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Home My WebLink About1998-02-11f~~ J 51998 DRAFT By Y.& MINUTES OF FINANCE, County Sanitation Districts of Orange County, California P.O. Box 8127 • 10844 Ellis Avenue Fountain Valley, CA 92728-8127 Telephone: (714) 962-2411 ~ ADMINISTRATION AND HUMAN RESOURCES COMMITTEE Wednesday, February 11, 1998, 5:30 P.M. A meeting of the Finance, Administration and Human Resources Committee of the County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California was held on Wednesday, February 11, 1998, at 5:30 p.m., at the Districts' Administrative Offices. ROLL CALL The roll was called and a quorum declared present, as follows: Committee Directors Present: George Brown, Chair John J. Collins, Joint Chair Jan Debay Barry Denes Norman Z. Eckenrode Mark Leyes Thomas R. Saltarelli William G. Steiner Peer Swan, Vice Joint Chair Committee Directors Absent : John M. Gullixson Mark A. Murphy Other Directors Present: None APPOINTMENT OF A CHAIR PRO TEM No appointment was necessary. PUBLIC COMMENTS No comments were made. APPROVAL OF MINUTES Staff Present: Don McIntyre, General Manager Blake Anderson, Assistant General Manager Chris Dahl, Director of Information Technology Gary Streed, Director of Finance Mike Peterman, Director of Human Resources Nancy Wheatley, Director of Technical Services Michelle Tuchman, Director of Communications Greg Mathews, Principal Administrative Analyst Mike White, Controller Steve Kozak, Financial Manager Terri Josway, Safety & Emergency Response Mgr. Lisa Lorey, Human Resources Manager Lenora Crane, Committee Secretary Ryal Wheeler, Maintenance & Operations Foreman Others Present: Dani Spence, General Counsel Mario Alvarado, Enterprise Technologies Bob Lockhart, Revenue Enhancement Toby Weissert, Carollo Engineers The minutes January 21, 1998, meeting of the Finance, Administration and Human Resources Committee were approved as drafted. Minutes of Finance, Admin. and Human Resources Committee Page2 /) February 11, 1998 REPORT OF THE COMMITTEE CHAIR The Committee Chair had no report. REPORT OF THE GENERAL MANAGER • General Manager Don McIntyre asked Nancy Wheatley, Director of Technical Services, to update the Committee on the impact the recent heavy rains have had on the Districts' ability to manage its biosolids. Ms. Wheatley updated the Committee and reviewed some of the Districts' options, one of which would be to take the biosolids to locations in Arizona which may cost the Districts an additional $12 to $20 per wet ton. • Assistant General Manager Blake Anderson advised that February, March and the early part of April could be very wet months. If they are, we can expect serious increases in biosolids. The Districts has a storage capacity of two weeks to a month. Staff will keep the Committee and the Boards informed on this issue. • General Manager Don McIntyre reported on the growing interest at the federal and state levels in clean water, reclamation, and watershed management. Don felt because of this, the Districts must include watershed management into our Strategic Plan. • Assistant General Manager Blake Anderson updated the Committee on a report given to the Orange County Business Council Infrastructure Committee yesterday by Lester Snow, who is heading up the Cal Fed process. Mr. Anderson advised that Cal Fed is expected to ask local agencies to work on watershed issues. • Mr. Anderson advised the Committee that the Operations staff did a great job handling the excess flows on Saturday. We experienced a peak flow of 450 mgd at midnight on Saturday. We can handle up to 480 mgd fairly easily, and have been able to handle flows as high as 550 mgd. Mr. Anderson advised that timing is everything. We have been very lucky with the time of day that the peak flows have been hitting us. • Mr. Anderson reported on an issue which would be of interest to coastal cities regarding the use of the Districts' 78-inch outfall. Up until yesterday, we were operating under the assumption we would disinfect any discharge using the 78-inch outfall. However, at the normal regulatory quarterly meeting yesterday, which Nancy Wheatley chairs, the Districts found out that our new permit does not allow us to chlorinate due to possible environmental damage. Members of all the regulatory agencies were at the meeting and agreed we will not be allowed to chlorinate using the 78-inch outfall. The County Health Department will have to post the beaches in the event that we do. REPORT OF THE DIRECTOR OF FINANCE • Director of Finance Gary Streed introduced Mario Alvarado, Principal of Enterprise Technologies, and Dani Spence, of General Counsel Tom Woodruff's office. • Mr. Streed reported that today interest rates were at 1 % on the Districts' variable rate debt. Minutes of Finance, Admin. and Human Resources Committee Page3 ') "') February 11, 1998 REPORT OF THE DIRECTOR OF HUMAN RESOURCES The Director of Human Resources had no report. REPORT OF THE DIRECTOR OF COMMUNICATIONS • Director of Communications Michelle Tuchman advised that two of the Districts' critical goals are external communications and the development of water conservation programs. The Communications Department has been exploring low cost or no cost public awareness programs. One of those programs is a toilet exchange program which we are partnering with the Metropolitan Water District of Orange County (MWDOC). They will be using our parking lot for the exchange program on a weekend. We will be giving them available dates. We are also involved in a hotel water conservation program with MWDOC. • Mrs. Tuchman also reported that the Districts is developing a partnership with the Aquarium of the Pacific in Long Beach. Their grand opening is scheduled for June 22. We will become one of their Southern California tour sites, will be able to participate in guest lectures, and they will have an area where traveling displays will be located. REPORT OF GENERAL COUNSEL General Counsel had no report. REPORT OF THE JOINT CHAIRMAN Director John Collins (JC) advised the Committee that this morning he and Cymantha Atkinson of Communications attended the LAFCO presentation on their consideration of the Districts' consolidation. There were no speakers against the process. LAFCO received a letter from the City of Garden Grove last night in which they opposed and recommended against consolidation. Director Collins addressed LAFCO and addressed the concerns included in the letter which he had not seen before. Director Collins advised that the Commission considered all matters and approved our request for consolidation. In response to the Committee, Director Collins advised that Garden Grove is worried that rate equalization would be a likely result of the consolidation, as well as the spreading of reserves and capital costs. CONSENT CALENDAR ITEMS (1 -5) 1. FAHR98-08: RECEIVE AND FILE TREASURER'S REPORT FOR THE MONTH OF JANUARY 1998, AND FORWARD TO THE JOINT BOARDS: The Treasurer's Report was handed out at the FAHR Committee meeting in accordance with the Board-approved Investment Policy, and in conformance to the Government Code requirement to have monthly reports reviewed within 30 days of month end. 2. FAHR98-09: Receive and file Certificates Of Participation (COP) Report 3. FAHR98-10: Receive and file Employment Status Report 4. FAHR98-11: Receive and file Quarterly Investment Management Program Report for the Period October 1 through December 31, 1997. Minutes of Finance, Admin~d Human Resources Committee Page 4 · ) February 11, 1998 5. FAHR98-12: Renew Boiler & Machinery Insurance for the Districts for the period March 1, 1998 to March 1, 1999, with Kemper Insurance Companies, in an amount not to exceed $71,286. END OF CONSENT CALENDAR MOTION: Moved, seconded and duly carried to approve the recommended actions for items specified as 1 through 5 under Consent Calendar. The Chair requested that Item No. 11 be presented first out of Agenda order. INFORMATIONAL PRESENTATION 11. FAHR98-17: User Fee Ordinance Issues Chairman Brown invited Bob Lockhart, President of the Revenue Enhancement Group, to address the Committee on this item. Mr. Lockhart reviewed his company's credentials and stated that his company has been working on refunds at the Districts for the past two years. He stated his company is responsible for 75% of the $15 million in refunds issued by the Districts during that period. Mr. Lockhart described the Districts' square footage method of assessing fees and the inequities he found with that method. Up until now, the State of California's Statute of Limitations has allowed his company to go back 4 years from the current tax year to receive refunds, however, the Districts' General Counsel has been able to come up with a way to get around it, he stated. He explained his company's position on the changes in the Districts' user fee ordinance relating to rebates and refunds. He felt limiting refunds to one year is unfair to property owners who may have been overcharged for many years. Mr. Lockhart stated all other agencies he has worked with in L.A. County and in California have allowed his company to go back 4 years to receive refunds, and if it were legal to change that time period, they all would have done so. Mr. Lockhart requested a reconsideration of the changes to the ordinance, noting that no one was present at the Board meeting to represent his side when the ordinance was adopted. Mr. Lockhart also indicated that his company would sue the Districts if he did not get his way. ACTION ITEMS (Nos. 6 -9) 6. FAHR98-13: Approve the 1998-99 Budget Assumptions, Fiscal Policy Statements, and Budget Calendar, and direct staff to prepare the 1998-99 Budget incorporating these parameters. COMMITTEE DISCUSSION: Mr. White reviewed the budget process and budget assumptions for the Committee. He noted that the Fiscal Policy guidelines were included in the agenda package for their review, however, he would not be discussing them tonight. Mr. White went over the FTE projections, advising the goal is to be at 521 FTEs by July 1, 1999. There are currently 543 FTE positions. The average flow per day, mgd, is expected to be 250 for the rest of this year, and 255 for 1998-99. Total Joint Works O&M costs are expected to be within the $43-$45 million level. There is expected to be an increase in Joint Operating costs of 2.87% over the prior year, and a reduction from $490 to $486 in the cost per million gallons. There is a proposed cap of $55 million for the CORF budget for 1998-99. User fees are expected to increase in accordance with the 5-year user fee rate schedules. If the RAC proposal is implemented, some charges will go down for some categories. The Training Budget is proposed at 2% of salaries. The inflationary increase is 1.6%, based on the Chapman College December 1997 forecast, and the rate of return on investments is expected to be 6.0%. Minutes of Finance, Admin. nd Human Resources Committee Page 5 ,,...--..,I February 11, 1998 General Manager Don McIntyre advised that there will be a budget session with the Board of Directors on Saturday, May 9. In response to Committee questions, Mr. McIntyre advised that staffing levels were projected two years ago as a part of a Five-Year Staffing Plan. He agreed that those numbers can be changed, but it would not take into account the fact that some of the vacancies may need to be filled. During discussions with Department Heads and budget coordinators, it has been noted that some positions may be more critical than others. Staff needs some flexibility in staffing, in order to be able to respond to unforeseen situations, and to maintain the integrity of the plants and health and safety of the public. Some of the Committee members indicated concern about having too many positions in the staffing projection than are really needed, and indicated that the budget should be managed according to the plan without any surprises. Mr. McIntyre advised the Committee that the Budget Assumptions would also be submitted to the other two standing Committees for their review. MOTION: It was moved, seconded and duly carried to approve the 1998-99 Budget Assumptions, Fiscal Policy Statements, and Budget Calendar, and direct staff to prepare the 1998-99 Budget incorporating these parameters. 7. FAHR98-05: Approve the substitution of Enterprise Technologies to replace J.D. Edwards for the implementation portion only of Financial Information System COMMITTEE DISCUSSION: Controller Mike White advised the Committee that this item has been brought back to them at their request for additional information about the Financial Information System project. A list of questions asked by the Committee at the January 21st meeting was included in the agenda package, along with answers. Mario Alvarado of Enterprise Technologies was introduced by Mike White, and answered questions from the Committee regarding his background, education and experience in the computer industry. Mr. Alvarado advised that he graduated UCLA, was working for a client of J.D. Edwards for 5 years, and has been working as a consultant for the last three years both with another business partner and by himself. His office is based in Irvine. Mr. Alvarado advised that many people in the business branch out and provide consultant services on their own and often group themselves with other consultants. This allows the customer to receive better service with better talent for less money. He advised that he is still affiliated with J.D. Edwards as an independent to do implementation services. It was noted that J.D. Edwards is still under contract with the Districts as a software vendor and they will continue to do their portion of the overall project. Mr. Alvarado advised that the talent for implementation projects lies with consultants, not with the software vendor. Mr. Alvarado reviewed the scheduling concerns of the Committee, and advised them that his company is insured. Staff reported to the Committee that the remaining time left on the contract would be for approximately one year or more. June 30, 1999 is a target date, however, the system must be integrated with the Computerized Maintenance Management System (CMMS). Delays in the implementation of this phase will depend on the integration of these two systems. The FIS system will be working after the next two modules are in place. The very easy to use user interface will come later when the OneWorld conversion is in place. Minutes of Finance, Admin~d Human Resources Committee Page 6 , February 11, 1998 MOTION: It was moved, seconded and approved, with one nay vote, to recommend that the Joint Boards approve the substitution of Enterprise Technologies to replace J D. Edwards for the implementation portion only of the Financial Information System. 8. FAHR98-1 4: Modify the deferred compensation program for Executive Management, Management, Supervisory, Professional and Confidential employees so that the incentive compensation heretofore called "employer matching" and "employer non-matching contributions" be designated as supplemental salary, a part of the total remuneration paid to the employee (All Districts). Director John Collins (JC) requested that his abstention from discussion or voting on this matter be made a matter of record, as well as his absence from the conference room during the Committee's consideration of this item. COMMITTEE DISCUSSION: General Manager Don McIntyre advised that the Committee Chair requested that this item be brought back for their reconsideration of modifications to the Districts Deferred Compensation program which would allow the Districts to maintain current retirement benefits and be in compliance with the Ventura ruling. The changes would be 1) a non-substantive clarification of language, and 2) removal of the vesting provision. Mr. McIntyre described the impact on the change in retirement benefits for approximately 175 current employees if the proposed changes are not made. He also reviewed the historical background of the Districts' Deferred Compensation program and the vesting provisions. Mr. McIntyre noted that the recommended changes will not provide additional benefits to Districts' employees, but merely retains what they have granted through the M.O.U. process since 1985. During discussion, some of the Directors agreed that whether it is right or wrong, it has been past practice to include the benefit in earnable wages, it would not be adding a benefit, and not approving the proposed Resolution would be reducing a benefit already given. Further, the Ventura ruling has not been tested in court, and is not entirely clear at this point. Some Directors opposed including a benefit in earnable compensation figures, and felt that unless the money was included in take-home pay, it should not be considered as such. Also, staff should survey other public agencies to determine how many include these benefits in eamable compensation figures, since this was reported to not be a practice in the private sector. Discussion took place regarding the vesting provisions of the Districts' program. Some of the Directors observed that eliminating the vesting would allow an employee to work for the Districts a very short time and then take the share contributed by the Districts with them when they leave. Dani Spence, General Counsel's office, tried to clarify some of the issues under discussion relating to the Districts' Deferred Compensation Plan, employee benefits and the Ventura ruling. She clarified for the Committee that continuing to include vesting requirements in the Districts' program would be in violation of the Ventura ruling and would probably result in IRS violations in the year of vesting. MOTION No. 1: It was moved, seconded and duly carried, with 5 Ayes, and 3 Nays, to recommend that the Joint Boards approve Resolution No. XX, Approving Revisions to the Deferred Compensation Program for the Executive Management Group Employees (General Manager, Assistant General Managers and Department Heads) and Management, Supervisory, Professional and Confidential Employees of the Districts, and Repealing Resolution No. 95-81. Minutes of Finance, Admin,,...a._nd Human Resources Committee Page 7 J February 11, 1998 MOTION NO. 2: It was moved, seconded and duly carried to change the language of Resolution No. XX, clarifying the application of the provisions to current employees only. This motion is tentative, depending on legal counsel's opinion on prospective application only. 9. FAHR98-15: Review and approve the 1997-98 Financial and Operational Report for the Period ended December 31, 1997, and forward to the Joint Boards COMMITTEE DISCUSSION: Controller Mike White presented an overview of the Financial areas of the report. This is the third year this report has been presented in this format, and includes a comprehensive review of all the financial aspects of the Districts, as well as an operational review. It includes the Operating Fund Review, Capital Outlay Revolving Fund Review, Individual District Review, Self-Insurance Review and Operational Review. As of December 31, 1997, costs per million gallons were at $469. Total Joint Operating Expenses were $24.4 million or 2. 7% below budget. Mr. White provided a comparison of the first quarter and second quarter, summarizing increased costs in chemicals, research, repair materials, payroll and other; an increase of $2.2 million over the first quarter. Mr. White noted that despite increases in some of these categories, the Districts is expected to be within budget at the end of the fiscal year. After a brief discussion regarding the projection for costs per million gallon, the Committee expressed its appreciation to Mr. White for the time and effort involved in preparing this report. MOTION: It was moved, seconded and duly carried to approve the 1997-98 Financial and Operational Report for the period ended December 31, 1997, and forward to the Joint Boards INFORMATIONAL PRESENTATIONS 10. FAHR98-16: Review of Districts' Travel Policy (All Districts). COMMITTEE DISCUSSION: Gary Streed advised that there was a discussion at the December Board Meeting regarding a travel request by an employee who was going to Singapore, and an offer by the employee that the Districts pay only the registration portion, and not the air fare. The Board, after discussion, approved payment for the entire travel, just as we do for other business travel. After the meeting, two of the Directors asked that the travel policy be placed on the next FAHR agenda. Mr. Streed stated that his staff report includes the policy. The intent of having this on the Committee agenda is to avoid having a discussion at the Board level, and to clarify the policy which applies to all instances. Mr. Streed explained that the travel request taken to the Boards was because the Districts' policy is that all travel out of the country must be approved by the full Boards. The portion to be paid by the Districts was not the reason for the item being placed on the agenda. CLOSED SESSION The Chair reported the need for a closed session, as authorized by Government Code Section 54956.9, to discuss and consider the item specified under "Closed Session" as Item 12(a) on the published Agenda. The Committee convened in closed session at 7:45 p.m. No action was taken re Agenda Item 12(a). At 7:58 p.m., the Committee reconvened in regular session. Minutes of Finance, Admi~nd Human Resources Committee Page 8 ' ) February 11, 1998 Confidential Minutes of the Closed Session held by the Committee have been prepared in accordance with California Government Code Section 549057.2, and are maintained by the Board Secretary in the Official Book of Confidential Minutes of Board and Committee Meetings. OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY None. MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING None. MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT None. FUTURE MEETING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for Wednesday, March 11, 1998, at 5:30 p.m. ADJOURNMENT The meeting was adjourned at 7:59 p.m. Submitted by: ~~~ Finance, Administration and Human Resources Committee Secretary \\RADON\DATA 1 \WP .DTA \FIN\21 0\CRAN E\FAHR\F AHR98\FEB\2-98MI N.DOC STATE OF CALIFORNIA ) ) ss. COUNTY OF ORANGE ") Pursuant to California Government Code Section 54954.2, I hereby certify that the Notice and the Agenda for the Finance, Administration and Human Resources meeting held on February 11, 1998, was duly posted for public inspection in the main lobby of the Districts' offices on February 4, 1998. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of February 1998. Penny Kyle, Se e County Sanitati istr. c. Nos. 1, 2, 3, 5, 6, 7, 11, 13 & 14 of Orange County, Cali rnia Posted: J;J,. 'I , 1998, f.'00 A.Me av, r-J'!A "J,v &aLI\ ~ ~~Ure \\radon\data 1 \wp.dta\fin\21 0\crane\FAH R\FAHR98\FEB\CERTP02-98 .doc DISTRIBUTION FAHR COMMITTEE MEETING PACKAGE Full Agenda Package Committee 16 & Mailing List Donald F. McIntyre 1 Blake P. Anderson 1 Dan Dillon 1 Marc Dubois 1 Jeff Esber 1 Ed Hodges 1 Steve Kozak 1 Penny Kyle 2 David Ludwin 1 Greg Mathews 1 Chris Dahl 1 Bob Ooten 1 Mike Peterman 1 Gary Streed 1 Michelle Tuchman 1 Terri Josway 1 Dan Tunnicliff (H.R.) 1 Nancy Wheatley 1 Mike White 1 Ed Torres 1 Cagle, Brad 1 Lisa Lorey 1 Nick Arhontes 1 Gail Cain 1 Bob Geggie 1 Lenora Crane 1 Jim Herberg 1 File 1 Extras 2 Notices and Agenda 13 Posting 1 Jean Tappan (include Mins) 1 Angela Holden 1 Frankie Woodside 1 Patricia Magnante 1 Janet Gray 1 Fawn Elizondo 1 Debra Lecuna 1 Guard Shack (Ed Hodges) 1 Extras 3 (3-hole punched) (3-hole punched) (3-hole punched) (3-hole punched) Ron Zenk, Dist. 14 Treasurer"s Report Only le H:\WP.DTA\FIN\210\CRANE\FAHR\DISTRIBUTIONLISTFAHR.DOC plume; (71 4) 962,2411 malling. addness: P.O. Box 8127 Fountain Valley, CA 92728--6127 street; 11ddress: 10844 EIits Avenue Fountain Valley, q(\ 9l:!70B-7018 Member Agencies • Cities Anaheim Brea Buena Park Cypress Founcein Valley Fullerton Hunriing~n Be;1ch lrvtne Ls Habra La Parms Los Alamitos Newport Beech Orange Placentia Samm.·Ana Seal EJeach Stanton Tustin VIiia Perk Yorba Linda County of Orangi, Sanitary Districts Cost,/ Mesa Garden Grove Midway City Watar Districts Irvine Ranch ~ COUNTY [;~ITATION DISTRICTS OF ORA. _JE COUNTY, CALIFORNIA February 4, 1998 NOTICE .O.F MEETING FINANCEi ADMINISTRATION AND HUMA~~RESOURCES COMMITTEE: COUNTY SANITATION DISTRICTS. NOS. 1, 2, 3, 5, 6, 7, 11, 13 AND 14 OF ORANGE COUNTY, CALIFORNIA WEDNESDAY. FEBRUARY 11 , 1998 -5:30 P.M . DISTRICTS' ADMINISTRATIVE OFFICES 10844 ELLIS AVENUE.: FOUNTAIN VALLEY, CALIFORNIA 92708 A regular meeting of the Finance, Administration and Human Resources Committee of the Joint Boards of Directors of County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California, will be held at the above location, time and date. A Public Wastewater and Environmental Management Agency Committed to Protecting the Environment Since 1954 ) FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE TENTATIVELY SCHEDULED MEETING DATES FAHR Committee Joint Board Month Meetings Meetings February February 11, 1998 February 25, 1998 March March 11, 1998 March 25, 1998 April April 8, 1998 April 22, 1998 May May 13, 1998 May 27, 1998 June June 10, 1998 June 24, 1998 July July 8, 1998 July 22, 1998 August None Scheduled August 26, 1998 September September 9, 1998 September 23, 1998 October October 14, 1998 October 28, 1998 November None Scheduled November 18, 1998 December December 9, 1998 December16,1998 January None Scheduled January 27, 1999 I ) AGENDA REGULAR MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE COUNTY SANITATION DISTRICTS NOS. 1, 2, 3, 5, 6, 7, 11, 13AND 14 OF ORANGE COUNTY, CALIFORNIA WEDNESDAY, FEBRUARY 11, 1998, AT, 5:30 P.M. ROLL CALL ADMINISTRATIVE OFFICES 10844 Ellis Avenue Fountain Valley, California 92708 APPOINTMENT OF CHAIR PRQ TEM, IF NECESSARY AGENDA In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the Districts' Administrative Offices not less than 72 hours prior to the meeting date and time above. All written materials relating to each agenda item are available for public inspection in the Office of the Board Secretary. 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 that there is a need to take immediate action which need came to the attention of the Committee subsequent to the posting of the 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 All persons wishing to address the Finance, Administration and Human Resources Committee on specific agenda items or matters of general interest should do so at this time. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to five 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). February 11, 1998 RECEIVE, FILE AND APPROVE MINUTES· OF PREVIOUS MEETING Recommended Action: Consideration of motion to receive, file and approve draft minutes of the January 21, 1998, Finance, Administration and Human Resources Committee meeting. REPORT OF COMMITTEE CHAIR REPORT OF GENERAL MANAGER REPORT OF DIRECTOR OF FINANCE REPORT OF DIRECTOR OF HUMAN RESOURCES REPORT OF DIRECTOR OF COMMUNICATIONS REPORT OF GENERAL COUNSEL CONSENT CALENDAR ITEMS All matters placed on the consent calendar are considered as hot requiring discussion or further explanation and unless any particular item is requested to be removed from the consent calendar by a Director, staff member or member of the public in attendance, 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. Members of the public who wish to remove an item from the consent calendar shall, upon recognition by the chair, state their name, address and designate by number the item to be removed from the consent calendar. The Chair will determine if any items are to be deleted from the consent calendar. Consideration of motion to appro_ve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: 1. FAHR98-08: Receive and file Treasurer's Report for the month of January 1998: The Treasurer's Report will be handed out at the FAHR Committee meeting in accordance with the Board-approved Investment Policy, and in conformance to the Government Code requirement to have monthly reports reviewed within 30 days of month end (All Districts). 2. FAHR98--09: Receive and file Certificates of Participation (COP) Monthly Report (All Districts}. 3. FAHR98-10: Receive and file Employment Status Report (All Districts). 4. FAHR98-11: Receive and file Quarterly Investment Management Program Report for the Period October 1 through December 31, 1997 (All Districts). -2- \ February 11, 1998 5. FAHR98-12: Renew Boiler & Machinery Insurance for the Districts for the period March 1, 1998 to March 1, 1999, with Kemper Insurance Companies, in an amount not to exceed $71,286 (All Districts). END OF CONSENT CALENDAR Consideration of items deleted from Consent Calendar, if any. ACTION ITEMS 6. FAHR98.::-13: Approve the 1998-99 Budget Assumptions, Fiscal Policy Statements, and Budget Calendar, and direct staff to prepare the 1998-99 Budget incorporating these parameters (All Districts). (Gary Streed/Mike White-20 minutes) 7. FAHR98-05: Approve the substitution of Enterprise Technologies to replace J.D. Edwards for the implementation portion only of Financial Information System (All Districts). (Mike White -15 minutes) 8. FAHR98-14: Modify the deferred compensation program for Executive Management, Management, Supervisory, Professional and Confidential employees so that the incentive compensation heretofore called "employer matching" and "employer non-matching contributions" be designated as supplemental salary, a part of the total remuneration paid to the employee (All Districts). (Tom Woodruff -25 minutes) 9. FAHR98-15: Review and approve the 1997-98 Financial and Operational Report for the Period Ended ended December 31, 1997, and forward to the Joint Boards (All Districts). (Mike White\Greg Mathews-15 minutes) INFORMATIONAL PRESENTATIONS 10. FAHR98-16: Review of Districts' Travel Policy (All Districts). (Gary Streed -10 minutes) 11. FAHR98-17: User Fee Ordinance Issues (All Districts). (Tom Woodruff -15 minutes) -3- February 11, 1998 OPEN DISCUSSION Public comments reopened, if necessary. CLOSED SESSION During the course of conduct.ing the bu~iness 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 negotiation~ With employee rep~esentatives; or which-are exempt from,public disclosure under the California Public Records Act, may be reviewed b~ the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Com,nittee cin any of these subjects, the minutes will . reflect all required disclosure_s of information. 12. Convene in closed session. a. Confer with General Counsel regarding significant exposure to litigation, one potential case (Government Code Section 54956.9). b. Reconvene in regular session. c. Consideration of action, if any, on matters considered in closed session. OPEN DISCUSSION Public comments reopened, if necessary. OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT FUTURE MEl=TING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for March 11, 1998. -4- ( February 11, 1998 NOTICE TO COMMITTEE MEMBERS 1 If you have any questions on the agenda or wish to place any items on the agenda, Committee members should contact the Committee Chair or Secretary ten days in advance of the Committee meeting. Committee Chair: Comm. Secretary: George Brown Lenora Crane le H:\WP.DTA\FIN\210\CRANE\FAHR\FAHR98\FEB\2-98AGENDA.DOC -5- (562) 431-2185 (714) 962-2411, Ext. 2501 714 962-3954 FAX ROLL CALL FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING DATE: February 11, 1998 TIME: 5:30 P .M. ADJOURN: P.M. COMMITTEE MEMBERS GEORGE BROWN (CHAIR) .......................................................... . JOHN J. COLLINS (JC) ................................................................. . JAN DEBAY .................................................................................. . BARRY DENES ............................................................................. . NORMAN ECKENRODE ............................................................... . MARK LEYES ............................................................................... . MARK MURPHY •••••••.•••.•••••••.......•••••••.•.•.••••••••••.•.....••..•••••.••....••••• THOMAS SALTARELLI ................................................................ . MARK SCHWING ••••••.•.•...•••••••••.••.•••••••••.•••..•••••••••••••.•....•••••••••••.•.. WILLIAM STEINER ...•.••••••••••....••••••••.•.•••..••••••••••••.......•..••..•......•••• PEER SWAN ................................................................................. . STAFF DON MCINTYRE, General Manager ••••••.••••••••••••••••••...••.••••.••••.....•.. BLAKE ANDERSON, Assistant General Manager ......................... . CHRIS DAHL, Director of Information Technology ........................ . ED HODGES, Director of General Services Administration •••••..•... DAVID LUDWIN, Director of Engineering ...•••••••••••••...••...•.•••••....•.•• BOB OOTEN, Director of Operations & Maintenance .••••••••.....••••••• MIKE PETERMAN, Director of Human Resources ••••••....••••••••••••.•.. GARY STREED, Director of Finance •••••••••..•.•••••••••.•.•.•.••••••••......•••• MICHELLE TUCHMAN, Director of Communications •••••••.•.....••••••• NANCY WHEATLEY, Director of Technical Services ••••....••••••••.•... STEVE KOZAK, Financial Manager ............................................... . MIKE WHITE, Controller ................................................................. . GREG MATHEWS, Principal Administrative Analyst ..•.•••....•••...••... TERRI JOSWAY, Safety & Emergency Response Mgr •••...•••.••••••••. LISA LOREY, Human Resources Manager .................................... . LENORA CRANE, Committee Secretary ........................................ . OTHERS TOM WOODRUFF, General Counsel ............................................... __ RON GATTI, VALIC ...................................................................... __ ARNOLD BOECKLIN, ICMA ........................................................... . c: Debra Lecuna Penny Kyle ,, .,, DRAFT MINUTES OF FINANCE, County Sanitation Districts of Orange County, California P.O. Box 8127 • 10844 Ellis Avenue Fountain Valley, CA 92728-8127 Telephone: (714) 962-2411 ADMINISTRATION AND HUMAN RESOURCES COMMITTEE Wednesday, January 21, 1998, 5:30 P.M. A meeting of the Finance, Administration and Human Resources Committee of the County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California was held on Wednesday, January 21, 1998, at 5:30 p.m., at the Districts' Administrative Offices. ROLL CALL The roll was called and a quorum declared present, as follows: Committee Directors Present: George Brown, Chair John J. Collins, Joint Chair Barry Denes Norman Z. Eckenrode Mark Leyes Thomas R. Saltarelli Mark Schwing Peer Swan, Vice Joint Chair Committee Directors Absent : Jan Debay Mark A Murphy William G. Steiner Other Directors Present: None APPOINTMENT OF A CHAIR PRO TEM No appointment was necessary. PUBLIC COMMENTS No comments were made. APPROVAL OF MINUTES Staff Present: Blake Anderson, Assistant General Manager Gary Streed, Director of Finance Mike Peterman, Director of Human Resources David Ludwin, Director of Engineering Nancy Wheatley, Director of Technical Services Michelle Tuchman, Director of Communications Greg Mathews, Principal Administrative Analyst Mike White, Controller Steve Kozak, Financial Manager Jim Herberg, Engineering Supervisor Lisa Lorey, Human Resources Manager Lenora Crane, Committee Secretary Others Present: Toby Weissert, Carollo Engineers The minutes of December 10, 1997, meeting of the Finance, Administration and Human Resources Committee were approved as drafted. Minutes of Finance, Admi,.. ~nd Human Resources Committee Page 2 January 21, 1998 REPORT OF THE COMMITTEE CHAIR The Committee Chair had no report. REPORT OF THE GENERAL MANAGER • Assistant General Manager Blake Anderson advised the Committee that staff is looking ahead toward the 1998-99 budget. Staff discussions have already begun on prioritizing the capital budget. Workshops and Committee meetings to review both the capital program and the entire operating budget are expected to be held in the next few months. REPORT OF THE DIRECTOR OF FINANCE • Director of Finance Gary Streed informed the Committee that the Districts' User Fee Ordinance became effective on January 16, 1998. The Ordinance more clearly defines rebates and refunds. We mailed a copy of the Ordinance, along with a letter explaining the differences, to those firms which are aggressively pursuing adjustments. We received our first phone call from one of the firms today; more calls are expected to follow. • In the last month, we have received notice from the GFOA that last year's budget was approved, and will be awarded the Certificate for Excellence in budgetary reporting, along with several very favorable comments. REPORT OF THE DIRECTOR OF HUMAN RESOURCES The Director of Human Resources had no report. REPORT OF THE DIRECTOR OF COMMUNICATIONS • Director of Communications Michelle Tuchman updated the Committee on the Districts' consolidation efforts. LAFCO will hear our application for consolidation on February 11th. We are on schedule for the July 1 consolidation target date. • Since the last meeting, David Parrish, a Register reporter, has requested a "laundry list" of information requests. One of the requests was for all of the information on the Districts' computer loan program, and the names of all of the employees participating in the program and their titles. All of the employees who are participating in the program have been notified that this information was given to the Register. We are still working on providing him with information that he has requested on travel expenses and any other extraordinary reimbursements. • A Strategic Plan Review meeting is scheduled for next Wednesday at 5:30 p.m., immediately preceding the regular Board meeting. • There will be a New Board Member Orientation meeting on January 31, which is for new Board members as well as the Alternate Directors. Minutes of Finance, Admin,,-ilnd Human Resources Committee I"'\ Page 3 , ) 1 January 21, 1998 In response to Chair Brown's inquiry, Director John Collins (JC) advised that the Steering Committee will meet as regularly scheduled, since most of the Steering Committee members are familiar with the information that will be discussed at the Strategic Plan Review meeting. REPORT OF GENERAL COUNSEL General Counsel Tom Woodruff advised that Monday was the last date any of the employees involved in the drug investigation could file a lawsuit against the Districts, due to the statue of limitations in this matter. No additional suits have been filed, and there is only one case still pending. CONSENT CALENDAR ITEMS (1 -2) 1. FAHR98-01: RECEIVE AND FILE TREASURER'S REPORT FOR THE MONTH OF DECEMBER 1998, AND FORWARD TO THE JOINT BOARDS 2. FAHR98-02: Receive and file Certificates Of Participation (COP) Report END OF CONSENT CALENDAR MOTION: It was moved, seconded and duly carried to approve the recommended actions for items specified as 1 through 2 under "Consent Calendar." ACTION ITEMS {Nos. 3 -7) 3. FAHR98-03: Approve Resolution No. XX, Approving Revisions to the Deferred Compensation Program for the Executive Management Group Employees (General Manager, Assistant General Managers and Department Heads) and Management, Professional and Supervisory Employees of the Districts, and Repealing Resolution No. 95-81 Director John Collins (JC) requested that his abstention from discussion and voting on this matter be made a matter of record, as well as his absence from the conference room during the Committee's consideration of this item. COMMITTEE DISCUSSION: Tom Woodruff, General Counsel, reviewed the proposed two revisions to the Districts' existing Deferred Compensation Program, which are to 1) remove the 3-year vesting period which he has determined to be in conflict with the California Supreme Court decision in Ventura; and 2) a non-substantive language change which redefines empk>yer "contributions" to "supplementary salary" in order to satisfy the requirements of law as set forth by the Supreme Court. This will allow employer contributions to continue to be counted towards "final compensation" for Districts' employees in the Orange County Employees Retirement System. Discussion took place regarding the pros and cons of the three options presented to the Committee, the differences between 401 K and 457 plans, the difference in the way the private and public sectors allocate their matching benefit portions of these plans to retirement funds, and the legality of making the recommended changes. MOTION: It was moved, seconded and duly carried to approve Option No. 1, to do nothing, with the stipulation that we do not include the employer matching funds benefit in employee salary calculations to OCERS for final compensation purposes. Minutes of Finance, Admin. and Human Resources Committee Page4 January 21, 1998 Director Swan requested that staff solicit a third opinion on the Plan and vesting requirements. 4. FAHR98-04: Approve Ordinance No. 135, Providing For an Early Retirement Incentive Program by Granting Additional Service Credit to Eligible District Employees as Authorized by the County Employees Retirement Law of 1937, Government Code Section 31641.04 COMMITTEE DISCUSSION: Human Resources Director Mike Peterman reported that the proposed Ordinance would provide an early retirement incentive program to eligible Districts' employees as authorized by the County Employees' Retirement Law of 1937, and Government Code Section 31641.04. The Districts' Five-Year Staffing Plan calls for the reduction of an additional 25 employees. The Boards approved all Early Retirement Incentive Programs brought before them for each of the last three fiscal years. During those three years, 26 employees have retired early with only three positions refilled. The Districts' estimated savings are expected to be $4.4 million through fiscal year 1999. Discussion took place regarding early retirement incentives used in the private sector. MOTION: It was moved, seconded and duly carried, with one no vote, to recommend that the Joint Boards approve Ordinance No. 135, Providing For an Early Retirement Incentive Program by Granting Additional Service Credit to Eligible District Employees as Authorized by the County Employees Retirement Law of 1937, Government Code Section 31641 .04 5. F AHR98-05: Approve the assignment of the implementation portion of the J. D. Edwards Financial Information System (FIS) Contract to Enterprise Technologies COMMITTEE DISCUSSION: Controller Mike White gave an overview of the Districts' Financial Information System (FIS) implementation program and the costs previously authorized by the Joint Boards for this project for hardware, software licenses, system installation, training and data conversion Since the Financial Information System agreement was entered into with J.D. Edwards in October of 1996, various changes in the company's strategies has led to a decline in the overall project management services provided to the Districts. J.D. Edwards has encouraged us to replace them with one of their business partners. Therefore, the Finance Department conducted interviews with three of J.D. Edwards' business partners. Of the three, Enterprise Technologies was determined to be the best firm to complete the project. During discussion, the Committee had numerous questions regarding the J.D. Edwards contract, whether legal action should be taken against them, whether all or part of their contract will be assigned. The Committee questioned the reasons for the change in the project completion date, and the specifics of the original contract. The Committee was interested in obtaining background information on Enterprise Technologies, how many people will be working on the project, if it is assigned to them, the number of hours they plan to work on the project and estimated costs. MOTION: It was moved, seconded and duly carried, with one no vote, to table this item to the February meeting. Minutes of Finance, Admil),-'\nd Human Resources Committee ~ Page 5 , January 21, 1998 The Committee requested that staff provide them with an abstract of the contract, a cost analysis of what has been spent, what has been obligated, how much is left. They requested schedules showing how much of the work has been completed and a background report on Enterprise Technologies. It was also requested that staff invite the owner of Enterprise Technologies to attend the next meeting to answer questions of the Committee. 6. FAHR98-06: 1. Approve Addendum No. 2 to the Professional Services Agreement with Camp Dresser & McKee, Inc., for preparation of Phase 2 of the Strategic Plan Treatment, Disposal and Reuse Plan, Job No. J-40-3, to provide additional planning and design services in the amount of $397,239, for a total amount not to exceed $1,085,749; and 2. Extend the contract duration for an additional six months to April 1999. COMMITTEE DISCUSSION: Jim Herberg, Engineering Supervisor, gave an overview of the project and the additional work proposed in Addendum No. 2. He advised that the issues have been discussed with the Ad Hoc Committee and they have concurred with staffs analysis and proposed revisions to the project. Total additional fees for the work is $397,239, approximately 15% of CDM's existing budget for Phases 1 and 2 of the Strategic Plan. Additional Work Items consist of Planning/Permit Assumptions $299,233; Additional Public Participation (PAC 2) $46,969 and Rate Structure Issues $51,037. Technical Services Director Nancy Wheatley advised that the EPA requirements regarding the discharge requirements is a very important part of the change. Staff clarified that the changes to the project concern Phase 2 of the Strategic Plan. MOTION: It was moved, seconded and duly carried to recommend that the Joint Boards approve Addendum No. 2 to the Professional Services Agreement with Camp Dresser & McKee, Inc., for preparation of Phase 2 of the Strategic Plan (Treatment, Disposal and Reuse Plan), Job No. J-40-3, to provide additional planning and design services in the amount of $397,239, for a total amount not to exceed $1,085,749; and 2. Extend the contract duration for an additional six months to April 1999 7. FAHR98-07: Award contract for Job No. P2-70, Replacement of Construction Management Trailers at Plant No. 2, to Space Leasing Company, Inc., in an amount not to exceed $183,989 MOTION: It was moved, seconded and duly carried to recommend that the Joint Boards award the contract for Job No. P2-70, Replacement of Construction Management Trailers at Plant No. 2, to Space Leasing Company, Inc., in an amount not to exceed $183,989 INFORMATIONAL PRESENTATIONS None. CLOSED SESSION There was no closed session. Minutes of Finance, Adm,,. and Human Resources Committee Page6 January 21, 1998 OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY None. MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING None. MATTERS WHICH A blRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT None. FUTURE MEETING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for Wednesday, March 11, 1998, at 5:30 p.m. ADJOURNMENT The meeting was adjourned at 6:58 p.m. Submitted by: ~~ Lenora Crane Finance, Administration and Human Resources Committee Secretary H:\WP.DTA\FIN\210\CRANE\FAHR\FAHR98\JAN\1-98MIN.DOC ' FAHR COMMITTEE Meeting Date 02/11/98 AGENDA REPORT ItemJ'..u~ber County Sanitation Districts of Orange County, california FROM: Gary Streed, Director of Finance . Oil! Originator: Steve Kozak, Financial Manage~r- ToJt. Bds. 02/25/98 Item Number SUBJECT: Certificates of Participation (COP) Monthly Report (All Districts) GENERAL MANAGER'S RECOMMENDATION Receive and file Certificates of Participation (COP) Monthly Report SUMMARY Since June 1995, the daily rate COP program remarketing agents have been PaineWebber for the Series u A" and the 1993 Refunding COPs, and J.P. Morgan for the Series uc" COPs. Most fixed rate Series uB" COPs have been refunded and the 1992 Refunding COPs have always been remarketed by PaineWebber in a weekly mode. PROJECT/CONTRACT COST SUMMARY None. BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. 1:8] Not applicable (information item) ADDITIONAL INFORMATION Two graphical, and one tabular, reports are attached. The first graph entitled, "CSDOC COP Rate History Report," shows the variable interest rates on each of the daily rate COPs since the last report, and the effective fixed rate for the two refunding issues which are covered by an interest rate exchange agreement commonly called a uswap." \lradon\data1'1Np.dtallin\210'crane\FAHRIFAHR98\FEBIFAHR98-09.doc RNsed: 10/17197 Page 1 The second bar chart entitled, "Comparative Daily COP Rate History Report," shows the performance of the Districts' Daily Rate COPs as compared to a composite index rate, which represents the average rate of six similar variable rate daily reset borrowings. The table entitled, "Daily COP Rate Comparisons," shows the monthly variable interest rate performance of the Districts' Daily Rate COPs as compared to the composite index. Estimated annual interest payments calculated for a standard $100 million par amount, are also shown. Variable rates historically rise at the end of each calendar quarter, and especially at year-end, because of business taxes and statements. The rates decline to prior levels immediately in the following month. Staff will maintain our continuous rate monitoring and ongoing dialog with the remarketing agents and rating agencies to keep the Committee fully informed about developments in the program as they occur and at each meeting. ALTERNATIVES None. CEQA FINDINGS None. ATTACHMENTS 1. Graph -Comparattve Daily COP Rate History Report 2. Graph -CSDOC COP Daily Rate History Report 3. Tabular -Daily COP Rate Comparison GGS:SK:lc \lradonldata1wwp.dlallin\210'crane\FAHRIFAHR98\FEBIFAHR98-09.doc Revised: 10117/117 Page2 G) ""ti C al i "t, )( )> Ill 0 al !!. -4 RATE(%) c.. ~ m CT Ill '< '5 0 ..a. N w .,:i. u, a, .,.. :::, 3· JG Ill I\) 02-Jul-97 :::, I\) 0 0 _CD ,ti ~ CD 09-Jul-97 ca ca CD ~ _CD 3· 16-Jul-97 -Ill j,.j :::, O> 0 CD 23-Jul-97 . ""ti ;ii s:: )> -I 30-Jul-97 m :I: cii I 06-Aug-97 -i 0 (0 --J 13-Aug-97 C/J 20-Aug-97 C 0 27-Aug-97 . 0 03-Sep-97 0 10-Sep-97 0 -c +t 17-Sep-97 C )>""CJ 24-Sep-97 c.. )> -Q> Ci)-· )> -:::, cnro 01-Oct-97 z• =E ~ C -< l~g_ 08-Oct-97 C" )> ~ (l) -, 15-Oct-97 ;c 22-Oct-97 f I I I ~ I * I • 11-<"1 t+ 29-0ct-97 1 -I, :::c: U) - 05-Nov-97 «> en en~ 00 -t 0 "O 12-Nov-97 c,. 0 (j)~ roo 19-Nov-97 ~ :::, -, cng ::E:::, 26-Nov-97 Q) :-o ;c 03-Dec-97 m 10-Dec-97 f I I r,"tr I * I • I I -c 0 17-Dec-97 -t I I I ~ I * I • I I ;a 24-0ec-97 1 I I I ~ I + I • I I -t 31-Dec-97 :j: 07-Jan-98 14-Jan-98 21-Jan-98 28-Jan-98 \ \ Prepared by Finance, 2/4/98, 1:31 PM COMPARATIVE DAILY COP RATE HISTORY REPORT JANUARY 1998 6.00 ...-------=============--------------, 5.00 +-----------------------------------------------l 4.00 -~ e.... ~ 3.00 c:( ix: 2.00 1.00 0.00 DATE ,.._ ,.._ ,.._ ,.._ ,.._ ,.._ 00 00 00 00 00 00 a, CJ) a, a, a, en en en en en a, a, :i tn C: ~ > 0-C: .0 ..: ..: >,. C: ~ Q) CJ 0 Q) t1l Q) t1l C. t1l ::, -, CJ) 0 z 0 -, IL ~ <( ~ -, F./JCSDOC • COMPOSITE INDEX I G :\excel .dta\fi n\2 2 20\geggi\Fi na nce\d ailycopi ntrate .xis Prepared by Finance, 2/4/98, 1 :34 PM Jul-97 Aug-97 Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 AVERAGE DAILY COP RATE COMPARISONS(%) JUL, 1997-JAN, 1998 CSDOC $100M $98.SM $46M Series"A" Series"C" Series 93 Ref PaineWebber J.P. Morgan PaineWebber 3.17 3.12 3.17 3.17 3.20 3.17 3.53 3.63 3.53 3.46 3.51 3.46 3.68 3.69 3.68 3.29 3.35 3.29 3.09 3.09 3.09 3.34% 3.37% 3.34% ESTIMATED ANNUAL INTEREST PAYMENTS PER $100M PAR AMOUNT $ 3,341 ,429 $ 3,370,000 $ 3,341 ,429 *FOOTNOTE Composite index consists of the following COP transactions: . IRWD, Series 86, $60M, Smith Barney . IRWD, Series 93 "A" Refunding, $87.6M, Bankers Trust . IRWD, Series 93 "B" Refunding, $41.8M, J.P. Morgan . IRWD, Series 95 Refunding, $117.8M, PaineWebber Composite Index* 3.10 3.05 3.60 3.38 3.68 3.33 3.10 3.32% $ 3,320,000 . Western Riverside Co. Reg. Wastewater Auth., Series 96, $25.4M, PaineWebber . Orange Co., Irvine Coast Asst. Dist. 88-1, $94.SM, J.P. Morgan G:\excel.dta\fin\2220\geggi\Finance\COPdaily$rate comparison I: •• , FAHR COMMITT~ AGENDA REPORT County Sanitation Districts of Orange County, California FROM: Mike Peterman, Director of Human Resources Originator: Patty Steeves, Human Resources Analyst SUBJECT: Employment Status Report. GENERAL MANAGER'S RECOMMENDATION Receive and file the Employment Status Report. SUMMARY Total headcount at the Districts as of January 21, 1998 is 542.75. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT D This item has been budgeted. (Line item: ) D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. IZI Not applicable (information item) ADDITIONAL INFORMATION Meeting Date To Jt. Bds. 2/11/98 Item Number Item Number 3 The Districts have a full-time equivalent (FTE) headcount of 542.75 as of January 21, 1998. The actual number of employees is 554. The current FTE count is equivalent to a 3.0% reduction from the budgeted 559.75 positions. There were two new employees hired during the month of December. A Part-time Assistant for Division 630 (.5), Environmental Sciences Laboratory and a Collections Facilities Worker I for Division 420 (1.00), Collection Facilities Maintenance. There were two new employees hired during the month of January. An Intern for Division 820 (.5), O&M Process and an Associate Engineer II for Division 620 (1.00), Environmental Compliance & Monitoring. There was one promotion for a Lead Collections Facilities Worker to a Foreman for Division 420, Collection Facilities Maintenance. The Districts G:lntglobal\Agenda Draft Reports\FAHR\statusrpt19B.doc.dot Revised: 1 /5/98 Page 1 are currently seeking ir~ "'nal or external candidates for the f'"'"owing replacement positions: · • Storeskeeper Assistant (Purchasing & Warehousing) • Storeskeeper (Purchasing & Warehousing) • Programmer Analyst (Programming, DataBase & Comm.) • Electrical Engineer (Design & Planning Engineering) • Civil/Sanitary Engineer (Design & Planning Engineering) • Secretary (Design & Planning Engineering) • Chief Scientist (Environmental Compliance & Monitoring) • Training Manager (Education & Training) • Senior Financial Analyst (O&M Process Support) • Two Collection Facilities Workers (Collection Facilities Maintenance). It is projected that after filling these positions the Districts FTE count will be 548. ALTERNATIVES None. CEQA FINDINGS None. ATTACHMENTS January 21, 1998 Employment Status Report. Performance to 5-Year Staffing Plan. /ps G:lntglobal\Agenda Draft Reports\F AHR\statusrpt198.doc.dot Revised: 1/5/98 Page 2 Employment Status Report Run Date: 21-Jan-98 Regular Regular Total ' Regular Part-time Part-time FTE Vacant FTE FTE Full-time 20.hours 30hours Contract lntem LOA Count Positions 97-98 98-99 11 O -General Management Administration 4.00 0.00 0.00 0.00 0.00 0.00 4.00 2.00 6.00 5.50 Total General Management 4.00 0.00 0.00 0.00 0.00 0.00 4.00 2.00 6.00 5.50 21 O -Finance Administration 4.00 0.00 0.00 0.00 0.00 0.00 4.00 0.00 4.00 4.00 220 -Accounting 19.00 0.00 0.00 0.00 0.00 0.00 19.00 0.00 19.00 18.00 230 -Purchasing & Warehousing 12.00 1.00 0.00 0.00 0.00 0.00 13.00 3.00 16.00 16.00 Total Finance 35.00 1.00 0.00 0.00 0.00 0.00 36.00 3.00 39.00 38.00 310 -Communications 9.00 0.00 0.75 0.00 0.00 0.00 9.75 0.00 9.75 9.75 Total Communications 9.00 0.00 0.75 0.00 0.00 0.00 9.75 0.00 9.75 9.75 410 -General Services Administration 6.00 0.00 0.00 0.00 0.00 0.00 6.00 0.00 4.00 4.00 420 -Collection Facilities Maintenance 16.50 0.00 0.00 0.00 0.00 0.00 16.50 2.00 18.50 18.50 430 -Plant Maintenance 39.50 0.00 0.00 0.00 0.00 0.00 39.50 0.00 39.50 38.50 Total General Services 62.00 0.00 0.00 0.00 0.00 0.00 62.00 2.00 62.00 61.00 460 -End Users Support 9.00 0.00 0.00 0.00 0.00 0.00 9.00 0.00 9.00 11.00 470 -Programming, Data Base & Comm. 9.00 0.00 0.00 0.00 0.00 0.00 9.00 1.00 10.00 11.00 490 -Plant Automation 8.00 0.00 0.00 0.00 0.00 0.00 8.00 0.00 8.00 8.00 Total Information Technology 26.00 0.00 0.00 0.00 0.00 0.00 26.00 1.00 27.00 30.00 510 -Human Resources Administration 5.00 1.00 0.75 0.00 0.00 0.00 6.75 0.00 6.75 6.75 520 -Education & Training 4.00 0.00 0.75 0.00 0.00 0.00 4.75 1.25 6.00 6.00 530 -Safety & Emergency Response 5.00 0.00 0.00 0.00 0.50 0.00 5.50 0.00 5.50 5.50 Total Human Resources 14.00 1.00 1.50 0.00 0.50 0.00 17.00 1.25 18.25 18.25 610 -Technical Services Administration 3.00 0.00 0.75 0.00 1.00 0.00 4.75 0.25 5.00 6.00 620 -Environmental Compliance & Monitoring 17.00 0.00 0.00 0.50 0.50 2.00 20.00 1.25 21.25 21.50 630 -Environmental Sciences Laboratory 30.00 1.50 0.00 0.00 0.50 1.00 33.00 2.00 35.00 30.00 640 -Source Control 36.00 0.00 0.75 0.00 0.00 0.00 36.75 2.00 38.75 37.75 Total Technical Services 86.00 1.50 1.50 0.50 2.00 3.00 94.50 5.50 100.00 95.25 71 O -Engineering Administration 3.00 0.00 0.00 0.00 0.00 0.00 3.00 0.00 3.00 3.00 720 -Planning & Design Engineering 25.00 0.00 0.75 0.00 0.50 1.00 27.25 3.75 31 .00 31 .00 730 -Construction Management 36.00 0.00 0.00 1.00 0.00 0.00 37.00 0.50 37.50 38.00 Total Engineering 64.00 0.00 0.75 1.00 0.50 1.00 67.25 4.25 71.50 72.00 810 -0 & M Administration 2.00 0.00 0.00 0.00 0.00 0.00 2.00 0.00 2.00 2.00 820 -0 & M Process Support 9.00 0.00 0.00 0.25 1.00 0.00 10.25 1.00 11.25 10.25 830 -Plant 1 Operations 38.00 0.00 0.00 0.00 0.00 1.00 39.00 0.00 37.00 37.00 840 -Plant 2 Operations 43.00 0.00 0.00 0.00 0.00 0.00 43.00 0.00 42.00 40.00 850 -Mechanical Mice 53.50 0.00 0.00 0.00 0.00 0.00 53.50 1.00 54.50 50.50 860 -Electrical & Instrumentation Mtce 58.50 0.00 0.00 0.00 0.00 0.00 58.50 0.00 58.50 58.50 870 -Cogeneration 12.00 0.00 0.00 0.00 0.00 0.00 12.00 1.00 13.00 13.00 880 -Air Quality & Special Projects 7.00 0.00 0.00 0.00 1.00 0.00 8.00 0.00 8.00 8.00 Total Operations & Maintenance 223.00 0.00 0.00 0.25 2.00 1.00 226.25 3.00 226.25 219.25 Total Staffing 523.001 3.501 4,50 1 1.751 5.001 5.00 542.75 22.00 >-559.75 549.00 H:lexcel.etalhr\steeves\empdiva xis Performance to 5-Y ear Staffing Plan 640 --------------~=~;;;;;;=== 620 1::::=======---~===~~~======I 60011--•·•·\-... 580 \ -• -• -• -• -• _ • -• -• -• -• -• ---• -• --+-FTE Headcount 560 +--t==~~~~~~~== 540J__ 520L +--======~~~~~~~~ 500 j__ 480 JASON DJ FM AM J1J AS ON DJ FM AM J I FY 96-971 I FY 97-98 I ~-"' _) __ ) " I J FAHR COMMITTEE Meeting Date 02/11/98 AGENDA REPORT Item_,mber County Sanitation Districts of Orange County, California FROM: SUBJECT: Gary Streed, Director of Finance _ Oil/ Originator: Steve Kozak, Financial Manager _)'r-- QUARTERLY INVESTMENT MANAGEMENT PROGRAM REPORT FOR THE PERIOD OCTOBER 1 THROUGH DECEMBER 31, 1997. GENERAL MANAGER'S RECOMMENDATION Receive and file the Quarterly Investment Management Program Report for the period October 1 through December 31, 1997. SUMMARY Section 15.0 of the Districts' Investment Policy includes monthly and quarterly reporting requirements for the Districts' two investment portfolios. These two funds, the "Liquid Operating Monies," and the "Long-Term Operating Monies," are managed by PIMCO, the Districts' external money manager. The ongoing monitoring of the Districts' investment program by staff and Callan Associates, the Districts' independent investment advisor, indicates that the ·.t)Jt1ficts• investments are in compliance with the Districts' adopted Investment Policy and the California Government Code, and that overall performance has tracked with benchmark indices. In addition, sufficient funds are available for the Districts to meet its operating expenditure requirements for the next six months. The Districts' portfolios do not include any reverse repurchase agreements or derivative securities. PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. 181 Not applicable (information item) H:\wp.dtaVin\210'c:lar,elFAHR\FAHR1181FEB\Quartertylnvstrpt..doc Rll'liMd: 115198 Page 1 To Jt. Bds. 02/25/98 Item Number ADDITIONAL INFORMATION Performance Reports The quarterly strategy review, prepared by PIMCO, and the Investment Measurement Review, prepared by Callan Associates, are attached for your reference. Also attached are two comparative bar charts which depict the sector diversification of the Districts' portfolios, as of September 30, 1997, and December 31, 1997. The Liquid Operating Monies portfolio, with an average maturity of less than 90 days, consists entirely of cash equivalent investments such as U.S. Treasuries, and corporate discount notes. Portfolio Performance Summary The following table presents a summary of the performance of the Districts' portfolios managed by PIMCO for the period October 1 through December 1, 1997. Portfolio Performance Summary Quarter Ended December 31, 1997 Liquid Operating Monies(%) Long-Term Operating Monies(%) ~~~l~~f~PM~~t!l,l'P,JmmllillijejUEmilifil !lilli1lfflifflllllli!Jm,~lliil~~~TIHiii, :ii tltlHlillit§illrrfil'.mfHt }ffl~:w ;~Jr~;;,J.,~, tfi~ 3 Months 1.4 2.0 6 Months 2.8 4.6 9 Months 4.3 7.3 12 Months 5:6 7.9 Since inception 30 Sept 95 5.6 7.0 :m~..t!Em,1~~Hifo.,u!f.~~mm,l!ilffilf~!hlrnlllit1tittlilil~!\1.~¾iimlffiml~iinFiiijjjjllP..lii' .~. "' !~ l! " ·I' 3 Months 1.3 1.8 6 Months 2.6 4.2 9 Months 3.9 6.8 12 Months 5.2 7.2 Markel Value per PIMCO 31 Dec. 97 $17.6M $301.1M Average Quality "AAA" "AAA" Estimated Yield lo Maturity 31 Dec. 97 5.84% 5.84% Quarterly Deposits (Withdrawals) ($3.0M) Estimated Annual Income $1.0M $19.3M Market Recap Solid gains were posted in the fourth quarter of 1997 by U.S. fixed income markets, as investors continued to view U.S. economic growth as balanced and non-inflationary, and the Asian economic crisis fueled increased investor movement toward the relative safety and quality of fixed income investments. With the inflation outlook improving, and short-term interest rates left unchanged by the Federal Reserve, the fourth quarter 1997 benchmark 30-year Treasury yield curve continued to flatten when compared to both the fourth quarter 1996 yield curve, and the third quarter 1997 yield curve. While quarter-end short-term \lntdon\data1w.p.dtallin\210\cnlne\FAHRIFAHR981FEB\Quartertylnvstrpt..doc R8'1ised: 1/5198 Page2 rates were higher by as much as 25 basis points for the 3-month maturity (5.34% vs. 5.09%), mid to long-term rates (more than 1 year) were lower at quarter-end as compared to the start of the quarter by 9 basis points or more. This is depicted in the attached comparative graph of the "Historical Yield Curve." As a result, the yield advantage of longer maturity Treasury securities narrowed significantly by the end of the quarter. For the Long-Term Operating Monies portfolio, PIMCO continued a weighted maturity or duration, near, to slightly above, the duration index (2.3 years), emphasizing high-quality mortgage backed securities. This strategy contributed to the portfolio outperforming its benchmark again this quarter (2.0% vs. 1.8%). For the Liquid Operating Monies portfolio, PIMCO maintained a below-index duration posture (25.5 days) which benefited the portfolio as short-term rates rose over the quarter. Investments in short maturity investment grade commercial paper, and U.S. Agency discount notes were emphasized, contributing incremental yield to the portfolio, which performed slightly better than its benchmark (1.4% vs. 1.3%). Comparative marked-to-market quarter-end portfolio values are shown in the table below, and in the attached bar chart. During the month of October, $20 million was withdrawn from the Long-Term Operating Monies portfolio to fund cash flow requirements. In December, the Districts received $17 million through the Orange County Tax Collector's property tax allocation cycle. These funds were deposited to the Long-Term portfolio for investment. ALTERNATIVES N/A CEQA FINDINGS NIA Quarter Ending 31 Dec. 96 31 Mar. 97 30 June 97 30 Sept. 97 31 Dec. 97 Liquid Operating Monies ($M) 14.4 4.5 17.1 17.4 17.6 llnldonldala1'1Np.dta\fin\2101cranelFAHRIFAHR98\FE8\Quarterlylnvstrpt.doc Revised: 11'5198 Long-Tenn Operating Monies ($M) 311 .5 313.2 321 .3 298.5 301 .1 Page 3 ATTACHMENTS 1. PIMCO Report 2. Callan Report 3. Three Comparative Bar Charts 4. Historical Yield Curve Graph \\nldonldata1'wp.dta\lin\210lcnine\FAHRIFAHR981FEB\Quarte~ylnvstrpt..doc Rellised: 115198 Page4 Prepared by Finance, 2/2/98, 9:56 AM CSDOC Investment Management Program Quarter End Portfolio Values (Marked-to-Market) $350,000,000 • ,,, ~.,, ,o,,, , ....• c,0,.L " $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 ~ $0 31 Dec 96 31 Mar 97 30 Jun 97 30 Sep 97 31 Dec 97 lo Liquid Operating Monies lf1 Long-Term Operating Monies) G: \excel .dta\fin \2220\geggi\Finance \investmgmtprogram ) Prepared b Finance, 2/2/98, 8:47 AM CSDOC Liquid Operating Monies Portfolio 100 . Investment Diversification 1 100100 90 80 70 ...-.... ~ 60 I 0 ...._... I ~ I I• 9/30/97 +J C 50 Q) I ~7 I~ 12/31/97 0 I,... 40 Q) Q. 30 20 10 I 0 0 0 0 0 0 0 0 0 0 0 Govt Mtg Corp Non US$ Other Net Cash Equivalent G :\excel.dta\fin\2220\geggi\Finance\Portfolio short term Prepared by Finance, 2/2/98, 8:50 AM CSDOC Long-Term Operating Monies Portfolio Investment Diversification 100 ~--------------~ 90 -----------------------! 80 -----------------------! "' 70 -r------------------------1 ~---, ...-.. '#. 60 .._.. +J C Q) u I- Q) a. 50 40 30 20 10 61 61 10 13 0 0 0 0 0 I I r««• r««e -•• w:««1 I Govt Mtg Corp Non US$ Other Net Cash Equivalent G:\excel.dta\fin\2220\geggi\Finance\Portfolio long term graph • 9/30/97 rlJ 12/31 /97 .. . ~ --- Prepared by Finance, 2/3/98, 4:21 PM I HISTORICAL YIELD CURVE I 7.0 ,--------------------------- 6.5 ,-----------------------,,L-(__ ___ __J -~ ~ C +-----------------~~::::::_-------------=--~==:::::::~--------=----------4 u:J 6.0 • 5.5 +---------~~-----------------------------1 5.0 -1------+-~--+--~---+----,--+-----,---+--.--+----r---+----r---+---.--t----r---+-----.---+------I 0 E 0 E ... >- 'II"'" M co ... >- N ... >- M -+-12/31 /96 ... >- "It -tr-10/1/97 ... >- It) ... >-..... ----12/31 /97 ... >- 0 'II"'" ... >- 0 N ... >- 0 M G:\excel.dta\fin\2220\geggi\Finance\Historicalyieldcurve ~-·· INVESTMENT MANAGEMENT PROGRAM County Sanitation Districts of Orange County STRATEGY REVIEW FOR THE PERIOD OCTOBER 1 -DECEMBER 31, 1997 FINANCE, ADMINISTRATION & HUMAN RESOURCES C9MMITTEE fEBRUARY 11, 1998 I••" Post Office Box 6430 840 Newport Center Drive Newport Beach California 92658-6430 714 • 640-3031 PACIFIC INVESTMENT MANAGEMENT COMPANY AGENDA BOND MARKET REVIEW II PERFORMANCE / PORTFOLIO REVIEW ) Ill CURRENT OUTLOOK/ STRATEGY _) PACIFIC INVESTMENT MANAGEMENT COMPANY RATES TRENDED DOWN IN FOURTH QUARTER 2-YEAR YIELDS FLUCTUATED MODERATELY OVER QUARTER YIELD CURVE FLATTENED AS INFLATION RISK PREMIUM FELL ~ e.... 7.0 6.5 ~ 6.0 Q) :,-::: 5.5 5.0 40 20 0 a: ,B, ~ -20 C: "' ~ u -40 -60 -80 ijillt:e =~i~~m:1~-{ _:ijiijl1f jl_ijstiix1ittifi.1ij9yiM~i~~l!l!ri,i1l!~ij~ll~~;~!l~11 ·1···-,'\ ' .. , t / '. , .... ----~ - r" 2-Yr. T-8///·• .. -·,,L ,'• .--·· '"•--~---· -... ..... 5.92% , .. "'\ .. --... ',.---I SJ, lQ '97 2Q '97 JQ '97 4Q '97 I 25 = -70 -72 3 Mos. 1 Yr. 2 Yrs. 3 Yrs. 5 Yrs. 10 Yrs. 30 Yrs. I !?di 4TH QTR. • 19971 SOURCE: Bloomberg PACIFIC INVESTMENT MANAGEMENT COMPANY STRATEGY RECAP -FOURTH QUARTER LIQUID OPERATING FUND Period Ended December 31, 1997 DURATION • MATURITY MIX • SECTOR/ ISSUE • BELOW INDEX NEAR INDEX EMPHASIZE AGENCY DISCOUNT NOTES AND COMMERCIAL PAPER 2 • • • POSITIVE NEUTRAL POSITIVE SLIGHT POSITIVE NEUTRAL POSITIVE / ~ _,J PACIFIC INVESTMENT MANAGEMENT COMPANY STRATEGY RECAP -FOURTH QUARTER LONG-TERM OPERATING FUND Period Ended December 31, 1997 DURATION • MATURITY MIX • SECTOR/ ISSUE • NEAR INDEX BROADER THAN INDEX EMPHASIZED AGENCY SECURITIES CONTINUED EXPOSURE TO CORPORATE SECURITIES MAINTAINED MORTGAGE EXPOSURE 3 • SLIGHTLY POSITIVE NEUTRAL • POSITIVE POSITIVE • POSITIVE STRONG POSITIVE PACIFIC INVESTMENT MANAGEMENT COMPANY ., REVIEW OF PERFORMANCE Through December 31, 1997 • Long-Term Operating Fund 12/31/97 Market Value $301,128,918 • Liquid Operating Fund 12/31/97 Market Value $17,609,495 Sanitation Districts of Orange County (L-T) (%) Merrill 1 -5 Year Gov't. I Corp. Index (%) Sanitation Districts of Orange County (Liq-op) (%) 3 Month T-Bill (%) • Annualized. 4 Since* Inception 9/30/95 2 Yrs.* 1 Yr. 3 Mos. 7.0 6.2 7.9 2.0 6.6 5.9 7.2 1.8 Since* Inception 9/30/95 2 Yrs.• 1 Yr. 3 Mo: 5.6 5.6 5.6 1.4 5.3 5.3 5.2 1.3 PACIFIC INVESTMENT MANAGEMENT COMPANY .. CURRENT OUTLOOK LONG TERM OUTLOOK SHORT TERM OUTLOOK ·····-••-·· ........... , .. ~:::~1,~~~~~~-[~~~;~1$,~f~~~bN·~;'' LONG TREASURY YIELDS TO RANGE BETWEEN 5 -7% U.S. GROWTH MODERATE, NEAR 2% i i ~':"-'. :;.;.:_;;•,u.:r::::,,~_·1 :HH: :n. :t::!u...;!~ ;;; ~;i::1F rE&RR·ENF0 1i1TE.OOI :=,:;-;.;~:l:::::::11,!l:,u2L1~-!Ef:::r;;::1.=.:_,J -- ECONOMIC GROWTH SLOWS DUE TO ASIA CRISIS ASIAN FINANCIAL SITUATION ALSO PUTS DOWNWARD PRESSURE ON INFLATION TREASURY YIELDS DECLINE MODERATELY 5 i i SLIGHTLY LONGER-THAN-INDEX BROADER THAN INDEX CONTINUE TO RELY ON CORPORATE AND AGENCY SECURITIES MAINTAIN FOCUS ON THE MORTGAGE SECTOR PACIFIC INVESTMENT MANAGEMENT COMPANY 7 j 7 l 1 I j j -1 _j _j j I I CALLAN ASSOCIATES INVESTMENT MEASUREMENT REVIEW County Sanitation Districts of Orange County December 31, 1997 The following statistical analysis was prepared by Callan Associates Inc. utilizing secondary data from statements provided by the plan trustee and/or custodian, CAI computer software and selected information in CAI s database. This report may also contain returns and valuations from outside sources as directed by the client. CAI assumes no responsibility for the accuracy of these valuations or return methodologies. Reasonable care has been taken to assure the accuracy of the CAI computer software and database. CAI disclaims responsibility financial or otherwise for the accuracy or completeness of this report. Copyright 1998 by Callan Associates Inc. l I l 1 j CALLAN ASSOCIATES INVESTMENT MEASUREMENT REVIEW COUNTY SANITATION DISTRICTS OF ORANGE COUNTY DECEMBER 31, 1997 Market Performance Measures of Market Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Fund Performance Performance to Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Performance vs. Active Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Performance vs. Defensive Fixed-Income Style .................................. 5 Fund Profile Portfolio Characteristics Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Portfolio Characteristics Detail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Definitions Market Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Fixed-Income Management Style Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Fixed-Income Portfolio Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 II -1 I l l l I -l J I . j COUNTY SANITATION DISTRICTS OF ORANGE COUNTY MEASURES OF MARKET PERFORMANCE DECEMBER 31, 1997 Financial turmoil in Asia took most of the steam out of domestic stocks in the final quarter of 1997. U.S. stock performance turned choppy and some stocks especially those of companies wjth interests in the Far East suffered sharp declines. Most major indices eked out small gains, however, as the slowdown in Asia was expected to cool the U.S. economy, helping restrain inflation and removing any need for an interest rate hike by the Federal Reserve. This reasoning also produced strength in bonds with prices rising as long term rates slid below 6%. Early estimates of fourth quarter GDP project growth at an annual rate of about 3.3%, up slightly from 3.1 % in the third quarter. Broad domestic stock indices generally ended the quarter higher, although the gains were most pronounced among large capitalization high quality issues. The return on the S&P 500 Stock Index was 2.85%. There were only about 20 more issues with positive returns than with negative returns within the Index. Leader among the ten stock sectors were the communications services and public utility sectors, with returns of 20. 70 % and 16.36% respectively. The weakest sectom were raw and intermediate materials and technology, with returns of -8.81 % and -12.19%, respectively. For the year, the S&P 500 returned 33.27%. Among other stock indices, the Dow Jones Industrial Average returned -0.01 % and 24.91 % for the quarter and year, while the S&P "Mid Cap" 400 Stock Index returned 0.84% and 32.34% and the NASDAQ Index returned -6.73% and 22.12%. Results for the Callan Indices demonstrate the better returns of larger capitalization stocks during the quarter. For the fourth quarter and full year, the Callan Broad 2000 returned 2.05 % and 31.12%, while the Callan Micro 1000 returned -5.90% and 21.76%. Within the Broad 2000, the Large 150 returned 3.69% and 34.37%, while the Medium 350 returned 2.49% arid 31.20%, and the Small 1500 returned -3.03% and 22.41 %. The Morgan Stanley Capital International EAFE Index, which is composed of representative stock issues from Europe, Australia, and the Far East, produced returns of -4.95% and 13.51 % for the quarter and year on a local currency basis. Returns adjusted for conversion to U.S. dollars were -7.83% and 1.78%. This included dollar-based returns of 0.07% and 23.80% for the European component and -20.63% and -25.49% for the Pacific Rim component. Returns for the Salomon Non-U.S. Government Bond Index for the same periods were 2.61 % and 11.06% in U.S. dollars hedged against currency fluctuations. The same Index produced returns of -1.38% and -4.26% on an unhedged basis. Domestic bond returns continued positive last quarter as interest rates kept falling. Rates on 30-year Treasuries fell 43 basis points in the quarter. Rate-son Moody 's seasoned AAA corporates were down 37 basis points. The Lehman Brothers Govt/Corp Bond Index returned 3.21 % for the quarter and 9.76% for the year. Results for the long component of the Index were 5.82% and 14.51 %, respectively. The intermediate component earned 2.14% and 7.87%. The Salomon Composite High Yield Index returned 2.93% and 14.28%. Treasury Bills earned 1.32% for the quarter and 5.32% for the year. The Consumer Price Index for Urban Wage Earners and Clerical Workers fell during the quarter. The annual rate was -0.24%, below the previous quarter's 2.30% rise. The rate for all of 1997 was 1.48%. II Standard & Poor's 500 Stock Index Ell Sectors Last Quarter (9/97-121'J7) Last Twelve Months (121'J6-121'J7) Communication Services 20.70% Financial 48.00% Public Utilities 16.36 Health Care 43.57 Consumer Staples 10.83 Communication Services 41.00 Health Care 9.85 Consumer Cyclical 36.82 Financial 6.86 Consumer Staples 33.52 Consumer Cyclical 2.68 Transportation 29.51 Transportation 0.81 Capital Goods 26.43 Capital Goods -0.44 Technology 26.24 l Energy -4.82 Energy 25.13 Raw & Intermediate Materials -8.81 Public Utilities 24.24 Technology -12.19 Raw & Intermediate Materials 9.74 S&P 500 2.85% S&P 500 33.27% l Industry Best Last Quarter (9/97-121'J7) Last Twelve Months (121'J6-121'J7) Services (Computer Systems) 25.25% Investment Banking/Brokerage 82.17% Telecom (Long Distance) 25.23 Savings & Loan 77.56 Airlines 24.05 Services (Facilities & Environmental) 70.60 Entertainment 21.47 Airlines 68.64 Broadcasting 21.00 Trucks & Parts 65.52 Telephone 18.50 Cellular/Wireless Communications 64.61 Electric Companies 18.38 Broadcasting 64.12 Cellular/Wireless Communications 17.28 Publishing (Newspapers) 63.12 Retail (Food Chains) 16.01 Equipment (Semiconductors) 61.89 j Retail (Drug Stores) 15.75 Retail (Building Supplies) 61.70 Worst Last Quarter (9/97-121'J7) Last Twelve Months (121'J6-121'J7) Paper & Forest Products -19.55% Biotechnology -0.46% Computers (Peripherals) -21.57 Containers (Metal & Glass) -1.43 Gaming, Lottery & Perimutuel -21.93 Photography/Imaging -1.46 Air Freight -23.67 Oil & Gas (Exploration & Production) -7.92 Engineering & Construction -24.23 Gaming, Lottery & Perimutuel -8.17 Electronics (Semiconductors) -26.36 Health Care (Hospital Management) -12.55 Footwear -28.20 Engineering & Construction -17.55 Gold Mining -31.01 Metals Mining -32.93 Metals Mining -32.91 Footwear -33.14 Equipment (Semiconductors) -38.24 Gold Mining -33.19 l l I j COUNTY SANITATION DISTRICTS OF ORANGE COUNTY PERFORMANCE TO DATE Last Periods Ended Last 1/2 December 3 J • J 997 Quarter Year Liquid Operating Monies 1.44% 2.80% Long Term Operating Fund 2.06 4.36 Total Fund 2.02 4.28 Market Indicators Government/Corporate 1-5 Year Index 1.92% 4.41% 1-3yr Govt/Corp Index 1.66 3.66 Merrill Lynch l-5yr Govt/Corp 1.84 4.15 Lehman Brothers G/C Int 2.14 4.90 Treasury Bills 1.32 2.63 Median Rates of Return Cash Management Database 1.46% 3.00% Defensive Fixed-Income Style 1.66 3.72 Ranking (I =Best, 100= Worst) vs. Cash Management Database Liquid Operating Monies 57 91 vs. Defensive Fixed-Income Style Long Term Operating Fund 4 10 Last Year 5.61 % 7.56 7.45 7.33% 6.70 7.15 7.87 5.32 5.99% 6.84 90 11 For explanation of market indicators and comparable funds see end of report. Rates of return for periods over one year are annualized. Last Last 2 2-1/4 Years Years 5.54% 5.60% 6.06 6.85 6.16 6.79 6.04% 6.71% 5.88 6.38 5.87 6.58 5.95 6.90 5.28 5.30 5.76% 5.88% 5.99 6.47 87 89 40 17 7 l l 1 j COUNTY SANITATION DISTRICTS OF ORANGE COUNTY PERFORMANCE VS. CASH MANAGEMENT DATABASE PERIODS ENDED DECEMBER 31, 1997 8% 7% - 6% - T~ 5% - 4% - 3% - A T~ 2% T"3t~----+ 1% Last Last 1/2 Last Quarter Year Year CASH MANAGEMENT T T T DATABASE 10th Percentile 1.74 3.84 7.13 25th Percentile 1.52 3.35 6.43 Median 1.46 3.00 5.99 75th Percentile 1.40 2.90 5.77 90th Percentile 1.24 2.82 5.58 Treasury Bills 1.32 2.63 5.32 Liquid Operating Monies A 1.44 2.80 5.61 Ranking 57 91 90 (1 =Best.I 00= Worst) II -A • A • A T~ T~ Last Last 2 2-1/4 Years Years T T 6.55 6.94 6.16 6.34 5.76 5.88 5.67 5.75 5.47 5.57 5.28 5.30 5.54 5.60 87 89 I J COUNTY SANITATION DISTRICTS OF ORANGE COUNTY PERFORMANCE VS. DEFENSIVE FIXED-INCOME STYLE PERIODS ENDED DECEMBER 31, 1997 8% 7% - 6% 5% 4% 3% ~ 2% -Int • A ML-il G/C t:====j 1% - Last Quarter DEFENSIVE T FIXED-INCOME STYLE 10th Percentile 1.89 25th Percentile 1.75 Median 1.66 75th Percentile 1.57 90th Percentile 1.50 Memll Lynch 1-5yr Govt/Corp 1.84 Lehman Brothers G/C Int 2.14 Long Term Operating Fund A 2.06 Ranking 4 (1=Best.100= Worst) ~ Int Last 1/2 Year T 4.39 3.88 3.72 3.60 3.38 4.15 4.90 4.36 10 ~ Int M!:il GJC • A Last Year T 7.63 7.02 6.84 6.61 6.42 7.15 7.87 7.56 11 LJB ~----ln1 • A MD!----- G/C ~~A M~ ----- G/C Last Last 2 2-1 /4 Years Years T T 6.39 7.09 6.21 6.67 5.99 6.47 5.81 6.23 5.66 6.18 5.87 6.58 5.95 6.90 6.06 6.85 40 17 1 COUNTY SANITATION DISTRICTS OF ORANGE COUNTY LONG TERM OPERATING FUND PORTFOLIO CHARACTERISTICS SUMMARY DECEMBER 31, 1997 /] Portfolio Structure Comparison Bl The charts below compare the structure of the portfolio to that of the index from the three perspectives that have the greatest influence on return. The first chart compares the two portfolios across the different sectors. The second chart compares the duration distribution (or term structure). The last chart compares the distribution across quality cells. Treasuries 48% Sector Allocation Asset Backed 1% Mortgages 11% Agencies 20% Cash 7% Long Term Operating Fund Duration Distribution .s ;:§ 25% ;' t:: 0 20%: ~ ..... 0 15% .... r::: <I,) 10% 8 <I,) ~ 5% 0% <1.0 1.0-1.5 1.5-2.0 Quality Distribution 100% _g SOo/o ;:§ t:: cl: 60% = 40% ,: <I,) 8 ~ 20% 0% Aaa+ Aaa Aal Aa2 2.0-2.5 2.5-3.0 Years Duration Aa3 Moody's Rating Other 1% Agencies 9% Treasuries 74% Corpora.tes [6% Lehman Govt/Corp 1-5 Years Al Weighted Average Duration • Long Term Operating Fund: 2.13 D Lehman Govt/Corp 1-5 Years: 2.31 3.0-3.5 3.5-4.0 4.0+ Weighted Average Quality • Long Term Operating Fund: Aaa D Lehman Govt/Corp 1-5 Years: Aaa A2 A3 <A3 * All Statistics shown on the page are dependent on the securities in the portfolio being recognized (by their Cusip) and priced. In this case 96% of tbe secunties in the portfolio (by market va1ue) were recognized and priced. l ] I l l l COUNTY SANITATION DISTRICTS OF ORANGE COUNTY LONG TERM OPERATING FUND PORTFOLIO CHARACTERISTICS DETAIL DECEMBER 31, 1997 Weighted Average Portfolio Characteristics Total Fund, By Asset Class and By Sector Ending Percent Market of Effective Effective Sector Value Portfolio Cou~n Maturitv Yield Total Fund $356,698,580 100.0% 6.69 5.44 5.78 Asset Backed $4,987,628 1.4% 5.93 2.48 6.11 Agencies $72,108,314 20.2% 6.30 1.31 5.65 Corporates $43,294,356 12.1% 7.21 1.52 5.99 Mortgages $40,848,231 11.5% 7.00 29.73 6.80 Treasuries $171,628,358 48.1% 6.82 3.19 5.56 Total Fixed-Income $332,866,886 93.3% 6.77 5.81 5.79 Cash Equivalents $23,831,694 6.7% 5.57 0.25 5.57 5 Largest Holdings Ending Percent Market of Effective Issuer Name Issue Name Sector Value Portfo.lio Yield United States Treas Nts Nt 6.875% 8/31/1999 Treasuries $54,444,075 15.3% 5.64 Federal Home Ln Bks Deb 6.49% 9/13/2000 Agencies $40,358,736 11.3% 5.29 Fhlmc Gold Toa Fhl 7.0% 30yr Toa Mortgages $30,262,500 8.5% 6.88 United States Treas Nts Nt 7.50% 11/15/2001 Treasuries $29,315,193 8.2% 5.73 United States Treas Nts Nt 6.50% 5/31/2002 Treasuries $28,957,589 8.1% 5.73 5 Lowest Rated Holdings (Moody's Rating) Ending Percent Market of Effective Issuer Name Issue Name Sector Value Portfolio Yield Lehman Brothers Hldgs Inc Tranche # Tr 00196 Dtd Corporates $5,156,861 1.4% 6.27 Gen Mtrs Accep Corp #00231 Mtn 8.625% 1/10/2000 Corporates $3,203,048 0.9% 6.10 Gen Mtrs Accep Tr #324 Mtn 8.375% 2/03/1999 Corporates $3,868,488 1.1% 5.92 Chrysler Finl Mtn 6.26% 7/20/1998 Corporates $1,020,152 0.3% 5.84 Chrysler Finl Mtn 7.27% 4/13/1998 Corporates $2,972,576 0.8% 5.76 5 Longest Duration Holdings Ending Percent Market of Effective Issuer Name Issue Name Sector Value Portfolio Yield United States Treas Nts Nt 3.375% 1/15/2007 Treasuries $4,965,882 1.4% 3.72 United States Treas Bds Deb 11.125% 08/15/03 Treasuries $6,481,955 1.8% 5.76 United States Treas Nts Nts 3.625% 7/15/2002 Treasuries $7,145,536 2.0% 3.74 Fhlmc Gold Toa Fhl 7.0% 30yr Toa Mortgages $30,262,500 8.5% 6.88 United States Treas Nts Nt 6.50% 5/31/2002 Treasuries $28,957,589 8.1% 5.73 5 Holdings with Highest Effect Yield Ending Percent Market of Effective Issuer Name Issue Name Sector Value Portfolio Yield Fhlmc Gold Toa Fhl 7.0% 30yr Toa Mortgages $30,262,500 8.5% 6.88 Gnrna Gtd Pass Toru Ctf Mpt 7% 06/20/2027 Mortgages $6,017,599 1.7% 6.59 Gnrna Pool 080023 Mortgages $4,626,491 1.3% 6.53 Bear Stearns Cos Inc Sr Nt Dtd 04/26/1996 Corporates $1,336,438 0.4% 6.32 Philip Morris Cos Inc Nt 9.250% 02/15/2000 Corporates $9,823,180 2.8% 6.31 OA OA Duration Convexi[l: Quality 2.13 (0.34) Aaa 2.75 0.00 Aaa 1.19 (0.56) Aaa+ 1.35 0.03 A2 3.06 (2.50) Aaa+ 2.75 0.11 Aaa+ 2.27 (0.37) Aaa 0.25 0.00 Aaa OA OA Duration Convexitv Quaillv 1.52 0.03 Aaa+ 0.29 (0.06) Aaa+ 3.93 (3.37) Aaa+ 3.32 0.14 . Aaa+ 3.79 0.17 Aaa+ OA OA Duration Convexit;i: Qualitv 2.49 0.08 Baal 1.80 0.04 A3 1.00 0.01 A3 0.51 0.00 A3 0.26 0.00 A3 OA OA Duration Convexitv Qualitv 7.58 0.68 Aaa+ 4.22 0.23 Aaa+ 4.07 0.20 Aaa+ 3.93 (3.37) Aaa+ 3.79 0.17 Aaa+ OA OA Duration Convexity Quality 3.93 (3.37) Aaa+ 0.40 0.02 Aaa+ 0.85 (0.02) Aaa+ 2.92 0.11 A2 1.86 0.05 A2 * All Statistics shown on the page are dependent on the securities in the portfolio being recognized (by their Cusip) and priced. In this case 96% of the securities in the portfolio (by market value) were recognized and priced. II l l t ) J FIXED-INCOME MARKET INDICATORS The market indicators included in this report are regarded as measures of equity or fixed-income performance results. The returns shown reflect both income and capital appreciation. 90-Day U.S. Treasury Bills provide a measure of riskless return. The rate of return is the average interest rate available on the beginning of each month for a Treasury Bill maturing in ninety days. Lehman Brothers Govt/Corp Intermediate Index is one of the components of the Government/Corporate Index which includes only bonds with maturities between one to ten years. Merrill Lynch l-3yr Government/Corporate Index is a market capitalization weighted index including U.S. Government and fixed-coupon domestic investment grade corporate bonds with a range of maturities between 1-3 years and at I.east $100 million par amount outstanding. Floaters, Equipment Trust Certificates and Title 11 securities are excluded. The quality range of bonds in this index is BBB3-AAA. Merrill Lynch 1-5 Year Government/Corporate represents bonds with maturities between one and five years that are issued by the U.S. Treasury and U.S. Agencies, and by Corporations with investment grade credit ratings. As of year end 1995, the index covered 2,785 issues. II l l I 1 FIXED-INCOME MANAGEMENT STYLE GROUPS Active Cash -Managers whose objective is to achieve a maximum return on short-term financial instruments through active management. The average portfolio maturity is typically less than one year. Active Duration -Managers who aggressively employ interest rate anticipation in setting portfolio duration. Portfolios are actively managed so that large changes in duration are made in anticipation of interest rate changes in hopes of profiting from downward rate movements and minimizing losses from upward rate movements. Core Bond -Managers who construct portfolios to approximate the investment results of the Lehman Brothers Government/Corporate Bond Index or the Lehman }?rothers Aggregate Bond Index with a modest amount of variability in duration around the index. The objective is to achieve value added from sector and/or issue selection. Defensive -Managers whose objective is to minimize interest rate risk by investing predominantly in short to intermediate term securities. The average portfolio duration is similar to the duration of the Merrill Lynch 1-3 Year Bond Index. Extended Maturity -Managers whose average portfolio duration is greater than that of the Lehman Brothers Government/Corporate Bond Index. These portfolios exhibit risktreturn characteristics similar to the long-bond portion of the Lehman Brothers Government/Corporate Index, called the Lehman Brothers Government/Corporate Long Bond Index. Variations in bond portfolio characteristics are made to enhance performance results. This results in an aggressive risk/return profile that embraces interest rate risk in search of both high yields as well as capital gains. High Yield -Managers whose investment objective is to obtain high current income by investing primarily in non-investment grade fixed-income securities. Due to the increased level of default risk, security selection focuses on credit-risk analysis. Intermediate -Managers whose objective is to lower interest rate risk while retaining reasonable yield levels by investing primarily in intermediate term securities. The average portfolio duration is similar to that of the duration of the Lehman Brothers Intermediate Government/Corporate Bond Index. Mortgage -Managers who invest primarily in mortgage-backed secuntJ.es including agency (FHLMC, GNMA, FNMA) and private issue pass-throughs, asset-backed securities and mortgage derivatives (REMICS/CMOs, IOs, POs). Funds may also contain a small percentage of U.S. Treasuries. 7 1 l J FIXED-INCOME PORTFOLIO CHARACTERISTICS All Portfolio Characteristics are derived by first calculating the characteristics for each security, and then calculating the market value weighted average of these values for the portfolio. Allocation by Sector -Sector allocation is one of the tools which managers often use to add value without impacting the duration of the portfolio. The sector weights exhibit can be used to contrast a portfolio's weights with those of the index to identify any significant sector bets. Average Coupon -The average coupon is the market value weighted average coupon of all securities in the portfolio. The total portfolio coupon payments per year are divided by the total portfolio par value. Average Moody's Rating for Total Portfolio -A measure of the credit quality as determined by the individual security ratings. The ratings for each security, from Moody s Investor Service, are compiled into a composite rating for the whole portfolio. Quality symbols range from Aaa+ (highest investment quality -lowest credit risk) to C (lowest investment quality -highest credit risk). Average Option Adjusted (Effective) Convexity-Convexity is a measure of the portfolio 's exposure to interest rate risk. It is a measure of how much the duration of the portfolio will change given a change in interest rates. Generally, securities with negative convexities are considered to be risky in that changes in interest rates will result in disadvantageous changes in duration. When a security's duration changes it indicates that the stream of expected future cash-flows has changed, generally having a significant impact on the value of the security. The option adjusted convexity for each security in the portfolio is calculated using models developed by Lehman Brothers and Salomon Brothers which determine the expected stream of cash-flows for the security based on various interest rate scenarios. Expected cash-flows take into account any put or call options embedded in the security, any expected sinking-fund paydowns or any expected mortgage principal prepayments. Average Option Adjusted (Effective) Duration -Duration is one measure of the portfolio 's exposure to interest rate risk. Generally, the higher a ·portfolio's duration, the more that its value will change in response to interest rate changes. The option adjusted duration for each security in the portfolio is calculated using models developed by Lehman Brothers and Salomon Brothers which determine the expected stream of cash-flows for the security based on various interest rate scenarios. Expected •cash-flows take into account any put or call options embedded in the security, any expected sinking-fund paydowns or any expected mortgage principal prepayments. Average Price -The average price is equal to the portfolio market value divided by the number of securities in the portfolio. Portfolios with an average price above par will tend to generate more current income than those with an average price below par. Average Years to Expected Maturity-This is a measure of the market-yalue-weighted-average of the years to expected maturity across all of the securities in the portfolio. Expected years to maturity takes into account any put or call options embedded in the security, any expected sinking-fund paydowns or any expected mortgage principal prepayments. 7 l l l j FIXED-INCOME PORTFOLIO CHARACIBRISTICS Average Years to Stated Maturity-The average years to stated maturity is the market value weighted average · time to stated maturity for all securities in the portfolio. This measure does not take into account imbedded options, sinking fund paydowns, or prepayments. Current Yield -The current yield is the current annual income generated by the total portfolio market value. It is equal to the total portfolio coupon payments per year divided by the current total portfolio market value. Effective Yield -The effective yield is the actual total annualized return that would be realized if all securities in the portfolio were held to their expected maturities. Effective yield is calculated as the "internal rate of return, using the current market value and all expected future interest and principal cash flows. This measure incorporates sinking fund paydowns, expected mortgage principal prepayments, and the exercise of any "in-the-money" imbedded put or call options. Weighted Average Life -The weighted average life of a security is the weighted average time to payment of all remaining principal. It is calculated by multiplying each expected future principal payment amount by the time left to the payment. This amount is then divided by the total amount of principal remaining. Weighted average life is commonly used as a measure of the investment life for pass-through security types for comparison to non-pass-through securities. Ill ) FAHR COMMITfEE AGENDA REPORT County Sanitation Districts of Orange County, California FROM: Gary Streed, Director of Finance Q All _ Originator: Steve Kozak, Financial Manager/.,_-- · Meeting Date 02/11/98 Itemr.ber SUBJECT: ANNUAL RENEWAL OF BOILER & MACHINERY INSURANCE FOR THE PERIOD MARCH 1, 1998 TO MARCH 1, 1999. GENERAL MANAGER'S RECOMMENDATION Renew Boiler & Machinery Insurance for the Districts for the period March 1, 1998 to March 1, 1999, with Kemper Insurance Companies, in an amount not to exceed $71,286. SUMMARY This agenda item recommends the annual renewal of Boiler & Machinery insurance coverage for the Districts for the period March 1, 1998 through March 1, 1999. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT [g] This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. · D Not applicable {information item) ADDITIONAL INFORMATION Robert F. Driver Associates, the Districts' Broker of Record, has completed their survey of the current Boiler & Machinery insurance market, and recommends that the Districts renew Boiler & Machinery insurance coverage with Kemper Insurance Companies for 1998-99. See attached Broker of Record letter. H:\wp,dtaVin\21 Cllcrane\FAHRIFAHR98\FEB\Boiler&Mach,doc ReYised: 115/98 Page 1 ToJt. Bds. 02/25/98 Item Number To analyze available coverage levels and premium costs, Driver marketed the Districts' Boiler & Machinery insurance requirements to five insurance carriers. After reviewing the renewal proposals, Driver entered into negotiations with Kemper, the Districts' current Boiler & Machinery insurance underwriter. The negotiations concluded with a 10% reduction ($7,921) in premium costs below last year's cost, while continuing to provide the same level of coverage ($100 million per occurrence) as last year. Kemper Insurance Companies, with more than $1.5 billion in reserves, is rated "A"/FSC XIV (Excellent) by AM. Best Company (the insurance industry rating agency), for its overall ability to meet its obligations to policyholders. Kemper remains one of the few insurance companies to offer Boiler & Machinery insurance with high coverage levels for operations as large and complex as the Districts, and they offer the most competitive pricing for the 1998-99 renewal period. Staff concurs with Driver's findings and recommendation. Sufficient funds are contained in the current budget to cover premium costs ($71,286). ALTERNATIVES NIA CEQA FINDINGS N/A ATTACHMENTS 1. Broker of Record Letter SK:lc H:\wp.dtaVin\211J\cranelFAHRIFAHR98\FEB\Boiler&Mach.doc Revised: 1151118 Page2 ·} ROBERT F. DRIVER ASSOCIATES ASSOCIATE§" a Division of Robert F. Driver Co., Inc. February ·2, 1998 Mr. Steve Koz.ak County Sanitation Districts of Orange County, CA P.O. Box 8127 Fountain Valley, CA 92728-8127 RE: Boiler & Machinery Renewal Kemper Policy #3:XL 131 839-01 Effective: March 1, 1998 Dear Steve, • COMPLETE INSURANCE BOND SERVICE• Pursuant to our discussion today and to our ongoing dialogue in most effectively employing marketing strategies, over the past two months, we have concluded our renewal negotiations with Kemper who continues to be the most cost competitive insurer for the County Sanitation Districts of Orange County as underscored by their $71,286 renewal premium, a 10% reduction over current pricing. In addition to offering the most attractive pricing (as you know, we surveyed Chubb, Hartford, Sable-Reliance and Travelers), we believe that Kemper's expertise in servicing large and complex operations such as t.lie Distrir.ts ensures you a valuable resource. We recommend your authorizing us to implement renewal coverage. Sincerely, Donald H. McLean First Vice President 4041 MACARTHUR BLVD., SUITE 300, P.O. BOX 6450, NEWPORT BEACH, CALIFORNIA 92658-6450 (714) 756-0271 • FAX (714) 756-2713 • L/C. #0084379 r I I J FAHR COMMITTEE AGENDA REPORT County Sanitation Districts of Orange County, California FROM: Gary G. Streed, Director of Finance Originator: Michael D. White, Controller Meeting Date 02/11/98 Item t~ber SUBJECT: CONSIDERATION OF BUDGET ASSUMPTIONS, FISCAL POLICY STATEMENTS, AND BUDGET CALENDAR FOR PREPARATION OF THE 1998-99 BUDGET GENERAL MANAGER'S RECOMMENDATION Approve the 1998-99 Budget Assumptions, Fiscal Policy Statements, and Budget Calendar, and direct staff to prepare the 1998-99 budget incorporating these parameters. SUMMARY Each year the FAHR Committee establishes the Budget Assumptions and Fiscal Policy Statements that staff incorporates and publishes in the annual budget. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. cgj Not applicable (information item) ATTACHMENTS 1. Drafts of the Budget Assumptions, Fiscal Policy Statements, Budget Calendar 2. Board adopted Sewer Service Fee Rate Schedule \lradon\data1wp.dla\lin\210lcnlnelFAHRIFAHR981FEB'BudAssumAIT.doc R8'1ised: 115198 Page 1 ToJt. Bds. 02/25/98 Item Number 1998-99 Proposed Budget Assumptions Economic Assumptions • Inflation for Orange County in 1997-98 is projected to be 1.6 percent based on the percentage change in consumer price index obtained from the December 1997 Economic and Business Review report prepared by Chapman College. Revenue Assumptions • The Board of Directors adopted a five year user fee rate schedule in May of 1997 that provides for rate increases in 1997-98 to six out of the nine sanitation districts. The sewer service fee increases for single family residences range from 1.5 percent to 16.7 percent, or $1.11 to $10.00, over the prior year. Multi-family and non-residential service fees, set at 60 percent and 71.5 percent of the single family residential rates, will increase proportionately. These increases are estimated to generate a net increase in total user fees of $2,911,000. Those districts with minor or no rate increases are projected to have higher ending reserves in comparison to their share of the total joint operating and capital costs of the Districts at June 30, 1998 then those districts ending up with the larger fee increases. These rates may change if the Rate Advisory Committee's work for the Strategic Plan can be implemented before July 1, 1998, however, the total revenue raised will be the same. • Connection fees, or capital facilities connection charges, and annexation fees will will increase by the Engineering News Record index for Los Angeles in accordance with the adopted Board Resolution. These fees are currently being re-evaluated as part of the strategic plan update to be completed in 1997-98. • Property tax revenues are projected to remain constant as the increases from new development are expected to be offset by a general decline in overall property valuation. • After discussions with the Districts' External Investment Manager, PIMCO, earnings on the investment of the Districts idle operating Proposed Bu dget Assum ptions cash and reserves will budgeted at 6.0 percent. Operating Assumptions • The cost to treat and dispose of 1 million gallons is proposed at $486 per million gallons of wastewater treated, a decrease of one percent from the prior year revised estimate of $490 per million gallons. Total wastewater flows for 1997 -98 are projected to increase to 255 million gallons per day (mgd), a four percent increase from the 245 mgd budgeted in 1997 -98 and up two percent from the current 1997-98 projection of 250 mgd. Flows for the first six months of 1997 -98 have averaged approximately 248 mgd. • Total joint works operating, maintenance and administration costs are proposed to be $45,200,000 for 1998-99, a net increase of 2.26% or $996,000 from the 1997-98 budget as adjusted for indirect cost accounting changes. • Total staffing follows the guidelines of the five year staffing plan and will be budgeted at 549 full time equivalents (FTE) for the 1998-99 fiscal year. This represents a decrease of 11 FTE or 2% from July 1, 1997. An additional decrease of 21.5 FTE is projected for 1999- 00. • Cost of Living increases of three percent, as negotiated by the bargaining units, have been factored in to the salaries of all employees. Step increases of 5.5 percent will also be budgeted for all non-exempt employees not currently at the top of their salary range. Incentive increases for management employees averaging two percent will also be estimated in the base budget. • The proposed joint operating budget will continue to reflect an improvement in safety, technical, and management training. The proposed 1997-98 budget will again include a budget for training and meetings equal to two percent of salaries and wages. • An amount equat to one percent of the Joint Operating of the Joint Operating Fund will be budgeted as a contingency for prior year Page 1 of 2 1998-99 Budget reappropriations. Since the current year's budget lapses on June 30 of each year, a contingency is needed in the succeeding budget for goods or services ordered at the end of one budget year but not delivered until the following year. Reserve Assumptions • The five year sewer service rate schedule adopted in May 1997 was established at a level that will be sufficient enough to maintain compliance with the Districts' current reserve policies. • The Districts current reserve policy is being reviewed in conjunction with the strategic plan update and is projected to be revised beginning in fiscal year 1998-99. Capital Improvement Program Assumptions • The joint works capital improvement budget (CORF) is proposed not to exceed $55 million. Improvements for 1998-99 will emphasize plant automation, local computerization networks, electrical reliability, seismic safety and regional water repurification and recycling through cooperation with the OCWD. • Individual District capital improvement budgets, in total, are being proposed at $25.7 million and consist mostly of trunk sewer construction and rehabilitation projects. Debt Financing • The Districts will issue debt of $53 million in Certificates of Participation for the the Capital Improvement Program in accordance with the five-year debt issuance schedule approved as part of the 1997 -98 Sewer Service User Fee adoption process. Page 2 of 2 I Fiscal Policy Fiscal Policy Statement General Financial Goals To maintain financially viable Sanitation Districts that can maintain an adequate level of wastewater treatment In Completed Progress services. ..f To maintain financial flexibility to be able to continually adapt to local and regional economic changes. ..f To maintain and enhance the sound fiscal condition of the Districts. ..f To ensure that the value added of every program and activity within the Districts' is proportional to its cost; and eliminate those programs and activities that do not contribute to the Districts' mission. ..f To provide training opportunities for available jobs within the organization for those employees working in programs or activities that have been reduced or eliminated to the greatest extent possible. ..f To provide employees with cross-training opportunities in order to achieve multi-tasking capabilities. Operating Budget Policies The Districts will adopt a balanced budget by June 30 of each year. ..f The budget will be used as a fiscal control device as well as a financial plan. ..f Budget preparation and monitoring will be performed by each division within the Districts, the level at which accountability and control will be held. ..f The Director of Finance will prepare a budget calendar no later than January of each year. ..f An annual operating budget will be developed by verifying or conservatively projecting revenues and expenditures for the current and forthcoming fiscal year. ..f During the annual budget development process, the existing programs will be thoroughly examined to assure removal or reduction of any services or programs that could be eliminated or reduced in cost. ..f Page 1 of 6 Comments 1998-99 Budget Fiscal Policy Statement In Completed Progress Current operating revenues will be sufficient to support ..f current operating expenditures. Annual budgets including reserves will provide for adequate design, construction, maintenance and replacement of Districts' capital plant and equipment. ..f The Districts will maintain all physical assets at a level adequate to protect the Districts' capital investment and to minimize future maintenance and replacement costs. ..f The Districts will project equipment replacement and maintenance needs for the next five years and will update this projection each year. From this projection a maintenance and replacement schedule will be developed and followed. ..f The Districts will avoid budgetary and accounting procedures which balance the current budget at the expense of future budgets. ..f The Districts will forecast its Joint Works' expenditures and revenues for each of the next five years and will update this forecast at least annually. ..f Revenue Policies Because revenues are sensitive to both local and regional economic conditions, revenue estimates adopted by the Districts' Board must be conservative. ..f Staff will estimate annual revenues by an objective, analytical process utilizing trend, judgmental, and statistical analysis as appropriate. ..f Ad valorem property tax revenues of the Districts will be dedicated to debt service. ..f Sewer Service User Fees will be projected for each of the next five years and this projection will be updated annually. Expenditure Policies The Districts will maintain a level of expenditures which will provide for the health, safety and welfare of the ..[ residents of the community. ..f Page 2 of6 Comments Will need to be updated upon completion of the Strategic Plan Update. r Fiscal Policy Fiscal Policy Statement The Districts will set fees and user charges at a level that fully supports the total direct and indirect costs of operations, capital improvements, and debt service requirements not covered by reserves. Capital Improvement Budget Policies The Districts will make all capital improvements in accordance with an adopted and funded capital improvement program. The adopted capital In Completed Progress .[ improvement program will be based on need. .f The Districts will develop an annual five-year plan for capital improvements, including design, development, implementation, and operating and maintenance costs. .f All capital improvement projects approved in the annual operating budget are approved at the budgeted amounts through the completion of the project. The Directors approve both the individual project total budget and the projected cash outlays for all capital improvement projects for the current fiscal year. .f Staff will identify the estimated costs, potential funding sources and project schedule for each capital project proposal before it is submitted to the Joint Boards for approval. .f The Districts will use intergovernmental assistance to finance only those capital improvements that are consistent with the Capital Improvement Plan and Districts' priorities, and whose operating and maintenance costs have been included in the budget. Staff will coordinate development of the capital improvement budget with the development of the operating budget. All costs for internal professional services needed to implement the CIP will be included in the operating budget for the year the CIP is to be implemented. .f The Districts will use intergovernmental assistance and other outside resources whenever possible. .f Cost tracking for components of the capital improvement program will be updated quarterly to ensure project completion against budget and established time lines. .f Page 3 of 6 Comments 1998-99 Budget In Fiscal Policy Statement Completed Progress Vehicle Replacement Policy In order to provide safe, reliable transportation appropriate to the work to be performed, the following policies have been established: • The newest vehicles will be used for those purposes requiring the highest annual mileage. • Vehicles will be replaced when they are 10 years old ..[ ..[ or have accumulated 100,000 miles. ..f • A vehicle may be replaced in advance of the above criteria, if it can be reallocated to a low mileage use between the plants. ..f • Electric vehicles are to be purchased for all in-plant only uses. ..f Short-Term Debt Policies The Districts may use short-term debt to cover temporary or emergency cash flow shortages. All short- term borrowing will be subject to Board approval by resolution. ..f The Districts may utilize Board approved inter-District loans rather than outside debt instruments to meet short-term cash needs. Inter-District loans will be permitted only if an analysis of the affected Districts indicates excess funds are available and the use of these funds will not impact the District's current operations. The principal, along with interest at the prevailing rate as established by the Districts' Treasurer, will be paid to the lending District. ..f Long-Term Debt Policies The Districts will confine long-term borrowing to capital improvements that cannot be financed from current revenue. In accordance with the 1989 Master Plan, one-half of all future long-term capital improvements will be funded from long-term debt with the remaining cost funded from capital improvement reserves and current revenues. Proceeds from long-term debt will not be used for Page 4 of6 ..[ ..[ Comments Policy will be re-evaluated as part of the Strategic Plan Update. Fiscal Policy Fiscal Policy Statement current on-going operations. Before any new debt is issued, the impact of debt service payments on total annual fixed costs will be analyzed. Accumulated Funds & Reserve Policies An operations contingency reserve will be established to provide for non-recurring, unanticipated expenditures or to set aside funds to cover known contingencies with unknown costs. The level of this reserve will be established as needed but will not be less than 20% of the annual operating expenses. A dry-period operations reserve will be established to fund operations and maintenance expenses for the first half of the fiscal year prior to receipt of taxes and user fees. The level of this reserve will be established as needed, but will not be less than 50% of annual operating expenses. Reserve balances will be accumulated and maintained to fund approximately one years worth of the total cost of future capital improvements. Self-insurance reserves for property (fire, flood, and earthquake), general liability, and workers' compensation will be maintained at a level which, together with purchased insurance policies, adequately protect the Districts. The Districts will maintain a reserve of $100,000,000. Board approval is required before expending contingency reserve funds. Investment Policies The Districts' Treasurer will annually submit an investment policy to the Districts' Board for review and In Completed Progress ../ ../ ../ ../ adoption. ../ The investment policy will emphasize safety and liquidity before yield. ../ Accounting, Auditing, and Financial Reporting Page 5 of 6 Comments All reserve policies to be re-evaluated as part of the Strategic Plan Update. 1998-99 Budget In Fiscal Policy Statement Completed Progress The Districts' accounting and financial reporting systems will be maintained in conformance with generally accepted accounting principles and standards promulgated by the Governmental Accounting Standards Board. ..f A fixed asset system will be maintained to identify all Districts' assets, their condition, historical cost, replacement value, and useful life. ..f Quarterly financial reports will be submitted to the Districts' Board and will be made available to the public. ..f Full disclosure will be provided in the general financial statements and bond representations. ..f The Districts' will maintain a good credit rating in the financial community. An annual audit will be performed by an independent public accounting firm with the subsequent issue of an official Comprehensive Annual Financial Report, including an audit opinion and a management letter. ..f Page 6 of 6 Comments Budget Calendar Tasks Responsibility Event/Due Date PHASE I -BUDGET PREPARATION Budget Calendar Published Financial Planning 1/14/98 Preliminary Budget Parameters identified by Budget Team 1/31/98 Budget Team New Directors Workshop General Manager 1/31/98 Critical Goals & Strategic Planning EMT Meeting General Manager 2/2/98 Preparation for Budget Kickoff/ Training Session: Financial Planning 2/4/98 • Salary and Benefit Calculations Downloaded From JOE System to Excel Worksheets • Develop Line Item Worksheets With Mid-Year Actual Expense Incorporated. • Prepare / Update Budget Instruction Manual. Budget Kickoff/ Training Session: Financial Planning 2/5/98 -Distribute Budget Manual Update -Conduct Budget Training Session -Distribute Budget Worksheets for each division depicting- -Prior year actual's -Current year budget -Six months of current year actual's Mid-Year Financial Report to FAHR Finance Department 2/11/98 Budget Parameters Presented to Districts' FAHR Budget Team FAHR -2/11/98 Committee OMT-3/4/98 PDC-3/5/98 Complete Base Operating Budget (excluding Division Coordinators 3/5/98 Personnel & Capital Outlay): -Projection of current year actual's -Proposed for 1998-99 Preliminary Divisional Budget Package Due: Division Coordinators 3/5/98 -draft budget overview (budget highlights & current year's work plan) -Training Budget Page 1 of 3 1998-99 Budget -Educational reimbursement budget -Capital equipment decision requests -New program/position decision requests, along with supporting requirements (i.e., computer) -Reclassification decision requests (The above items will be collated and bound by Financial Planning for review by the General Manager's Office) PHASE II -BUDGET REVIEW Compilation and Review of Prelim. Div. Budget Financial Planning 3/12/98 Packages Completed Distribution of Preliminary Line Item Base Budgets Financial Planning 3/16/98 to Department Heads and Budget Coordinators. Budget Review Meetings with GM staff, budget General Mgrs. Office, 3/18/98 staff and department representatives. Financial Planning, & - -review budget & initial decision packages Division Coordinators 3/25/98 Final Preliminary Budget Decisions General Mgrs. Office 3/31/98 PHASE Ill -BUDGET PRESENTATION Budget Update to Committees Financial Planning OMTS -4/1/98 PDC -4/2/98 FAHR -4/8/98 Submit Narrative Budget Document: Division Coordinators 4/3/98 -Final Budget Overview -Organization Charts -Service Descriptions -FTE's Submit Performance Budget Documents: Division Coordinators 4/13/98 -Performance Results (1997-98) -Performance Measures (1998-99) Completion of Preliminary Budget Financial Planning 4/24/98 Proposed Budget finalized Financial Planning 5/1/98 General Manager Budget Message completed General Mgrs. Office / 5/6/98 Page 2 of 3 Budget Calendar Financial Planning Overview of Proposed Budget with Directors General Manager/ 5/9/98 Financial Planning Proposed Budget to printer. Financial Planning 5/11/98 Proposed Budget mailed out Financial Planning 5/21/98 PHASE IV -BUDGET DELIBERATIONS Proposed Budget Presented to Committees Financial Planning OMTS -6/3/98 PDC-6/4/98 FAHR -6/10/98 Public Hearing & Adoption Board of Directors 6/24/98 PHASE V -DISTRIBUTION OF BUDGET Final line item budget and equipment budgets Financial Planning 7/7/98 distributed to Departments Final approved budget distributed Financial Planning 7/11/97 PHASE VI -BUDGET DEBRIEFING Budget Debriefing Financial Planning 7/16/98 -What is contained within the budget. -What changed since the Department's original submittal. -What changes occurred as a result of Board action. -Results of Budget Survey -Overview of Budget Monitoring with JD Edwards Software and review of Budget Coordinator's Responsibility. -Suggestions for 1999-00 Budget Process Improvements Page 3 of 3 ,, Sewer Service Fee Rate Schedule Annual Sewer Service User Fees Single Family Residence Rate Five Year Rate Schedule: Single Family Residential Rates Were Approved Under The District 1997-98 1998-99 1999-2000 2000-01 2001-02 Following Assumptions: 1 $91.36 $100.27 $110.04 $120.77 $132.55 (1)-Except for Districts No. 1 2 $73.00 $75.00 $77.00 $80.00 $82.00 and No. 11, one-half of all 3 $75.00 $76.00 $77.00 $78.00 $80.00 capital improvements will be 5 $96.75 $96.75 $96.75 $96.75 $96.75 funded over the next five years 6 $78.00 $80.00 $82.00 $84.00 $86.00 through debt financing with the other half being funded through 7 $55.00 $60.00 $66.00 $73.00 $80.00 current operating revenues. 11 $70.00 $80.00 $90.00 $101.25 $113.91 This assumption includes the 13 $100.00 $100.00 $100.00 $100.00 $100.00 financing for the $116 million Orange County Regional Reclamation Project scheduled Percentage Change From Prior Year: to be completed in 2001-02. 1 9.75% 9.75% 9.75% 9.75% 9.75% (2)-Districts No. 1 and No. 11 2 2.07% 2.74% 2.67% 3.90% 2.50% will fund all capital improvement 1.50% 1.33% 1.32% 1.30% 2.56% projects from debt financing 3 over the next five years. 5 0.00% 0.00% 0.00% 0.00% 0.00% Districts No. 1 and No. 11 have 6 2.00% 2.56% 2.50% 2.44% 2.38% also approved a ten year rate 7 9.80% 9.09% 10.00% 10.61% 9.59% fee schedule in order to level out fee increases and allow them to 11 16.67% 14.29% 12.50% 12.50% 12.50% come into compliance with the 13 0.00% 0.00% 0.00% 0.00% 0.00% Districts Accumulated Funds and Reserve Policies over an extended period of time. Dollar Change From Prior Year: (3)-That all Districts except No. 1 and No. 11, will be in 1 $8.12 $8.91 $9.78 $10.73 $11 .78 compliance with the Districts' 2 $1.48 $2.00 $2.00 $3.00 $2.00 Accumulated Funds and 3 $1 .11 $1.00 $1.00 $1.00 $2.00 Reserve Policies at the end of 5 $0.00 $0.00 $0.00 $0.00 $0.00 five years, and all Districts will be in compliance after ten years. 6 $1.53 $2.00 $2.00 $2.00 $2.00 7 $4.91 $5.00 $6.00 $7.00 $7.00 11 $10.00 $10.00 $10.00 $11.25 $12.66 13 $0.00 $0.00 $0.00 $0.00 $0.00 J l FAHR COMMITTEE AGENDA REPORT County Sanitation Districts of Orange County, california FROM: Gary Streed, Director of Finance Originator: Michael D. White, Controller Meeting Date 02/11/98 Item Number 7. SUBJECT: SUBSTITUTION OF ENTERPRISE TECHNOLOGIES TO REPLACE J.D. EDWARDS FOR IMPLEMENTATION PORTION ONLY OF FINANCIAL INFORMATION SYSTEM GENERAL MANAGER'S RECOMMENDATION Approve the substitution of Enterprise Technologies to replace J.D. Edwards for the implementation portion of the Financial Information System. SUMMARY At the January FAHR Committee meeting, the Directors requested additional information regarding the replacement of J.D. Edwards with Enterprise Technologies for the remainder of the Financial Information System implementation. J.D. Edwards has changed their strategic plan and is leaving the implementation process to third parties. This change has required them to sub-contract the implementation of our project, because J.D. Edwards can no longer provide a local client implementation project manager and implementation team. Enterprise Technologies has most of the staff that is currently working on our project and has access to the others. This change will provide the same implementation team for more hours at a lower hourly cost. J.D. Edwards will continue to supply software updates and telephone support. PROJECT/CONTRACT COST SUMMARY The original Board authorization not to exceed $1,525,000, for the purchase of hardware, software and implementation, was reduced to $1,485,000 in July 1996 during staff's negotiations with J.D. Edwards. This request does not include any additional funding. Staff and Enterprise Technologies are confident that the remaining implementation can be completed within budget. H:\wp.dlaVin\21 Olcnlne\FAHRIFAHR98\FEB\AIT -Enterprise Tech.doc RftiMd: 115198 Page 1 ToJt. Bds. 02/25/98 Item Number BUDGET IMPACT [gJ This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. D Not applicable (information item) ADDITIONAL INFORMATION At the July 24, 1996 meeting, the Joint Boards of Directors authorized the General Manager to execute a contract for a new financial information system with J.D. Edwards and Company, and approved the purchase of hardware from the California Multiple Awards Schedule (CMAS) for a combined amount not to exceed $1,485,000, which was a $40,000 decrease from their original approval. Contract negotiations were subsequently completed with J.D. Edwards resulting in a signed contract for software, licenses, system installation, training, and data conversion. The IBM AS/400 hardware was purchased separately from CMAS. The implementation has been progressing pretty much on schedule. Workflow analysis, data conversion, database population, process design, debugging and training are completed for payroll, human resources benefits, budgeting and budget control, general ledger, accounts payable, cash receipts, accounts receivable, purchasing, job cost and Phase 1 of inventory orders and issues. This is an especially noteworthy accomplishment, since the system being replaced was purchased in 1979. Remaining applications to be implemented and the projected schedules are: Applications Fixed Assets Phase II -Inventory Contract Management ·Original Completion Date July 1997 Not Originally Identified Not Originally Identified Proiected Completion Date February 1998 March 1998 April 1998 The implementation plan has always been a two-part process. Part 1 was to install the proven legacy J.D. Edwards system. This step included updating our systems and processes from our 1979 system and transitioning from a centralized input and control organization to an organization of distributed processing. Part 2 is the conversion from the legacy system to an Oracle-based relational data base system called OneWorld. After completion of Part 2, all of the Districts' software will be Windows and Oracle compatible. H:\wp.dtaVin\210\crane\FAHR\FAHR98\FEBIAIT-EnlBrpriseTec:h.doe RtMMd: 1151118 Page2 During the 1997-98 budget process, it became evident to staff that the organizational changes that needed to completely implemented prior to starting Part 2 were too overwhelming to be completed by June 1998. Since the J.D. Edwards legacy system was producing, was expected to be fully functional, and would meet most all of our needs, staff and J.D. Edwards agreed that it would be wise to delay the implementation of Part 2 upgrade until 1998-99. This projected schedule may need to be revised as we develop the interface and changes needed for Computerized Maintenance Management System (CMMS) integration. Since the financial information system agreement was entered into with J.D. Edwards in October of 1996, J.D. Edwards company has gone public. As a result, the company's strategic plan has refocused on software development and sales and has moved away from system implementation. The change in the company's strategy first impacted the Districts in September of 1997 when J.D. Edwards reassigned the Costa Mesa based implementation manager to sales and replaced him with an implementation manager based in Denver. In January of this year, J.D. Edwards decided again to replace the implementation manager with one from their Atlanta office. The impact of these changes has been a decline in the availability of overall project management services, and J.D. Edwards has encouraged us to replace them with one of their business partners in order to serve us better. The Director of Finance, Controller and Purchasing Manager/Contracts Manager interviewed three of J.D. Edwards business partners as a replacement for consulting services on the implementation of the remaining projects of the financial information system. These three business partners were Global Business Solutions, Decision Technologies, and Enterprise Technologies. Global Business Solutions does not have an available implementation manager to assign to the Districts' project at this time. Decision Technologies is based in Fremont, California, and all consultants assigned to this project would have to be reimbursed for travel, meals and lodging, costs that were not originally included in our budget would probably cause the project to go over budget. After interviewing Enterprise Technologies, the Finance Department management concluded that they would be the best firm to complete the financial information system implementation project, and recommend that the committee approve their substitution for J.D. Edwards for remaining implementation only, for the following reasons: • The Implementation Manager has already been working on this project since last September as a subcontractor through J.D. Edwards, and was responsible for the implementation of Purchasing and Inventory modules. • There will be no learning curve for the consultants. H:\wp.dlaVin\210\ctane\FAHRIFAHR98\FEB\AIT-EnterpriseTech.doc ReYiaed: 115198 Page 3 • Enterprise Technologies is an Orange County firm that can provide all of their consultants out of the local area thereby eliminating any per diem or travel costs. • Enterprise Technologies has agreed to provide their consultants at lower hourly rates then were charged by J.D. Edwards which will either provide more consulting hours under the current agreement or reduce the total project cost. • Enterprise Technologies has been approved by J.D. Edwards to complete the implementation of this project. During discussion at the last Committee meeting, the Directors asked for additional information about the Financial Information System project. In addition, to clarifying the original staff report, staff has prepared the attached questions and answer sheets to satisfy those requests. ALTERNATIVES Continue using J. D. Edwards sub-consultants to implement the remainder of the Financial Information System Project which would probably lead to implementation delays and cost overruns. The hourly rates charged through J.D. Edwards are high and our contract does not exclude travel costs for consultants from outside the area. CEQA FINDINGS N/A ATTACHMENTS 1. Financial Information System Implementation Questions and Answers. 2. CSDOC FTE Requirement for Installation of New FIS. 3. Trade publication article explaining JOE strategy change. 4. October 1996 General Counsel Memo re JOE contract. H:lwp.dtaVin\2101cnine\FAHRIFAHR98\FEBWT-Ente,priseTec:h.doc RNMCI: 115198 Page4 Financial Information System Implementation Questions and Answers Resulting from the January 21, 1998 FAHR Meeting Question No. 1: Isn't the Districts' current contract with J.D. Edwards a fixed priced contract that contains specific deliverable dates as to the completion of various applications? The original intent of the Districts' Financial Information System (F.I.S.) Request for Proposal (RFP) was to enter into a fixed priced contract with specific deliverables. However, it became apparent that the software industry, as a whole, was moving away from fixed priced contracts based on the RFP responses received. The underlying premise is that the successful implementation of a computer system was highly dependent on both the company selling the system and overseeing the installation and training of the software, and the commitment of the agency purchasing the system, learning the software and taking ownership of the system. For example, attached is a listing of the CS DOC staffing requirement for this project that was generated jointly by J.D. Edwards and Districts' staff in September of 1996. Although the best the Districts could negotiate was a time and materials contract with J.D. Edwards, the Districts did negotiate fixed prices in some areas, and more importantly, the right to discontinue, at any time, the consulting services of J.D. Edwards without incurring additional costs or penalties. At this time, staff is recommending that we discontinue the consulting services of J.D. Edwards. The remainder of the implementation consulting services can be performed by Enterprise Technology in order to improve the quality of the implementation consulting services. Question No. 2: Is this request to use Enterprise Technology for the remaining portion of the implementation contract a non-performance issue on the part of J.D. Edwards? No. The implementation so far is on schedule, and the system works. J.D. Edwards has changed their business direction. Because the contract with J.D. Edwards is based on time and materials, the Districts can control the costs and services rendered by J.D. Edwards by asking them to stop working on the project. H:lwp.dlaVin\210'crane\FAHR\FAHR98\FEBIAIT-Enl91priseTech.doc Revised: 115198 Page 1 Question No. 3: Why is the estimated completion of the One World conversion/Migration being delayed one year to June 30, 1999? Following the contract negotiations in October of 1996, J.D. Edwards consultants and staff developed an implementation plan, with estimated timelines, that was broken down into four phases, Payroll and Human Resources, General Accounting, Distribution, and migration to OneWorld. This timeline was only an estimate, and was developed at a time when it was not fully known how the J.D. Edwards system would integrate with the RJN Computerized Maintenance Management System (CMMS). This question is still being addressed today as the RJN system is being upgraded for the Windows NT environment and for additional functionality in the areas of reporting material and overhead costs for the maintenance of equipment items. The goal is to complete the implementation of all of the J.D. Edwards F.I.S. applications as well as all of the upgrades to the RJN CMMS system before we convert to the J.D. Edwards OneWorld (Oracle database) system from the WorldVision (dbase II database) system. Although the revised estimate is now one year later, no additional costs will be incurred as a result of this revised estimate. In fact, the conversion is expected to go more smoothly as staff has become familiar with the functionality and the input and reporting that has been distributed throughout the organization instead of being centralized in Accounting. Question No. 4: Staff's recommendation is to use Enterprise Technology for the remaining FIS implementation, which is a recently established entity that is seen to have only one employee. lsn 't there a better alternative with a more established J.D. Edwards Business Partner? Staff believes that Enterprise Technologies is the best consulting firm to complete the remainder of the FIS implementation applications based on the following: • Project Continuity -Mario Alvarado, Implementation Manager from Enterprise Technologies, has been working on this project since last October as Business Partner working through J.D. Edwards. The knowledge Mario has gained in how the Districts conducts our business in the areas of purchasing, warehousing, inventory, and accounts payable would be lost, and a new consultant would have to begin again to acquire this knowledge base. In essence, by contracting directly with Enterprise Technologies, we are eliminating J.D. Edwards as the middle man along with the higher fees associated with this arrangement while maintaining the same people already working on this project. H:lwp.d111Vin\210\crane\FAHRIFAHR96\FEBIAIT-Enterpri5'1Tech.doc Reviud: 115198 Page2 • Capabilities -Mario Alvarado, Implementation Manager from Enterprise Technologies, has demonstrated the most knowledge and capabilities of any consultant, either from J.D. Edwards or from their business partners, since the inception of this project. • Cost -The proposed hourly rates from all three J.D. Edwards business partners interviewed are shown below: Consulting Finn Project Management Services Project Consulting Services Enterprise Technologies $160 per hour $125 per hour Decision Technologies $200 per hour+ Airfare/lodging $160 per hour+ airfare/lodging Global Business Solutions $200 per hour+ airfare/lodging $160 per hour+ airfare/lodging Only Enterprise Technologies has lower rates than those currently being charged directly by J.D. Edwards. In addition, the proposed staffing from Decision Technologies and Global Business Solutions is based out of Fremont, California and Phoenix, Arizona, respectively. Each of these Business Partners would also charge the Districts for airfare and lodging, costs that were not originally included within the J.D. Edwards proposal because they were based out of Costa Mesa. Question No. 5: What is the status of the JDEIIBM Project Budget? Estimated Costs Project Incurred Remaining FIS Component Budget To Date Budget IBM Hardware Platfonn $ 245,100 $ 170,667 $ 74,433 Software License Fee 313,875 270,180 43,695 OneWor1d Software Fee 60,000 -60,000 Training 102,000 62100 39,900 Consulting Services 574,065 383,840 190,225 Project Contingency 189,960 157,863 32,097 Total $1,485,000 $1,044,650 $440,350.00 To date, $1,044,650 or 70 percent of the project funds have been expended with eight out of the twelve applications/projects completed. The total estimated budget for ultimate migration to OneWorld, the relational database is $268,695 or 70 percent of the remaining budget of $440,350. Following is the projected outlay for the remaining budget: H:lwp.dtaVin\21 O\crane\FAHR\FAHR98\FEB\ArT -Ente,prise T och.doe Rellised: 115198 Page3 FIS Component Completion of WorldVision Installation: Remaining·Software License Fees Inventory Management Phase II -0 & M Contract Management Fixed Assets Data Conversion Technical Training Project Manaaement Proiect continaencv Total Remaining of World- Vision Project OneWorld Miaration: OneWor1d Software Fee Consultina Services Training Proiect Continaencv Total OneWorld Miaration Total Remaining Cost H:lwp.dtaVin\210\cranelFAHRIFAHRll8\FEBIAIT-EnterpriseTech.doc Revised: 1 /5198 Allocation of Remaining JDE/IBM CIP Budaet $43,695 29,440 12,800 25,600 15,000 6,400 14,400 24,320 $171,655 $ 60,000 158,135 26,800 23,760 $268,695 $440,350 Page4 csooc FTE Requirement for Installation of New FIS System (1) Phase I (9/1/96 -1/1/97) 4 mos. Address Book Budget, Chart of Accounts, Fin'I Rpt. Payroll Human Resources Phase II (10/1/96 -7/1/97) 9 mos. General Ledger Accounts Payable Purchasing Phase Ill (3/1/97 -12/31/97) 9 mos. Job Cost Inventory Management Sales Order Fixed Assets Contract Management Work Order Accounts Receivable All Phases (9/1/96 -12/31/97) 15 mos. Security/Report Writing Total Totals by Staff Person: White Peterman Dubois Laird Dillon Esber Cagle Geggie Jiminez Aguilar Mitchel/Adams Aldridge Yarosh Corfman Feery Fredericks Taylor Engineering Weingarten Evangelista Steves Martinez Johnson,B Johnson,L Thorall Tibbs Simmons Higashimura Marcin Foreman Green Total Management Effort FTE Person 0.34431 Laird 0.04846 White 0.69692 White 0.49050 Peterman 0.14539 White 0.11305 Dillon 0.15770 Dubois 0.11008 White 0.11064 Dillon 0.08244 Dubois 0.12330 Dillon 0.06234 Dubois 0.08229 White 0.09972 Esber 0.04923 Cagle 2.71637 1.08313 0.49050 0.30249 0.34431 0.34699 0.09972 0.04923 2.71637 Core Team FTE Person 0.63035 Laird 0.17801 Cagle 3.241 SO Geggie Jiminez Aguilar 1.53058 Mitchell Adams 0.53402 Dillon 0.47573 Aldridge 0.73351 Yarosh Corfman Feery 0.56340 Dillon 0.56863 Fredericks 0.34571 Taylor 0.48598 Fredericks 0.30926 Dubois Ludwin 0.44497 Aldridge 0.38226 Weingarten 0.04923 Evangelista 10.47312 0.15463 0.63035 1.09742 0.17801 1.08050 1.08050 1.08050 1.53058 0.92069 0.24450 0.24450 0.24450 1.05461 0.34571 0.15463 0.38226 0.04923 10.47312 (1)-Excludes hardware and software information system technicians. End User FTE Person 0.04373 Steves 0.01923 Evanglista 0.44838 Jiminez Aguilar 0.17308 Martinez 0.05768 Johnson,B 0.05870 Johnson,L 0.10413 Thorall 0.07690 Tibbs 0.07690 Simmons 0.05142 Higashimura 0.05870 Simmons 0.03886 Marcin 0.05870 Forman 0.04855 Green 0.00000 1.31498 0.224192 0.224192 0.01923 0.04373 0.17308 0.05768 0.05870 0.10413 0.07690 0.13561 0.05142 0.03886 0.05870 0.04855 1.31498 Total 1.01838 0.24569 4.38681 2.19415 0.73708 0.64748 0.99534 0.75038 0.75617 0.47957 0.66799 0.41046 0.58596 0.53053 0.09846 14.50446 1.08313 0.49050 0.45712 0.97465 1.44441 0.09972 0.22724 1.08050 1.30469 1.30469 1.53058 0.92069 0.24450 0.24450 0.24450 1.05461 0.34571 0.15463 0.38226 0.06846 0.04373 0.17308 0.05768 0.05870 0.10413 0.07690 0.13561 0.05142 0.03886 0.05870 0.04855 14.50446 Mo\ting Beyonll AS/400 J.D. Edwards looks to Unix, NTfor gron11h and new customers BY JOHN T. MULQUEEN IH.\l'S :\S/-HlO CO,\lPL"TER I.S supp,hed to he :1 proprietar~ product ll'ith slim grmnh poten- tial, hut it's still managing to pro,·ide a good li,·ing for some companies. J.D. Edwards & CD. (WWW. Id edwards.com), for instance, has ne:irly tripled in size in the past four years selling: applic:itions packages for AS/-+UOs, deriving: ,·irtu:illy all its software re,·enue from licensing:. The company's products are used to manage manufacturing, finance, distribution and human resource operations within mid- size corporations. The Denver company's licens- ing revenue was up 5-+ percent to S58 .9 million for the three months ended July 31, compared with the same pe:·iod the year before. For the nine months ended July 31, licensing revenue in- creased 37 percem to S151 mil- lion. At the same time, profits rose 49 percenr to S7.2 million for the quarter and 66 percem for the nine months to Sl-+.4 million. Tora! revenue rose 40 percent to S162.5 million for the quarter and SERVING THE SERVER s.iles. atconling 10 the com p,111~ J. D. Edwards & Co. has grown into an almost $60(] million business selling applications software packages that run on IBM's AS/400 computer. It plans to branch out to Unix and Windows NT platforms to continue expanding. "fur ure re, - el1Ul" ~J"I Ill I h i, suhstantiall~ de- pen den l upon m:1rker atceprance of One\Vorld ;1p- plication suites and the ability to license OneWorld applicarion suites to new customers.'' Edwards said in the prospectus for its initial public Dollars Pn mllllons) Years ended Ocl 31 1993 ·1994 1995 . ~ . . 1996 9 months endld July 31 1997 --,...,-~ .... __ -. . -~ - · R~?~~-~ :~~~~-~ ~~~:~ ~~~~ i~78 f ~1.2 Net Income $7.4 $12.1 $18.2 $26.3 $14.4 Soun:,; J D. Edwart!s &. Co. OlaJt by Jenmfet Garman 33 percem to S-+31.2 million for the nine monrhs-service revenue also was up 33 percent and 31 percem for the quarterly and nine-month periods, respectively. Despite this. Edwards officials believe-as many observers and software developers do--that the AS/ 400 has only minimal future growth potential, so Edwards has developed products for the unix and Windows :'\"T markets. Those packages, c:illed One World, were in- troduced in late 1996, but Edwards has not yet recorded any significant offering. The com- p any sold I 2.5 million shares as part of an offering of 15.8 million shares, with an estimated price of S23 per share. The price had been expected robe S15 to S17 per share. The company does nor expect many of ics existing A.Sl-+00 customers will move to L7nix or KT platforms. so it's going to have to find different buyers for One World. MO\·ing to Cnix and NT also is creating: ocher changes and challenges for the 20-year-old vendor. whose business has been selling applic:ition packages for IBM minicomputers. Not only will it compete with companies such as System Soft- w:ire Associ:nes Inc., ~-Iarcam Corp., Infinium Software Inc. and JB.-\ Holdings in the minicomputer space, it will be facing the likes of S:\P AG. Baan Co.. PeopleSoft Inc. and Or:ich:. all of which an: more experienced in the Cnix :ind 1 !\:T m:irkets. Also, Edwards is changing its traditional policy of subcontract- ing with third parties for some consulcin~ and trainin~ sen iccs it pro,·iclt:s ro its customers. The new strategy is ro ha,·e third parries t:ontrnct dircpl,· with users to i111plcmt;111 :rnd sup- port OncWorlc.l. If° the s1r:11e;:-, i~ success!"ul. it will likcl) n:duc.:l· re,·enuc from com,ultin~ and traininµ-hn:ausc suhco111rac111r~ :1c·countl·d li,r -+O pen.:enl 111' 1li:11 re1emi.· i11 1'1111,. thl· t:or11pa111 ,aid 11 i, :111 1mp11rran1 p11in1 l.d- 1!1110 ~HI IIB • BEYOND • CDNTINUEI fllM PHE 115 wards increasingly relies on ser- vices. Service re\'enue grew IIJ0 percent between 11)93 and 19%, · compared with a IJ I percent in- crease in liccnsing focs. Scn·ii.:cs nuw account for nc:1rly h5 perci:nr of revenue. It is a lower margin business, and Edwards' profit margins have declined co 3.3 percent in 1996 from about 5 percent in 1993 as services produced more of the company's revenue. Edwards has expertise in ar- chitecture, engineering, con- struction, mining, real estate, en- ergy, chemical companies and the public sector markets. Technology Layers Edwards said it has more than 4,000 customers in more than 90 countries. International sales ac- count for about 35 percent of Ed- wards' revenue, which is not sur- prising given the popularity of the .-\S/-l-00 in international markets. WorldSofrware, one of Edwards' main produces, is used in host--<:en- tric networks with the AS/400 sit- ting at the core of the installation. One World uses Edwards' Com- puter Network Computing (CNC) architecture co run over AS/-l-O0s, Unix and NT servers. All three kinds of servers can be combined in an enterprise network. WorldSoftware can be used to make run-rime changes in appli- cation suites without having co recompile software. Using Edwards' WorldVision thin-client interface, WorldSofc- ware can run its applications through a Windows GL"I. Wich CNC, One\Vorl<l can deploy a single version of an ap- plication across a network. CNC has three cumpom:ncs: .m appli- c:1tion layer, :1 tool set and a tech- nology layer. The application layer houses business functions of the applica- tion suites, which can have up to 3,000 ohiccrs. :\ OncWorld server disrrihures them in ohiect form to indi,·idual i.:ompurcrs that c:ompilc ,md execute them. Objects can be moditied or changed and redistrib- uted, reducing the cost of changes compared with other client/ server systems, the company said. The One World tool set gener- ates objects in C, C++ and Java, and new languages can be easily incorporated, Edwards said. Hav- ing a single tool set instead of multiple cools also reduces the cosc co users, the company said. The technology layer masks differences between platforms and provides a uniform interface to OneWorld applications, so one object can run on a variety of plat- forms, according co company offi- cials. The technology layer runs on AS/400s--.md S/390 main- frames; Digital Equipment's Al- pha and Intel-based ;'.\;T servers; IBM's RS/6000; Hewlett- Packard's 9000; Siemens/Nixdorf Unix servers; and NT servers from other manufacturer:,. Clients include Windows 95 and NT and any browser, the company said. The technology also supports Oracle's databases, the IBM D82 family and _y[icrosoft's SQL Server. Edwards officials did not say what che company will do wich the approximately S265 million it raised in its initial public offering-. The three founders-<hairman C. Edward McVaney, and Jack Thompson and Robert Newman, both directors-still own about 63 percent of the company after the offering. Tht:y sold ahout 2.16 mil- lion shart:s in tht: IPO. • ' --.. .. -~.. "' .. ~· r i _i-U ~:-:t, ·LL: ~~:'l1h ' • I '.J • ~ •J,. ,., ,r. ..... ... E --....... ,.. 1 '·-• -., ".''t ) ~ • • I • . " LAWDmeaOF WOODRUFF, SPRADLIN & SMART A PltCPISIIOIW. CclltooRATlftlll TO: FROM: DATE: RE: MEMORANDUM Mr. Donald F. McIntyre, General Manager General Counsel October 3, 1996 J.D. Edwards Computer Contract GENERAL As you know. th~ Districts have been vigorously pursuing resolution of the computer contract documents with J.D. Edwards. J.D. Edwards has taken a hard line in the negotiations, and has offered very little in the way of compromise. After a tough battle, J.D. Edwards has provided us with a final rewrite of the contract documents and has specifically stated that it will not make any further changes to its standard form contract documents. With that in mind, we provide you with our comments to the final contract documents. The contract documents include a Software License Agreement, a Software Update Agreement, and a Software Se!Vices Agreement, each with various addenda and/or attachments. Jt is our opinion that those documents are extremely one-sided, in favor of J.D. Edwards. TERMINATION BIGHTS The single most important issue presented by the documents is the District right to terminate if it finds that the software products, despite all expectations, do not meet District needs. The Districts' RFP had made clear that acceptance testing would be required, so that if the products were de!ermined not to meet District needs, or not to be as represented, the contract could be !erminated. Despite having responded to the RFP, J.D. Edwards now steadfastly refuses to agree to acceptance testing. It also refuses to warrant that the J.D. Edwards response to the feature/function checklist portion of the RFP is · accurate. . , .~ Mr. Donald F. McIntyre, General Manager October 3, 1998 Page2 As a compromise., J.D. Edwards had agreed, orally, to permit termination of the Sottware License Agreement after completion of the Conference Room Pilot, with J. D. Edwards to retain monies then paid, but the Districts to be under no obligation to pay any more money. However, J.D. Edwards refused to put this in writing. The final Software License Agreement contains new language, not previously discussed with the Districts. That new language provides that the Districts have until October 15, 1996 to cancel the Software License Agreement and obtain a refund of tho monies paid under that agreement to date. It also provides, however, that the Districts agree to notify J.D. Edwards of their approval of the licensed products b~, delivery of a written approval form to J.D. Edwards by October 15, 1996, and that failure to either return the approval form or reject t!ie licensed products by that date shall be deemed the Districts' approval of the licensed products. The bottom line is this: if the Districts fail to reject the licensed products by October 15, 1996, they will be deemed to have accepted the licensed products and they will be liable for the full purchase price (unless J.D. ~dwards fails to deliver, or the licensed products do not meet J.D. Edwards' own product specifications), irrespective of whether the products meet the Districts' needs. We find this provision to be very harsh. However, it is our understanding that Dennis Vlasich thinks the possibility that the products will not meet the Districts' needs is remote. it is up to you to weigh this information, together with J.D. Edwards' reputation and the Districts' need for these particular products, against the poor contract language, and decide whether the Districts are willing to proceed. We suggest that, to the extent you have not already done so, you check with Dennis Vlasich to get the best possible idea of the risks involved in selecting the J.D. Edwards products. If the products tum out not to meet District needs, the Districts will have little recourse based on the contract documents, and will most likely be held to the full contract price under the Software License Agreement. OTHER CONCERNS While the single greatest issue for concern is the lack of acceptance testing and the short-lived tennination right, there are other issues of note as well. We will mention only the more significant ones below. . " Mr. Donald F. McIntyre, General Manager . October 3, 1996 Page3 1. Time and Materlals: J.D. Edwards ultimately agreed to fix only the training and solution assurances costs. The other costs under the Software Services Agreement are to be paid on a time and materials basis. We had asked for some language that would help the Districts control the costs. In response, J.D. Edwards did add some language to the addendum to the Software Services Agreement to provide that services will be provided "at Customer's request," the implication being that. unless the customer requests the services, they will not be provided and no costs will be incurred. While we had hoped for stronger language, the language does offer some degree of comfort that time and materials charges should not be incurred unless the Districts have at least authorized the initiation of a certain task. 2. Djsabljng Codes: The software contains certain disabling codes. As you may be aware, we tried to negotiate some language limiting J.D. Edwards' rights to exercise the disabling codes. J.D. Edwards did add several paragraphs of language on disabling codes. Unfortunately, the language is confused and inconsistent. It variously implies that once software license fees are paid in full, the disabling codes will not be used (a} for collection purposes for service fees, (b) at all. or (c) as long as additional fees continue to be paid under the Software Services Agreement and/or the Software Update Agreement. The inconsistencies make an accurate interpretation near impossible. Obviously, if either the Software Services Agreement or the Software Update Agreement needs to remain in place in order for the Districts to have continued use of the software, the total cost to th~ Districts is markedly higher than originally anticipated. The inability to obtain written clarification of this issue makes it impossible for the Districts to fix their costs wrth regard to these co~tract documents. 3. Migration to One World: We had wanted some clear cut language about the waiver of fees for migration to One World. We did not recejve any specific language on this. However, J.D. Edwards did add, to the Software Update Agreement, some vague language to the effect that the customer may exercise an .. Enhanced Product Exchange" once, free of charge. The Districts will need to be cautious in accepting any version upgrades or enhancements, to make certain that the one-time Enhanced Product Exchange is not inadvertently exercised with regard to a product other than One Wortd and that all One World products are included within the one- time Enhanced Product Exchange. Written confirmation from J.D. Edwards should be obtained. Notice also that, unless the Districts continue to keep the Software 2CDO-Oll026 35913_1 10-03-96·02:3:PM FROM WOCDRU~c SPRAD~IITETC ;o 3623954 ? 0 0 5/G C: t, ,. • ,I Mr. Donald F. McIntyre, General Manager October 3, 1998 Page4 Update Agreement in place, and pay annual fees thereunder, the Enhanced Product Exchange provision wlll not apply, and there will be no free migration to One World. 4. Appropriated Funds: We had requested language concerning the right of the Districts to cancel the contracts in the event that no appropriations were made for the contracts for ensuing years. J.C. Edwards added some appropriations contingency language to the Software Services Agreement and the Software Update Agreement, but did not add any such language to the Software License Agreement This is an important omission. because the Software License Agreement clearly requires payments to be made over a period of more than a year. While we feel strongly that the contingency should have been included in the Software License Agreement, it is possible to construe the Constitutional limitation barring multi-year contracts of this type as inapplicable to sanitation districts. Therefore, while it should be against Oii5trict policy to enter into agreements without adequate contingency clauses, we do not feel that it is actually a violation of law for the Districts to do so. 5. lnsuran~: J.D. Edwards added insurance language to the Software Services Agreement, but not the Software License Agreement. Each document really should contain its own insurance requirements. As between the two, however, the SoftWare Services Agreement is probably the one most in need of insurance provisions, because on site vistts are more likely to be made under that agreement. Of course, without insurance requirements under the Software License Agreement, the errors and omissions insurance provided pursuant to the Software Services Agreement may be inapplicable to errors and omissions under the Software License Agreement. 6. Assjqnment: In the final contract documents, it was disclosed to us for the first time that all three of the agreements will be assigned to J.D. Edwards World Solutions Company. Presumably, this is an affiliate of J.O. Edwards & Company, the vendor. The Districts will be dealing with n_ew players, and will not have the opportunity to "remind" them of the Intent of the parties, where poor contract language is concerned. 7. General: In general, the contract documents, particularly the addenda thereto, contain numerous inconsistencies and ambiguities of a type that are customarily corrected through negotiations. As it stands, the Districts, if they sign the ZOOO-OOOZG 35913_1 . ,, .... Mr. Donald F. McIntyre, General Manager October 3, 1Q96 Page 5 documents, will simply have to hope that none of these provisions become the subject of dispute. SUMMARY: We know that the Districts a:-e in dire need of completing a contract and obtaining the desired products, and also that the J.D. Edwards products have been recommended as the best available to suit the Districts' purposes. Moreover. it may be that as a factual matter. the likelihood of suffering problems with the products may be low. However, a decision to proceed with the purchase will need to be made on the strength of the perceived quality and suitability of the J.D. Edwards products, not on the terms of the J.D. Edwards contract documents. The contract documents contain significant defects, as noted above. Please let us know if you need any further information. THOMAS L. WOODRUFF GENERAL COUNSEL By; Jk,:.a, , &r, ,~i_,R._, Danie I. Spence cc: Ms. Judith A. Wilson, Assistant General Manager Mr. Gary G. Streed, Director of Finance Mr. Michael D. \/1/hite, Controller Thomas L. Woodruff, Esq. Terry C. Andrus, Esq. 20DC-Cl0028 35913_1 I /' J FAHR COMMITTEE AGENDA REPORT County Sanitation Districts of Orange County, california FROM: Donald F. McIntyre, General Manager Originator: Gary Streed, Tom Woodruff Meeting Date 02/11/98 Item Number g ' . SUBJECT: RETIREMENT BENEFITS FOR DEFERRED COMPENSATION GENERAL MANAGER'S RECOMMENDATION As requested by the Committee Chair at the January Joint Boards meeting, reconsider modifications to the Deferred Compensation program for Executive Management, Management, Supervisory, Professional and Confidential employees so that the incentive compensation heretofore called "employer matching" and "employer non-matching contributions" be designated as supplemental salary, a part of the total remuneration paid to the employee. SUMMARY The Orange County Employees Retirement System (OCERS) has recently notified the Districts that, due to a recent California Supreme Court decision, they are changing their past practice, and they will no longer consider certain deferred compensation payments and deductions, for convenience previously called "employer matching and non-matching contributions," as "compensation earnable." This is a statutory term under the Retirement System Act to establish an employee's earnings which are used to calculate retirement benefits. The impact of this change will be to decrease the amount of annual salary used to determine retirement benefits for approximately 175 current employees. While the impacts vary based upon age, length of service and salary, an example of the potential impact to an actual current employee who is eligible to retire today, is a reduction of retirement benefits of $3,200 per year. That impact increases every year the employee stays with the Districts, because the OCERS retirement benefits increase based upon age and years of service. Two changes are required to the Districts' deferred compensation program, in order to maintain current retirement benefits: • Clarification of language ~ Removal of vesting provision H:\wp.dtaVin\210'cfane\FAHRIFAHR981FEB\Defcamp.doc R91/ised: 115,'98 Page 1 To Jt. Bds. 02/25/98 Item Number PROJECT/CONTRACT COST SUMMARY The OCERS is established under the IRS as a "defined benefit" retirement pension plan. This means that the monthly benefit received at retirement is predetermined by contract, while the contributions made during the employment years may vary. Contributions to OCERS are made by both the employee and the Districts. The required employee contributions are based upon age at entry into the system, and are different for almost every employee. As a result of the collective bargaining process, the Districts agreed in 1983 to pick up a 4.50% share of each employee's required contribution in lieu of a salary adjustment. In addition, the Districts' employer contributions for 1997-98 have been set by the OCERS actuaries at 2.32% of "compensation earnable." The maximum OCERS cost per employee to the Districts for including deferred compensation program amounts in "compensation earnable" is $545.60, or 6.82% of $8,000.00 for 1998. The average annual OCERS cost per employee in this program is less than $150.00. BUDGET IMPACT [gl This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. D Not applicable (information item) ADDITIONAL INFORMATION The Issue Whether the monies paid by the Districts to individual employees, in addition to their regular base salary and deposited into the deferred compensation accounts of the employees, constitute "compensation earnable" under the provisions of the OCERS (Government Code Section 31461 ). Historical Background In 1976, the Directors asked staff to investigate various compensation incentives for Management employees, and subsequently modified their existing deferred compensation plan by adopting a program to include additional compensation amounts to the employees, if those amounts were deposited into deferred compensation plan accounts, and if a portion of the amounts was matched by the employees. In 1986, this program was expanded to include supervisory and professional staff as part of the change to a performance/merit based compensation system that replaced the traditional five-step system for these employees. H:lwp.dtaVin\210\cranelFAHRIFAHR981FEB\Oefcamp.doc Revised: 115198 Page2 The IRS Code is very clear that deposits to a Section 457(a) deferred compensation plan must be deductions from an employee's salary or wages. Because of this, the Districts has always treated the incentive program of deferred compensation "contributions" as a part of gross wages for calculating the amount of required OCERS contributions and Medicare premiums. Districts' employees are not eligible for Social Security, but if they were, we would have included these amounts in Social Security wages as well. Attached to this report is a pertinent excerpt from the Plan Administrator's Manual prepared and distributed by an independent deferred compensation investment provider and manager. This manual explains that there cannot be deferred compensation unless first there is compensation. Compensation that is subject to Social Security, or FICA, should also be subject to OCERS. OCERS staff and counsel, together with Districts' counsel, thoroughly reviewed staff's practice of including deferred compensation as "compensation earnable," in 1986. At that time, Districts' staff prepared schedules and examples that showed the flow of funds from the Districts into the employees' deferred compensation accounts. One of the examples was an employee paycheck which showed additions to regular wages labeled "ER MATCH" and ER NONMATCH," and a corresponding payroll deduction for the total. The logic and legality of these transactions was clear to OCERS staff and counsel, and they so acknowledged. Thus, retirement benefits for Districts' retirees since 1986 have been based upon total "compensation earnable" as reported to OCERS, and employees' paychecks have continued to show the gross earnings. It appears that OCERS is now changing its position because the Supreme Court ruled the law did not allow for these amounts to be added on the assumption that the amounts were never treated as being paid to the employee and thereafter deducted into the deferred compensation account. That assumption, insofar as applied to the Districts' program over the past 21 years, is incorrect. OCERS has indicated that if the monies paid to the Districts' employees is salary and is deducted into the deferred compensation account, then it satisfies the legal requirements and they will continue the past practice and accept these sums. If so, the Districts' employees will not lose any benefits that they have planned for. The Districts' proposal to modify the Deferred Compensation Program Resolution by simply changing the language to accurately reflect what has in fact been done for the past years, removes the misleading inferences and should be satisfactory to OCERS. The Districts and the employees have always paid the required retirement contribution on the deferred compensation amounts, and, thus, OCERS has not incurred any "shortfall." H:lwp.dlaVin\2101CfanelFAHRIFAHR98\FEB\Defcomp.doc Revised: 1/5198 Page3 Each year, OCERS sends its members a statement of account. In recent years, these statements have included the employees' current average salary and an estimated monthly retirement allowance when the employee reaches the age of 50. Both of these amounts are based upon "compensation earnable" which includes all gross salary and wages deposited into the deferred compensation plan. Employees and their families have used these amounts when planning for their futures and making career decisions. They have a reasonable and well established expectation that the practice will not change. The Districts have a reasonable and well-established practice of including all deferred compensation amounts as part of the total remuneration to an employee, i.e., the gross compensation for OCERS, FICA and Medicare premium calculations. The Social Security law requires deferred compensation amounts be included when calculating employee and employer premiums; it has been logical to extend that requirement and practice to the Districts' retirement plan, OCERS. The Directors have an opportunity to maintain this practice and to protect their staff from a reduction in retirement benefits which, for 21 years have included total gross earnings. Vesting Provisions The deferred compensation program was intended to be implemented in stages. The intent was to increase the additional salary percentages over time as an incentive to retain Management employees. To reinforce this incentive, the program also included a vesting requirement for the matching and non-matching contributions. As the program was expanded to include additional employees, the plan to increase the percentage was abandoned, but the vesting period was maintained. The current vesting requirement is participation in the program for three years. After three years, all past and future amounts will be paid to the employee upon termination of participation. In 1996, the Internal Revenue Code was changed regarding Section 457 deferred compensation plans. One of the important changes requires employers to transfer all deferred compensation funds to a trustee or custodial account. Prior language left ownership of all of the funds with the employer. General Counsel has stated that requirements for a trustee relationship have probably made our vesting requirement unenforceable. Additionally, maintaining the vesting provision will be contrary to the intent of the language changes previously discussed. The intent of the language changes is to clarify that the amounts are first paid to the employee and then deferred. To insist that an employee wait some period of time before the funds are available, will not allow these funds to qualify as "compensation eamable" under the terms of the recent California Supreme Court ruling. H:lwp.dtaVin\210'tcrane\FAHRIFAHR981FEB\Defcomp.doc R8Yised: 1/5198 Page4 ALTERNATIVES Maintain the current deferred compensation program language and wait for the legal system to resolve inconsistencies state wide, within Orange County or at the Districts. This option will likely result in reduced retirement benefits/payments for Districts' employees and could expose the agency to litigation. CEQA FINDINGS N/A ATTACHMENTS 1. Excerpt from Deferred Compensation Plan Administrator's Manual 2. General Counsel Memo dated January 13, 1998 3. Draft Resolution Approving Amended Deferred Compensation Program GGS:lc H:lwp.dta'lin\210'1Crane\FAHRIFAHR98\FEB~.doc Revised: 1/5198 Pages Excerpt From Deferred Compensation Administrator's Manual "Employee and Employer Contributions" D. Bmploy,:r CoftailntdoM to Section 45'7 .Pf.mu ~c:ticn 457 Plana are by nature volunmy salary redL+ction agreements, In the context of ~employer ccnttib,,.'"CDm" thie p-~ts soine ~tive pe~rities that must be addtessep for an e:nployer e.mm'butian tD be tll2de. Fiat. it is recommtnded that the emp~s plan.document addresi the mue or ~lcyer ~ntri.butiona, LNts Spedmen Plan Document p~ides that an employer may add to che amount ' payable to any particlpant cov-...red under the phn.. While this provi.tion leav~ the contribution at the employers ~ the employer may wiah to l,,e ~ spedfie regardinJ the ~unt it will amcnbute m:dl!!' the plan. Pa-enmple. IL"'l employer may choose to contribute ~ of each .empioyee'a pay and could cm tbis a speci.Ac plan J)l'O'lilion provSded it Is subject tD the normal plan limitations. Seve.."lll add&icnal .f'actffl must b'! considered when the employer el~ to :icake a tontn'budon to a Settlon 457 pl.en: 1. Sir.a: all d~ts nt•de ta the plan mun c.ome b"f way of employee Mlaiy ~duc:tion. the only vtay an employer can mah! a a>ntr:"b-.:tiou for an e:aployee is by "grossing up" or .h:.creas:En, the .empkiyee'.1 salary by the amount t:lM!: employer wishes ·to oor.tribute to the pl.aP-This in dfect means ·the employee 16 peid additional "wa-ges" which they then elttt re def!r i::im tm pla:i. !he• • n1n-cor.trib•.Jdon ,.vill be suhject to Social Se ty tn:ation up front just u normal employee c!.e!emak sre. This mer.ea.ti~ in FICA Wag:es as .ey a!e s4 own on the W-2 Pm-m will al..~oat always r-!$\llt in a-n addirlonal FICA tax liability for the '?m:?lC}"U on th~h' portion of th~ -457 conttibutian. The amour.t of the t.3.,: liability will depend on wheth~r the emploY'!e ha.s !%~eeded the F[CA tuablc wa,e base for the year. If the FICA wage biae HAS ~en r~cbed, Medicare taX 1,vm probabljl ttill ueed to be withheld. V-3 ., I.AW OFFICES OF WOODRUFF, SPRADLIN & SMr"'f A PftCWESSICIKOl CoAPOIIAllON TO: FROM: DATE: RE: MEMORANDUM Chair and Members of Finance, Administration and Human Resources Committee General Counsel January 13, 1998 Districts' Deferred Compensation Plan and Program For Employees; Effect of Supreme Court Decision Ventura County Deputy Sheriffs Association v. Board of Retirement of Ventura County Employees' Retirement Association The Districts have had a Deferred Compensation Plan for the benefit of their employees and Directors since 1978. This is a Plan similar to that in place with most cities and counties, in that it provides a tremendous tax deferral program to employees without any cost to the employer agency. Additionally, the Districts have adopted a Deferred Compensation Program which has been in place since 1986 and 1987. The Program provides for the Districts, as the employer, to make additional compensation contributions to the Executive Management, Management, and Supervisory and Professional employee groups, which amounts are ~eposited to the individu~ employee's deferred compensation account. The Program consists of two parts, providing for both "matching funds" and "non-matching funds". Under the former, the Districts contribute either 3% or 1 % respectively to the employee's account, contingent upon the employee likewise contributing the same amount into his or her deferred compensation account. For the non-matching program, the Districts likewise contribute a sum equal to 3% or 2% respectively of the employee's salary without any requirement for participation in the Plan by the employee. For the General Manager and Assistant General Manager(s), the Districts provide a lump sum of $7,500 as a non- matching funds contribution. At the time of the adoption of the Program, one of the reasons was thought to be an incentive to retain employees, and included a provision requiring 3 years of employment and 3 years of contributions to the Plan in order for the employee to obtain vested ownership rights in the amounts contributed by the Districts. As the General Manager's Report would indicate, there are several changes in circumstances that exist between the Districts and their employees at the present time, which effectively negate the 2092-100 57332_1 Chair and Members of FAHR Committee January 13, 1998 Page2 underlying reasons for vesting that were adopted in 1988. There are 2 very significant events that have occurred recently relating to both the Deferred Compensation Plan and Program of the Districts. The first is the enactment by the United States Congress of amendments to Internal Revenue Code Section 457, generated largely because of the Orange County bankruptcy. Among the changes are that the employer agency must now transfer the monies being held for its employees under the deferred compensation plan to a trustee or custodial account. The purpose of this is to prevent these monies, which are really intended for the individual employees, from being reached by creditors of the public agency in the event of a bankruptcy. The Districts' Plan has now been amended by my office in conformity with the Internal Revenue Code changes and is scheduled for presentation to the Joint Boards at their regular February meeting. Nothing in those changes imposes additional cost or expense upon the Districts, and particularly d~es not provide additional benefits to the employees. Because the legal ownership of deferred compensation funds will now be transferred from the Districts to a trust account, it is my opinion that the legal ability to enforce the vesting provisions is greatly impaired, with the distinct possibility that it would be held to be unenforceable. The second major change is a recent decision by the California Supreme Court in the case of Ventura County Deputy Sheriffs Association v. Board of Retirement of Ventura County Employees' Retirement Association. This is an action challenging the amount of reported "includa~e compensation" upon which an individual employee's retirement benefits are calculated. Ventura County operates under the same Retirement System Act as Orange County, of which the Districts are a contract member. The court held that employer contributions to an individual employee's retirement plan are not specifically addressed and provided for in the Retirement System Act, and as such, do not qualify as includable compensation. It has been the past practice of the Orange County Employees Retirement System ("OCERS") to in fact accept the sums paid by the Districts to the employees as the employer's share, under both matching and non- matching contribution programs, as part of the total compensation paid to the employee. By exampte, if an employee had a base salary of $50,000 and the Districts contributed 3% matching and 3% non-matching to the employee's account, the additional 6% or $3,000 was reported to OCERS on the basis that the employee's total salary compensation was $53,000. Ultimately, at time of retirement, that number would be the salary upon which the retirement benefits would be calculated. 2092-100 57332_1 Chair and Members of FAHR Committee January 13, 1998 Page 3 It is my opinion that the existing Deferred Compensation Program provisions requiring a 3-year vesting period, fail to comply with the mandate of the Supreme Court decision in Ventura. If the Districts were to maintain the vesting provisions in their Program, the amount of money contributed by the Districts as employer's share to the deferred compensation account of the individual employee, could not be reported to OCERS as a part of the salary. In effect, this would result in a reduction of total compensation benefits from what is presently provided to the individual employees. Specifically, because the lesser amount would be reported as includable compensation to OCERS, the final retirement benefits payable to the employees would be reduced. TLW:mrs cc: Mr. D.F. McIntyre Mr. B.P. Anderson Mr. G.G. Streed Mr. M. L. Peterman 2092-100 57332_1 k-~~- GENERAL COUNSEL RESOLUTION NO. __ _ APPROVING AMENDED DEFERRED COMPENSATION PROGRAM FOR EXECUTIVE MANAGEMENT GROUP EMPLOYEES AND MANAGEMENT, SUPERVISORY, PROFESSIONAL AND CONFIDENTIAL EMPLOYEES A JOINT RESOLUTION OF THE BOARDS OF DIRECTORS OF COUNTY SANITATION DISTRICTS NOS. 1, 2, 3, 5, 6, 7, 11, 13 AND 14 OF ORANGE COUNTY, CALIFORNIA, APPROVING REVISIONS TO THE DEFERRED COMPENSATION PROGRAM FOR THE EXECUTIVE MANAGEMENT GROUP EMPLOYEES (GENERAL MANAGER, ASSISTANT GENERAL MANAGERS AND DEPARTMENT HEADS) AND MANAGEMENT, SUPERVISORY, PROFESSIONAL AND CONFIDENTIAL EMPLOYEES OF THE DISTRICTS, AND REPEALING RESOLUTION NO. 95-81 ********************** WHEREAS, in conjunction with the Districts' Deferred Compensation Plan, the Districts, by Resolution No. 95-81, adopted by the Boards of Directors on July 26, 1995, have previously approved specified Districts' payments of salary compensation to classes of employees in addition to the base salary for the employees, which payments consisted of contributions to the individual deferred compensation accounts of the General Manager, Assistant General Managers and Department Heads (collectively described as the "Executive Management Group"), and certain Management, Professional and Supervisory employees of the Districts. NOW THEREFORE, the Boards of Directors of County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California, 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 DO HEREBY DETERMINE, RESOLVE AND ORDER: Section 1: Supplemental ·salary. A. General Manager and Assistant General Managers. That the Districts hereby approve the payment, to the General Manager and to each Assistant General Manager, of supplemental salary in an annual sum equal to the maximum permissible dollar amount of deferred compensation under an IRC Section 457 deferred compensation plan, as prescribed by the Internal Revenue Code or U.S. Treasury Department Regulations (the "Supplemental Salary for General/Assistant General Managers"), which shall be in addition to the base salary. The Supplemental Salary for General/Assistant General Managers shall be first added to the base salary, and then deducted therefrom and deposited into the respective individual deferred compensation accounts of the General Manager and each of the Assistant General Managers. B. Department Heads. That the Districts hereby approve the payment of supplemental salary, in an annual sum equal to a maximum of three (3%) percent of the gross annual base salary of each Department Head (the "Matching Supplemental Salary for Department Heads"), provided that each such employee voluntarily withholds from his/her salary and contributes an equal sum to his/her individual deferred compensation account. The Matching Supplemental Salary for Department Heads shall be first added to the base salary, and then deducted therefrom and deposited into the respective individual deferred compensation accounts of the Department Heads. That the Districts hereby approve the additional payment of supplemental salary, 2093-100 57538_1 WS&S Draft No.2 Februwy 3, 1998 2 J in an annual sum equal to three (3%) percent of the gross annual base salary of each Department Head (the "Non-Matching Supplemental Salary for Department Heads"), exclusive of the Matching Supplemental Salary for Department Heads, as hereinabove described, without the requirement of any matching contribution by the individual employees. The Non-Matching Supplemental Salary for Department Heads shall be first added to the base salary, and then deducted therefrom and deposited into the respective individual deferred compensation accounts of the Department Heads. That in the event the total annual sum contributed to the individual deferred compensation account of a Department Head, comprised of the three (3%) percent Non-Matching Supplemental Salary for Department Heads, the three (3%) percent Matching Supplemental Salary for Department Heads, and the three (3%) percent matching funds contributions from the respective employee, exceeds the maximum permissible dollar amount of deferred compensation under an IRC Section 457 deferred compensation plan, as prescribed by the Internal Revenue Code or U.S. Treasury Department Regulations, the Districts shall continue to provide the three (3%) percent Non-Matching Supplemental Salary for Department Heads, and the three (3%) percent Matching Supplemental Salary for Department Heads, to the extent that such total Matching/Non-Matching Supplemental Salary for Department Heads does not exceed the maximum allowed by law, and the individual employee shall only be required to contribute such matching funds contributions as will provide a total of all contributions that will equal the maximum allowed by law. 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 3 C. Management and Supervisory Employees. That the Districts hereby approve the payment of supplemental salary, in an annual sum equal to a maximum of two (2%) percent of the gross annual base salary of the respective Management and Supervisory employees (collectively the "Matching Supplemental Salary for Management and Supervisory Employees"), provided each such employee voluntarily withholds from his/her salary and contributes an equal sum to his/her individual deferred compensation account. The Matching Supplemental Salary for Management and Supervisory Employees shall be first added to the base salary, and then deducted therefrom and deposited into the respective individual deferred compensation accounts of the Management and Supervisory Employees. That the Districts hereby approve the additional payment of supplemental salary, in an annual sum equal to two (2%) percent of the gross annual base salary of each of the respective Management and Supervisory employees described herein (the "Non- Matching Supplemental Salary for Management and Supervisory Employees"), exclusive of the Matching Supplemental Salary for Management and Supervisory Employees amount, as hereinabove described, without the requirement of any matching contribution by the individual employees. The Non-Matching Supplemental Salary for Management and Supervisory employees shall be first added to the base salary, and then deducted therefrom and deposited into the respective individual deferred compensation accounts of the Management and Supervisory employees. 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 D. Professional and Confidential Employees. That the Districts 4 hereby approve the payment of supplemental salary, in an annual sum equal to a maximum of one (1 %) percent of the gross annual base salary of the respective Professional and Confidential employees (collectively the "Matching Supplemental Salary for Professional and Confidential Employees"), provided each such employee voluntarily withholds from his/her salary and contributes an equal sum to his/her individual deferred compensation account. The Matching Supplemental Salary for Professional and Confidential Employees shall be first added to the base salary, and then deducted therefrom and deposited into the respective individual deferred compensation accounts of the Professional and Confidential Employees. That the Districts hereby approve the additional payment of supplemental salary, in an annual sum equal to two (2%) percent of the gross annual base salary of each of the respective Professional and Confidential employees described herein (the "Non- Matching Supplemental Salary for Professional and Confidential Employees"), exclusive of the Matching Supplemental Salary for Professional and Confidential Employees amount, as hereinabove described, without the requirement of any matching contribution by the individual employees. The Non-Matching Supplemental Salary for Professional and Confidential employees shall be first added to the base salary, and then deducted therefrom and deposited into the respective individual deferred compensation accounts of the Professional and Confidential employees. E. Vesting. All Supplemental Salary, as described in Paragraphs A, B, C and/or D above, shall vest upon deduction from the total compensation (the sum of 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 5 base salary plus supplemental salary) payment and deposit into the respective individual deferred compensation accounts. In addition, all amounts described in Resolution No. 95-81 as "Districts Matching Funds Contributions" or "Districts Non- Matching Funds Contributions" that have been previously deposited into the respective individual deferred compensation accounts of the employees described in that Resolution, shall be deemed vested as of the date of this Resolution. Once Supplemental Salary, as described in Paragraphs A, B, C and/or D above, and Districts Matching Funds Contributions and Districts Non-Matching Funds Contributions, as described in Resolution No. 95-81, have vested as described in this Paragraph E, they may thereafter be withdrawn only to the extent otherwise permitted under the Deferred Compensation Plan. Section 2: This program shall be for the benefit of the employees comprising the Executive Management Group (General Manager, Assistant General Managers and Department Heads) and Management, Supervisory, Professional and Confidential employees. The employment classifications of those employees are set forth on Attachment "1 ", which is incorporated herein by reference, and shall be terminated only by action of the Boards of Directors. In the event other classifications are added to the category of Executive Management Group and Management, Supervisory, Professional and Confidential employees by action of the General Manager or Boards of Directors of Districts, said classifications shall be deemed to be governed by this Resolution concurrently therewith. 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 6 ') ~ I Section 3: The General Manager and Director of Human Resources are hereby authorized to execute individual Deferred Compensation Participation Agreements with each eligible employee, and are further authorized to execute any and all documents relating to investment and payment transactions relating to the Deferred Compensation Plan, provided that such documents are approved as to form by the Districts' General Counsel. Section 4: Resolution No. 95-81 is hereby repealed, and the provisions herein shall become effective upon adoption of this Resolution. The provisions herein shall remain in effect until amended or terminated by Resolution of the Boards of Directors. PASSED AND ADOPTED at a regular meeting held ____ , 1998. 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 7 ATTACHMENT "1" EXECUTIVE MANAGEMENT GROUP General Manager Assistant General Manager Department Heads: A. Director of Communications B. Director of Engineering C. Director of Finance D. Director of General Services Administration E. Director of Human Resources F. Director of Information Technology G. Director of Maintenance & Operations H. Director of Technical Services MANAGEMENT Controller Financial Manager Construction Manager Engineering Manager Environmental Compliance & Monitoring Manager Laboratory Manager Source Control Manager Chief Scientist Accounting Manager Chief Operator Safety & Emergency Response Manager Maintenance Manager Operations Manager Contracts & Purchasing Manager Secretary to the Boards of Directors Training Manager Human Resources Manager 2093-100 57538_1 WS&S Draft No.2 February 3, I 998 8 1' SUPERVISORY Engineering Supervisor Environmental Management Supervisor Senior Engineer Compliance Supervisor Laboratory Supervisor Senior Scientist Senior Operations Supervisor Maintenance Supervisor Operations Supervisor Principal Accountant Principal Financial Analyst Source Control Supervisor Supervising Construction inspector Training Supervisor Foreman Maintenance Planner Supervising Buyer Supervising Source Control Inspector 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 9 PROFESSIONAL Engineer Principal administrative Assistant Principal Engineering Associate Project Specialist Regulatory Specialist Scientist Associate Engineer Ill Principal Environmental Specialist Programmer Analyst Computer Hardware Specialist Telecommunications Specialist Senior Human Resources Analyst Principal Laboratory & Research Analyst Senior Administrative Assistant Associate Engineer II Senior Accountant Senior Financial Analyst Safety Representative Programmer Associate Engineer I Human Resources Analyst Accountant Buyer Financial Analyst CONFIDENTIAL Executive Assistant 11 Executive Assistant I Human Resources Assistant 2093-100 57538_1 WS&S Draft No.2 February 3, 1998 10 FAHR COMMITTEE AGENDA REPORT County Sanitation Districts of Orange County, california FROM: Gary G. Streed, Director of Finance Originator: Michael D. White, Controller SUBJECT: MID-YEAR FINANCIAL AND OPERATIONAL REPORT PREPARED BY STAFF FOR THE PERIOD ENDED DECEMBER 31, 1997 GENERAL MANAGER'S RECOMMENDATION Meeting Date 02/11/98 Item 2'j'~ber Staff recommends that the Committee review, approve and forward the 1997-98 Mid-Year Report to the Joint Boards. SUMMARY Attached in a separately bound document is the Districts' Mid-Year Report for the period ended December 31, 1997. This report is a consolidation of both the financial and operational accomplishments of the Districts at the mid-point of the 1997-98 fiscal year. Contained within the Mid-Year Financial Report are budget summary reviews of the Joint Operating & Working Capital Funds, the Capital Outlay Revolving Fund, individual Districts, and the self-insurance funds. Also contained within this report are the status of the divisional performance objectives and work plan milestones identified in the 1997-98 Approved Budget. As indicated within the Overview Section of this report, 48.65 percent or $21,358,000 of the 1997-98 net joint operating budget of $43.9 million has been expended. Net costs have decreased 6.31 percent in comparison with the same period last year. The total cost per million gallons at December 31, 1997 is $468.64 based on flows of 45,574 million gallons. This is $22, or 4.5 percent below the revised budgeted cost per million gallons of $490.95. PROJECT/CONTRACT COST SUMMARY NIA \lnldonldata1\Np.dtalfin\210'clanelFAHRIFAHR98\FEB'MidYr97AIT.doc Revised: 115198 Page 1 To Jt. Bds. 02/25/98 Item Number BUDGET IMPACT D This item has been budgeted. D This item has been budgeted, but there are insufficient funds. D This item has not .been budgeted. [8l Not applicable •(information iten,) ATTACHMENTS 1. Districts' Mid-Year Financial and Operational Report for the period ended December 31, 1997 lllaclonldatll1-i,.dtaVin\210'crane\FAHRIFAHR98\FEB\MidYr97AIT.doc RMed: 1151118 Page2 f ' 1, 1 ' f;AHR COMMITTEE Meeting Date 02/11/98 AGENDA REPORT Item Number /0. County Sanitation Districts of Orange County, California FROM: Gary Streed, Director of Finance Originator: Gary Streed, Director of Finance SUBJECT: TRAVEL POLICY REVIEW GENERAL MANAGER'S RECOMMENDATION This is an information-only item. SUMMARY At the December 1997 Joint Boards meeting, the Directors authorized travel to Singapore and reimbursement for costs for the Director of Technical Services, in accordance with the Districts' policies. After the meeting, a few Directors asked that the FAHR Committee review the policy. Staff has reviewed the Travel Policy and recommends no substantive changes. PROJECT/CONTRACT COST SUMMARY The 1997-98 budget for Meetings, Travel and Training is $815,560. Total expenses through December 31, 1997, were $441,707. BUDGET IMPACT D This item has been budgeted D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. [8J Not applicable (information item) ADDITIONAL INFORMATION The Districts' Meeting, Travel and Training Policy has been a mixture of budgetary and management controls, and has been evolving over the past few years. H:lwp.dtaVinl2111'crane\FAHRIFAHR98\FEB\Trawol Policy.doc Ravised: 115198 Page 1 ToJt. Bds. 02/25/98 Item Number During the annual budget process, Department Heads and Division Managers submit an itemized request for meetings and training which includes an estimated cost. The General Manager reviews all of the requests with the submitting management team and a budget is developed. From that point on, the purchasing process and the delegation of authority take over. All travel, meetings and training expenses are pre-approved in accordance with the following standards: Final Authority Division Manager Department Head General Manager or Asst. Boards of Directors Boards of Directors Boards of Directors Destination Within California Within California Within U.S.A. Within California Outside California Outside U.S.A. Outside Costs Less than $1,000 Less than $2,000 Less than $50,000 Over $50,000 Over $50,000 Any Amount Once the meeting or training is approved, there are certain restrictions governing cost reimbursement: • All training and meeting attendance must be job related. • Saturday stay-over may be required/allowed when reduced air fare savings exceed additional lodging and per diem. • Employees are to exercise every effort to minimize expenses through the use of lower cost alternatives. • Personal vehicle use is reimbursed at I. RS. allowed rates. • Lower of mileage or air fare will be reimbursed for travel outside of Orange, LA, Ventura, San Bernardino, Santa Barbara, Riverside, San Diego, and Ventura Counties. • Only Coach Class air fare is reimbursable. • Local transportation is limited to bus, taxi or van. Rental cars must be pre- approved. • Airport parking must be at reduced fee lots. • Early registration is encouraged to take advantage of reduced fees. • Employees are responsible for difference between registration fees charged to members and non-members of sponsoring organization. • Employees must be a member of a professional or technical organization related to their job responsibilities. • Per diem for overnight travel is $40 per day which covers meals, gratuities, and incidentals. • For travel that is not overnight, per meal, per diem is: • Breakfast • Lunch • Dinner $ 6.00 10.00 18.00 \lradon\data1\Np.dtalfin\210'cran•IFAHRIFAHR98\FEB\Tra..i Policy.doc Re\lised: 1151116 Page2 ... • If a meeting includes a mandatory meal that is greater than the per diem allowance, the meeting meal cost will be allowed. • Per diem amounts are not allowed for meals included in registration fees, meals provided by others, or meals provided by air or other common carriers. • The Districts do not pay for alcoholic beverages. • One phone call home per day of travel is allowed on overnight travel. The maximum reimbursable amount is $4.25 per day. • Single room rate is allowed for lodging. • Receipts are required for parking, car rental, registration, mandatory meals exceeding per diem allowance, and lodging. • Air travel arrangements are made only by an approved list of staff. No changes in policy or approval levels are requested by staff. This item is informational in response to a request from Directors. ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS None. GGS:lc H:\wp.dlaVin\210'cnlnelFAHRIFAHR98\FEB\Tra1191 Policy.doc Revised: 115198 Page3 FAHR COMMITTEE Meeting Date 02/11/98 AGENDA REPORT Iremt,~mber County Sanitation Districts of Orange County, california FROM: Gary Streed, Director of Finance SUBJECT: COMMERCIAL USER FEE ADJUSTMENT ORDINANCE GENERAL MANAGER'S RECOMMENDATION The General Manager has recommended that the Committee be informed of recent events regarding commercial user fees. No action is proposed at this time. SUMMARY At the January Committee meeting, the Director of Finance advised the Directors he had notified all of the firms that are in the business of processing applications for adjustments to the Districts' commercial user fees which are collected on the property tax bill, of the Ordinance which became effective January 16, 1998. The Ordinance changes clarified the distinction between refunds and rebates, and the period for which each could be granted. Significantly, the period for refunds is four years, and the period for rebates is one year. The General Manager, General Counsel and staff, have since met with a representative for some of these firms, along with his counsel. The General Manager wants the Committee to be aware of the information and proposals received. PROJECT/CONTRACT COST SUMMARY Annual Sewer Service User Fees are collected as a separate line item on the property tax bill. Rates have been adopted by each District for three categories: Single family residential, multi-family residential and non-residential. The rates are different in each District, but the total annual fees received are approximately $60 million. Adjustments resulting in a decrease of $7 .5 million were made in 1996-97, and the seven-month total of refunds/rebates this year is $5.6 million. These· adjustments were all made prior to the adoption of the new ordinance distinguishing rebates and refunds, and most of them have covered a four-year period. \lraclonldata1\Np.dta\fin\210'cnlne\FAHRIFAHR98\FEB'c:omuoerfNadj.doc Revised: 115198 Page 1 To Jt. Bds. Irem Number BUDGET IMPACT D This item has been budgeted D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. [gl Not applicable (information item} ADDITIONAL INFORMATION l-listorical Cost Impact When the Committee reviewed the adjustment history and recommended the clarifying Ordinance in November, staff reported adjustments resulting in refunds for the previous four years as follows: 1993-94 1994-95 1995-96 1996-97 $ 170,011 59,039 364,741 7,514,456 Staff reported that the dramatic increase was the result of a heightened awareness brought about by the emergence of firms that marketed their ability to obtain reductions and adjustments in the user fees levied. Staff also reported that we expected to see a drop-off in the value of the adjustments, because most of the ones already processed were for the maximum four-year period and were for the companies with the larger charges. Although the seven-month adjustments of $5.6 million are a significant amount, the predicted trend is occurring: July August September October November December January $2,075,953 1,038,019 664,798 548,452 406,649 385,841 480,851 Position of User Representative{s) 173 146 114 79 53 81 65 The meeting referred to in the summary above with the owner and counsel for Revenue Enhancement Group reviewed four concerns they (and according to them other similar firms} have which adversely impact their client, namely: 1} Changing the eligible period for a rebate from four years to one year is unfair, inequitable, and in violation of law. \lradonldata1wp.dtallin\210'ocnlne\FAHR\FAHR98\FEB\comuserfMadj.doc RIMMCI: 1151116 Page2 2) The Districts' $15.00 per application, administrative charge is invalid. 3) The Districts should process the request for rebate even if the client fails to produce the water records. 4) The Districts should use a standard rate to allow for landscaping, rather than demanding the property to prove extraordinary high water use. As a summary, the Revenue Enhancement Group representative declared in absolute terms that if the Districts did not repeal the recently adopted Ordinances and go back to the prior practices, it would file suit against the Districts to have the ordinances set aside. General Counsel will be recommending meeting in closed session after any public discussion to review this threat. ALTERNATIVES This is an informational presentation. If the Committee should desire to take any action after the presentation, the alternative actions could be: • Affirm the previous action and existing Ordinance. • Modify the Ordinance. • Repeal the Ordinance. • Take no action. The General Counsel will be prepared to discuss the process and timing required to take any of these or other alternatives if the Directors desire. CEQA FINDINGS N/A ATTACHMENTS None. GGS:lc llradonldata1w.p.dtallin\210'clane\FAHRIFAHR98\FEB\com~j.doc Revised: 115,'98 Page3 February 11 , 1998 Financial Strategy for OCR/GRS Project Strategic Plan/Financial Plan and Revised Rate Structure Part 1 Reserves Study and Recommendations DART -Update on Cross-Training Program for Three Pilot Projects Worker's Comp Report -2nd Quarter Status Report on Implementation of Broad banding Strategic Plan/Financial Plan and Revised Rate Structure -Part 2 Action Action Information Information Information Action -~!:i:lrnm t---------------------------+--------1 '.,·•'ii'':::: fij, _,;;.,;;;ai Connection Fees and Annexation Fees Information "Jf:MH!i~t-----------------------------------11 I ,' )~pPj/;Hjij;_:-:-~.-8 ~-:-~-io 8 _n_":-:-:-~-~-:-o:-i:-:-•.-n-d_P_u-rc_h_a_s-in_g_R_e_s_o_l_ut-io_n ______ _,._ __ i_n_fo_r_:-:-::-:-:-1 Report on Audit Findings for 23 Cities Sewer Connection Fees Information 1998-99 Capital Improvement Plan Action Third-Quarter Financial & Performance Report Information Adoption of Revised Rate Structure Action Adoption of Skill-based Pay Plan (DART) Action Quarterly Investment Program Report Information Revised Deferred Comp Plan & Providers Action Broad banding Comp Plan Status Report Information CSDOC e P.O. Box 8127 e Fountain Valley, CA 92728-8127 e (714) 962-2411