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HomeMy WebLinkAbout03-09-2011 Administration Committee Agenda 3/9/11 Administration Committee Agenda Page 1 of 3 Orange County Sanitation District Regular Meeting of the Administration Committee Wednesday, March 9, 2011 5:30 P.M. Administration Building Board Room 10844 Ellis Avenue Fountain Valley, CA (714) 593-7130 AGENDA PLEDGE OF ALLEGIANCE: DECLARATION OF QUORUM: PUBLIC COMMENTS: If you wish to speak, please complete a Speaker’s Form and give it to the Clerk of the Board. Speakers are requested to limit comments to three minutes. REPORTS: The Committee Chair and the General Manager may present verbal reports on miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee. REPORT OF DIRECTOR OF FINANCE AND ADMINISTRATIVE SERVICES: · Capital Improvement Program (CIP) Update. CONSENT CALENDAR: Recommend to the Board of Directors to: 1. Approve Minutes of the February 9, 2011, Administration Committee meeting. ACTION ITEMS: Recommend to the Board of Directors to: 2. Adopt Resolution No. OCSD 10-XX, Adopting Procedures for Settlement of Claims Made Against the Orange County Sanitation District (Sanitation District); Settlement of Claims Made by the Sanitation District; Collection of Delinquent Accounts Owing to the Sanitation District; Settlement of Civil or Administrative Actions; and Settlement of Workers’ Compensation Actions; and repealing Resolution No. OCSD 98-23. 3/9/11 Administration Committee Agenda Page 2 of 3 INFORMATIONAL ITEMS: 3. Status of 2011-12 Insurance Renewals 4. FY 2011-12 Budget Update. 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. (1) CONFER WITH DISTRICT NEGOTIATORS (Government Code Section 54954.5(f)) · Agency Designated Representatives: James D. Ruth, General Manager; Robert Ghirelli, Assistant General Manager; Jim Herberg, Assistant General Manager; Jeff Reed, Director of Human Resources; and, Richard Spencer, Human Resources Supervisor. · Employee Organizations: International Union of Operating Engineers, Local 501 and Orange County Employees Association (OCEA) 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 Administration Committee meeting is scheduled for Wednesday, April 13, 2011, at 5:30 p.m. 3/9/11 Administration Committee Agenda Page 3 of 3 Accommodations for the Disabled: Meeting rooms are wheelchair accessible. If you require any special disability related accommodations, please contact the Orange County Sanitation District Clerk of the Board’s office at (714) 593-7130 at least 72 hours prior to the scheduled meeting. Requests must specify the nature of the disability and the type of accommodation requested. Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted outside the main gate of the Sanitation District’s Administration Building located at 10844 Ellis Avenue, Fountain Valley, California, not less than 72 hours prior to the meeting date and time above. All public records relating to each agenda item, including any public records distributed less than 72 hours prior to the meeting to all, or a majority of the Board of Directors are available for public inspection in the office of the Clerk of the Board. NOTICE TO DIRECTORS: To place items on the agenda for the Committee Meeting, items must be submitted to the Clerk of the Board 14 days before the meeting. Lilia Kovac, Associate Clerk of the Board: (714) 593-7124 lkovac@ocsd.com Page 1 of 1 ADMINISTRATION COMMITTEE Meeting Date 03/09/11 To Bd. of Dir. 03/23/11 AGENDA REPORT Item Number 2 Item Number Orange County Sanitation District FROM: James D. Ruth, General Manager Originator: Lorenzo Tyner, Director of Finance & Administrative Services SUBJECT: Settlement of Claims, Collection of Delinquent Accounts and Workers’ Compensation Actions GENERAL MANAGER'S RECOMMENDATION Adopt Resolution No. OCSD 11-XX, Adopting Procedures for Settlement of Claims Made Against the Orange County Sanitation District (OCSD); Settlement of Claims Made by OCSD; Collection of Delinquent Accounts Owing to OCSD; Settlement of Civil or Administrative Actions; and Settlement of Worker’s Compensation Actions; and repealing Resolution No. OCSD 98-23. SUMMARY Resolution No. OCSD 98-23 was adopted on July 1, 1998, and since that time, the Sanitation District has undergone organizational changes as well as operational changes that make the current Resolution outdated. The resolution has been updated to reflect these organizational changes as well as delegation of authority changes with respect to claims made against and by the Sanitation District, collection of delinquent accounts, civil or administrative actions and workers’ compensation actions. PRIOR COMMITTEE/BOARD ACTIONS January 1998: Adopted Resolution No. OCSD 98-23 Adopting Procedures for Settlement of Claims Made Against the Sanitation District; Settlement of Claims Made by the Sanitation District; Collection of Delinquent Accounts Owing to the Sanitation District; Settlement of Civil or Administrative Actions; and Settlement of Worker’s Compensation Actions ADDITIONAL INFORMATION N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS Resolution No. OCSD 11-XX http://sharepoint/gm/board/Agenda Report Form Library/05 Agenda Report - Admin Committee - Settlement of Claims (White 2-17-11).docx 2000-00026 753636.1 1 RESOLUTION NO. OCSD 11-XX ADOPTING SANITATION DISTRICT’S PROCEDURES FOR SETTLEMENT OF CLAIMS MADE AGAINST THE SANITATION DISTRICT; SETTLEMENT OF CLAIMS MADE BY THE SANITATION DISTRICT; COLLECTION OF DELINQUENT ACCOUNTS OWING TO THE SANITATION DISTRICT; SETTLEMENT OF CIVIL OR ADMINISTRATIVE ACTIONS; AND SETTLEMENT OF WORKERS’ COMPENSATION ACTIONS A RESOLUTION OF THE BOARD OF DIRECTORS OF ORANGE COUNTY SANITATION DISTRICT ADOPTING SANITATION DISTRICT PROCEDURES FOR SETTLEMENT OF CLAIMS MADE AGAINST THE SANITATION DISTRICT; SETTLEMENT OF CLAIMS MADE BY THE SANITATION DISTRICT; COLLECTION OF DELINQUENT ACCOUNTS OWING TO THE SANITATION DISTRICT; SETTLEMENT OF CIVIL OR ADMINISTRATIVE ENFORCEMENT ACTIONS; AND SETTLEMENT OF WORKERS’ COMPENSATION ACTIONS AND REPEALING RESOLUTION NO. OCSD 98-23 WHEREAS, claims for damages alleging personal injuries, bodily injuries, including death, and damages to real and personal property, are periodically made against the Sanitation District; and, WHEREAS, the Sanitation District presently has liability insurance in force with a significant self-insured retention, having previously been self-insured; and, WHEREAS, the Sanitation District has the need for the retention of claims administration services and legal counsel who shall be vested with certain limited authority to accomplish a favorable disposition of claims made against the Sanitation District; and, WHEREAS, claims for workers’ compensation damages alleging personal injuries, including death, are periodically made against the Sanitation District; and, WHEREAS, the Sanitation District presently has major stop loss workers’ compensation insurance in force; and, WHEREAS, the Sanitation District has retained a claims administration service firm and special legal counsel who shall be vested with certain limited authority to accomplish a favorable disposition of workers’ compensation claims made against the Sanitation District as provided herein; and, 2000-00026 753636.1 2 WHEREAS, cost efficiency relating to resolution of workers’ compensation claims can be greatly improved by the adoption of certain policies relating to the resolution of said claims; and WHEREAS, Government Code Section 935.4 authorizes the Board of Directors to delegate by resolution the authority to an employee to settle pre-litigation claims against the Sanitation District up to $50,000; and, WHEREAS, Government Code section 935.2 authorizes the Board of Directors to delegate by resolution the authority to a committee of at least three members to settle pre-litigation claims; and WHEREAS, Government Code Section 949 authorizes the Board of Directors to delegate authority to an employee or its attorney to settle lawsuits; and, WHEREAS, the Sanitation District has occasion to seek recovery against persons or entities who have caused loss or damage to the Sanitation District, who have been assessed fines, charges, or special fees relating to their use of Sanitation District facilities, or who have been the subject of civil or administrative enforcement proceedings for violation of the Sanitation District’s Wastewater Discharge Regulations Ordinance; and, WHEREAS, in the course of conducting the business affairs of the Sanitation District, certain accounts receivable or other obligations owing to the Sanitation District become delinquent, and in fact, uncollectible; and, WHEREAS, cost efficiency relating to collection of delinquent accounts can be greatly improved by the adoption of certain policies relating to the collection of said accounts; and WHEREAS, the Board of Directors desires to update, amend, and reestablish procedures for the administration of claims against and by the Sanitation District. NOW, THEREFORE, the Board of Directors of Orange County Sanitation District, DOES HEREBY DETERMINE, RESOLVE AND ORDER: 2000-00026 753636.1 3 ARTICLE I SETTLEMENT OF LIABILITY CLAIMS MADE AGAINST SANITATION DISTRICT Section 1.1: A liability reserve has been established for the payment of claims made against the Sanitation District. Said reserve shall continue to be provided in each annual budget to ensure that sufficient funds are on deposit to provide for payment of those amounts incurred as a liability loss or expense. Section 1.2: Each annual budget shall provide, in addition to the reserve established by Section 1.1, for the necessary funds to provide a sufficient balance to meet projected expenses for loss and payment of claims during the ensuing fiscal year. Section 1.3: A claims administration firm is authorized to be retained, and said firm is hereby granted authorization to make payments and settlements of claims made against the Sanitation District in an amount not to exceed $5,000.00 per claimant. Said firm shall be retained in accordance with the terms and conditions set forth in an agreement approved by the General Counsel. Section 1.4: A Committee comprised of the General Manager or his designee and Director of Finance and Administrative Services are authorized to review and make full settlement of any claims made against the Sanitation District for contract or liability damages not otherwise covered by insurance by payment of a sum not to exceed $50,000.00 per claimant. In the event a claim results in litigation, which is being legally defended by other than the Sanitation District’s General Counsel, this Committee shall review and provide the approval to the Sanitation District’s special legal counsel within the same limits. Section 1.5: All claims for damages resulting in a judgment or a recommended settlement by negotiation in an amount exceeding $50,000.00 per claimant, shall be submitted to and approved by the Board of Directors of the Sanitation District. Section 1.6: The General Counsel, with concurrence of the General Manager, is authorized to retain the services of special legal counsel for purposes of representing the Sanitation District in the defense of any claim or matter of litigation, whenever it is determined that specialized expertise or experience is desirable, a conflict of interest exists or could arise with the Office of General Counsel, or that the workload of the Office of General Counsel requires the utilization of special counsel. 2000-00026 753636.1 4 ARTICLE II COLLECTION OF DELINQUENT OBLIGATIONS OWING TO THE SANITATION DISTRICT Section 2.1: The Director of Finance and Administrative Services is authorized to write off as an uncollectible debt any delinquent obligation owing to the Sanitation District in excess of 90 days and not exceeding the sum of $10,000.00. Section 2.2: The Director of Finance and Administrative Services, in his discretion, is authorized to assign for collection to a person or firm of his choosing, any delinquent obligation owing to the Sanitation District in excess of 45 days and not exceeding the sum of $100,000.00. Ninety (90) days after assigning the obligation for collection, the Director of Finance and Administrative Services is authorized to write off as an uncollectible debt any portion of the obligation which is still outstanding. Section 2.3: The Director of Finance and Administrative Services shall forward any delinquent obligation in excess of $100,000.00 to the General Counsel for the Sanitation District, who shall submit his recommendation to the Board of Directors as to the method of collection or disposition of said account. Section 2.4: The Director of Finance and Administrative Services, in his discretion, is authorized to file the necessary proceedings in the small claims court of the appropriate judicial Sanitation District of the County of Orange, in order to collect any delinquent obligation owing to the Sanitation District in excess of 45 days and not exceeding the sum of $5,000.00. Upon obtaining a judgment in favor of the Sanitation District, the Director of Finance and Administrative Services and General Counsel shall take all legal measures necessary to enforce the terms of the judgment. Ninety (90) days after receiving a final judgment in favor of the Sanitation District, the Director of Finance and Administrative Services, with the concurrence of the General Counsel, is authorized to write off as an uncollectible debt, any portion of the obligation which is still outstanding. 2000-00026 753636.1 5 Section 2.5: Notwithstanding the authority provided in Sections 2.2 and 2.3 above, any obligation owing to the Sanitation District, not exceeding the sum of $100,000.00, may be compromised by acceptance of a sum less than the full amount due or may be written off as uncollectible upon that determination being made, after investigation by a Committee comprised of the General Manager, or his designee, and the Director of Finance and Administrative Services. Section 2.6: In addition to the above authorization, the Director of Finance and Administrative Services is directed to exercise all available lawful methods to ensure prompt and full recovery of all obligations owing to the Sanitation District. Section 2.7: The Director of Finance and Administrative Services is authorized to offset against any sums held on deposit by the Sanitation District on behalf of any person or entity who owes a delinquent obligation to the Sanitation District. Section 2.8: The Director of Finance and Administrative Services is authorized to withhold the approval of any such permits otherwise to be issued by the Sanitation District to any person or entity who has an outstanding debt obligation owing to the Sanitation District until such time as said debt obligation is paid in full. Section 2.9: Delinquent obligations, as used in this Resolution, shall include any invoice submitted by the Sanitation District for services rendered or for reimbursement of damages caused to Sanitation District property or personnel, which has not been paid within: (a) The time prescribed by the Sanitation District Ordinance or Resolution; or (b) Forty-five (45) days from the date of invoice, whichever is later. ARTICLE III COLLECTION OF FEES AND CHARGES RELATING TO INDUSTRIAL WASTE DISCHARGES Section 3.1: In the event any fees or charges, up to the amount of $100,000.00, are owed by an Industrial Waste Permittee and are delinquent or in dispute between the Permittee and Sanitation District, a Committee comprised of the Director of Finance and Administrative Services, and Director of Engineering are authorized to negotiate and enter into, on behalf of the Sanitation District, a settlement agreement relating to the financial obligation owing to the Sanitation District. This Section shall not apply to 2000-00026 753636.1 6 enforcement actions which are specifically provided for in Article IV below. Said agreement shall be based upon a showing of good cause and a reasonable dispute between the Sanitation District and the Permittee, and can provide for acceptance of a sum less than the full amount claimed as due by the Sanitation District. This agreement may be entered into prior to or during the pendency of any litigation filed by the Sanitation District to collect the amount owed. Section 3.2: Upon written request and establishment of good cause by an Industrial Waste Permittee, the Committee of the General Manager, or his designee, the Director of Finance and Administrative Services, and Director of Engineering, may negotiate and enter into a deferred payment agreement with the Permittee in accordance with the guidelines established herein. Said agreement may be incorporated as part of, or separate and in addition to, any enforcement compliance agreements authorized by the provisions of the Sanitation District’s Wastewater Discharge Regulations Ordinance. Section 3.2.1: The installment payment agreement shall be for a maximum term not to exceed 24 months. The agreement shall provide for payment of interest on the principal amount owing at a rate not exceeding the higher of: (a) Ten (10%) percent per annum; or (b) Five (5%) percent per annum, plus the rate prevailing on the 25th day of the month preceding the earlier of: (i) The date of execution of the contract to make the loan or forbearance; or (ii) The date of making the loan or forbearance. (Established by the Federal Reserve Bank of San Francisco on advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act (commonly referred to as the “discount” rate). The agreement shall provide for payment of all costs of preparing and administering the payment agreement, including legal and administrative costs. Section 3.2.2: The agreement shall stipulate the penalties to which the Permittee shall be subjected in the event of nonpayment of any of the payments specified in the agreement, including initiation of legal action or permit suspension or revocation, as recommended by the General Counsel and the Director of Engineering Section 3.3: If the delinquent obligation is greater than $100,000.00, any compromise settlement or any deferred payment agreement shall be submitted to and approved by the Board of Directors, who shall prescribe the terms and conditions. 2000-00026 753636.1 7 ARTICLE IV SETTLEMENT OF CIVIL ADMINISTRATIVE ENFORCEMENT ACTIONS Section 4.1: In the event the Sanitation District initiates or intends to initiate any civil or administrative enforcement actions based upon alleged violations of the Sanitation District’s Wastewater Discharge Regulations Ordinance, a Committee comprised of the General Manager, or his designee, the Director of Finance and Administrative Services, and Director of Engineering are authorized to negotiate and enter into, on behalf of the Sanitation District, a settlement agreement, which may include both payment to the Sanitation District in an amount up to $100,000.00, and enforcement compliance orders deemed appropriate to ensure compliance with the Wastewater Discharge Regulations Ordinance. This agreement may be entered into prior to or during the pendency of any administrative proceeding or litigation enforcement action. Section 4.2: The Committee of the General Manager, Director of Finance and Administrative Services, and Director of Engineering may negotiate and enter into a settlement agreement which includes a schedule of payments over a period of time not to exceed 24 months, by the person or entity which is the subject of the enforcement action. The agreement shall provide for payment of interest on the principal amount owing at a rate not exceeding the higher of: (a) Ten (10%) percent per annum; or (b) Five (5%) percent per annum, plus the rate prevailing on the 25th day of the month preceding the earlier of: (i) The date of execution of the contract to make the loan or forbearance; or (ii) The date of making the loan or forbearance. (Established by the Federal Reserve Bank of San Francisco on advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act (commonly referred to as the “discount” rate).) Section 4.3: If the proposed settlement involves the payment of an amount greater than $100,000.00, the settlement shall be submitted for approval by the Board of Directors of the Sanitation District. 2000-00026 753636.1 8 ARTICLE V SETTLEMENT OF WORKERS’ COMPENSATION CLAIMS MADE AGAINST THE SANITATION DISTRICT Section 5.1: A minimum liability reserve has been established in the amount of $250,000.00 for the payment of claims made against the Sanitation District. Said minimum amount shall continue to be provided for in each annual budget to ensure that sufficient funds are on deposit to provide for payment of those amounts incurred as a liability loss or expense. Section 5.2: Each annual budget shall provide, in addition to the reserve established by Section 5.1, for the sufficient funds to provide a sufficient balance to meet projected expenses for payment of claims during the ensuing fiscal year. Section 5.3: A claims administration firm is authorized to be retained, and said firm is hereby granted authorization to make payments and settlements of claims made against the Sanitation District in an amount not to exceed $5,000.00 per claimant. Said firm shall be retained in accordance with the terms and conditions set forth in an agreement approved by the General Counsel. Section 5.4: In addition to special legal counsel selected by the Sanitation District’s Workers’ Compensation Administrator, the General Counsel is authorized to retain the services of special legal counsel for purposes of representing the Sanitation District in the defense of any workers’ compensation claim, wherein the General Counsel determines that specialized expertise is desirable or that the workload requires the utilization of outside counsel. Section 5.5: A Committee comprised of the General Manager, or his designee, Director of Finance and Administrative Services, and the Sanitation District’s Risk Manager are authorized to review and make full settlement of any workers’ compensation claim made against the Sanitation District by payment of a sum not to exceed $50,000.00, in addition to the actual medical expenses and temporary disability payments per claimant. In the event a claim results in litigation, which is being legally defended by other than the Sanitation District’s General Counsel, this Committee shall review and provide the approval to the Sanitation District’s special legal counsel within the same limits. Section 5.6: All claims resulting in a recommended settlement by negotiation or stipulation in an amount exceeding $50,000.00, in addition to the actual medical expenses and temporary disability payments per claimant, shall be submitted to and approved by the Board of Directors. 2000-00026 753636.1 9 Section 6.1: This Resolution supersedes Resolution No. 98-23, which shall be repealed in its entirety as of the date this Resolution becomes effective. In the event this Resolution does not become effective, Resolution No. 98-23 shall remain in full force and effect. Section 6.2: This Resolution is effective immediately upon adoption. PASSED AND ADOPTED at a Regular Meeting held March 23, 2011. ______________________________ Chair ATTEST: ______________________________ Clerk of the Board Page 1 of 4 ADMINISTRATION COMMITTEE Meeting Date 03/09/11 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 & Administrative Services SUBJECT: Status of 2011-12 Insurance Renewals GENERAL MANAGER'S RECOMMENDATION Informational only SUMMARY Historically, the Administration Committee has asked for status updates regarding the renewals of major insurance policies each year. The Risk Management Division and OCSD’s (Sanitation District) operational insurance broker begin the process of renewal each January, and final quotes are typically received in June shortly before the beginning of the new fiscal year. The Sanitation District budget provides funds for the renewal of the following four major insurances for the operations: 1) Excess General Liability Insurance 2) Excess Workers’ Compensation 3) All-Risk Property and Flood insurance 4) Boiler & Machinery insurance PRIOR COMMITTEE/BOARD ACTIONS June 2010 - The Board approved renewal of the above four policies for the period July 1, 2010 through June 30, 2011. ADDITIONAL INFORMATION 1) Excess General Liability Insurance Program The Sanitation 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 (ANML). The Sanitation District has participated in the CAMEL program since FY 1996-97. Page 2 of 4 ADDITIONAL INFORMATION (cont’d) This program currently provides the Sanitation 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 and $500,000 deductible for employment practices claims. Since 1997, the Employment Practices portion of coverage has been 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 2010-11 was $348,394, a decrease of about 3% from the previous year. 2) Excess Workers’ Compensation Insurance The Excess Workers’ Compensation insurance coverage is with the California State Association of Counties Excess Insurance Authority (CSAC EIA). The Sanitation District has participated in this program or its predecessor since 2003. Excess Workers’ Compensation Program currently provides so-called “Statutory” (unlimited) coverage with a self-insured retention (SIR), or deductible, of $500,000. The use of Excess Workers’ Compensation Insurance dates back to the late 1980’s. At that time, the Fiscal Policy Committee approved a 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 at the time of $25 million with a self-insured retention (SIR), or deductible of $500,000. Some additional risk may be associated with the CSAC EIA joint powers authority in that a premium surcharge can be assessed to individual members if an unusually large number of losses were to occur outside of the actuarial evaluation estimates. However, historically the CSAC EIA premiums for excess workers compensation have been so much less than competing quotes available to the Sanitation District that if even there were a surcharge, the cost might still continue to be cheaper. The renewal of the Excess Workers’ Compensation Insurance for the period July 1, 2010 through June 30, 2011 was at a rate of .002763 (close to the previous year’s rate of .002658). This premium rate generated an estimated premium of $175,419 based on the estimated 2010-11 payroll. Since the premium itself is based on final Page 3 of 4 ADDITIONAL INFORMATION (cont’d) payroll, the Sanitation District will not know the exact final premium until the year is over. 3) All-Risk Property and Flood Insurance All-Risk Property and Flood Insurance Program (Property Insurance) provides for comprehensive coverage for most of the Sanitation District’s real and personal property regarding virtually all perils including fire, flood, and business interruption. The Sanitation 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 Sanitation District has earthquake insurance only in connection with some of its buildings under construction. Current Property Insurance limits are $1 billion for most perils other than flood and earthquakes, and $300 million for flood, with many sub-limits for various situations. In order to reach $1 billion in limits, the broker had to arrange for nearly a dozen different layers of insurers. The SIR is $250,000 per occurrence for most types of losses. Since the late 1990’s, the 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 coverage or losses. The renewal of All-Risk Property and Flood Insurance for the period July 1, 2010 through June 30, 2011 was at a premium of $436,740, a decrease of 5.8 percent from the previous year. 4) Boiler & Machinery Insurance 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 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 improvements caused by the machinery breakdown, are covered by the boiler & Page 4 of 4 ADDITIONAL INFORMATION (cont’d) machinery insurance. This program augments the Sanitation District’s all-risk property insurance that covers perils such as fire and flood. The renewal of the Boiler & Machinery Insurance Program for the period July 1, 2010 through June 30, 2011 was at $15,578, a decrease of about 9 percent from the prior year. CEQA N/A BUDGET/DELEGATION OF AUTHORITY COMPLIANCE N/A JR:LT:RK:jf http://sharepoint/gm/board/Agenda Report Form Library/07.Insurance Renewal.docx Page 1 of 5 ADMINISTRATION COMMITTEE Meeting Date 03/09/11 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: Information Only GENERAL MANAGER'S RECOMMENDATION FY 2011-12 Budget Update. SUMMARY For continued discussion on the development of the proposed update to the FY 2011-12 Budget, detail of the Orange County Sanitation District’s revenues has been provided below. The Proposed Budget Update will be presented for adoption at the June 22, 2011 Board of Directors meeting. PRIOR COMMITTEE/BOARD ACTIONS N/A ADDITIONAL INFORMATION N/A CEQA N/A BUDGET / DELEGATION OF AUTHORITY COMPLIANCE N/A ATTACHMENTS FY 2011-12 Budget Development Revenue Detail JDR:LT:MW:jf http://sharepoint/gm/board/Agenda Report Form Library/06.Budget Revenue Detail.docx Page 2 of 5 FY 2011-12 Budget Development Detail Revenue Summary (in millions) Category 2009-10 Actual 2010-11 Adopted 2011-12 Adopted Beginning Reserves $534.3 $448.4 $488.4 Revenues: Service Fees 200.2 226.5 251.0 Permit User Fees 11.1 11.6 12.7 CFCC 10.3 6.4 6.8 Property Taxes 64.8 60.3 60.3 Interest 19.2 9.3 9.8 Other Revenue 25.8 27.8 31.6 Debt Proceeds 80.0 157.0 50.0 Total Revenue $411.4 $498.9 $422.2 Total Available $945.7 $947.3 $910.6 The Sanitation 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 and Industrial Waste Permit User Fees • Capital Facilities Capacity Charges (CFCC) • Property Taxes • Interest Earnings and Other Miscellaneous Revenue • Debt Proceeds 2010-11 2011-12 Beginning Balances – As result of its Reserve and Investment Policies, the Sanitation District will begin the year with an estimated balance carried forward from the previous year. $448.4M $488.4M General Service Fees – 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). $226.5M $251.0M Page 3 of 5 2010-11 2011-12 Sewer Service Fee Increases – The Board of Directors approved 2010-11 and 2011-12 single family residential rates (the underlying basis for all sewer rates) are $244 and $267, respectively. These rates are 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 – 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 Sanitation 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. $11.6M $12.7M Capital Facilities Capacity Charges (CFCC) – Capital Facilities Capacity Charge is a one-time, non-discriminatory charge imposed at the time a building or structure is newly connected to the Sanitation District’s system, directly or indirectly, or an existing structure or category of use is expanded or increased. This charge pays for Sanitation 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. $6.4M $6.8M Property Taxes – 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 assessed value no more than 2% per year. The Sanitation 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 Sanitation District’s share of this revenue is dedicated for the payment of debt service. $60.3M $60.3M Interest Earnings – Interest earnings are generated from investment of accumulated reserves consisting of a cash flow/contingency, a capital improvement, a renewal/replacement and a self-insurance reserve. $9.3M $9.8M Other Revenue – Revenue includes $20.5 million and $14.0 from the Irvine Ranch Water District (IRWD) for capital and equity charges and $5.2 million and $5.7 million for sewer services provided to the Santa Ana Watershed Protection Authority (SAWPA) and the Sunset Beach Sanitary District for FY 2010-11 and 2011-12, respectively. $27.8M $31.6M Page 4 of 5 Debt Proceeds – Certificates of Participation (COPs) are the Sanitation District’s 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 Sanitation District serves as the purchaser. $157.0M $50.0M Debt Financing Due to the magnitude of identified future annual capital and operations and maintenance expenditures, it is necessary that the Sanitation District utilize debt financing to meet its total obligations. Debt financing allows the Sanitation 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 Sanitation District uses long-term borrowing Certificates of Participation (COPs) 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. Under the America Recovery Act of 2009, $157 million in Build America Bonds COPs (35 percent Federal interest subsidy through the life of the debt) was issued by the Sanitation District in December 2010. Additional debt financing of $360 million is forecasted over the next seven years to assist in the funding of the $2 billion in capital improvements required over the next ten years. A new debt issuance of $50 million is planned for FY 2011-12. 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 Sanitation 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. Page 5 of 5 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 Sanitation District currently has no outstanding synthetic fixed-rate. The total fixed- rate COPs and variable-rate COPs outstanding is $1.213 billion and $194.0 million, respectively, for an approximate ratio of 86:14. The Sanitation District Maintains its AAA Rating The Sanitation 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, the Sanitation 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. The Sanitation District Has No Legal Debt Limits. The Sanitation 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 was approved at 2.07 and 2.16 for FY 2010-11 and 2011-12, respectively.