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HomeMy WebLinkAbout05-13-2009 Administration Committee Agenda AGENDA REGULAR MEETING OF THE ADMINISTRATION COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, MAY 13, 2009, AT 5:00 P.M. ADMINISTRATIVE OFFICE 10844 Ellis Avenue Fountain Valley, California 92708 www.ocsd.com PLEDGE OF ALLEGIANCE DECLARATION OF QUORUM PUBLIC COMMENTS REPORT OF COMMITTEE CHAIR REPORT OF GENERAL MANAGER REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES CONSENT CALENDAR ITEMS (1) 1. Approve minutes of the April 8, 2009, meeting of the Administration Committee. ACTION ITEMS No items. May 13, 2009 Page 2 INFORMATIONAL ITEMS (2 - 4) 2. FY 2009-10 Major Insurance Program Update 3. FY 2009-10 Benefits Program 4. FY 2009-10 District Budget CLOSED SESSION During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, 54957 or 54957.6, as noted. Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these subjects, the minutes will reflect all required disclosures of information. Convene in closed session. Reconvene in regular session. Consideration of action, if any, on matters considered in closed session. Other business and communications or supplemental agenda items, if any. Adjournment: The next regular Administration Committee meeting is scheduled for Wednesday, June 10, 2009, at 5 p.m. May 13, 2009 Page 3 H:\dept\asd\210\crane\AdminComm\ADMIN2009\Admin Committee_finals\05-13-09\03_051309 Admin Agenda.docx Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the District’s Administrative offices not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all, or a majority of all, of the members of District’s Board, are available for public inspection in the office of the Clerk of the Board, located at 10844 Ellis Avenue, Fountain Valley, California. Items Not Posted: In the event any matter not listed on this agenda is proposed to be submitted to the Committee for discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or because there is a need to take immediate action, which need came to the attention of the Committee subsequent to the posting of agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 72 hours prior to the meeting date. Public Comments: Any member of the public may address the Administration Committee on specific agenda items or matters of general interest. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to three minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Committee except as authorized by Section 54954.2(b). Consent Calendar: All matters placed on the consent calendar are considered as not requiring discussion or further explanation, and unless a particular item is requested to be removed from the consent calendar by a Director of staff member, there will be no separate discussion of these items. All items on the consent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the consent calendar shall be considered in the regular order of business. The Committee Chair will determine if any items are to be deleted from the consent calendar. Items Continued: Items may be continued from this meeting without further notice to a Committee meeting held within five (5) days of this meeting per Government Code Section 54954.2(b)(3). Meeting Adjournment: This meeting may be adjourned to a later time and items of business from this agenda may be considered at the later meeting by Order of Adjournment and Notice in accordance with Government Code Section 54955 (posted within 24 hours). Accommodations for the Disabled: The Board of Directors Meeting Room is wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board‘s office at (714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Notice to Committee Members: For any questions on the agenda or to place any items on the agenda, Committee members should contact the Committee Chair or Clerk of the Board ten days in advance of the Committee meeting. Committee Chair: Mark Waldman (714) 827-1969 Committee Secretary: Lilia Kovac (714) 593-7124 lkovac@ocsd.com General Manager: Jim Ruth (714) 593-7110 jruth@ocsd.com Assistant General Manager Bob Ghirelli (714) 593-7400 rghirelli@ocsd.com Director of Finance and Lorenzo Tyner (714) 593-7550 ltyner@ocsd.com Administrative Services Human Resources and Employee Jeff Reed (714) 593-7144 jreed@ocsd.com Relations Manager Form No. DW-102.3 Revised: 02/17/09 Page 1 ADMINISTRATION COMMITTEE Meeting Date 05/13/09 To Bd. of Dir. AGENDA REPORT Item Number 2 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: FY 2009-10 MAJOR INSURANCE PROGRAM UPDATE GENERAL MANAGER'S RECOMMENDATION Informational Item. SUMMARY The District budget provides funds for the renewal of four major insurances connected with the District’s operations: 1) Excess General Liability Insurance 2) All-Risk Property and Flood insurance 3) Excess Workers’ Compensation 4) Boiler & Machinery insurance The District’s Insurance Broker of Record presented a short status report in March and we will be providing an update at this May meeting. PRIOR COMMITTEE/BOARD ACTIONS • In June 2008, the Board approved renewals of the major insurance coverages for FY 2008-09. ADDITIONAL INFORMATION Each winter and spring, the District’s Risk Manager works with the District’s Broker (Alliant Insurance Services) to prepare a strategy for renewal of the District’s operational insurance. In previous years, the Administration Committee had asked for a status report as to how the renewals were developing. Here are details about the four major types of insurance: 1) Excess General Liability Insurance Program The District’s Excess General Liability Insurance Program is currently provided through the California Municipal Excess Liability Program (“CAMEL”) and its sister program, the Alliant National Municipal Liability Program (“ANIMAL”). The District has participated in the CAMEL program since FY 1996-97. Form No. DW-102.3 Revised: 02/17/09 Page 2 This program currently provides the District with a $30 million policy of comprehensive coverage for municipal liability, bodily injury and property damage, and personal injury. The program was structured to also include Employment Practices, and Public Officials Errors & Omissions coverage. The $30 million coverage is per occurrence, with a self-insured deductible of $250,000 per occurrence. Since 1997, the Employment Practices portion of coverage has enhanced from a $2 million sub-limit to the full $30 million policy limit. The actual insurance coverage currently consists of two separate layers. The first layer is the “Basic” $10 million program with self-insured retention of $250,000. The second layer consists of $20 million of coverage in excess of the first layer of $10 million. The premium for 2008-09 was $370,498. Preliminary indications are that rates could rise as high as five percent in FY 2009-10. Staff is estimating total premiums ranging from $371,000 to $390,000. 2) Excess Workers’ Compensation Insurance The District’s Excess Workers’ Compensation insurance coverage is with the California State Association of Counties Excess Insurance Authority (“CSAC EIA”). This is the sixth year the District has participated in this program or its predecessor. The coverage expires on June 30, 2009. The District’s Excess Workers’ Compensation Program currently provides statutory (unlimited) coverage with a self-insured retention (SIR), or deductible, of $500,000. The District’s use of Excess Workers’ Compensation insurance dates back to 1989-90. At that time, the Fiscal Policy Committee approved a self-insured retention (SIR), or deductible, of $250,000, for such coverage. Due to the hardening of the workers’ compensation market, this deductible was raised to $500,000 beginning in FY 2002-03 through a policy with Employers Reinsurance Corporation (ERC) that provided coverage to $25 million with a self-insured retention (SIR), or deductible of $500,000. Staff has reviewed the District’s most recent five-year workers’ compensation loss history with Cambridge Integrated Services Group, the District’s third-party workers’ compensation administrator. Staff is seeking workers’ compensation insurance renewal with coverages and deductibles at statutory limits. Some additional risk is associated with the CSAC EIA joint powers authority in that a premium surcharge can be assessed to individual members based on an unusually large number of losses occurring outside of the actuarial evaluation estimates. However, historically the CSAC EIA premiums for excess workers compensation have been so much less than competing quotes that even if there were a surcharge, the cost might still continue to be less expensive. The premium for 2008-09 was $161,359 (based on estimated payroll for the year). Preliminary indications are that rates could rise as high as five percent in FY 2009-10. Form No. DW-102.3 Revised: 02/17/09 Page 3 Staff is estimating that the rate per $100 of payroll to remain flat and approximate prior year premium estimate. Due to an estimated increase in employee’s salaries of approximately $5.1 million, premiums will approximate $175,000. The District’s All-Risk Property and Flood Insurance Program (“Property Insurance”) expires June 30, 2009, and is now up for renewal for FY 2009-10. The All-Risk insurance program provides for comprehensive coverage for the District’s real and personal property regarding virtually all perils including fire, flood, and business interruption. 3) All-Risk Property and Flood Insurance The District previously carried earthquake insurance as part of its Property Insurance, but in the last few years earthquake insurance has been impossible to obtain or not cost-effective. Currently, the District has earthquake insurance only in connection with some of its buildings under construction. The District’s current Property Insurance limits are $1 billion for most perils other than flood and earthquakes, and $175 million for flood, with many sub-limits for various situations. In order to reach $1 billion in limits, the District’s broker had to arrange for nearly a dozen different layers of insurers. The Self-Insured Retention (“SIR”) is $25,000 per occurrence for most types of losses. For ten consecutive years, the District’s Property Insurance has been with a nationwide joint purchase property insurance program called Public Entity Property Insurance Program (PEPIP), one of the world’s largest property programs. It is important to note that this joint purchase property insurance program offers the purchasing power of numerous large public entities without the pooling or sharing of coverages or losses. The District’s broker, Alliant Insurance Services, is also acquiring quotes for Earthquake Insurance, and will know by the May meeting if the quotes are cost-effective. The premium for 2008-09 was $468,394. Premiums are expected to increase up to 15 percent over the prior year to approximately $540,000 in FY 2009-10. 4) Boiler & Machinery insurance It is also time for the annual renewal of Boiler & Machinery insurance coverage for the District covering the period from July 1, 2009 through June 30, 2010. The Boiler & Machinery insurance program provides comprehensive coverage for loss caused by machinery breakdown and explosion of steam boilers or other covered process equipment, including damage to the equipment itself and damage to other property caused by covered accident. The District’s current Boiler & Machinery insurance program provides coverage ($100 million per occurrence with deductibles ranging from $25,000 to $350,000) for losses caused by covered machinery breakdown (e.g., motors, steam turbines, digesters, co-gen engines). Damages to the equipment, as well as damages to other property and Form No. DW-102.3 Revised: 02/17/09 Page 4 improvements caused by the machinery breakdown, are covered by the Boiler & Machinery insurance. This program augments the District’s all-risk property insurance that covers perils such as fire and flood. The premium for 2008-09 was $16,788. Premiums are expected to increase up to 15 percent over the prior year to approximately $19,300 in FY 2009-10. JDR:LT:MW:RK Form No. DW-102.3 Revised: 03/01/07 Page 1 ADMINISTRATION COMMITTEE Meeting Date 05/13/09 To Bd. of Dir. AGENDA REPORT Item Number 3 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: FY 2009/2010 BENEFITS PROGRAM GENERAL MANAGER'S RECOMMENDATION FY 2009/2010 benefits program renewal costs (information only). SUMMARY The total cost of insurance coverage will increase 3.0% or $259,896 for the forthcoming fiscal year (FY 2009/2010). Premium increases are as follows: Insurance Provider Δ% Comments Medical HMO-A Anthem Blue Cross 7.4 Medical HMO-B Anthem Blue Cross 7.4 Medical POS Anthem Blue Cross 2.5 Medical PPO Anthem Blue Cross 2.5 Retiree Only Plan Medical HMO Kaiser Permanente 3.6 Dental Delta Dental 0.0 Rate guarantee through 7/1/10 Vision VSP 0.0 Rate guarantee through 7/1/11 EAP ComPsych -21.2 New Provider Rate guarantee through 7/1/14 Life/AD&D Prudential -2.6 New Provider Rate guarantee through 7/1/12 Short-Term Disability Prudential -5.4 New Provider Rate guarantee through 7/1/11* Long-Term Disability Prudential -9.6 New Provider Rate guarantee through 7/1/12 *The third year of the rate guarantee is contingent on the short-term disability plan running at an 80% incurred loss ratio or better at the end of two years. The total cost increase for FY2009/2010 is $259,896, which is proportionally shared as follows: • OCSD cost: $200,838 • Employee cost: $59,058 Form No. DW-102.3 Revised: 03/01/07 Page 2 Historical Summary: Rate Change Insurance FY 09/10 FY 08/09 FY 07/08 FY 06/07 Medical: Anthem Blue Cross Medical 4.2 9.4 17.5 8.8 Medical: Kaiser Permanente 3.6 11.7 21.9 -0.3 Dental 0.0 0.0 9.8 0.0 Vision 0.0 0.0 -4.7 0.0 EAP -21.2 5.8 10.0 6.3 Life/AD&D -2.6 0.0 6.3 0.0 Short-Term Disability -5.4 0.0 6.3 0.0 Long-Term Disability -9.6 0.0 6.3 0.0 PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION In response to customer service complaints received by the Human Resources Division regarding the current group life, disability, and EAP programs, staff explored alternative providers. The soft market enabled insurance providers to submit proposals that offered the same level of benefits at reduced premium costs. Transitioning the (Employee Assistance Program) EAP from MHN to ComPsych, and the group life and disability insurance programs from MetLife to Prudential is recommended. The changes provide OCSD with a cost savings of $91,865. JDR:LT:JR:KE C:\Users\garcia\Documents\POSTING FOLDER\07.Revenue Detail.docx Revised: 01/04/06 Page 1 ADMINISTRATION COMMITTEE Meeting Date 05/13/09 To Bd. of Dir. AGENDA REPORT Item Number 4 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance and Administrative Services SUBJECT: 2009-10 DISTRICT BUDGET GENERAL MANAGER'S RECOMMENDATION Informational item. SUMMARY For continued discussion of the update to the OCSD 2008-09 and 2009-10, detail of the District’s revenues has been included. The budget will be presented for adoption at the June 24, 2009, Board meeting. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION N/A ATTACHMENTS 1. 2009-10 Budget Development Revenue Detail JDR:LT:lc C:\Users\garcia\Documents\POSTING FOLDER\07.Revenue Detail.docx Revised: 01/04/06 Page 2 2009-10 Budget Development Detail Revenue Summary Category 2007-08 Actual 2008-09 Adopted 2009-10 Adopted 2009-10 Proposed Beginning Reserves $371.9 $512.3 $467.2 $532.7 Revenues: Service Fees 173.3 191.3 211.3 200.7 User Fees 12.1 9.5 10.4 9.9 Capital Facilities Capacity Charges 15.6 21.7 22.9 9.6 Property Taxes 65.2 65.0 68.2 65.0 Interest 20.2 19.2 18.6 14.9 Other Revenue 19.9 49.3 32.5 30.9 Debt Proceeds 300.0 200.0 120.0 120.0 Total Revenue $606.3 $556.0 $483.9 $451.0 Total Available $978.2 $1,068.3 $951.1 $983.5 The District has a variety of revenue sources available for operating and capital expenses. The major revenue sources are as follows: • Beginning Balances • General Sewer Service Fees • Industrial Waste Permit User Fees • Capital Facilities Capacity Charges (CFCC) • Property Taxes • Interest Earnings • Other Miscellaneous Revenue • Debt Proceeds Beginning Balances – $533 million As result of its Reserve and Investment Policies, the District will begin the year with an estimated balance carried forward from the previous year. General Service Fees – $200 million User fees are ongoing fees for service paid by customers connected to the sewer system. A property owner, or user, does not pay user fees until connected to the sewer system and receiving services. Once connected, a user is responsible for his share of the system’s costs, both fixed and variable, in proportion to his demand on the system. These fees are for both Single Family Residences (SFR) and Multiple Family Residences (MFR). Sewer Service Fee Increases The proposed 2009-10 rate is $221. This proposed rate is still well below the average annual sewer rate of $406 currently being charged throughout the state according to a 2008 survey of 920 agencies encompassing all counties within California. Industrial Waste Permit User Fees – $10 million Attachment 1 C:\Users\garcia\Documents\POSTING FOLDER\07.Revenue Detail.docx Revised: 01/04/06 Page 3 Fees paid by large industrial and commercial properties owners connected to the sewer system. These fees are for the owner’s share of the system’s costs, both fixed and variable, in proportion to his demand on the system. Since the inception of the Permit User Fee program in 1970, users of the District’s system that discharge high volumes or high strength wastewater have been required to obtain a discharge permit and pay extra fees for the costs of service. Capital Facilities Capacity Charges (CFCC) – $10 million Capital Facilities Capacity Charge is a one-time, non-discriminatory charge imposed at the time a building or structure is newly connected to the District’s system, directly or indirectly, or an existing structure or category of use is expanded or increased. This charge pays for District facilities in existence at the time the charge is imposed, or to pay for new facilities to be constructed in the future, that are of benefit to the property being charged. Property Taxes – $65 million The County is permitted by State law (Proposition 13) to levy taxes at 1% of full market value (at time of purchase) and can increase the assed value no more than 2% per year. The District receives a share of the basic levy proportionate to what was received in the 1976 to 1978 period less $3.5 million, the amount that represents the State’s permanent annual diversion from special districts to school districts that began in 1992-93. The District’s share of this revenue is dedicated for the payment of debt service. Interest Earnings – $15 million Interest earnings are generated from the investment of accumulated reserves consisting of a cash flow/contingency, a capital improvement, a renewal/replacement, and a self-insurance reserve. Other Revenue – $31 million Other revenue also includes $17 million from the Irvine Ranch Water District (IRWD) for capital and equity charges and $7 million for sewer services provided to the Santa Ana Watershed Protection Authority (SAWPA) and the Sunset Beach Sanitary District. Debt Proceeds – $120 million Certificates of Participation (COPs) are the District primary mechanism for financing capital projects. COPs are repayment obligations based on a lease or installment sale agreement. COPs are not viewed as “debt” by the State of California, but rather a share in an installment arrangement where the District serves as the purchaser. In FY 2009-10 revenues are expected to decrease $32.9 million to $451.0 million from the previously adopted budget prior year. This 6.8 percent decrease is primarily due to the downturn in the economy and the impacts on future development. C:\Users\garcia\Documents\POSTING FOLDER\07.Revenue Detail.docx Revised: 01/04/06 Page 4 Debt Financing Due to the magnitude of identified future annual capital and operations and maintenance expenditures, it is necessary that the District utilize debt financing to meet its total obligations. Debt financing allows the District to meet projected construction schedules while achieving the lowest possible user fees, as well as long-term stability for the user fees. Financing The District uses long-term borrowing (Certificates of Participation (COP) for capital improvements that cannot be financed from current revenue. Before any new debt is issued, the impact of debt service payments on total annual fixed costs is analyzed. Including the $300 million debt issue expected to incur in May 2009, debt financing of $650 million is forecasted over the next five years to assist in the funding of the $2 billion in capital improvements required over the next ten years. A new debt issuance of $120 million is planned for FY 2009-10. Certificate of Participation (COP) The primary debt mechanism used is Certificate of Participation (COP). COPs are repayment obligations based on a lease or installment sale agreement. The COP structure was selected over other structures because COPs are not viewed as debt by the State of California, as the purchaser does not actually receive a "bond," but rather a share in an installment sale arrangement where the District serves as the purchaser. COPs can be issued with fixed or variable interest rates. Fixed-rate debt can be either traditional or synthetic in form: • Fixed-Rate Debt traditionally has a final maturity between 20 and 30 years from the date of issuance. Generally, principal is amortized annually. Principal maturing in early years typically has a lower interest rate ("coupon") than later maturities. This structure typically produces a level debt service. • Synthetic Fixed-Rate Debt: Long-term, variable-rate debt can be issued and then the interest component can be swapped to a fixed rate. This form of fixed-rate debt achieves a balance between short and long-term interest costs and is frequently a less expensive form of debt. In some markets, this form of fixed-rate debt is less expensive to issue than the more traditional form of fixed-rate debt described above. Variable-rate debt can be traditional or synthetic: • Variable-Rate Debt traditionally has either a long or short nominal maturity, but the interest rate resets periodically. Typically, the intervals for interest rate resets are daily, weekly or monthly, but any period is possible. • Synthetic Variable-Rate Debt as described above for fixed-rate debt, variable-rate debt can be created from a fixed-rate issue by means of a floating-rate swap. The maximum level of variable rate obligations incurred by any District should not exceed the level of invested reserves available to that District. The District currently has no outstanding synthetic fixed-rate. The total fixed-rate COPs and variable-rate COPs outstanding is $845.7 million and $195.8 million, respectively, for an approximate ratio of 80:20. The District Maintains its AAA Rating The District maintains ratings of “AAA” from Standards and Poor and “AA” from Fitch. A triple A rating is the highest obtainable for any governmental agency. In order to maintain this rating, C:\Users\garcia\Documents\POSTING FOLDER\07.Revenue Detail.docx Revised: 01/04/06 Page 5 the District adheres to its 2001 Debt Policy and coverage ratios requirements. This Board-adopted policy serves as the agency’s guide in the management of existing debt and in the issuance of future debt. OCSD Has No Legal Debt Limits. The District does have contractual covenants within the existing COP agreements which require minimum coverage ratios of 1.25. The minimum coverage ratio is the ratio of net annual revenues available for debt service requirements to total annual debt service requirements for all senior lien COP debt. The coverage ratio for senior lien COP debt is being proposed at 2.22 for FY 2009-10.