said Deferred Compensation Plan, in a form approved by General Counsel. SUMMARY Voya Financial Services, formerly known as ING Financial Services, changed its name in 2014, and continued to act as agents or advisors for the purpose of administering the Orange County Sanitation District's (Sanitation District) Deferred Compensation Plan. The Sanitation District administers the program on behalf of the employees; however, all plan fees are paid by the participants. The purpose of the report is to request Board approval to adopt Resolution No. OCSD 16-XX, which accurately reflects the name of the firm that currently holds the Sanitation District's deferred compensation assets. BACKGROUND In 2009, the Board approved the transfer of the Sanitation District's Deferred Compensation Plan (Plan) assets from three incumbent providers (AIG Retirement Company, Lincoln Financial Group, ICMA-RC) to ING Financial Services following a competitive process, for the purpose of achieving plan enhancements and participant savings. The move to a single-provider platform reduced the Plan's costs and increased the expected net return on participant investments, as anticipated. RELEVANT STANDARDS • Protection of Orange County Sanitation District assets Page 1 of 2 PROBLEM Resolution No. OCSD 09-02, previously approved by the Board, does not accurately reflect the name of the firm holding the Sanitation District's deferred compensation assets. PROPOSED SOLUTION Adopt Resolution 16-XX as described in this report to ensure an accurate record of official Sanitation District documents. PRIOR COMMITTEE/BOARD ACTIONS March 2009 - Resolution No. OCSD 09-02 - Approved a Deferred Compensation Plan with ING Financial Services for Officers and Employees of Orange County Sanitation District, and Repealing Resolution Nos. OCSD 03-27 and 05-27. November 2005 - Resolution No. OCSD 05-27 - Amended the Deferred Compensation Plan to include a mandatory cash-out provision for Officers and Employees of OCSD. November 2003 - Resolution No. OCSD 03-27 - Amended the Deferred Compensation plan to authorize the Plan Administrator, or her designee, to execute, on behalf of the District, any and all documents necessary to effect the District's Deferred Compensation Plan Loan Program. May 2003 - Resolution No. OCSD 03-10 -Amended the Deferred Compensation plan to include a loan provision. July 2002 - Resolution No. OCSD 02-12 - Amended the Deferred Compensation plan to comply with amendments to the Economic Growth and Tax Relief Reconciliation Act of 2001. July 1998 - Resolution No. OCSD 98-36 - Reaffirmed Resolutions 94-39, 95-80, 98-07, and 98-20 consolidating County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13, and 14 into a single District; approved and adopted the OCSD Deferred Compensation plan. ATTACHMENT The following attachment(s)are included in hard copy and may also be viewed on-line at the OCSD website (www.ocsd.coml with the complete agenda package: • Resolution No. OCSD 16-XX • Voya Financial Services Contract Amendment 2 Page 2 of 2 RESOLUTION NO. OCSD 16-XX A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT ACKNOWLEDGING THE CHANGE IN TITLE OF THE CURRENT DEFERRED COMPENSATION PLAN ADMINISTRATOR TO VOYA FINANCIAL SERVICES AND AUTHORIZING VOYA FINANCIAL SERVICES TO CONTINUE SERVING AS PLAN ADMINISTRATOR OF THE DEFERRED COMPENSATION PLAN FOR OFFICERS AND EMPLOYEES OF THE ORANGE COUNTY SANITATION DISTRICT; AND, REPEALING RESOLUTION NO. OCSD 09-02. WHEREAS, the Orange County Sanitation District Deferred Compensation Plan was most recently amended by Resolution No. OCSD 09-02, adopted by the District's Board of Directors on March 25, 2009, and which repealed prior Resolution Nos. 03-27 and 05-27; WHEREAS, as the result of numerous legislative and regulatory changes increasing the scope of the District's fiduciary responsibilities as an employer in the administration of deferred compensation plans, OCSD requested proposals in 2008, for plan administrators to act as agents or advisors for the purpose of implementing and administering the District's Deferred Compensation Plan; and WHEREAS, the Board of Directors appointed ING Financial Services in 2009 to act as agents or advisors for the purpose of implementing and administering the District's Deferred Compensation Plan; and WHEREAS, ING Financial Services changed its name to Voya Financial Services in 2014 without affecting any substantive changes to the scope of services it provided as plan administrator for the District's Deferred Compensation Plan; and WHEREAS, the assets in the Existing Plan, as amended, are currently held with Voya Financial Services. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1. All of the recitals herein contained are true and correct and the Board of Directors of the District so finds. Section 2. The Orange County Sanitation District Deferred Compensation Plan, as setforth in Exhibit'A"attached hereto and incorporated herein by reference as though set forth herein at length, is hereby adopted, as the new Deferred Compensation Plan of the District, superseding all previous plans and amendments of the District, and shall remain in effect until amended or terminated by Resolution of the Board of Directors. 1 I94905.1 OCSD 16-XX-1 Section 3. The District's General Manager, or his designee, is hereby authorized to appoint or employ the services of Voya Financial Services to continue acting as agents or advisors for the purpose of implementing and administering the District's Deferred Compensation Plan. Section 4. The District's General Manager, or his designee, is hereby authorized to execute, on behalf of the District, any and all documents necessary to effect the new Deferred Compensation Plan, with the approval as to form by the District's General Counsel. Section 5. Resolution No. OCSD 09-02 is hereby repealed. Section 6. This Resolution shall take effect immediately upon its adoption. PASSED AND ADOPTED at a regular meeting of the Board of Directors held on October 26, 2016. John Nielsen Board Chair ATTEST: Kelly A. Lore Clerk of the Board APPROVED: Bradley R. Hogin General Counsel 1 I94905.1 OCSD 16-XX-2 STATE OF CALIFORNIA ) ss COUNTY OF ORANGE ) I, Kelly A. Lore, Clerk of the Board of Directors of the Orange County Sanitation District, do hereby certify that the foregoing Resolution No. OCSD 16-XX was passed and adopted at a regular meeting of said Board on the 261h day of October, 2016, by the following vote, to wit: AYES: NOES: ABSTENTIONS: ABSENT: IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of Orange County Sanitation District this 261h day of October, 2016. Kelly A. Lore Clerk of the Board of Directors Orange County Sanitation District t t94905.1 OGSD 16-XX-3 Monica McGill Contract Consultant May 31,2016 Ms. Ann Cratton Principal Financial Analyst Orange County Sanitation District 10844 Ellis Avenue Fountain Valley,CA 92708-7018 Re: VOYA RETIREMENT INSURANCE AND ANNUITY COMPANY VOYA INSTITUTIONAL TRUST COMPANY AS TRUSTEE OF THE ORANGE COUNTY SANITATION DISTRICT 457(b)DEFERRED COMPENSATION PLAN Contract: MCA-60284 Enclosed is a fully-executed copy of Amendment 2 for the Orange County contract. Please retain for your files. If you have any questions or concerns please contact me at(860)580-2823 or via email at Mon ica.McGi I I Coy voya.c o m. Thank you for your attention to this matter. Sincerely, Monica A.McGill One Orange Way-C28 Windsor,CT 06095-4774 Tel.: 860-590-2823 Fax: 860-580-2197 Email: Monica.McGi11@voyaxom RETIREMENT I INVESTMENTS I INSURANCE V o w voyayom FINANCIAL California Consumer Notice Important Information to Contract Holders When you have any questions or problems concerning your insurance,or want to make any changes,your Voya representative or agent will be glad to help you.You may contact the insurance company issuing this contract at the following address and telephone number: Voya Retirement Insurance and Annuity Company One Orange Way Windsor,CT 06095-4774 Telephone: 1-800-654-8065 If you have contacted you agent or representative and for some reason,a satisfactory solution to the problem has not been reached, you may seek assistance from the California Department of Insurance. Please write or call: 1.800-927-HELP Consumer Affairs Department of Insurance 300 South Spring Street Los Angeles,CA 90013 CA-NOT(11-00) NOTICE OF PROTECTION PROVIDED BY CALIFORNIA LIFE AND HEALTH INSURANCE GUARANTEE ASSOCIATION This notice provides a brief summary regarding the protections provided to policyholders by the California Life and Health Insurance Guarantee Association("the Association").The purpose of the Association is to assure that policyholders will be protected,within certain limits, in the unlikely event that a member insurer of the Association becomes financially unable to meet its obligations. Insurance companies licensed in California to sell life insurance, health insurance,annuities and structured settlement annuities are members of the Association.The protection provided by the Association is not unlimited and is not a substitute for consumers'care in selecting insurers.This protection was created under California law,which determines who and what is covered and the amounts of coverage. Below is a brief summary of the coverages, exclusions and limits provided by the Association. This summary does not cover all provisions of the law;nor does it in any way change anyone's rights or obligations or the rights or obligations of the Association. COVERAGE Persons Covered Generally,an individual is covered by the Association if the Insurer was a member of the Association and the individual lives in California at the time the insurer is determined by a court to be insolvent. Coverage is also provided to policy beneficiaries,payees or assignees,whether or not they live in California. Amounts of Coveraee The basic coverage protections provided by the Association are as follows. Life Insurance.Annuities and Structured Settlement Annuities For life insurance policies, annuities and structured settlement annuities,the Association will provide the following: Life Insurance 80%of death benefits but not to exceed$300,000 80%of cash surrender or withdrawal values but not to exceed$100,000 Annuities and Structured Settlement Annuities 80%of the present value of annuity benefits, including net cash withdrawal and net cash surrender values but not to exceed$250,000 The maximum amount of protection provided by the Association to an individual,for ell insurance,annuities and structured settlement annuities is$300,000, regardless of the number of policies or contracts covering the individual. Health Insurance The maximum amount of protection provided by the Association to an individual, as of April 1, 2011. is $470,125. This amount will increase or decrease based upon changes In the health care cost component of the consumer price index to the date on which an insurer becomes an insolvent insurer. 115586-CA(9-11) COVERAGE LIMITATIONS AND EXCLUSIONS FROM COVERAGE The Association may not provide coverage for this policy.Coverage by the Association generally requires residency in _ California. You should not rely on coverage by the Association in selecting an insurance company or in selecting an insurance policy. The fallowing policies and persons are among those that are excluded from Association coverage: A policy or contract issued by an insurer that was not authorized to do business in California when it issued the policy or contract. A policy issued by a health care service plan(HMO), a hospital or medical service organization,a charitable organization, a fraternal benefit society, a mandatory stale pooling plan,a mutual assessment company, an insurance exchange, or a grants and annuities society. If the person is provided coverage by the guaranty association of another stale. Unallocated annuity contracts:that is, contracts which are not issued to and owned by an individual and which do not guaranty annuity benefits to an individual. Employer and association plans,to the extent they are self-funded or uninsured. A policy or contract providing any health care benefits under Medicare Part C or Part D. An annuity issued by an organization that is only licensed to issue charitable gift annuities. Any policy or portion of a policy which is not guaranteed by the insurer or for which the individual has assumed the risk,sych as certain investment elements of a variable life insurance policy or a variable annuity contract. Any policy of reinsurance unless an assumption certificate was issued. Interest rate yields(including implied yields)that exceed limits that are specified in Insurance Code Section 1607.02(b)(2)(C). NOTICES Insurance companies or their agents are required by law to give or send you this notice. Policyholders with additional questions should first contact their insurer or agent.To learn more about coverages provided by the Association, please visit the Association's websile at www.califega.org.or contact either of the following: California Life and Health Insurance California Department of Insurance Guarantee Association Consumer Communications Bureau P.O. Box 16860 300 South Spring Street Beverly Hills, CA 90209-3319 Los Angeles,CA 90013 (323)782-0182 (800)927-4357 Insurance companies and agents are not allowed by Callfornia law to use the existence of the Association or Its coverage to solicit,Induce or encourage you to purchase any form of insurance.When selecting an Insurance company, you should not rely on Association coverage.If there is any Inconsistency between this notice and California law, then California law will control. 11 5586-CA(9-11) This contract is amended and restated effective as of Contract Amendment 2 May 1,2016. When you sign this restatement, it will replace all prior versions of your contract. Contracdtolder: ING NATIONAL TRUST AS TRUSTEE OF THE All references to the name of the Contractholder are ORANGE COUNTY SANITATION DISTRICT changed from ING NATIONAL TRUST AS 457(b)DEFERRED COMPENSATION PLAN TRUSTEE OF THE ORANGE COUNTY SANITATION DISTRICT 457(b)DEFERRED Contract Document Number: COMPENSATION PLAN to VOYA ST-60294 INSTITUTIONAL TRUST COMPANY AS TRUSTEE OF THE ORANGE COUNTY SANITATION DISTRICT 457(b)DEFERRED COMPENSATION PLAN. THE VALUE OF THE SEPARATE ACCOUNT(S) DESCRIBED IN THIS CONTRACT,AS AMENDED,IS SUBJECT TO CHANGE AND WILL VARY BOTH UP AND DOWN IN ACCORDANCE WITH THE INVESTMENT RESULTS OF THE ACCOUNT(S)AND IS NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS. Voya Retirement Insurance and Annuity Company has signed this restatement at its Home Office,One Orange Way,Windsor,Connecticut 06095,on April 211,,20016 Charles P.Nelson,President 9...Idc. A. (91 -- Jennifer M.Ogren,Secretary Restatement Accepted: VOYA INSTITUT N TRUST COMPANY Date: f�cs u!6 By: } Name: /�— Title: Vsce ffv tkk't- ORANGE COUNTY SANITATION DISTRICT Date: % By: 1 wbt✓ Name: LV� C.v.Lu Ty Nr-4t- VOYA, Title: 0%1-,cArw ST,AFP(SV4 Pawl sr-emea This page,the following pages and the application are StabilizersM Contract the entire contract. A group annuity contract issued by Voya Retirement You acknowledge that you have read and understand Insurance and Annuity Company to: this contract and that,by completing an application, VOYA INSTITUTIONAL TRUST COMPANY AS you have agreed to make deposits to this contract. TRUSTEE OF THE ORANGE COUNTY Your application and any other writings acceptable to SANITATION DISTRICT 457(b)DEFERRED us,in which you agree to make deposits,are part of COMPENSATION PLAN this contract. Contract Effective Date: This contract is delivered in California. July 16,2009 THE VALUE OF THE SEPARATE ACCOUNT(S) Contract Document Number: DESCRIBED QI THIS CONTRACT IS SUBJECT ST-60284 TO CHANGE AND WILL VARY BOTH UP AND DOWN IN ACCORDANCE WITH THE INVESTMENT RESULTS OF THE ACCOUNT(S) AND IS NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS. Voya Retirement Insurance and Annuity Company has signed this contract at its Home Office,One Orange Way,Windsor,Connecticut 06095 on April 21,2016. oi�t Charles P.Nelson,President 9..4 A. O1.,- Jennifer M.Ogren,Secretary VOYA. ST(M Pals+ Sr-61M Table of Contents 1. Definitions Definitions...................................................................2 Parties to this Contract Operation of the Contract............................................4 1.1. Voya is Voya Retirement Insurance and Discontinuance............................................................7 Annuity Company. Wherever"we," I'm"or "our"is used in this contract,it means Voya. Amendments................................................................8 1.2. Contractholder is the holder of this contract Annuities.....................................................................9 named on the face page. Wherever"you"or "your"is used in this contract,it means the Fees............................................................................10 Contractholder. When this contract provides General Matters.........................................................10 that we will make a payment to you,the payment will be made to you if you are a tmstee of the Plan;otherwise,we will pay the Term Schedule(s)/Exhibit(s) Plan funding agent you designate. Other Defined Terms 1.3. Annuity is a Member's periodic benefit that you may direct us to purchase under this contract. 1.4. Benefit Withdrawals are withdrawals(other than Contmctholder Withdrawals as described in the Operation of the Contract section of this contract)made in accordance with your Plan and this contract for: (a)Member-initiated withdrawals; (b)Member-directed transfers of their account balances between Investment Options; (c)loans to Members;or (d)Annuity purchases. Benefit Withdrawals must meet the conditions in the Operation of the Contract section. 1.5. Book Yalue Settlement Phase is the phase this contract enters following its total discontinuance if you elect to receive the balance of the Interest Accumulation Fund subject to the terms described in the attached Book Value Settlement Exhibit. 1.6. Business Day is any day both we and the financial markets are open for business. 1.7. Code is the Internal Revenue Code of 1986,as amended,or any successor to it. PagD7 st-ew 1.8. Competing Investment Option is any 1.15. Immediate Credited Rate is our calculation of Investment Option(other than the one using what the effective annual rate of interest this contract or such other Investment Options determined according to the Credited Rate as we tray from time to time designate as Determination Exhibit would be,assuming the competing in accordance with our next Credited Rate Period were to commence underwriting standards)which is invested in immediately. money market imm meats,repurchase 1.16. Interest Accumulation Fund is an accounting agreements,guaranteed investment contracts, record we maintain under this contract for or investments offering a fixed rate of return, amounts allocated to a Separate Account, or any Investment Option having a targeted reflecting deposits received,withdrawals you duration of less than three(3)years. make,fees charged,plus interest at the 1.9. Contractholder Withdrawals are any Credited Rate and other adjustments. This withdrawals you make which are not Benefit account may be used by you for Plan Withdrawals. moordkeeping and communications. 1.10. Credited Rare is the effective annual rate of 1.17. Investment Option is any facility used for interest we periodically announce for this Member-directed investment of account contract and which is credited to the Interest balances. If the Plan does not have Accumulation Fund. Unless we agree Investment Options,then a reference to an otherwise,it is effective as of the first day of a Investment Option means all Plan funds. Credited Rate Period. 1.18. Member is a participant in the Plan,or any 1.11. Credited Rate Period is the period of time for person deriving his rights from such which the Credited Rate is applicable. It is an participant. A Member has no rights or annual,semiannual or quarterly period as obligations under this contract,except as directed by you or such shorter period as may specifically stated. be required during the Book Value Settlement 1.19. Plan is the Orange County Sanitation District Phase. 457(b)Deferred Compensation Plan. You 1.12. Deposit Agreement is your written must give us a copy of the Plan upon entering commitment,on a form acceptable to us,to into this contract. We are not a party to the make deposits. The Deposit Agreement is a Plan. part of the contract. 120. A Separate Account is a segregated asset 1.13. Eligible Assets are all Plan assets if Members account we established under Connecticut do not have the option to direct investment of law. A Separate Account may have amounts their account balances among various Plan allocated to it on a pooled basis. investment facilities. If Members have such 1.21. Separate Account Balance is an accounting an option,Eligible Assets are all Plan record we maintain to reflect the fair market investments allocated to the Investment value of your pro rats share of a Separate th cn which includes amounts held under Account. this s contract. 1.14. Employer is any corporation,partnership, 122. Term Schedule is an attachment to this proprietorship or other entity whose contract describing the terms applicable to a employees may participate in the Plan. Separate Account you use to support the Interest Accumulation Fund. Pages sr20284 2. Operation of the Contract Deposits 2.5. The balance of the Interest Accumulation 2.1. You agree to make deposits to this contract at Fund is an amount equal to the termination such times,in such amounts and under such value of the predecessor investment vehicle conditions as mutually agreed to in the from which deposits to this contract were paid Deposit Agreement. We are obligated to as proceeds,plus any additional Plan deposits accept only those deposits you are committed plus interest,less any withdrawals, less any to make,except as follows: adjustment made in connection with an Contructholder Withdrawal,and less any fees (a)We may stop accepting deposits under the or expenses that are deducted from time to current Deposit Agreement if an action you time. take causes a reason for discontinuance to 2.6. If you request,we can establish multiple arise under the Discontinuance Section. accounts for Plan recordke eP 6 m purposes. If (b)We may refuse to accept deposits under art additional account has its own Credited any renewal Deposit Agreement. If we refuse Rate,it is treated as a distinct Interest to accept deposits under a renewal Deposit Accumulation Fund. Agreement,we will give you 30 days advance 2.7. Amounts in a Separate Account are invested written notice. consistent with the investment objectives we 2.2. Deposits received by us are allocated to the set for that Separate Account. The Separate Account(s)in which you choose to investments and operation of a Separate participate. Deposits are subject to any Account are also subject to any rules and conditions or limitations in the Term Schedule limitations established by our Board of for that Separate Account. Unless otherwise Directors or its duly authorized committee. agreed,deposits are made by wire transfer. 2.8. The value of a Separate Account is the fair Operation of the Fund market value of investments in the Separate 2.3. As of the contract effective date and at least Account plus cash balances and accruals,less 30 days prior to each Credited Rate Period,or liabilities,in accordance with such methods as such shorter period as may be required during are described in the Term Schedule or as we the Book Value Settlement Phase, we will may adopt from time to time. Income and notify you of the rate to be credited to the gains or losses,realized or unrealized,are Interest Accumulation Food for that period. credited or charged directly to a Separate Interest is credited on a daily basis. Account. The values determined may decrease or increase according to such 2.4. The Credited Rate is determined by us. It procedure. A Separate Account is charged reflects our assumptions as to your deposits with expenses arising from the operation of and withdrawals to this contract and the the account,including taxes,brokerage investment results of the Separate Account. It commissions and other costs. also reflects an adjustment for differences between the balance of the Interest 2.9. Yom pro rata share of a Separate Account Accumulation Fund and the Separate Account increases when you make a deposit or when Balance. The formula we currently use to others participating in the Separate Account determine this contract's Credited Rate is make withdrawals. Your share decreases described in the attached Credited Rate when you make a withdrawal or when others Determination Exhibit. participating make deposits. Pa9B4 9r6PB4 2.10. The assets in a Separate Account are not 2.15. This contract follows a LIFO/pro rata chargeable with liabilities arising out of any of withdrawal order. If all Eligible Assets are our other business. We own the investments being held under this contract,the Plan held in a Separate Account. We are not a agrees to pay all amounts needed for Benefit trustee of such assets. Withdrawals from this contract. If all 2.11. Unless the Term Schedule specifies otherwise, Eligible Assets are not being held under this we may discontinue the use or availability of contract,the Plan agrees to pay all amounts any Separate Account(other than any needed for Benefit Withdrawals from the Separate Account you use during the Book investment vehicle receiving then torten[ Value Settlement Phase). At your direction, Plan fixed fund deposits as long as that we will transfer your Separate Account investment vehicle has Eligible Assets. The Balance to another of our investment facilities term"Plan fixed food deposits" includes or pay such value to you as a Contractholder amounts received by the Plan in the form of Withdrawal. interest payments and proceeds resulting from the maturity or termination of other 2.12. At least annually,we will send you financial Plan investment vehicles that are reinvested statements. by the Plan. If more than one investment Benefit Withdrawals vehicle is receiving then current Plan fixed fund deposits,the Plan agrees to make 2.13. If the Plan has a Competing Investment withdrawals from such investment vehicles Option,Benefit Withdrawals to effect according to their pro raft share of Benefit Member-directed transfers of their account Withdrawals(pro rata share,for this purpose, balances between Investment Options may be equals the total amount needed for Benefit made only if: Withdrawals times the percentage of current (a) the transfers are not made from the fixed fund deposits being directed to each Investment Option that includes amounts held contract from which Benefit Withdrawals are under this contract and to any Competing to be paid). If the investment vehicle(s) Investment Option;or receiving then current Plan fixed fond deposits has no Eligible Assets,the Plan (b) the Plan requires that the amount agrees to make withdrawals from this transferred from the Investment Option that contract equal to this contract's pro rata share includes amounts held under this contract of Benefit Withdrawals(pro ram share,for remain invested in non-Competing Investment this purpose,equals the total amount needed Options for 90 days before being eligible for by the Plan for Benefit Withdrawals times transfer to a Competing Investment Option. the ratio of the Interest Accumulation Fund 2.14. If the Plan permits loans,amounts needed to to the total amount of Eligible Assets). meet Member loan requests are considered 2.16. We can require reasonable proof that Benefit Benefit Withdrawals. The loan must meet the Withdrawals are being made in accordance requirements of section 72(p)(2)of the Code with the Plan and this contract. and,if applicable,section 4975(d)of the Code and section 408(b)(1)of the Employee 2.17. Subject to the withdrawal deferral provision in Retirement Income Security Act of 1974,as the General Matters section of this contract, amended(ERISA). payments are normally made within 30 Business Days alter our receipt of all necessary information or proofs. Pansy SfE07B4 2.18. Benefit Withdrawals are not subject to any 2.24. Subject to the withdrawal deferral provision in market value adjustment. They are deducted the General Matters section of this contract, from the balance of the Interest Accumulation Contractholder Withdrawal requests are Fund and the Separate Account Balance. normally honored promptly,taking into 2.19. Benefit Withdrawals may not exceed the account the character of the investments in the balance in the Interest Accumulation Fund. Separate Account and reasonable business and settlement practices. 2.20. Any withdrawal not eligible for treatment as a 2.25. In connection with any Contractholder Benefit Withdrawal must be withdrawn as a Contractholder Withdrawal. Withdrawal,the balance of the Interest Accumulation Fund is reduced by an amount 2.21. You most promptly give us a description of equal to the payment made times the ratio of any proposed amendment to the Plan. You the balance of the Interest Accumulation Food most also give us a copy of all Plan to the Separate Account Balance. amendments actually adopted. We will add 2.26. Member-initiated withdrawal or transfer these amendments to our copy of the Plan,but we can advise you that we will not alter our requests,directly or indirectly arising out of administration of this contract to comply with corporate actions such as b rate relocations, any Plan amendment which we detemdne may spinoffs,divestitures,incentive programs, relocations, otherwise directly or indirectly have a layoffs,retirement incentive programs, the material adverse effect on our obligations to creation of a Competing Investment Option, you partial or total Plan terminations,or the libemlimtion of Plan withdrawal or transfer 2.22. If,at any time(including any notice period rules,are all Contractholder Withdrawals. preceding a discontinuance of the contract), Such payments are not treated as Benefit we calculate the Immediate Credited Rate to Withdrawals,but as a partial discontinuance be 3%or less and the ratio of the contract's of this contract. Separate Account Balance divided by the Interest Accumulation Fund is less than 95%, 2.27. ContWith our consent,you may elect to treat a then Benefit Withdrawals are not available to Withdrawal if Withdrawal as a Benefit effect either loans to Members or Member- directed transfers between Investment under this section and the Benefit Options. We will notify you promptly that Withdrawals section over ono continuous 12- such action has occurred. month period is less than 20/of the Interest Accumulation Fond balance at the start of that Contractholder Withdrawals period. 2.23. You may withdraw all or a part of your 2.28. Subject to our underwriting requirements and Separate Account Balance. Your Separate approval,we may allow you to transfer your Account Balance is determined as of the Separate Account Balance to another Separate payment date if there is cash available in the Account. This transfer may affect the Separate Account. If no cash is available this Credited Rate. value is detemiined on the date we make any transactions necessary to raise cash to pay your withdrawal request. In no event may you withdraw more than the value of your Separate Account Balance. The Term Schedule for a Separate Account may limit the timing of receipt of amounts from the account. P.g96 STOM84 3. Discontinuance 3.1. You may discontinue this contract by giving (i)We elect to discontinue accepting deposits us 30 days written notice. A discontinuance for all contracts of this class. may be total or may be for a group of 0)Employees of an Employer are no longer Members(a"partial discontinuance"). The eligible to participate in the Plan. (Any such discontinuance is effective on the later of: discontinuance affects only those ineligible (a)the date specified in your notice,or employees.) (b)30 days after we receive your notice. (k)A change in applicable laws and 3.2. We may discontinue this contract,either regulations(including tax laws and totally or partially,by giving you 90 days regulations)which materially affects the notice. taxation of this contract or Separate Account, or otherwise materially affects our obligations 3.3. We may discontinue this contract,either hereunder. totally or partially,after a reason for discontinuance occurs. We will give you 45 3.5. The contract automatically discontinues if,at days written notice. any time,we calculate the Immediate Credited Rate to be 3/or less and the ratio of the 3.4. Reasons for our discontinuance are: contract's Separate Account Balance divided (a)You fail to meet any of your obligations by the Interest Accumulation Fund is less than under this contract or under any related 95%. We give you at least 30 days notice of agreement. such a discontinuance. (b)All amounts under this contract are 3.6. We will pay all available funds to you as withdrawn. follows: (c)The Plan is no longer a qualified plan (a)In the case of a total discontinuance,you under the Code. will direct us to pay you: (d)The Plan is terminated. (i)your Separate Account Balance; or (e)You no longer have any obligations under (ii)the balance of the Interest the Plan Accumulation Food,subject to the terms described in the attached Book Value (f)Any action is taken by you,the plan Settlement Exhibit. sponsor,or other plan official,which: (b)In the case of a partial discontinuance,you (i)creates a Competing Investment Option; will: or (i)direct us under item(a)to pay the (ii)significantly liberalizes,as determined appropriate portion of this contract's value by us,the Plan withdrawal or transfer to Members or the funding agent of a rights of Members;or successor plan;or (iii)materially affects our rights and (ii)request us to issue a new contract to obligations under this contract. the plan sponsor or funding agent of a (g)You,without our written agreement, successor plan. attempt to assign your interest in this contract. (h)You reject an amendment to this contract proposed by us under the Amendments section. 4. Amendments (c)If you do not give us a direction under item (a)within 30 days following the date the 4.1. This contract may be amended by mutual discontinuance is effective,we may pay you agreement. the balance of the Interest Accumulation Ford,subject to the terms described in the 4.2. We may amend any provision of this contract attached Book Value Settlement Exhibit. to comply with applicable laws or regulations Payment order this item fully discharges all of without your consent. our obligations under this contract with 4.3. We may propose other amendments that are respect to both the Interest Accumulation effective 30 days after we give you written Food and the Separate Account Balance. notice of the change. You may reject our (d)Any contract issued upon a partial proposed change by giving us written notice discontinuance of this contract is subject to before it becomes effective. any terns and conditions mutually agreed to 4.4. No amendment to this contract may: and is conditioned upon satisfaction of our reasonable underwriting mles and the securing (a)revoke your right to withdraw amounts of any necessary regulatory approvals. held under this contract. All withdrawals 3.7. Unless you elect to directly pay any due or follow the rules in effect when we receive your request. accrued expense fee at discontinuance,we may deduct the appropriate amount from (b)reduce the amount or change the terns of amounts paid or traosfered out of the any Annuity you have purchased,unless Separate Account. required by applicable laws. 3.8. Payments or transfers upon discontinuance are 4.5. Unless otherwise provided in the Term subject to any limitations or restrictions that Schedule,we may modify any Tenn Schedule appear elsewhere in this contract. by giving you 30 days notice. We may also modify the exhibits. The exhibit states 3.9. You may not make deposits to this contract requirements for making such changes. after discontinuance. 3.10. Annuities purchased prior to discontinuance are not affected by discontinuance. 3.11. We will continue to provide any services necessary to fulfill our obligations or to transfer such responsibility to a successor. You agree to pay us for such services. Pages Sr-Ow 5. Annuities Annuity Purchase Rules annuitant's adjusted age is his or her age as of 5.1. You may direct us to purchase Annuities with the birthday closest to the Annuity effective amounts held under this contract at any time. date reduced by two years for Annuity Any Annuities you purchase are subject to our effective dates occurring during the period of regular practices. You agree to provide us time from January 1,2000 through December with whatever information or application we 31,2009.The annuitant's and second require annuitant's age will be reduced by one additional year for Annuity effective dates 5.2. You may specify the requested Annuity occurring in each succeeding decade. effective date and any form of Annuity we regularly offer under contracts of this class. Interest: 1.50% The Annuity form determines payments to be 5.10. If,when you purchase an Annuity,a more made upon death. favorable premium rate basis is in effect for 5.3. The Annuity effective date is usually the first the Annuity you are purchasing,we use the day of the month coinciding with or next more favorable basis. following the date you request. 5,11. We guarantee your initial minimum annuity 5.4. The minimum amount of Annuity you may premium rate basis through December 31, purchase is$75 per month. We may change 2009. Unless,prior to a guarantee expiration this amount by notifying you. date,we notify you in writing of a new guarantee basis,the current guarantee basis is 5.5. An Annuity may not be revoked,and the automatically extended for an additional three premium,form orjoint annuitant may not be years. changed,after the Annuity effective date. If the Member or his joint annuitant dies before °en1 Annuity Provisions the Annuity effective date,the Annuity is not 5.12. If we are uncertain whether a payee of a life purchased. Any premium we receive is contingent Annuity is alive,we have no returned as you direct. obligation to make any Annuity payment 5.6. Annuities ate subject to my lintitatiow in the unless,within seven years after the payment Plan required by applicable laws or due date,we receive proof from you or the regulations. Plan administrator that the payee was living on that date. If we do not receive proof,our Annuity Purchase Rates obligations pertaining to that payment and 5.7. If you specify the gross premium,we later payments are the same as if the payee determine the Annuity amount using the had died immediately before that payment due Annuity net premium rate then in effect. date. 5.8. The Annuity purchase rate is based on a net 5.13. Annuity payments are made to the Member. If premium. The net premium equals the gross we have on to believe a payee is legally premium,less any applicable premium tax. in minion of giving a valid receipt for any Annuity payment,we may make the payment to 5.9. The initial minimum premium rate basis in any payee permissible under the Plan. Such effect for this contract is: payment discharges our obligation for the Mortality: 1983 Table a. For purposes of Annuity payment. calculating the initial minimum premium rate, 5.14. Certificates we issue include the terms and the annuitant's and second annuitant's adjusted restrictions we believe are in compliance with age will be used.The annuitant's and second applicable laws or regulations. Papa ST-ew 6. Fees 7. General Matters 6.1. Fees are payable as described in the Fee Exhibit 7.1. All agreements,notices or other communication or as otherwise agreed. required by this contract must be in writing. 6.2. Any fee we bill you is payable within 31 days of Notices to us are effective when we receive them the billing date. If we do not receive prompt at the address designated by us. Notices to you payment,we may deduct the unpaid fees plus are effective when sent. One of our duly reasonable interest from the contract or from authorized officers most sign all our agreements. payments due you. 7.2. Any error in making payments or kceping any records pertaining to this contract may be corrected by us. 7.3. Any provision of this contract which we may have waived on one occasion may continue to be enforced by us. 7.4. No interest in this contract may be assigned without our prior written consent. 7.5. You may name,by notice to us,an agent to act for you in matters conceming this contract. The agent will have all your rights,powers and duties in such matters. 7.6. You are responsible for determining the proper accounting for this contract by the Plan. 7.7. You will provide us with satisfactory evidence that the Plan is a qualified plan under the Code. You will notify us promptly if the Plan fails to meet these requirements. 7.8. You(and any person you name responsible for directing Plan investments)are solely responsible for determining whether this contract is a suitable Plan funding vehicle and in making that determination have taken into consideration the Plan investment objectives,including its liquidity and diversification needs. 7.9. We may take my reasonable action,as permitted by this contract,that we determine is appropriate to assure that any of our contractual obligations are adequately supported. 7.10. We are not chargeable with knowledge of the terms of any trust agreement. 7.11. We are not responsible for reconciling Member statements to the contract. P.@aw 6T100281 7.12. We acknowledge that,if the Plan is subject to the Employee Retirement Income Security Act of 1974,as amended (ERISA),we are acting as an investment manager and are a fiduciary,as defined in section 3(38)of ERISA,solely with respect to the management of Plan funds held in a Separate Account. In all other respects,in exercising our rights,we represent ourselves and not the Plan. 7.13. We may defer honoring any withdrawal request or other payment obligation if,due to the closing or other disruption of financial markets or exchanges,we are unable to prudently execute or settle transactions on behalf of a Separate Account.Such deferral generally will be limited to the period of the market disruption. We may also defer honoring any withdrawal request for the period of time necessary to prudently liquidate assets to satisfy such request. Withdrawals may be subject to my other limitations described in the Term Schedules. 7.14. We are not obligated to detemtine whether any payment is made in accordance with the terms of the Plan or any applicable law or regulation. 7.15. If you use more than one Separate Account under this contract,we will normally establish a distinct Interest Accumulation Fund with respect to each account used. Unless we agree otherwise,this comracfs terms,including those pertaining to the Credited Rate,apply separately to each Separate Account and its associated Interest Accumulation Fond. page 11 SI6ra31 Term Schedule Quality Fund II Quality Fund ll is a pooled long-term public bond SA-392 Separate Account. Account investments consist primarily of a diversified portfolio of United States Treasury and agency securities,mortgage pass- Stabilizer Contract: through and other asset backed securities and other ST—60284 publicly traded investment grade debt securities. The portfolio is managed to match the investment duration of the Barclays Capital U.S.A or Better Aggregate Bond Index,plus or minus 0.50 years. The portfolio may also include cash,forward contracts, financial futures and options(including options on futures)or such other instruments and investments as we believe appropriate for the proper management of the Account. Expenses charged to the Account include,but are not limited to,brokerage commissions,transfer taxes and other direct charges arising from the purchase,sale or management of account investments and such other taxes or charges attributable to the assets or operation of the Account,including audit tees. Deposits and Withdrawals Subject to the contract's terms,deposits to and withdrawals from the Account may normally be made on any Business Day. Valuation The value of the Separate Account is the fair market value of all investments held in the Separate Account plus accounts receivable less accounts payable. Market value for publicly traded securities is based on closing sales prices as reported on national securities exchanges,or closing bid prices as reported by investment dealers. Securities purchased but not yet paid for are carried as securities owned at the current market value with the total cost thereof,including commissions and taxes,being an account payable. Securities sold but not yet paid for are carried at their sale price less commissions and taxes. tau ST-02a Credited Rate Determination Credited Rate Under your contract we announce a new Credited Rate for each Credited Rate Period,which is credited to Determination Exhibit your contract's Interest Accumulation Fund. The Conuactholder. formula we use is based on the relationship: VOYA INSTITUTIONAL TRUST COMPANY AS TRUSTEE OF THE ORANGE COUNTY MV(1+1)d—IAF(1 +G)d SANITATION DISTRICT 457(b)DEFERRED COMPENSATION PLAN The equivalent formula,expressed in terms of G is: Contract Document Number: G=[(MV/IAF)I'd x(1+I)] -1 ST-60294 where: G= Yew new Credited Rate. MV= Your projected Separate Account Balance on the date the new Credited Rate is first effective,plus our projection of anticipated net deposits,withdrawals and expense charge deductions in the next Credited Rate Period. IAF= The projected balance of the Interest Accumulation Food on the date the new Credited Rate is first effective,plus our projection of anticipated net deposits, withdrawals and expense charge deductions in the next Credited Rate Period. d= The target investment duration of the Separate Account your contract uses. = The net effective yield available,on the date we determine the new Credited Rate,on assets similar to those in the Separate Account. �ifasQrtranndfiil Pags13 Sr87274 Any projections are based on current balances or values available on the date we detemune the new Credited Rate,and reasonable assumptions as to cash flows,earnings and other occurrences between that date and the date the new Credited Rate is first effective,or during the next Credited Rate Period,as appropriate. The new Credited Rate we announce for any Credited Rate Period will never be less than 06%. We may change this Exhibit by 30 days notice to you. Any change will not apply if you give us a discontinuance notice before the change is effective. SWAMCunad ElftV PaP14 SNXM Fee Description 2016 Stabilizer The asset fee is guaranteed for 2016. If this fee changes,you will receive 30 days written notice. Contract Fee Exhibit Other fees may be changed at any time. The fees are Contractholder. as follows: VOYA INSTITUTIONAL TRUST COMPANY AS Asset Fee TRUSTEE OF THE ORANGE COUNTY SANITATION DISTRICT 457(b)DEFERRED The asset fee is deducted or billed. It equals the COMPENSATION PLAN amount determined applying the following table to the mean assets of the Interest Accumulation Fund Contract Document Number: associated with Quality Fund 11,prorated for periods ST—60284 other than 12 months. Mean Assets Percentage Choree First$25,000,000 0.50% Over$25,000,000 0.40% Extra Reporting Account Fee If you require separate financial information for various groups,a fee of$0 is charged for each such group in excess of one. This fee is prorated for periods other than 12 months. Misceltaneous Fees Additional fees apply for any non-standard service we provide at your request. We will notify you of the applicable fees,if any. 9anlia3Cnda1 FiCYnt pawls srem Book Value Settlement Description Stabilizer Contract If,at contract discontinuance,you elect to receive Book Value Settlement the balance of the Interest Accumulation Fund,your contract will enter into its Book Value Settlement Exhibit Phase. Over the Book Value Settlement Phase,we will pay you the balance of the Interest Accumulation Fond. The Book Value Settlement Contractholder: Phase will operate on the following terms. VOYA INSTITUTIONAL TRUST COMPANY AS TRUSTEE OF THE ORANGE COUNTY within 30 days of the date your contract's SANITATION DISTRICT 457(b)DEFERRED discommumce is effective,we will establish an COMPENSATION PLAN initial installment payment schedule for your contract. The initial installment payment schedule Contract Document Number: will establish three target dates for the payment to ST—60284 you of the balance of the Interest Accumulation Food in installments. The target dates will be established in relation to the target duration of the Separate Account. The first target date will be six months prior to a date(the"Central Maturity Date") that is established by adding a period of time equal to the target duration of the Separate Account to the date your contract's discontinuance is effective. The second target date will be the Central Maturity Date. The third and final target date will be six months after the Central Maturity Date. The amount that is scheduled to be paid on each target payment date is as follows: 6 months prior to 1/3 Remaining Interest Central Maturity Date Accumulation Fond Central Maturity Date 1/2 Remaining Interest Accumulation Fund 6 Months following Remaining Interest Central Maturity Date Accumulation Fond If you desire an alternative initial installment payment schedule or alternative payment amounts we may propose differing schedules and amounts to you. The use of an alternative payment schedule or amounts may be conditioned upon the securing of any necessary regulatory approvals. Unless the parties agree to an alternative,the initial installment payment schedule and payment amounts will be determined as described above. 9aplin3 Caha[6Eitir P.ga18 SrEn207 Upon commencement of the Book Value Settlement (d) Withdrawals may continue to be made in Phase,we will adjust the target duration of the assets accordance with the Benefit Withdrawals and in the Separate Account to equal the average of the Contractholder Withdrawals section of your contract. times remaining to each of the outstanding The portfolio may increase its investment in Treasury installment payments,and we will strive to maintain securities and short term securities in anticipation of the duration of the Separate Account's investments to plus or minus I00/.of this target duration. During the any approaching installment payment. final six months of the Separate Account's operation, On the final installment payment date,we will the Separate Account's target duration will be increase the payment to you by the amount,if any,of adjusted to reflect anticipated withdrawals. the excess of the Separate Account Balance as of that In connection with my installment payment that is date over the Interest Accumulation Fond balance as made,we will reduce your Separate Account Balance of that date. and the balance of the Interest Accumulation Fond by If we calculate the Credited Rate to be 3%or less, an amount equal to the payment that is made. and the ratio of the contract's Separate Account During your contract's Book Value Settlement Phase: Balance divided by the Interest Accumulation Fund is less than 95%,for my Credited Rate Period during (a) We will accept only those deposits that you are the Book Value Settlement Phase,we will establish a committed to make under the current Deposit new target installment payment schedule by Agreement and that we are obligated to accept under extending the Central Maturity Date as far as the Deposits section of the contract. No additional necessary to support a Credited Rate of 3%. deposits will be accepted. We will not enter into any However,in no event may we extend the Central renewal Deposit Agreement. Maturity Date more than ten years from the date your (b) We will continue to renew your Credited Rate as contract's discontinuance is effective. provided under the Operation of the Fund section of Upon any such extension of the Central Maturity the contract and the Credited Rate Determination Date,we will similarly extend the target investment Exhibit. In establishing the variables for purposes of duration of the assets in the Separate Account. the Credited Rate Determination Exhibit,we may If the Central Maturity Date is extended after any take into account our projection of anticipated installment payment(s)has been made,the new withdrawals,scheduled installment payments,and schedule will exclude the that have expense charge deductions over the time remaining payment(s) already been made. until the final target installment payment date. The lowest Credited Rate we will announce for any At any time after your contract has entered its Book Credited Rate Period while your contract is in its Value Settlement Phase,but before the final Book Value Settlement Phase is 0%. installment payment has been made,you may elect (c) Your Credited Rate Period will be quarterly until an early termination of your contract by directing us three months prior to the final scheduled installment to pay you your Separate Account Balance. payment. Credited Rate Periods may,at our Following such an election by you,our payment of discretion,be monthly periods during the three- your Separate Account Balance will terminate your month period prior to the final scheduled installment contract and fully discharge our obligations to you. payment. If we choose to provide monthly Credited We may change this exhibit upon 90 days advance Rate Periods,we will notify you of the rate to be notice to you. Any change will not apply if you give credited for that period concurrently with the start of or have given us a discontinuance notice before the that period. change is effective. 9atili Oxitnid E#t6fl pagan STfi104 Interest Rate 2016 Stabilizer Contract Interest The net effective annual interest rate credited to your Interest Accumulation Fund from May 1,2016 Exhibit through June 30,2016 is 2.58%. We may change this rate at the beginning of each Contractholder. Credited Rate Period upon 30 days advance written VOYA INSTITUTIONAL TRUST COMPANY AS notice to you. TRUSTEE OF THE ORANGE COUNTY SANITATION DISTRICT 457(b)DEFERRED COMPENSATION PLAN Contract Document Number: ST-60284 9abl,.Cn Flit Page 18 S7672B4 ADMINISTRATION COMMITTEE Meeting Dare To ad.ofDir. 0/12,16 — AGENDA REPORT Item Number Item Number a - Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: RENEWAL OF ESRI GIs ENTERPRISE LICENSE AGREEMENT GENERAL MANAGER'S RECOMMENDATION Authorize the renewal of the Sole Source ESRI GIs Enterprise License Agreement for a two-year period commencing December 31, 2016 through December 30, 2018 for a total amount not to exceed $191,000. BACKGROUND In 2004, the Orange County Sanitation District (Sanitation District) developed an Enterprise GIs Program as part of the GIs Strategic Plan. As part of the GIs Strategic Plan, the Sanitation District chose to implement ESRI's GIs solutions for desktop, web, database and mobile GIs. The Information Technology (IT) Division, specifically the Enterprise Information Management section, maintains the different GIs applications to support the business needs of the Sanitation District. In orderto maintain the Sanitation District's Enterprise GIs Program, the IT division needs to purchase software licensing and maintenance for the ESRI GIs suite of products through the Enterprise License Agreement(ELA). The ELA will help maintain our existing programs including hydraulic modeling, pipeline condition assessment, Underground Service Alerts and integration with the Sanitation District's asset management software Maximo. The renewal and payment for software support and maintenance is executed on a biannual basis. RELEVANT STANDARDS • Protection of Orange County Sanitation District assets • Efficiency efforts reduce the cost to provide the current service level or standard • Maintain and Support Enterprise Asset and Financial Management Systems • Maintain a proactive asset management program PROBLEM The annual software maintenance for ESRI GIs software will expire on December 31, 2016. The software maintenance provides the Sanitation District's staff with support from ESRI and software updates to enhance and correct issues with the software. The Sanitation District currently owns hydraulic modeling software, pipeline Page 1 of 2 condition assessment software and underground service alert software that rely on the ESRI licensing for operation. PROPOSED SOLUTION Renew the annual software maintenance for ESRI GIS software before December31, 2016 to maintain continued support and software enhancementfrom ESRI. TIMING CONCERNS The renewal must be completed prior to December 31, 2016. RAMIFICATIONS OF NOT TAKING ACTION Without renewing the annual software maintenance, the Sanitation District will lose support and software enhancement from ESRI and consequently fail to meet the stated relevant standards. PRIOR COMMITTEE/BOARD ACTIONS May 2007 - Board authorized a sole source list under pre-approved propriety providers. ADDITIONAL INFORMATION There are numerous ongoing initiatives to upgrade and improve the Sanitation District's Enterprise GIS Program including, but not limited to: • Scaling the back office GIS infrastructure to accommodate increased user load • Deploying a high availability production GIS infrastructure • Building out and maintaining GIS data for all departments • Deploying maps and applications to staff and contractors on any device • Supporting repeatable and auditable data-editing workflows • Supporting hydraulic modeling, underground service alerts, pipeline condition assessment • Integrating ArcGIS with Maximo FINANCIAL CONSIDERATIONS This request complies with authority levels of the Sanitation District's Purchasing Ordinance OCSD47. This item has been budgeted in the established annual Joint Operating budget. ATTACHMENT The following attachment(s) may be viewed on-line at the OCSD website (www.ocsd.coml with the complete agenda package: N/A Page 2 of 2 ADMINISTRATION COMMITTEE Meeting Date TOBE.Or .Dir. 10/12/16 10/26/16 AGENDA REPORT ItemNumber Item Number s Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: CONTRACTED INTERNAL AUDIT OF CAPITAL IMPROVEMENT PROJECT CONTRACTS GENERAL MANAGER'S RECOMMENDATION Receive and file the Accountants' Report on Agreed-Upon Procedures Review on Capital Improvement Project Contracts. BACKGROUND At the direction of the Administration Committee's Audit Oversight Subcommittee, White Nelson Diehl Evans (WNDE), Certified Public Accountants, and the Orange County Sanitation District's (Sanitation District) contracted internal auditors, were engaged to apply agreed-upon procedures on the Review of Capital Improvement Project Contracts in determining compliance with the California Public Contract Code and with Sanitation District Purchasing Policies and Procedures. Attached is the Accountant Report from WNDE on this agreed upon procedure review. Also attached are separate reports from the Contracts, Purchasing, and Materials Management Division (Contracts) and the Engineering Department (Engineering) on staffs responses to the auditor's findings and recommendations pertaining to this review. In summary, of the 25 procedures performed by WNDE, there were no exceptions noted on 19 of these procedures. Of the remaining six procedures, WNDE noted seven separate findings in the procedures performed by Engineering and three separate findings noted in the procedures performed by Contracts. Upon review of these findings with the Audit Oversight Committee, it was concluded by the Committee that these findings consisted of: • outdated policies and procedures that were not addressing current technology or updated practices; • exceptions being made to policies and procedures because of circumstances not considered in the original establishment of the policies but addressed by other mitigating steps; and • the first Request for Qualification solicitation performed by the Sanitation District was achieved with some minor administrative procedure omissions. Page 1 of 2 Overall, the Committee concluded that the Sanitation District is appropriately following the California Public Contract Code and Sanitation District Purchasing Policies and Procedures in administering its capital improvement project contracts. WNDE was able to provide recommendations for improving the overall effectiveness of this program. RELEVANT STANDARDS • Internal auditing —Approx. 3 per year ATTACHMENT The following attachment(s) may be viewed on-line at the OCSD website (wwwocsd.corn with the complete agenda package: • Accountants' Report on Agreed-Upon Procedures Review on Capital Improvement Project Contracts • Memorandum from Contracts and Purchasing Manager dated June 24, 2016 • Memorandum from Engineering Manager dated June 24, 2016 Page 2 of 2 ORANGE COUNTY SANITATION DISTRICT AGREED-UPON PROCEDURES REVIEW CAPITAL IMPROVEMENT PROJECTS (CIPS) FOR THE CALENDAR YEARS 2012,2013 AND 2014 INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES Board of Directors Orange County Sanitation District Fountain Valley,California We have performed the procedures set forth in this report,which were agreed to by the management of the Orange County Sanitation District, Fountain Valley, California (the District), solely to assist the District in evaluating its compliance with purchasing policies governing Capital Improvement Projects (CIPs) for the calendar years 2012, 2013 and 2014. This agreed-upon procedures engagement was performed in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the management of the District. Consequently, we make no representations regarding the sufficiency of the procedures described below, either for the purpose for which this report has been requested or for any other purpose. The procedures performed and the results of those procedures are as follows: We met with staff from the District to assist us in selecting the 10 CIP contracts tested below. We reviewed the original contract and any major amendments/change orders for all 10 contracts. Contract#1: Standard Capital Improvement Protect(CIP) Contract Project Number: P1-112 Project Name: Plant Water System Rehabilitation at Plant No. 1 Project Description: Water piping replacement at Plant No. 1 PO Number: 104933-OB General Contractor: W.M. Lyles Company Original Contract Amount: $3,743,000 Original Contract Date: September 25, 2013 Compliance Tests Performed and Results: 1. California Public Contract Code (hereinafter referred to in this report as the "CA PCC") Section 22002 generally defines a "public project" to mean "construction, reconstruction, erection, alteration, renovation, improvement, demolition and repair work involving any publicly owned, leased or operated facility". Verify that Project P1-112 is a "public project" within the meaning of CA PCC Section 22002. Results: No exceptions were noted as a result of this testing. 1 2875 Michelle Drive,Suite 300,Irvine,CA 92606 •Tel: 714.978.1300• Fax:714.978.7893 Offices located in Orange and San Diego Counties Contract# 1: Standard Capital Improvement Project(CIP) Contract(Condnued) Compliance Tests Performed and Results(Continued): 2. CA PCC Section 20783 generally sets forth the requirements for Sanitation District contracts in excess of $35,000. Code Section 20784 sets forth certain bidding procedures for such contracts. Verify that Project P1-112 met the requirements of CA PCC Sections 20783 and 20784 with regard to Sanitation Districts. Results: No exceptions were noted as a result of this testing. 3. Verify that the bidder was a "Responsive Bidder" as defined under the provisions of CA PCC Sections 2000 to 2002. Results: No exceptions were noted as a result of this testing. 4. CA PCC Section 6109 defines contractors that are ineligible to bid, or who are debarred from bidding. CA PCC Section 6610 sets forth rules for mandatory prebid conferences, site visits and meetings. CA PCC Section 20103.8 sets forth rules for awarding contracts to the lowest responsible bidder. Verify that Project P1-112 met the requirements of CA PCC Sections 6109, 6610 and 20103.8. Results: No exceptions were noted as a result of this testing. 5. Verify that the District's"Solicitation Procedures"have been followed. Results: No exceptions were noted as a result of this testing. 6. Verify that the District's"Invitation for Bid(IFB)Document Procedures"have been followed. Results: No exceptions were noted as a result of this testing. 7. Verify that the District's"Evaluation of Bid Procedures"have been followed. Results: No exceptions were noted as a result of this testing. 8. Verify that the District's "Contract Award Procedures"have been followed. Results: No exceptions were noted as a result of this testing. 2 Contract#2: Emergency Contract Project Number: 5-58 Project Name: Bitter Point Force Main Rehabilitation Project Description: Repairs to the Santa Ana River levees that were damaged by a contractor during tunneling on Contract 5-58 PO Number: 103994-OB General Contractor: Geo-Solutions,Inc. Original Contract Amount: $1,144,600 Original Contract Date: September 15, 2010 Compliance Tests Performed and Results: 1. Verify that the "Emergency Contracting Procedures" required under CA PCC Section 22050 were followed. Results: No exceptions were noted as a result of this testing. Contract#3: Sole Source Contract(that is not an Emergency Contract) Project Number: SP-166 Project Name: Odor Control Master Plan Project Description: This project included an odor monitoring investigation at the OCSD Wastewater Treatment Facility and completion of the Odor Control Master Plan (OCMP). PO Number: 104839-OB General Contractor: ALS Environmental Original Contract Amount: $282,776 Original Contract Date: May 22, 2013 Compliance Tests Performed and Results: 1. Verify that the District's"Sole Source Procurement Procedures"have been followed. Results: No exceptions were noted as a result of this testing. Contract#4: Standard Capital Improvement Project(CIP) Contract Project Number: P2-105 Project Name: Digester Ferric Chloride System Rehabilitation Project Description: Replace the existing ferric chloride station and associated pipelines at Plant No. 2. PO Number: 104702-OB General Contractor: ODC Engineering and Technology Original Contract Amount: $1,694,000 Original Contract Date: September 26, 2012 3 Contract#4: Standard Capital Improvement Project(CIP) Contract(Continued) Compliance Tests Performed and Results: 1. California Public Contract Code (CA PCC) Section 22002 generally defines a "public project' to mean "construction, reconstruction, erection, alteration, renovation, improvement, demolition and repair work involving any publicly owned, leased or operated facility". Verify that Project P2-105 is a"public project"within the meaning of CA PCC Section 22002. Results: No exceptions were noted as a result of this testing. 2. CA PCC Section 20783 generally sets forth the requirements for Sanitation District contracts in excess of $35,000. Code Section 20784 sets forth certain bidding procedures for such contracts. Verify that Project P2-105 met the requirements of CA PCC Sections 20783 and 20784 with regard to Sanitation Districts. Results: No exceptions were noted as a result of this testing. 3. Verify that the bidder is a "Responsive Bidder" under the provisions of CA PCC Sections 2000 to 2002. Results: No exceptions were noted as a result of this testing. 4. CA PCC Section 6109 defines contractors that are ineligible to bid, or who are debarred from bidding. CA PCC Section 6610 sets forth rules for mandatory pre-bid conferences, site visits and meetings. CA PCC Section 20103.8 sets forth rules for awarding contracts to the lowest responsible bidder. Verify that Project P2-105 met the requirements of CA PCC Sections 6109, 6610 and 20103.8. Results: No exceptions were noted as a result of this testing. 5. Verify that the District's`Solicitation Procedures"have been followed. Results: Section V, step G 8 of the District's `Solicitation Procedures" requires that the District post the bid tabulation (list of vendors and the amount bid on the project) on the District's website within two business days from the day of the bid opening or, if possible, by close of business on the day of the bid opening. The District does not retain records to show when the bid tabulation is posted to the District's website. Therefore, we were unable to determine the timeliness of the bid tabulation posting on the District's website. 4 Contract#4: Standard Capital Improvement Project(CIP) Contract(Continued) 6. Verify that the District's"IFB Document Procedures"have been followed. Results: Section V, step C 4 of the District's "Invitation for Bid (IFB) Document Procedures" requires the Contracts Administrator to notify the Project Engineer/Project Manager that the draft front end IFB document is available in the EDMS database (or a successor database) for review 80 days prior to the first advertisement date. We inspected the contract task report (a report that documents the date of completion for this requirement) and noted that the completion date of the draft front end IFB document occurred on July 3, 2012. The first advertisement date was scheduled for July 17, 2012. Therefore, the completion of the draft font end IFB document occurred approximately 14 days (not 80 days)prior to the fast advertisement date. Section V, step C 5 of the District's "Invitation for Bid (IFB) Document Procedures" requires the Project Engineer/Project Manager to review and return the draft front end IFB documents to the Contracts Administrator with any comments 50 days prior to the first advertisement date. We inspected the contract task report (a report that documents the date of completion for this requirement) and noted the completion of the Project Engineer/Project Manager's review occurred on July 5, 2012. The first advertisement date was scheduled for July 17, 2012. Therefore, the completion of the review of the draft front end IFB document occurred approximately 12 days (not 50 days) prior to the first advertisement date. Per our discussion with District staff, this project needed to move faster than the normal timeline; therefore, the District staff processed the IFB documents more quickly to accommodate the needs of the District. 7. Verify that the District's"Evaluation of Bid Procedures"has been followed. Results: No exceptions were noted as a result of this testing. 8. Verify that the District's"Contract Award Procedures"have been followed. Results: No exceptions were noted as a result of this testing. Contract#5: Contract with Significant Chance Orders Project Number: P2-89 Project Name: Solids Thickening and Processing Upgrades(Plant 2) PO Number: 104452-OB General Contractor: W.M. Lyles Company Original Contract Amount: $26,383,400 Original Contract Date: April 25, 2012 5 Contract#5: Contract with Si¢nificant Chance Orders (Continued) Compliance Tests Performed and Results: 1. Verify that the change orders have been executed in accordance with the requirements of CA PCC Section 20104.50. Results: No exceptions were noted as a result of this testing. 2. Verify that the change orders have been executed in accordance with the District's policies, CIP Procedure C 080. In connection with this testing, we found two general areas of noncompliance: • Change orders not properly executed and/or signed by the Contractor, or • Change orders not properly executed and/or signed by District personnel. Numerous"Not to Exceed Field Chance Orders"(NTE FCOs)were not sinned by the Contractor NTE FCOs are utilized by the District for time and materials or force account change orders that require a not-to-exceed amount. NTE FCOs require signatures from the following persons: (1) resident engineer, (2) supervising engineer, (3) project manager, and (4) contractor. During our review of the NTE FCOs on Project P2-89, we noted 21 NTE FCOs that were not signed by the contractor. Per our discussion with District staff and our review of the contract files, we found that this contract had many change orders (over 100). The contractor made a determination that signing and evaluating each individual FCO was too cumbersome. In addition, the contractor was concerned that the cost impact of certain change orders was not evident at the time change order work was being performed. Therefore,the contractor stopped signing the FCOs,including NTE FCOs. As a result, the District and the contractor entered into a tolling agreement. (Note: A tolling agreement is an agreement between a potential plaintiff and a potential defendant by which the defendant agrees to extend the statutory limitation period on a plaintiffs potential claim, so that both parties will have more time to resolve disputes without litigation.) The tolling agreement on Project P2-89 stated that all defenses pertaining to the ripple effect or cumulative impact of field change orders for the project (with the exceptions of Change Orders 1 through 6) would be tolled and reserved from the effective date of the tolling agreement through and including the final completion and acceptance of the project by the District. 6 Contract#5: Contract with Shmificant Chanee Orders (Continued) 2. Verify that the change orders have been executed in accordance with the District's policies, CIP Procedure C 080 (continued). Certain NTE CFOs were not executed and/or sieved by District Personnel a. Time and Materials or Force Account Change Orders that were subsequently"Negotiated": The time and materials/force account change order procedures are set forth at Sections 5.2.4.2 and 5.2.4.4 of the District's policies. These procedures are documented on standard NTE FCO forms. Also, Section 5.2.4.4.4 states the following: "As soon as the remaining work can be priced, the contractor is to submit its cost and schedule proposal (CSP) so a turn price can be negotiated." Therefore, it is the District's preference that change orders that start out as time and materials or force account change orders be revised to a fixed "negotiated" price change order whenever possible. During our review of the change orders on Project P2-89, we noted that some change orders started out as time and materials or force account change orders and were subsequently changed to "negotiated" change orders. However, we noted 8 instances in which the District did not prepare the NTE FCO forms, since the work was performed by the contractor before the NTE FCO could be drafted. Also, we noted 5 instances in which the District did not obtain signatures from all District employees on the NTE FCO form. However, we did note that the final negotiated FCO was signed off by all appropriate District employees. b. Time and Materials or Force Account Change Orders that were Never"Negotiated": If Field Change Orders (FCOs) cannot be negotiated, a final Force Account FCO containing the final dollar impact of the change is to be completed and signed off by District employees and the contractor. We noted 7 cases in which the NTE FCOs were not signed by all required District employees since the work was already performed by the time the NTE FCO was drafted. However, we did note that the final force account FCO was signed off by all appropriate District employees. 7 Contract#5: Contract with Si¢nificant Chance Orders (Continued) 2. Verify that the change orders have been executed in accordance with the District's policies, CIP Procedure C 080 (continued). Cost Estimates Not Prepared in a Timely Manner: The District's policies and procedures over change orders, Section 5.5.1.1.3, require that District initiated changes have an estimate finalized prior to the receipt of the contractor's Cost and Schedule Proposal (CSP). We noted two change orders containing estimates that were prepared subsequent to the receipt of the contractor's CSP. One was prepared 2 days after the receipt of the contractor's CSP and one was prepared 11 days after the receipt of the contractor's CSP. Cost Estimates Prepared by the Resident Engineer Instead of the Estimator: The District's policies and procedures over change orders, Section 5.5.1.1.1, require an independent cost estimate to be developed by the Estimator for changes greater than $35,000. In five cases, we noted that the estimate was prepared by the Resident Engineer instead of the Estimator. Per our discussion with District staff, several years ago the District paid for engineers to attend estimate training so that the engineers could develop the estimates themselves. The District's policies and procedures do not reflect this practice. Contract#6: Contract with Shmificant Cost Overruns,Construction Delays, and/or Disputes Project Number: 5-58 Project Name: Bitter Point Force Main Rehabilitation Project Description: This project is the second phase of a project to mitigate soil settlement along the Santa Ana River, and follow-up work on a tunnel installation at Plant 2 that had emergency repairs in 2011. (See discussion of Contract 2 on page 3 herein.) . PO Number: 104746-OB General Contractor: Magnus Pacific Corporation Original Contract Amount: $9,362,000 Original Contract Date: January 23, 2013 Compliance Tests Performed and Results: 1. Verify that contract adjustments have been made in accordance with California Public Contract Code Sections 9201 (Claims and Disputes) and 20104 to 20104.6 (Resolution of Construction Claims). Results: No exceptions were noted as a result of this testing. 8 Contract#7: Contract with Significant Cost Overruns,Construction Delays.and/or Disputes Project Number: J-106 Project Name: Interplant Gas Line Rehabilitation Project Description: This project was initiated to rehabilitate a pipeline used to transfer digester gas for power generation between the District's two plants, in order to bring the District into compliance with U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) regulations. The pipeline was taken out of service in 2006 due to noncompliance with PHMSA regulations. PO Number: 104451-013 General Contractor: J.Fletcher Creamer& Sons, Inc. Original Contract Amount: $2,048,060 Original Contract Date: April 25, 2012 Compliance Tests Performed and Results: 1. Verify that contract adjustments have been made in accordance with California Public Contract Code Sections 9201 (Claims and Disputes) and 20104 to 20104.6 (Resolution of Construction Claims). Results: No exceptions were noted as a result of this testing. Contract#8: Professional Design Services Agreement(PDSA) and Contract#9: Professional Consulting Services Agreement(PCSA) Project Number: J-111 Project Name: Cengen Emissions Control Project PDSA Project Description: This project was initiated to install equipment at each plant to control central generation emissions and to comply with existing and proposed regulatory emission limits. The Central Generation System(CGS) engines provide electricity and heat to the District's treatment plants and are permitted to operate by the SCAQMD. Engineering services were needed during the construction phase to review submittals, answer contractor's requests for information, review design changes, provide training and content for operation manuals, prepare record drawings and assist in the close out of the project. PO Number: 105137-OB General Contractor: Black&Fletcher Original Contract Amount: $1,097,212 Original Contract Date: April 23, 2014 Project Number: P2-89 Project Name: Solids Thickening and Processing Upgrades PCSA Project Description: This project was initiated to provide sludge thickening treatment for existing solids, as well as additional solids to be generated at treatment plant no. 2. Construction support services were needed to review submittals, requests for information, preparation and requests for proposals and change orders, and assistance with the commissioning of the new equipment. PO Number: 104445-OB General Contractor: MWH Americas, Inc. Original Contract Amount: $2,199,798 Original Contract Date: April 23, 2014 9 Contract#8: Professional Design Services Agreement(PDSA) and Contract#9: Professional Consulting Services Agreement(PCSA) (Continued) Compliance Tests Performed and Results: 1. Verify that the contracts were executed in accordance with the District's Policy for PDSA and PCSA contracts. Results: Section V, step F.1., L.21. and DD.2. of the District's Policy for PDSA and PCSA Contracts requires that a Request for Proposal (RFP) Variable Form (a fill-in-the-blank form)be completed during the RFP phase utilizing the Document Tracking System(DTS) software. Per our discussion with District staff, DTS software was historically used and resulted in the production of the Variable Form. DTS software involved entering specific project information into a database that, through software integration, automatically populated various contract administration forms, including the REP. The Document Tracking System (DTS) was used for tracking the routing of the RFP for review and approvals. Several years ago, the process of creating the RFP was moved from engineering to contracts administration. When the RFP process was moved to the contracts administration department, the DTS software was no longer utilized for tracking of reviews and approvals. Currently, a different software system is utilized whereby the Administrative Assistants enter specific project information into a database that is used, through software integration, to automatically populate various contract administrative forms. However, the software is only utilized for construction project bids since the professional services solicitation method does not require significant detail and is less restricted to solicit responses for solutions. Currently, professional services contract administration documents, including the RFP, contain yellow highlighted fields that require manual entry of the required information. Although the PDSA Variable Form is no longer applicable to professional services projects, the District's policies and procedures had not been updated to reflect the above practice. Contract#10: Request for Oualifications (RFO) Solicitation Project Number: J-110 Project Name: Final Effluent Sampler and Building Area Upgrades Project Description: The purpose of this project was to construct a new building to provide housing for new sampling equipment. The contract required a preliminary design report (PDR), and final design and construction documents (plans and specifications). Type of Contract: PDSA(Professional Design Services Agreement) PO Number: 104554-OB General Contractor: Atkins North America,Inc. Original Contract Amount: $1,764,022 Original Contract Date: May 23, 2012 10 Contract#10: Request for Qualifications(RFO) Solicitation (Continued) Compliance Tests Performed and Results: Verify that the RFQ was executed in accordance with the District's Policy for Requests and Qualifications. Results: Statement of Qualifications (SOQ)without date stamps: Section V, step A 6, of the District's Policy for Requests for Qualifications requires that the SOQ be date stamped upon receipt. During our review of this project, we noted that only one of the nine SOQs received included a date stamp. Unsigned Evaluation Committee Member Declaration Form: Section V, step A 7a and step E lb, of the District's Policy for Requests for Qualifications require each member of the Evaluation Committee to complete an Evaluation Committee Member's Declaration Form. We noted that the Program Manager served on the Evaluation Committee and did execute a signed Evaluation Committee Member's Declaration Form. Lack of Cover Letter and Professional Consultant Service Agreement: Section V, step B 5, of the District's Policy for Requests for Qualifications requires an RFQ cover letter that briefly defines the general work requirements, submittal date, number of copies, and the Project Manager's name and phone number. We noted that there was no separate cover letter; however, the RFQ contained the above information. Section V, step B 7, of the District's Policy for Requests for Qualifications requires the Director of Engineering to sign the cover letter. Since there was no cover letter, there was no signature from the Director of Engineering. Section V, step C, of the District's Policy for Requests for Qualifications requires that each RFQ package contain the following: (1) cover letter, (2) request for qualifications, (3) scope of work, (4) other attachments, if applicable, and(5) sample professional design services agreement and professional consultant service agreement. We noted that the RFQ package did not contain a cover letter or a sample professional consultant service agreement. 11 Comments Regarding Certain 2015 California Legislation During the calendar year ended December 31, 2015, the California legislature passed various bills which were signed into law by Governor Brown setting forth certain new laws and regulations governing capital improvement projects of governmental agencies within California. It is unlikely that any of these new laws and regulations would retroactively apply to the CIP contracts of the District that we reviewed for the calendar years 2012, 2013 and 2014. Therefore, our testing did not include a review for compliance with these new laws and regulations. Conclusion We were not engaged to, and did not, conduct an audit, the objective of which would be the expression of an opinion, on the accounting and contract records related to the District's Capital Improvement Projects (CIPs) for the calendar years 2012, 2013 and 2014. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. Restriction on the Use of This Report This report is intended solely for the information and use of the management of the Orange County Sanitation District Board of Directors and management and is not intended to be and should not be used by anyone other than those specified parties. Irvine, California May 31, 2016 12 ORANGE COUNTY SANITATION DISTRICT Memorandum DATE: June 24, 2016 TO: Mike White Controller FROM: Marc Dubois Contracts and Purchasing Manager SUBJECT: Independent Accountants' Report on Applying Agreed-Upon Procedures for CIP Contracting Procedures— Contract#4, #8, & #9 The following responses are made to the findings presented by White Nelson Diehl Evans Independent Accountants' Report on Applying Agreed-Upon Procedures for CIP Contracting Procedures on Contract#4, Contract#8, and Contract#9. Contract#4: Standard Capital Improvement Project (CIP) Contract Finding No. t Section V, step G 8 of the District's "Solicitation Procedures" requires that the District post the bid tabulation (list of vendors and the amount bid on the project) on the District's website within two business days from the day of the bid opening or, if possible, by close of business on the day of the bid opening. The District does not retain records to show when the bid tabulation is posted to the District's website. Therefore, the auditors unable to determine the timeliness of the bid tabulation posting on the District's website. Response The District concurs with this finding. Using the current software, there is no technical means by which to identify the time of posting of a bid tabulation. The "Solicitation Procedures" have now been revised eliminating the time element described in this step. However, it will be a continuing practice of Contracts Administration to post the bid tabulation on the District's website as soon as possible with the goal of having it posted without bidders having to call the District to find out the status. Finding No. 2 Section V, step C 4 of the District's "Invitation for Bid (IFB) Document Procedures" requires the Contracts Administrator to notify the Project Engineer/Project Manager that the draft front end IFB document is available in the EDMS database (or a successor 1 database)for review 80 days prior to the first advertisement date. We inspected the contract task report (a report that documents the date of completion for this requirement) and noted that the completion date of the draft front end IFB document occurred on July 3, 2012. The first advertisement date was scheduled for July 17, 2012. Therefore, the completion of the draft font end IFB document occurred approximately 14 days (not 80 days) prior to the first advertisement date. Section V, step C 5 of the District's "Invitation for Bid (IFB) Document Procedures" requires the Project Engineer/Project Manager to review and return the draft front end IFB documents to the Contracts Administrator with any comments 50 days prior to the first advertisement date. We inspected the contract task report (a report that documents the date of completion for this requirement) and noted the completion of the Project Engineer/Project Manager's review occurred on July 5, 2012. The first advertisement date was scheduled for July 17, 2012. Therefore, the completion of the review of the draft front end IFB document occurred approximately 12 days (not 50 days) prior to the first advertisement date. Per our discussion with District staff, this project needed to move faster than the normal timeline; therefore, the District staff processed the IFB documents more quickly to accommodate the needs of the District. Response The District concurs with this finding. The District's policy and procedure included a standard timeline which did not address specific Project needs as they arose during design, such as changes to the scope of work, reviews and approvals by outside agencies, permitting, coordination with other Projects under construction, etc. The District has now updated its policies and procedures to remove the standard timeline and requires the Contracts Administrator and Project Engineer/Project Mangers to establish the timeline for each Project based upon the Project's unique needs and time requirements. Contract#8: Professional Design Services Agreement (PDSA) and Contract #9: Professional Consulting Services Agreement {PCSA) Finding No. 1 Section V, step F.1., L.2.k. and DD.2.of the District's Policy for PDSA and PCSA Contracts requires that a Request for Proposal (RFP) Variable Form (a fill-in-the-blank form) be completed during the RFP phase utilizing the Document Tracking System (DTS) software. Per our discussion with District staff, DTS software was historically used and resulted in the production of the Variable Form. DTS software involved entering specific project information into a database that, through software integration, automatically populated various contract administration forms, including the RFP. The Document Tracking System (DTS) was used for tracking the routing of the RFP for review and approvals. Several years ago, the process of creating the RFP was moved 2 from engineering to contracts administration. When the RFP process was moved to the contracts administration department, the DTS software was no longer utilized for tracking of reviews and approvals. Currently, a different software system is utilized whereby the Administrative Assistants enter specific project information into a database that is used, through software integration, to automatically populate various contract administrative forms. However, the software is only utilized for construction project bids since the professional services solicitation method does not require significant detail and is less restricted to solicit responses for solutions. Currently, professional services contract administration documents, including the RFP, contain yellow highlighted fields that require manual entry of the required information. Although the PDSA Variable Form is no longer applicable to professional services projects, the District's policies and procedures had not been updated to reflect the above practice. Response The District concurs with this finding. The District has now updated its policies and procedures and has removed instructions regarding use of the Document Tracking System (DTS) and the PDSA Variable Form, as they are no longer being used for professional service project RFPs. 3 ORANGE COUNTY SANITATION DISTRICT Memorandum DATE: June 24, 2016 TO: Mike White Controller FROM: Dean Fisher Engineering Manager SUBJECT: Independent Accountants' Report on Applying Agreed-Upon Procedures for CIP Contracting Procedures— Contract#5 and #10 The following responses are made to the findings presented by White Nelson Diehl Evans Independent Accountants' Report on Applying Agreed-Upon Procedures for CIP Contracting Procedures on Contract#5 and Contract#10, as identified in their report. Contract#5: Contract with Significant Change Orders Finding No. 1 During our review of the "Not to Exceed Field Change Orders" (NTE FCOs) on Project 132-89, we noted 21 NTE FCOs that were not signed by the Contractor. Response The District attempted to have the change orders signed by the Contractor but the Contractor would not agree with the terms and conditions of OCSD's change orders in context of the many changes being required and expressed concerns that the cumulative impact of changes on the project might be impacting overall productivity and project completion time. Since both parties agree to the direct cost impacts of this change, both parties worked cooperatively with respective legal counsel to develop a "tolling agreement" that allowed the parties to maintain bilateral agreements to the direct cost while preserving specific rights for both parties on schedule impacts. This was viewed as a better solution than having no agreement on changes being executed. During this period, Not to Exceed Field Change Orders (NTE FCOs)were issued without the Contactor's signature while both parties were developing this agreement. Neither of the parties saw a need to go back and sign these documents since these were superseded by the final cost Field Change Orders as well as the formal approved Contract Change Orders which were signed by both parties. June 23, 2016 Page 2 of 3 Finding No. 2 Certain NTE FCOs were not executed and/or signed by District personnel: Response The District concurs with this finding. The changes identified were relatively small and timing of these items was critical to the project schedule. Since the delays potentially outweighed the cost of the item, verbal direction to proceed was given with a tracking number for time and materials costs while the NTE FCO paperwork was completed. In these cases, the actual work was very short and was completed prior to the completion of the NTE FCO. In the future, the NTE FCO will be signed by District personnel after the fact when small items have been completed before the preparation of the NTE FCO. Finding No. 3 Cost Estimates not prepared in a timely manner: Response Cost estimating workload fluctuates and occasionally resources are challenged. Staffing is kept small and efficient, but sometimes there is a backlog causing a delay. While this timing was inconsistent with procedures, all items were estimated independently prior to negotiation with the Contractor. Finding 4 Cost Estimates prepared by Resident Engineer instead of the Estimator: Response As mentioned above in the previous finding, the cost estimating workload fluctuates and this can lead to minor backlogs. To help remedy this OCSD has provided estimating training and tools to the Resident Engineers to have them assist in preparing cost estimates for less costly and simpler items. This is consistent with construction management practices and policies and procedures were recently approved for this practice. Contract#10: Request for Qualifications (RFQ) Solicitation Findings 1. Section V, step A 6, of the District's Policy for Requests for Qualifications requires that the Statement of Qualifications (SOQ) be date stamped upon receipt. During their review, the auditors noted that only one of the nine SOQs received a date stamp. June 23, 2016 Page 3 of 3 2. Section V, step 13 7, of the District's Policy for Requests for Qualifications requires the Director of Engineering to sign the cover letter. Since there was no cover letter, there was no signature from the Director of Engineering. 3. Section V, step C, of the District's Policy for Requests for Qualifications requires that each RFQ package contain the following: (1) cover letter, (2) request for qualifications, (3) scope of work, (4) other attachments, if applicable, and (5) sample professional design services agreement and professional consultant service agreement. We noted that the RFQ package did not contain a cover letter or a sample professional consultant service agreement. Response The District concurs with the above three findings. The solicitation of this Request for Qualifications was the first solicitation of this type attempted at OCSD and there were some minor administrative omissions as evidenced by these findings. Furthermore, since this solicitation, the OCSD Contracts Group has been assigned to assist with Professional Design Service solicitations to help prevent these types of ommissions from happening in the future. DF: H9depAengV60VwdiM\AUP CIP Audit 20MEngineering Response to AUP CIP Audit 2016.do= ADMINISTRATION COMMITTEE Meeting Date TOBE.Or .Dir. 10/12/16 10/26/16 AGENDA REPORT Item Item Number 6 Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: INVEST AND/OR REINVEST DISTRICT'S FUNDS GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No. OCSD 16-XX, entitled "A Resolution of the Board of Directors of the Orange County Sanitation District, Authorizing the District's Treasurer to Invest and/or Reinvest District's Funds; Adopting District's Investment Policy Statement and Performance Benchmarks; and Repealing Resolution No. OCSD 15-25." BACKGROUND This agenda item presents an update to the Orange County Sanitation District's (Sanitation District) 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 calendar year 2017. The Sanitation District's Investment Policy Statement was previously approved by the Administration Committee and Board for calendar year 2016 in December 2015. RELEVANT STANDARDS • Orange County Sanitation District Investment Policy • California Government Code Section 53607 and 53646 PROBLEM California Government Code Section 53607 allows for the Board of Directors to delegate authority to invest and/or reinvest the Sanitation District's funds to the Treasurer for a one-year period. California Government Code Section 53646 requires the Sanitation District to review its Investment Policy annually and readopt its Policy at a public meeting, which will establish specific performance benchmarks and objectives, and specific monitoring and reports. On December 16, 2015, the Board of Directors adopted Resolution No. OCSD 15-25 entitled "A Resolution of the Board of Directors of the Orange County Sanitation District, Authorizing the District's Treasurer to Invest and/or Reinvest District's Funds, and Adopting District's Investment Policy Statement and Performance Benchmarks; and Repealing Resolution No. OCSD 14-20:' Authority delegated by the Page 1 of 3 Board of Directors to the Director of Finance/Treasurer to invest and/or reinvest the Sanitation District's funds expires on December 31, 2016. Pursuant to California Government Code Section 53646, the Sanitation District's Investment Policy must be reviewed and readopted prior to December 31, 2016. PROPOSED SOLUTION With adoption of the Resolution, the Board of Directors would renew its delegation of investment authority to the Director of Financefrreasurer for a one-year period, January 1, 2017 to December 31, 2017, in compliance with the requirements of California Government Code Section 53607. Each year, the Board of Directors will consider similar actions, along with the annual reconsideration of the Sanitation District's Investment Policy. TIMING CONCERNS The Board of Directors delegation of authority to the Director of Finance/Treasurer to invest and/or reinvest the Sanitation District's funds will expire on December 31, 2016. Pursuant to California Government Code Section 53646, the Sanitation District's Investment Policy must be reviewed and readopted prior to December 31, 2016. There is no Administration Committee meeting scheduled for December 2016, thus adoption of the proposed Resolution has been moved to October 2016. RAMIFICATIONS OF NOT TAKING ACTION The Sanitation District's Director of Finance/Treasurer will not be able to invest and/or reinvest the Sanitation District's funds and the Sanitation District will not be in compliance with California Government Code Section 53646. PRIOR COMMITTEE/BOARD ACTIONS December 2015 - Board adopted Resolution No. OCSD 15-25, Authorizing the Orange County Sanitation District's Treasurer to Invest and/or Reinvest District's Funds; and Adopting District's Investment Policy Statement and Performance Benchmarks; and, Repealing Resolution No. OCSD 14-20. ADDITIONAL INFORMATION The Investment Policy will govern the investment activities of Chandler Asset Management, the Sanitation District's external money manager, on behalf of the Sanitation District. On December 11, 2012, the Sanitation District's Investment Policy Statement received the Investment Policy Certification of Excellence Award from the California Municipal Treasurer's Association (CMTA). 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. Page 2 of 3 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). Chandler Asset Management reviewed the existing policy to ensure that the language remains current with the California Government Code. The proposed Investment Policy is attached with redlined changes from the most recent approved policy in December 2015. These proposed changes include: • Limiting the percentage of the total portfolio that may be invested in the banker's acceptances of any one (1) commercial bank to 5%. • California Government Code limits mutual funds exposure to 10% per fund, but makes an exception for Money Market funds. Money Market funds are allowed to have an exposure of up to 20% for one fund. • Updating the Sanitation District Treasury Management Procedures to increase the maximum amount that is allowed to be maintained within the State Local Agency Investment Fund (LAIF)for managing cash flows (i.e., deposits of large revenues, such as property tax and user fee proceeds, and the bi-weekly disbursements of payroll and accounts payable)from $50 million to $65 million. Annual Delegation of Investment Authority Effective January 1, 1997, California Government Code Section 53607 states that governing boards of local agencies may only delegate authority to invest and/or reinvest agency funds to the agency's Treasurer for a one-year period. CEQA N/A FINANCIAL CONSIDERATIONS N/A ATTACHMENT The following attachment(s)are included in hard copy and may also be viewed on-line at the OCSD website (wwwocsd.com) with the complete agenda package: • Exhibit A - OCSD Calendar Year 2016 Investment Policy Statement • Exhibit B - Performance Monitoring & Reporting Summary • Proposed Resolution No. OCSD 16-XX • Orange County Sanitation District Treasury Management Procedures Page 3 of 3 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 external 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 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 manner that 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 Authority: 5.1 Authority to manage OCSD's investment program is derived from the California Government Code Sections 53600 et seq, and Sections 53635 et seq. The Board of Directors hereby delegates 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 Page 2 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 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 Page 3 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. 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 qualify 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: Page 4 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 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 at seq., 53600 et seq., 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 (f) of the California Government Code. US Treasury securities must make up at least 10% of the portfolio. 8.2 Supranational Obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank. Securities must be eligible for purchase in the United States and be US dollar denominated senior unsecured unsubordinated obligations, with a maximum maturity of five years. Securities eligible for purchase under this section must be rated "AA" or better by a Nationally Recognized Statistical Rating Organization (NRSRO) and shall not exceed 30% of the total portfolio. 8.3 Mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease- backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond of a maximum maturity of five years. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by an NRSRO and rated in a rating category of"AA" or its equivalent or better by an NRSRO. Purchase of securities Page 5 authorized by this subdivision may not exceed 20 percent of the agency's surplus moneys that may be invested pursuant to this section. 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. 8.4 Commercial paper of"prime" quality of the highest ranking or of the highest letter and number rating as provided by an NRSRO, 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 an NRSRO. Purchases of eligible commercial paper may not exceed 270 days to maturity from the date of purchase. Purchases of commercial paper shall not exceed 25% of the market value of the portfolio. 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. 8.5 Banker's acceptances issued by institutions, the short-term obligations of which are rated of the highest ranking or the highest letter and number rating as provided by an NRSRO 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 305% of the total portfolio may be invested in the banker's acceptances of any one (1) commercial bank. 8.6 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 an NRSRO. If, after purchase, the rating of an eligible note falls below the minimum rating category stipulated above, 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. No more than 30% of the portfolio may be invested in medium term notes. 8.7 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 Page 6 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. 8.8 Shares of mutual funds investing in securities permitted under this policy and under Section 53601 (1) 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 20% 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. Money market mutual funds are limited to 20% per issuer and are not subject to the 10% stipulation. 8.9 Certificates of deposit: 8.9.1 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 Chapter 4, 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. 8.9.2 Negotiable certificates of deposit (NCDs) issued by a nationally or 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 a NRSRO; or which shall have the highest letter and number rating for deposits as provided by a NRSRO; or as otherwise approved by the District's Board of Directors. No more than 30% of the portfolio may be invested in securities pursuant to this section. 8.9.3 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 Page 7 "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. 8.10 Taxable or tax-exempt municipal bonds issued by any of the 50 United States. Such securities must be rated "A" or higher by a NRSRO; or as otherwise approved by the Districts' Board of Directors. 8.11 The State of California Local Agency Investment Fund (LAIF). The LAIF 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. 8.12 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 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. 8.13 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 Page 8 invested in reverse repurchase agreements, and there shall be no long- term reverse repurchase agreements unless otherwise authorized by the 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. 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 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 8.8.1; and repurchase agreements, as more fully described in Section 8.13.1. 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 Safekeepina and Custody: 10.1 All securities transactions, including collateral for repurchase agreements, Page 9 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. 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 25% of the portfolio may be invested in commercial paper. 11.7 No more than 30% of the portfolio may be invested in medium-term (corporate) notes. 11.8 No more than 20% of the portfolio may be invested in mutual funds. 9ewevef- No more than 10% of the District's portfolio may be invested in shares of beneficial interest of any one (1) mutual fund. Money market mutual funds are limited to 20% per issuer and are not subject to the 10% stioulation.{wczl 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. Page 10 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. 11.12 No more than the lesser of 15% of the portfolio or the statutory maximum may be invested in LAIR 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. 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) year from the date of settlement. 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 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 settlement. 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 rash flow forecast, but may never exceed 60 months. Page 11 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 The duration of 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 13.0 Internal Control: 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 by the 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 OCSD 16-XX (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. OCSID 00 16 OCSD 16-XX (See Appendix "E"). 15.0 Reporting: 15.1 Monthly transaction reports in accordance with California Government Code Section 53607 shall be submitted by the Treasurer to the Adrn „6str Conn Cornrnkt p which shall r..rwafa he . „tip to the District's Board of Directors. Page 12 15.2 Quarterly investment reports will 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 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: 15.2.1 Cost and accurate and complete market value of the portfolio. 15.2.2 Modified duration of the portfolio compared to Benchmark. 15.2.3 Dollar change in value of the portfolio for a one-percent (1%) change in interest rates. 15.2.4 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. 15.2.5 For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. 15.2.6 Average portfolio credit quality. 15.2.7 Percent of portfolio with credit ratings below "A" by any rating agency, and a description of such securities. 15.2.8 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. 15.2.9 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. 15.2.10 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 Page 13 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. 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 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 Supranationals NO 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 OK Asset-backed NO OK 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 Supranationals NO OK Mortgage-backed NO OK Commercial Paper OK OK Banker's Acceptances OK OK Medium Term Notes Fixed coupon, fixed mat.* 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 OK Asset-backed NO OK Repurchase Agree. OK OK Reverse Repos OK* OK *With prior approval of the Administration Committee. **Using financial institutions approved by the Administration Committee. EXHIBIT "B" Calendar Year 2017 Performance Monitoring & Reporting Schedule For the Administration Committee The Quarterly Investment and Board of Directors meetings of: Management Program Report to be resented for the period of: January 2017 February Oct— Dec 2016 March April May Jan — March 2017 June Jul August Board only) Aril — June 2017 September October November Jul —Sept 2017 December EXHIBIT "B" ORANGE COUNTY SANTIATION DISTRICT PERFORMANCE MONITORING & REPORTING SUMMARY FOR THE DISTRICT'S INVESTMENT PROGRAM POLICY REFERENCE PERFORMANCE CHARACTERISTIC REPORTING PARTY* Chandler BNY Callan 15.2.1 Cost and market value of the portfolio(monthly mark-to-market). M, Q M, Q Q 15.2.2 Modified duration of the portfolio compared to benchmark. M, Q Q 15.2.3 Dollar change in value of the portfolio for a 1%change in interest rate. M, Q Q 15.2.4 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. 15.2.5 For the Liquid Operating Monies account only,the percent of portfolio maturing within 90 M, Q Q days. 15.2.6 Average portfolio credit quality. M, Q Q 15.2.7 Percent of portfolio with credit ratings below"A" by any rating agency, and a description M, Q Q of such securities. 15.2.8 Listing of any transaction or holdings which do not comply with this policy or with the M, Q California Government Code. 15.2.9 Time-weighted total rate of return for the portfolio forthe priorthree 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. Q 15.2.10 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 RESOLUTION NO. OCSD 16-XX A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE COUNTY SANITATION DISTRICT, AUTHORIZING THE DISTRICT'S TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS, ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND PERFORMANCE BENCHMARKS; AND REPEALING RESOLUTION NO. OCSD 15-25 WHEREAS, on December 16, 2015, the Board of Directors adopted Resolution No. 15-25, readopting the District's Investment Policy Statement, and establishing specific performance benchmarks and objectives, together with a schedule of frequency of investment performance reports; and WHEREAS, pursuant to California Government Code Section 53607, the Board of Directors may delegate authority to invest and/or reinvest District's funds to the Treasurer for a one-year period; and WHEREAS, pursuant to California Government Code Section 53646, the District is required to review its Investment Policy annually and readopt its Policy at a public meeting,which Policy will establish specific performance benchmarks and objectives, and specific monitoring and reports. NOW, THEREFORE, the Board of Directors of the Orange County Sanitation District, DOES HEREBY RESOLVE, DETERMINE AND ORDER: Section 1: That the authority of the Board of Directors to invest or reinvest District's surplus funds, or to sell or exchange securities so purchased, or to deposit for safekeeping the funds and investments of the Districts with depositories, as provided for in California Government Code Sections 53608 and 53630, is hereby delegated to the District's Treasurer for a one-year period commencing on the date this Resolution is adopted, as authorized by California Government Code Section 53607. OCSD 16-XX-1 Section 2: That the Board of Directors hereby adopts the Investment Policy Statement of the Orange County Sanitation District, as set forth in Exhibit "A", attached hereto and incorporated herein by reference. Section 3: That the Board of Directors hereby adopts the following specific performance benchmarks for their two investment funds in accordance with Section 14.0 of the District's Investment Policy: LIQUID OPERATING MONIES: The Short-Term Operating Fund will be compared to the three-month T-Bill rate, and the Callan Active Cash Flow Income Style Group. The Callan Active Cash Flow Income Style Group represents a peer group of managers who operate with a maximum maturity of one year. LONG-TERM OPERATING MONIES: The Long-Term Operating Fund will be compared to the Merrill Lynch Government and Corporate One-to-Five Year Maturity Index and to the Callan Defensive Fixed Income Style Group. Section 4: That the Board of Directors hereby adopts a performance monitoring and reporting schedule, as required by Section 15.0 of the District's Investment Policy, which schedule is attached hereto as Exhibit"B", and incorporated herein by reference. Section 5: That Resolution No. OCSD 15-25 is hereby repealed. OCSD 16-XX-2 PASSED AND ADOPTED at regular meeting of the Board of Directors, Orange County Sanitation District held October 26, 2016. John Nielsen Board Chair ATTEST: Kelly A. Lore Clerk of the Board OCSD 16-XX-3 STATE OF CALIFORNIA ) ss COUNTY OF ORANGE ) I, Kelly A. Lore, Clerk of the Board of Directors of the Orange County Sanitation District, do hereby certify that the foregoing Resolution No. OCSD 16-XX was passed and adopted at a regular meeting of said Board on the 26th day of October, 2016, by the following vote, to wit: AYES: NOES: ABSTENTIONS: ABSENT: IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of Orange County Sanitation District this 26th day of October, 2016. Kelly A. Lore Clerk of the Board of Directors Orange County Sanitation District OCSD 16-XX-4 Appendix "B" Revised: DeGNovember 1, 20164 Orange County Sanitation District Treasury Management Procedures 1.0 Purpose 1.1 The purpose of this policy is to establish uniform guidelines and procedures for use in the administration of the District's Treasury functions consistent with the California Government Code and the District's adopted Investment Policy Statement. 2.0 Authority to Investment and/or Reinvestment of District Funds: 2.1 Is delegated annually to the Director of Finance/Treasurer in accordance with California Government Code Section 53607. 3.0 Formal Investment Policy Statement: 3.1 Is prepared by the Treasurer. 3.2 Is reviewed by the District's Administration Committee (ADM), in its role as the finance oversight committee. 3.3 Is submitted to and adopted by the District's Board of Directors annually at a public meeting in accordance with California Government Code Section 53646. 4.0 Delegation of some or all of the investment portfolio management to one or more registered investment advisors (external money managers): 4.1 Is authorized by the District's Investment Policy; 4.2 Applies to the District's entire investment portfolio except for: 4.2.1 A maximum of $6550 million that is maintained within the State Local Agency Investment Fund (LAIF)for managing cash flows (i.e., deposits of large revenues, such as property tax and user fee proceeds, and the bi-weekly disbursements of payroll and accounts payable); 4.2.2 A peg amount of approximately $50,000 is maintained within the District's checking account at Union Bank to serve as compensating balances to offset banking charges (note: the District's Board of Directors has selected Union Bank-to serve as the District's commercial bank (the "Bank"); and 4.2.3 Based on a determination by the District's Treasurer on what is most advantageous to the District, the checking account residual amounts may be invested as follows: Orange County Sanitation District Treasury Management Procedures Revised: November 1,2016 Page 2 of 7 4.2.3.1 Bank balances exceeding the peg balance (as a result of outstanding accounts payable and payroll warrants) may be invested overnight under a repurchase agreement with the Bank; or 4.2.3.2 The District may elect to receive earnings credit against bank charges on all bank balances including the peg amount equal to the 91 Day T-Bill Average. 5.0 Investment transactions involving the LAIF are approved by the Treasurer prior to their execution by the Controller. The approval function indicates that the transactions are in accordance with the District's Investment Policy. The Accounting Manager will serve as backup for the approval function upon the absence of any either of these two employees. 5.1 Specific Procedures involving LAIF include (note: all deposits and withdrawals of funds toffrom LAIF may only be processed through the District's checking account with the Bank): 5.1.1 A "State Treasurer's Local Agency Investment Fund Authorization Form" (see Attachment "A") must be completed prior to the execution of the transaction indicating: 5.1.1.1 The effective date of the transaction; 5.1.1.2 The dollar amount to be withdrawn from or deposited into LAIF; 5.1.1.3 The date and signature approval by the Controller authorizing the transaction; and 5.1.1.4 The date and signature approval of the Treasurer approving the transaction. 5.1.2 The execution of the transaction will be done in accordance with the "State Treasurer's Local Agency Investment Fund Wire Transfer Instructions" (see Attachment "B"). Key internal control features include: 5.1.2.1 The requirement of the District's Personnel Identification Number (PIN)for either deposits or withdrawals, known only by the Treasurer and Controller. 5.1.2.2 Secondary confirmation requirement by the Bank for the Orange County Sanitation District Treasury Management Procedures Revised: November 1,2016 Page 3 of 7 withdrawals/deposits from/to the Bank or LAIF. The confirmation can be made by the Controller or Treasurer(the person that didn't make the original request), the Accounting Manager, or the Principal Accountant. 5.1.3 Each transaction is confirmed the next day by the Bank's Previous Day Reporting modem service by the Principal Accountant and Controller. 6.0 Investment transactions involving the District's external investment program and performed by the independent investment firms are as follows: 6.1 The District's Board of Directors has selected Chandler Asset Management (Chandler) to manage two portfolios: the Districts' Liquid Operating Monies Fund, and the Long-term Operating Monies Fund. 6.1.1 Chandler has authorization to purchase and sell investment securities in accordance with the strict investment guidelines set forth in the District's Investment Policy (Section 8.0). 6.1.2 Hard copy confirmation reporting to the District is required on all transactions. 6.2 The District's Board of Directors has selected Mellon/Boston Trust (the "Custodian")to serve as the District's master custodian and safekeeping bank. In their capacity as Custodian, Mellon/Boston Trust shall perform the following duties to settle purchases and sales and engage in other transactions in the administration of the District's accounts: 6.2.1 Upon execution of any transaction by Chandler, all investment securities are recorded in book entry by the Custodian through either the Depository Trust Company or the Federal Reserve Bank; 6.2.2 Hold the property in safekeeping facilities of the Custodian or of other custodian banks or clearing corporations in the U.S.; 6.2.3 Collect all income payable to and all distributions due to the District's account and sign on the District's behalf all declarations, affidavits, and certificates of ownership required to collect income and principal payments; 6.2.4 Collect all proceeds from securities, certificates of deposit or other investments which may mature or be called; 6.2.5 Submit or cause to be submitted to the District or the external money Orange County Sanitation District Treasury Management Procedures Revised: November 1,2016 Page 4 of 7 manager, as designated by the District, on a best effort basis all information received by the Custodian regarding the ownership rights pertaining to property held in the account; 6.2.6 Attend to involuntary corporation actions; 6.2.7 Determine the fair market value of the District's account on a monthly basis as of such dates as the Districts and the Custodian may agree upon, in accordance with methods consistently followed and uniformly applied; 6.2.8 Render to District, with copies to the external money manager, monthly statements for securities held hereunder; and 6.2.9 Provide the District with copies of the Custodian's financial statements filed with the State of California, or any agency thereof, within thirty(30) days after such filing. 6.3 The District's Board of Directors has selected Callan Associates as the District's Independent Investment Advisor (the "Advisor'). In their capacity as Advisor, Callan shall perform the following duties on behalf of the District: 6.3.1 Monitor and report on Chandler's compliance with the investment requirements of the Districts' Investment Policy, using data from transaction reports prepared by Mellon/Boston Trust, on a quarterly basis; 6.3.2 Review Chandlers investment strategy quarterly; 6.3.3 Monitor and report on the performance of Chandler against the performance benchmark standards established in the District's Investment Policy for both the Liquid Operating Monies Fund and the Long-term Operating Monies Fund on a quarterly basis; and 6.3.4 Review both Liquid and Long-term Operating Funds by asset allocation, asset flow, quarterly factors and cumulative results on a quarterly basis. 6.4 Specific procedures in depositing to or withdrawing funds from the investment portfolio managed by the District's external money manger include: (note: all deposits and withdrawals of funds from the District's investment portfolio managed by Chandler and Mellon/Boston Trust may only be processed through the District's checking account at the Bank): 6.4.1 A"Wire Transfer Form" (see Attachment" C")must be completed by the Controller prior to the execution of the transaction indicating: Orange County Sanitation District Treasury Management Procedures Revised: November 1,2016 Page 5 of 7 6.4.1.1 The dollar amount to be withdrawn/deposited from/to the Bank checking account to/from the Chandler Liquid Operating or Chandler Long-term Operating Monies Funds; 6.4.1.2 The effective date of the transaction; 6.4.1.3 The date and signature review by the Controller; and 6.4.1.4 The date and signature approval of the Treasurer approving the transaction. 6.4.2 The execution of the transaction requires a verbal confirmation call from the Custodian to the Controller at the time of the transaction, and a written confirmation the following day. 6.4.3 Each transaction is confirmed the next day by the Bank's Previous Day Reporting modem service by the Principal Accountant and Controller. 7.0 Recording of investment transactions: 7.1 For investment transactions conducted by District staff with the LAIF, and with the transfer/withdrawal of funds with the Custodian: 7.1.1 Is done by the Controller who maintains a file of all investment transactions. 7.1.2 Is done within the accounting records by the Principal Accountant, who receives a signed copy of all investment transactions from the Controller. 7.2 For investment transactions conducted by the external money manager: 7.2.1 Is done by the Custodian who posts all investment transactions daily within their record keeping system and provides the District with a monthly report that provides both a summary and detail listing of all investment transactions. 7.2.2 Is done on a monthly basis by the Accounting Manager within the accounting records at a summary level using Monthly Transaction Reports prepared by the Custodian. 8.0 Verification of external money manager transactions is performed by: 8.1 The Custodian within their record keeping system (i.e., matching broker Orange County Sanitation District Treasury Management Procedures Revised: November 1,2016 Page 6 of 7 confirmations to custodian records), and is reported to the District and Chandler on a monthly basis. 8.2 Chandler through their internal compliance office and reported monthly to the District as required by the District's Investment Policy. 8.3 The Principal Accountant through reconciliation of Chandler's monthly investment transaction report against the monthly transaction report provided by the Custodian. 9.0 Safeguarding of Assets and Records: 9.1 Reconciliation of investment records to the accounting records is done by the Principal Accountant, or in his absence, the Accounting Manager on a monthly basis. 9.2 Reconciliation of investment records to bank statements is performed by the Principal Accountant (or in their absence, the Accounting Supervisor) within one week following the receipt of the bank statement. 9.3 Review of financial condition, safety, liquidity, and potential yields of investment instruments and reputation and financial condition of investment brokers is done by the District's external money manager, who is authorized to utilize the services of independent securities brokerage firms as deemed appropriate, and which meets the requirements of Government Code Section 53601.5. 10.0 The periodic review of the investment portfolio, including investment types, purchase price, market values, maturity dates, and investment yields as well as conformance to the stated Investment Policy will be performed monthly by the Controller, quarterly by the Advisor, and annually by the District's external independent auditors. 11.0 The District's Administration Committee will serve as the Oversight Investment Advisory Committee to assist the Board of Directors in monitoring treasury management activities. 11.1 The District's Treasurer submits a Quarterly Investment Program Performance Report which includes, but is not limited to, the following information: 11.1.1 Quarterly interest earnings and rates of return; 11.1.2 The market value of the portfolios; 11.1.3 The annualized earnings of the portfolios; Orange County Sanitation District Treasury Management Procedures Revised: November 1,2016 Page 7 of 7 11.1.4 Market recap; 11.1.5 Comparisons with pre-determined benchmarks; 11.1.6 Market forecast; and 11.1.7 Proposed investment strategy for the upcoming quarter. Internal Control Strengths 1. The specific responsibility for the performance of duties is assigned and lines of authority and reporting are clearly identified. 2. Responsibilities are commensurate with the capabilities of the personnel assigned. 3. Incompatible functions have been properly segregated to prevent errors or fraud. 4. All transactions are authorized by an appropriate responsible individual. 5. Safeguards over assets and records are in place to ensure that recorded assets exist and are properly recorded. 6. Management controls are in place to ensure that significant transactions are properly performed and recorded. H1DEPTPINMMWHITEURE SURV MGkMINVESTMENT POLIGW015\TRE SMGMT PROC.DOC ADMINISTRATION COMMITTEE Meeting Date TOBE.Or .Dir. 10/12/16 10/26/16 AGENDA REPORTItemNumber Item Number Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: ELIMINATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITYWITHIN THE ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM GENERAL MANAGER'S RECOMMENDATION Direct staff to pay off the Orange County Sanitation District's (Sanitation District) unfunded actuarial accrued pension liability (UAAL) in its defined pension plan administered by the Orange County Employees Retirement System (OCERS) in an amount not to exceed $40 million. BACKGROUND As of July 1, 2014, the District had an UAAL in its defined pension plan administered by OCERS of $194 million. In fiscal year 2014-15 and fiscal year 2015-16, the District paid down $125 million and $50 million of this liability, respectively. Based on OCERS most recent actuarial valuation report, this existing UAAL now approximates $6 million. However, for the OCERS year ended December 31, 2015, OCERS actuarial assumed rate of return was 7.25 percent, but actual investment returns were less than one percent. OCERS actual investment returns were $660 million less than what was anticipated and the District's allocated share of this shortfall (deferred investment loss) is approximately $33 million. Combining this new UAAL addition of $33 million with the previous existing UAAL of approximately $6 million equals a total UAAL of close to $40 million. Over the last 20 years, OCERS annual rate of return exceeded the Sanitation District's 70 percent of the time. Due to their ability to invest in the equity market, staff believes that, over the long-term, OCERS will consistently outperform the Sanitation District's return on investments. Therefore, staff recommends reducing its investment portfolio to fund its current total UAAL of approximately $40 million. RELEVANT STANDARDS Ensure the public's money is wisely spent Resolution No. OCSD 15-25 — Sanitation District's adopted Investment Policy - prudent investor standard PROBLEM The return on investments by OCERS was less than planned within its actuarial assumptions, thereby creating a new Sanitation District UAAL for the OCERS year-ended Page 1 of 2 December 31, 2015 of approximately $33 million. Combining the Sanitation District's newly established $33 million UAAL along with the existing UAAL of$6 million is close to $40 million. The Sanitation District could amortize the payment of this $40 million UAAL over a long period of time, such as 10 to 20 years; however, in doing so, the Sanitation District would have to make up the anticipated returns these funds would be earning by OCERS over this repayment period. However, by paying this funds off now in a lump sum, the Sanitation District will forgo future anticipated interest expense of approximately 7.25% a year. PROPOSED SOLUTION Direct staff to pay off the Sanitation District's total UAAL estimated at $40 million. TIMING CONCERNS As soon as the UAAL payoff is made, the annual 7.25% interest rate applied against these funds will cease. RAMIFICATIONS OF NOT TAKING ACTION The Sanitation District will have to pay off its UAAL through a 104o-20-year amortization scheduled at a rate of 7.25%, far below its ability to produce returns on its investment portfolio. PRIOR COMMITTEE/BOARD ACTIONS July 2015 - Board approved the FY 2015-16 Budget Update, which included a line item for the pay down of$50 million in UAAL with OCERS. July 2014 - Board action approved $125 million pay down of UAAL with OCERS. ADDITIONAL INFORMATION N/A FINANCIAL CONSIDERATIONS N/A ATTACHMENT The following attachment(s) is included in hard copy and may also be viewed on-line at the OCSD website (www.ocsd.corn with the complete agenda package: Letter to Steve Delaney, Chief Executive Officer, OCERS from Segal Consulting (Actuaries) dated September 9, 2016 Page 2 of 2 7T- Segal Consulting 1W Montgomery Street Suite 500 San Frandsco,CA 941044308 T415.263.8260 sw.waegalco.wm September 9, 2016 Mr. Steve Delaney Chief Executive Officer Orange County Employees Retirement System 2223 Wellington Avenue, Suite 100 Santa Ana, CA 92701-3101 Re: Orange County Employees Retirement System Accelerated Funding of UAAL for O. C. Sanitation District with Additional Contribution to be Made on September 20, 2016 Dear Steve: In this letter we have calculated the additional payment required by O.C. Sanitation District (the District)to pay off their full existing Unfunded Actuarial Accrued Liability(UAAL)with OCERS,using the results from the December 31, 2015 valuation. As further directed by OCERS and requested by the District,we have also included an additional payment for the contingent UAAL that may result from recognizing the deferred investment losses I as of December 31,2015 from asset smoothing. If such payments are made to pay off both the existing and contingent UAALs, and all actuarial assumptions were met in the future, the District would only be required to contribute the normal cost rate for the fiscal year 2017/2018 and beyond. BACKGROUND For the purpose of determining the contribution rates in the ongoing valuation, employers that offer the same plan of benefit have generally been assigned to the same rate group. This should result in more stable contribution rates (especially for the smaller employers)as the actual experience from a larger group of members would be pooled in establishing the contribution rate requirements. Since OCERS is a cost-sharing multiple employer plan,neither UAAL nor assets are maintained on an employer-by-employer basis in our valuation (unless an employer is the only employer in a particular rate group). This has continued to be the case for the District in Rate Group#3 except that when they made additional UAAL contributions in 2014 These deferred investment losses are ormingent on the System earning the assumed 7.25%rate of return on a market value basis after the December 31,2015 valuation. Bereft,Comp nsabon and HR Coneufting.Member of The Segel Gmup.GReas tbmughaut the United Stales and Canada Mr. Steve Delaney September 9, 2016 Page 2 and 2015, we had in the valuation process begun to keep track of the outstanding balance of the additional UAAL contributions as of the date of the annual actuarial valuation and the UAAL contribution rate credit available in the fiscal year that beings 18 months after the valuation date. Other than tracking the outstanding balance of the additional UAAL contributions made in 2014 and 2015, in the valuation we do not maintain a separate UAAL for just the District as their employees are in Rate Group#3 along with employees from O.C. Law Library. Both employers will be expected to make payments to the gross UAAL' in Rate Group 43 in proportion to their payroll. CALCULATION OF EXISTING UAAL Based on the above discussion, we have approximated the District's share of the UAAL by using the ratio of the payroll for that employer to the total payroll for Rate Group#3. This is consistent with the current practice that, in the on-going valuation, a single contribution rate is calculated to pay off the UAAL for all employers in that Rate Group. The gross UAAL for Rate Group#3 as of the December 31, 2015 valuation was $186,082,000.4 Based on the above method of allocating UAAL by payroll,we have estimated the gross UAAL for the District to be$182,629,445 as of December 31, 2015.5 ('this also means that O.C. Law Library's UAAL is $2,943,5556 as of December 31, 2015 when the existing UAAL is allocated by payroll,after reflecting a$509,000 credit to O.C. Law Library for their future service only benefit improvement.) The net UAAL for the District after adjusting for the outstanding balance of the additional UAAL contributions of$177,360,000 is $5,269,4457,8 as of December 31,2015. 2 That is the UAAL in Rate Group#3 after subtracting the outstanding balance of the additional UAAL contributions made by the District as if those contributions bad not been made. 3 Again,there is an adjustment made in the valuation to account for the prior additional contributions made by the District. Also,there is an adjustment made in the valuation to that rate for O.C.Law Library to account for their future service only benefit improvement(for Plans G and In. 4 This is calculated by adding the outstanding balance of the additional UAAL contributions of$126,206,000 and$51,154,000 from the District to the UAAL of$8,722,000 for Rate Group#3. 5 Based on a payroll of$63,106,000 for the District and$1,193,000 for O.C.Law Library as of December 31,2015. 6 This is equal to$186,082,000 minus$182,629,445 minus$509,000. 7 The method stated above is consistent with the first step of the process used by OCERS to set the UAAL contribution rate for a fiscal yew(such as 2017/2018)of implicitly allocating the UAAL by payroll between the two different employers. However,when adjusting for the 18-month lag between the valuation date and the date contribution rates become effective, the above UAAL has not been adjusted for the contribution gain that we built in as a second step of the process used by OCERS to set the UAAL contribution one due to net actuarial experience gains since the 2013 and 2014 valuations.While we have estimated those gains to be about$2 million,those gains when realized will be allocated primarily back to the District as they represent over 98%of the payroll in Rate Group#3. 8 Note that the sum of the UAAL for the District($5,269,445)and O.C,Law Library($2,943,555)is$509,000 less than the $8,722,000 UAAL that we used in the December 31,2015 valuation to set the UAAL contribution rate assuming an all service benefit improvement for all of Rate Group#3.A subsequent credit for future service only benefit improvement is provided in the December 31,2015 valuation for O.C.Law Library,based on the UAAL reduction of$509,000, 5450573A/05794.001 Mr. Steve Delaney September 9, 2016 Page 3 We propose that the payoff amount be determined by adjusting$5,269,445 with interest at the assumed rate of investment return from December 31, 2015 to the actual date of the funding of the UAAL. We understand that the District has requested a calculation based on a payment date of September 20, 2016. If a payment is made on that date, the payment amount would be equal to $5,542,310 (i.e., $5,269,445 adjusted with interest for 264 days from December 31, 2015 to September 20, 2016). We would also propose that upon receiving the amount required to pay off the UAAL,OCERS consider reducing the District's total contribution rate for fiscal yew 2017/2018 to only the level required to pay the normal cost. In particular,this means that if the District were to pay off their UAAL on September 20, 2016,then their total contribution rate for fiscal year 2017/2018 would be reduced to the normal cost rate. This means in essence that all of the amortization bases as of December 31, 2015 associated with the District would be considered fully amortized. Also,upon receiving the amount required to pay off the UAAL from the District, OCERS could consider combining the amortization layers for O.C. Law Library as of December 31,2015 to a single base equal to the UAAL remaining for O.C. Law Library only (i.e., $2,943,555 as of December 31, 2015)as part of the next valuation as of December 31,2016. The single amortization layer for O.C. Law Library could be amortized over a period roughly equal to the single equivalent amortization period for the current amortization layers for Rate Group#3 rounded to an integral number of years. CALCULATION OF CONTINGENT UAAL In the December 31, 2015 valuation, the System had $679,569,000 in total net deferred investment losses. The District requested that an allocated share of those losses be included in the UAAL payoff amount. As the deferred investment losses are expected to be allocated among the different rate groups in future valuations in proportion to the valuation value of assets for each rate group in those valuations,we have approximated Rate Group#3's allocation by using Rate Group 43's proportion of 4.7414% of total valuation value of assets determined as of December 31,2015,resulting in an allocation of$32,221,1779 of the total net unrecognized investment losses to Rate Group#3. Using the same method used above of allocating the UAAL by payroll within the rate groups,we have estimated the District's share of the total net deferred investment losses to be $31,623,347 as of December 31, 2015. We propose that the payment amount be determined by adjusting $31,623,347 with interest at the assumed rate of investment return from December 31, 2015 to the actual date of the funding of the contingent UAAL. If a payment is made on September 20,2016,the payment amount would be equal to $33,260,882 (i.e., $31,623,347 adjusted with interest for 264 days from December 31,2015 to September 20, 2016). 9 The$32,216,930 calculated in our GASB 68 report includes an allocation of the$89,000 in non-valuation reserves. 5450573A/05794.001 Mr. Steve Delaney September 9, 2016 Page 4 If the District were to proceed with a payment towards this contingent UAAL,we would recommend that the District request that OCERS put the contributions allocated to pay the contingent UAAL in a book-keeping account. That is because the contingent UAAL is not yet part of OCERS' actual UAAL. If approved by the Board,the balance in that account would not be included immediately as valuation assets and therefore would not be used to immediately reduce the District's UAAL amount. Instead,the balance from that account adjusted with actual market rates of return(similar to how such rates have been used to adjust the amounts in the County Investment Account)would be used to make payments on the UAAL on a year-by-year basis until the account becomes depleted. We note that this is the first time we have provided a contingent UAAL to one of OCERS' employers for funding purposes. As such,the Retirement System should be reminded that: I The actual amount of UAAL from deferred investment losses may be higher or lower in future valuations if the System either earns less or more than the assumed rate of 7.25% after December 31,2015. 2) In determining the Rate Group#3's share of the $679.6 million in total net deferred investment losses,we have made the simplifying assumption that the Rate Group#3's proportion of assets would remain unchanged after the December 31, 2015 valuation. 3) In determining the District's share of the losses described in 2), we have made the simplifying assumption that the District's proportion of payroll in Rate Group#3 would remain unchanged after the December 31,2015 valuation. 4) Even though we have included the deferred investment losses in calculating the contingent UAAL, in practice,those defered investment losses would not be reflected until the annual actuarial valuation when those amounts are scheduled to be recognized. This means that absent any other adverse actuarial experience(other than the recognition of the deferred investment in each of the next four years), Rate Group#3 would be over 100% funded in the next several valuations if we were to include the additional contributions in the valuation without tracking such contributions in a book- keeping account. If the additional contributions are deposited into a book-keeping account as we recommend in this letter, we would be able to track the amounts intended to fund such deferred investment losses. OTHER CONSIDERATIONS Even though the District may pay off their full UAAL,they should be reminded that new UAAL(either positive or negative)may emerge as a result of any deviation of actual experience from that expected by the assumptions. In practice, any new positive UAAL that emerges afterward would result in the District resuming the payment of UAAL contributions in a future valuation. Conversely, any new negative UAAL(i.e., surplus) would be amortized over 5450573A/057M.001 Mr. Steve Delaney September 9, 2016 Page 5 the Board's funding policy of 30 years and be used to reduce the District's contribution to a level below the normal cost rate. Because of the requirements imposed by the CalPEPRA, surplus would not be amortized until the funded status is in excess of 120%and all other legal conditions imposed by CaIPEPRA are met. We are members of the American Academy of Actuaries and we meet the qualification requirements to render the actuarial opinion contained herein. Please let us know if you have any questions. Sincerely, Paul Angelo, FSA,MAAA,FCA,EA Andy Yeung,ASA, MAAA, FCA, EA Senior Vice President and Actuary Vice President and Actuary AW/bgb cc: Ms. Suzanne Jenike Ms. Brenda Shott 5450513A/057M.001 ADMINISTRATION COMMITTEE Meeting Date To Bd.of Dir. 10/12,16 — AGENDA REPORT Item Number Item Number B — Orange County Sanitation District FROM: James D. Herberg, General Manager Originator: James Colston, Director of Environmental Services SUBJECT: ORANGE COUNTY SANITATION DISTRICT BIOSOLIDS PROGRAM GENERAL MANAGER'S RECOMMENDATION Information Only. BACKGROUND Each month, staff provides an informational presentation on topics of interest to the Board of Directors. This month's topic is an overview of the Orange County Sanitation District's Biosolids Program. RELEVANT STANDARDS • Biosolids Master Plan • Protection of Orange County Sanitation District assets ATTACHMENT The following attachment(s) may be viewed on-line at the OCSD website (www.ocsd.coml with the complete agenda package: N/A Page 1 of 1 ORANGE COUNTY SANITATION DISTRICT Agenda Terminology Glossary Glossary of Terms and Abbreviations AQMD Air Quality Management District ASCE American Society of Civil Engineers BOD Biochemical Oxygen Demand CARB California Air Resources Board CASA California Association of Sanitation Agencies CCTV Closed Circuit Television CEQA California Environmental Quality Act CIP Capital Improvement Program 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 gpd Gallons per day GWR System Groundwater Replenishment System (also called GWRS) ICS Incident Command System IERP Integrated Emergency Control Plan 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 COBS Ocean Outfall Booster Station OSHA Occupational Safety and Health Administration PCSA Professional Consultant Services Agreement POTW Publicly Owned Treatment Works ppm Parts per million PSA Professional Services Agreement RFP Request For Proposal Glossary of Terms and Abbreviations 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 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 SRF State Revolving Fund 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 WIFIA Water Infrastructure Financing and Innovation Act 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. Benthos—The community of organisms, such as sea stars, worms, and shrimp, which live on, in, or near the seabed, also known as the benthic zone. 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. Blogas — A gas that is produced by the action of anaerobic bacteria on organic waste matter in a digester tank that can be used as a fuel. 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. coil are the most common bacteria in wastewater. Glossary of Terms and Abbreviations 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 (D/T) — the dilution at which the majority of the people detect the odor becomes the D/T for that air sample. 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. NDMA— 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 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. Glossary of Terms and Abbreviations 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.