Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
1998-09-09
FILED IN THE OFFICE OF THE SECRETARY ORANGE COUNTY SANITATION DISTRICT ~s P 23 1998 av ~A, =-=~-~----=-e-DRAFT MINUTES OF FINANCE. ADMINISTRATION-AND HUMAN RESOURCES COMMITTEE MEETING Wednesday, September 9, 1998, 5:30 p.m. A meeting of the Finance, Administration and Human Resources Committee of the Orange County Sanitation District was held on September 9, 1998 at 5:30 p.m., in the District's Administrative Office. (1) The roll was called and a quorum declared present, as follows: Committee Directors Present: John J. Collins, Past Board Chair Barry Denes Norman Z. Eckenrode Mark Leyes Mark A. Murphy Thomas R. Saltarelli William G. Steiner Peer Swan, Board Vice Chair Committee Directors Absent: George Brown, Chair Burnie Dunlap, Board Chair John M. Gullixson Other Directors Present: None. (2) APPOINTMENT OF CHAIR PRO TEM Staff Present: Blake Anderson, Assistant General Manager Mike Peterman, Director of Human Resources Gary Streed, Director of Finance Ed Hodges, Director of General Services Admin. Robert Ghirelli, Director of Technical Services Michelle Tuchman, Director of Communications Steve Kozak, Financial Manager Mike White, Controller Greg Mathews, Assistant to the General Manager Lisa Tomko, Human Resources Manager Dawn McKinley, Sr. Human Resources Analyst Lenora Crane, Committee Secretary Others Present: Tom Woodruff, General Counsel Toby Weissert, Carollo Engineers Ryal Wheeler, Foreman & Citizen Director Saltarelli was appointed as Chair pro tern in Chair Brown's absence. (3) AGENDA The agenda was posted in accordance with the requirements of California Government Code Section 54954.2. OCSD • P.O. Box 8127 • Fountain Valley, CA 92728-8127 • (714) 962-2411 Minutes of the Finance, Administration and Human Resources Committee Meeting Page 2 September 9, 1998 (4) PUBLIC COMMENTS The Chair opened the meeting to public comments. Ryal Wheeler, 14832 Newland St., Midway City, CA, a District employee and citizen, addressed the Committee and expressed his concerns regarding Item No. 14 (c). Mr. Wheeler read several excerpts from a report prepared by the American Compensation Association regarding the results of a survey conducted of 116 companies on the broadbanding concept. Mr. Wheeler also expressed his personal feelings regarding broadbanding the salaries of Executive Management, Division Managers and Supervisory and Professional employees. In response to Director Collins, Mr. Wheeler advised he was not speaking on behalf of any group or individuals, but for himself. (5) APPROVE MINUTES OF PREVIOUS MEETING Motion: Moved, seconded, and duly carried to approve the minutes of the July 15, 1998, Finance, Administration and Human Resources Committee meeting as drafted. (6) REPORT OF THE COMMITTEE CHAIR • The October FAHR Committee meeting date has been rescheduled to October 21, 1998. • Item No. 15 on the printed Agenda has been rescheduled to the October 21st meeting. (7) REPORT OF THE GENERAL MANAGER • General Manager Don McIntyre was on vacation, and Assistant General Manager Blake Anderson updated the Committee on the Kern County Urgency Ordinance which was passed last month regarding regulating the agricultural use of biosolids. Two elements of that ordinance concern 1) how biosolids are used, monitored, transported, etc.; and 2) the $5 per ton tipping fee being charged to cover road costs. The Kern County Board of Supervisors is reconsidering the Ordinance, especially the tipping fee provisions. Mr. Anderson advised he will keep the Directors apprised of any new developments. (8) REPORT OF ASSISTANT GENERAL MANAGER The Assistant General Manager had nothing further to report. (9) REPORT OF DIRECTOR OF FINANCE • Director of Finance Gary Streed advised the Committee that the Treasurer's Report was placed before them prior to the meeting in accordance with the Investment Policy and Government Code requirements. • The user fee rate structure has been delivered to the County and the tape is being processed. The total fees levied for next year are expected to be $66.9 million. The new rate structure did not result in a decrease or budget shortfall. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 3 September 9, 1998 • Mr. Streed updated the Committee regarding Ray Latrelle, a citizen of Garden Grove, who has made several presentations to the Board about parcels owned by government agencies that are not paying user fees. The issue is that some government parcels are not paying user fees and many are. Those that are not paying user fees do not have recorded square footage of development in the Assessor's office. Mr. Latrelle has not understood that the Sanitation District's fees are based on square footage of building, and Garden Grove's is based on square footage of parcel. Unless it is recorded, we have no way of knowing there has been any development. Mr. Streed advised the Committee of the steps he is taking to develop a program to resolve this issue. • Director Mark Leyes cautioned staff about fulfilling too many requests from citizens such as Mr. Latrelle. Since District employees work for the Board, citizens should contact Board members if there are issues to be resolved. • Director Swan initiated a discussion regarding hiring an outside firm to review the Assessor's tax rolls for parcels that may have been missed that should be paying user fees similar to the Trammel-Crow case. The Committee directed staff to agendize this item for a future meeting and come up with a strategy. (10) REPORT OF DIRECTOR OF HUMAN RESOURCES • Human Resources Director Mike Peterman referenced Ryal Wheeler's report and advised that broadbanding is something management is committed to because of the cultural change issues at the District, changes regarding flattening the organization and reducing hierarchy, and the pay for performance side of broadbanding. He indicated that opposition to broadbanding has been an issue during negotiations with the labor unions. • Mr. Peterman stated that in October, there will be an item on the Agenda under "Closed Session" to discuss the District's future labor relations and compensation strategy. • Mr. Peterman announced that a brief Closed Session is on the Agenda for tonight's meeting. (11) REPORT OF DIRECTOR OF COMMUNICATIONS • Michelle Tuchman, Director of Communication advised the Committee that Director Collins has responded to the "Alice In Wonderland Tax Formulas" Editorial which appeared in The Register re user fee increases. (12) REPORT OF GENERAL COUNSEL • Re the Trammel-Crow case, Tom Woodruff advised he has met with their lead counsel, and they have threatened two law suites against the District momentarily. Mr. Woodruff stated that if the Committee required more information, he could provide it in Closed Session. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 4 September 9, 1998 (13) CONSENT CALENDA ITEMS (Items a -d) a. FAHR98-62: Receive and file Treasurer's Report for the month of August 1998: 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. c. FAHR98-64: Receive and file Employment Status Report. d. FAHR98-65: Receive and file the Quarterly Investment Management Program Report for the period April 1 through June 30, 1998. END OF CONSENT CALENDAR Item No. 13 (b) was deleted from the Consent Calendar. Motion: Moved, seconded and duly carried to approve the recommended actions for items specified as 13(a), 13(c), and 13(d) under Consent Calendar. Consideration of items deleted from Consent Calendar, if any. 13 b. FAHR98-63: Receive and file Certificates of Participation (COP) Monthly Report. Committee Discussion: The Committee determined from staff that the rolling 12-month COP report was included as the last page on the COP Agenda Report. The Financial Manager has been in contact with J.P. Morgan on a daily basis to discuss rates, and staff will be watching the other remarketing agents more closely as well. Staff will be meeting early next month to develop a better monitoring program for the District. The Committee expressed disappointment that J.P. Morgan has had to be pushed to give the District a better rate performance. Motion: Moved, seconded and duly carried to receive and file this report. 14. ACTION ITEMS (Items a -e) a. FAHR98-66: Receive and file FY 1997/98 End of Year Operational Report. Motion: Moved, seconded and duly carried to receive and file this report. b. FAHR98-67: Approve the revised rates for flow, BOD and suspended solids for Class I and Class II Source Control Permit Users. Committee Discussion: During discussion on this item the Committee requested that staff notify Board Members in advance of the names of any businesses in their revenue zones that will have the biggest increases, after staff reviews the entire list of permittees. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 5 September 9, 1998 Motion: Moved, seconded and duly carried to approve staffs recommendation. c. FAHR98-68: Broadband Executive Management and Division Manager's Classifications and Pay. Committee Discussion: The Committee expressed support for broadbanding and its concept, but more work is needed in the two upper management groups. Some of the Committee members felt that broad banding is least meaningful for upper management employees, however, it would be more effective and most meaningful at the lower levels of the organization. The lower level employees would benefit because broadbanding would provide an incentive for them to take on more responsibility, work longer hours, become better educated and assume more responsibility, but salaried and senior management employees are already expected to have these attributes. Director Mark Leyes requested a copy of the consultant's report on broadbanding. Mike Peterman advised he will have a compensation and labor relations strategy session next month with copies available for each of the Directors. Motion: Moved, seconded and duly carried to table this item, refer it back to staff and bring it back to a future meeting. d. FAHR98-69: Receive and file Report on District's Public Outreach Efforts for Motion: FY 97-98. Moved, seconded and duly carried to receive and file this report. e. FAHR98-70: Cooperative Projects Program: 1. Authorize the General Manager to combine the Water Conservation Cooperative Projects Program with the City Infiltration/Inflow Cooperative Projects Program. 2. Approve increase in the Fiscal Year 1998-99 combined Cooperative Projects Program budget, CORF Budget, Section 8, Page 230, from $300,000 to $5,000,000. 3. Recommend adoption of Resolution OCSD 98-XX supporting in general water reclamation and water use efficiency. Committee Discussion: During discussion on this item, Mr. Hodges advised that Resolution 98-10 already supports the project and, therefore, he removed recommendation No. 3 from his report. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 6 September 9, 1998 The Committee expressed support for this project, however, the general consensus was that a separate committee needs to be set up to prepare guidelines for a project of this size which delineates what is to be accomplished, how the money is to be spent and must include a lot more detail and justifications. Motion: Moved, seconded and duly carried to refer this item back to staff. 15. INFORMATIONAL PRESENTATION a. FAHR98-70: YEAR 2000 (Y2K) DATE CHANGE COMPLIANCE PROJECT This item has been rescheduled for the October 21, 1998 FAHR meeting. 16. CLOSED SESSION The Chair reported to the Committee the need for a Closed Session, as authorized by Government Code Section 54957, to discuss and consider the item that is specified as Item 16(a)(1) on the published Agenda. The Chair also indicated a need to add one item needing immediate action that arose subsequent to the publication of the Agenda. He reported that additional items could be added pursuant to Government Code Section 54954.2(b)(2) upon a two-third's vote of the Committee. No other items would be discussed or acted upon. It was moved, seconded and duly carried that Item 16(a)(2) be added to the Agenda to discuss a potential matter of litigation re Claim of Crow Winthrop Development Limited Partnership. The Committee convened in closed session at 7:30 p.m. pursuant to Government Code Sections 54957 and 54956.9. Confidential Minutes of the Closed Session held by the Finance, Administration and Human Resources Committee have been prepared in accordance with California Government Code Section 54957.2, and are maintained by the Board Secretary in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. No reportable action was taken re Agenda Items 16 (a)(1) and (2). At 7:50 p.m., the Committee reconvened in regular session. (17) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY Ryal Wheeler addressed the Committee once again to assure staff and the Committee that his purpose for attending the meeting was to ask the Committee to take another look at broadbanding. He was not at the meeting as a member of the SPMT Committee, just as an individual providing information. The information he provided came from Human Resources originally. Minutes of the Finance, Administration and Human Resources Committee Meeting Page 7 September 9, 1998 (18) MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING Agendize a report that discusses contracting the professional services of an agency to review the Assessor's Tax Rolls for parcels that should be paying user fees that may have been missed, and/or the advantages of conducting the review in-house. (19) CONSIDERATION OF UPCOMING MEETINGS The next FAHR Committee meeting is scheduled for October 21, 1998 at 5:30 p.m. (20) ADJOURNMENT The Chair declared the meeting adjourned at approximately 7:51 p.m. Submitted by: ~~-~ FAHR Committee Secretary \\radon'data1\wp.dta\fin\210\crana\FAHR\FAHR98\Sept\MIN909.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 September 9, 1998, was duly posted for public inspection in the main lobby of the District's offices on September 2, 1998. IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of September 1998. Penny f<yle, Secretar. Orange County San t Posted:~-~ , 1998, ...... Oc,.__c_:---'-a_O_A.M.e ~~~ By: H :\wp.dta\fin\21 0\crane\FAHR\FAH R98\Sept\CERTPO7-9 8 .doc DISTRIBUTION FAHR COMMITTEE MEETING PACKAGE Full Agenda Package 53 Committee 16 & Mailing List Donald F. McIntyre 1 Blake P. Anderson 1 (3-hole punched) Dan Dillon 1 Marc Dubois 1 Jeff Esber 1 Ed Hodges 1 Steve Kozak 1 Penny Kyle 2 David Ludwin 1 Greg Mathews 1 Partick Miles 1 Bob Ooten 1 Mike Peterman 1 Gary Streed 1 Michelle Tuchman 1 (3-hole punched) Robert Ghirelli, 1 Terri Josway 1 Dan Tunnicliff (H.R.) 1 Mike White 1 (3-hole punched) Ed Torres 1 Cagle, Brad 1 Lisa Tomko 1 Nick Arhontes 1 Dawn McKinley 1 • Rob Thompson 1* Gail Cain 1 Bob Geggie 1 Jim Herberg 1 Lenora Crane 1 File 1 Extras 4 Notices and Agenda 12 Posting 1 Jean Tappan (include Mins) 1 Anna Ubaldini 1 Frankie Woodside 1 Patricia Magnante 1 Janet Gray 1 Security 1 Extras 5 Ron Zenk, Dist. 14 Treasurer's Report Only C H:\WP .OTA \FIN\21 O\CRANE\FAHR\DISTRIBUTIONLISTFAHR.DOC phone: C714l 962-2411 malling address: P.O. Bax 8127 Ftiu!ltr8in Valley, CA 92728-8127 street address: 10844 Elfs Avenue Fountain Valley, CA 9270B-7018 Mebiber Agencies Cities Anaheim Brea Buena Park C}'pt'BSS Ftluntsln Va/lay Fullerton ~rdan Grove Huntmgt:on Beaoh frvine La Habra La Palma Los Afam1tos NeWparc Beech C;l!'anga Plaeentia Senta Ana Seal Beeoh Stanton Tustin Villa Park. Yorba Unda County of Orange Sanl~ry Districts Gosta Mesa Midway City Water Dist ricts Irvine Rench ORANGE COUNTY SANITATION DISTRICT NOTICE OF MEETING FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, SEPTEMBl:R 9, 1998 -5:30 P .M. DISTRICrs ADMINISTRATIVE OFFICES 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 A regular meeting of the Finance, Administration and Human Resources Committee of the Board of Directors of the Orange County Sanitation District, will be held at the above location, time and date. "To Protect the Public Health and the Environment through Excellence in Wastewater Systems" FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE TENTATIVELY SCH EDU.LED MEETING DATES FAHR Committee Month Meetings Board Meetings September September 9, 1998 September 23, 1998 October October 21, 1998* October 28, 1998 November None Scheduled November 18, 1998 December December 9, 1998 December 16, 1998 January None Scheduled January 27, 1999 February February 10, 1999 February 24, 1999 March March 10, 1999 March 24, 1999 April April 14, 1999 April 28, 1999 May May 12, 1999 May 26, 1999 June June 9, 1999 June 23, 1999 July July 13, 1999 July 28, 1999 August None Scheduled August 25, 1999 ~he October meeting date has been moved back one week. ROLL CALL FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE Meeting Date: September 91 1998 Time: 5:30 p.m. Adjourn: ____ _ COMMITTEE MEMBERS GEORGE BROWN (Chair) ............................................................ . JOHN J. COLLINS (Past Board Chair) ....................•...•.•..•...•........ BARRY DENES ••••••.....••••••••••••...•.....•••.•.......••••....•.••••••.......••......... BURNIE DUNLAP (Board Chair) ............................. : .................... . NORMAN ECKENRODE ....••.•.••.................•••••....•••.•...••••.•••.......•••• JOHN M. GULLIXSON .................................................................. . MARK LEYES ............................................................................... . MARK MURPHY ........................................................................... . THOMAS SALTARELLI ................................................................ . WILLIAM STEINER ....................................................................... . PEER SWAN (Board Vice Chair) •••...........••.........................•••....... STAFF DON MCINTYRE, General Manager ........•........•.••..........••.........•..... BLAKE ANDERSON, Assistant General Manager .....••.•.....•........... 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 •...•......•..•••.... PATRICK MILES, Director of Information Technology .................. . ROBERT GHIRELLI, Director of Technical Services ••......•••••......... STEVE KOZAK, Financial Manager ............................................... . MIKE WHITE, Controller ................................................................. . GREG MATHEWS, Principal Administrative Analyst ..................... . TERRI JOSWAY, Safety & Emergency Response Manager .......... . LISA TOMKO, Human Resources Manager ................................... . DAWN MCKINLEY, Sr. Human Resources Analyst ....................... . ROB THOMPSON, Plant Automation Manager .............................. . GAYN WINTERS, 1.T. Consultant & President of Bristol Sys., Inc .. LENORA CRANE, Committee Secretary ............•••••......•..••............. OTHERS TOM WOODRUFF, General Counsel ............................................... __ TOBY WEISSERT, Carollo Engineers ........•.•••.•.....•.....•••••.••...••••.••• __ c: Debra Lecuna AGENDA REGULAR MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE ORANGE COUNTY SANITATION DISTRICT WEDNESDAY, SEPTEMBER 9, 1998, AT 5:30 P.M. ADMINISTRATIVE OFFICES 10844 Ellis Avenue Fountain Valley, California 92708 (1) ROLL CALL (2) APPOINTMENT OF CHAIR PRO TEM, IF NECESSARY (3) AGENDA In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the District"s Administrative Offices not less than 72 hours prior to the meeting date and time above. All 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. (4) 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). 2 September 9, 1998 (5) APPROVE MINUTES OF PREVIOUS MEETING Approve draft minutes of the July 15, 1998, Finance, Administration and Human Resources Committee meeting. (6) REPORT OF COMMITTEE CHAIR (7) REPORT OF GENERAL MANAGER (8) REPORT OF ASSISTANT GENERAL MANAGER (9) REPORT OF DIRECTOR OF FINANCE (10) REPORT OF DIRECTOR OF HUMAN RESOURCES (11) REPORT OF DIRECTOR OF COMMUNICATIONS (12) REPORT OF GENERAL COUNSEL (13) CONSENT CALENDAR ITEMS Consideration of motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same, as follows: All matters placed on the consent calendar are considered as not 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. a. FAHR98-62: b. FAHR98-63: Receive and file Treasurer's Report for the month of August 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. Receive and file Certificates of Participation (COP) Monthly Report. c. FAHR98-64: d. FAHR98-65: 3 September 9, 1998 Receive and file Employment Status Report. Receive and file the Quarterly Investment Management Program Report for the period April 1 through June 30, 1998. END OF CONSENT CALENDAR Consideration of items deleted from Consent Calendar, if any. (14) ACTION ITEMS a. FAHR98-66: b. FAHR98-67: c. FAHR98-68: d. FAHR98-69: e. FAHR98-70: Receive and file FY 1997/98 End-of-Year Operational Report. (Greg Mathews -5 minutes) Approve the revised rates for flow, BOD and suspended solids for Class I and Class II Source Control Permit Users. (Gary Streed -10 minutes) Broadband Executive Management and Division Managers' Classifications and Pay. (Mike Peterman -10 minutes) Receive and file Report on District's Public Outreach Efforts for FY 97-98". (Michelle Tuchman -10 minutes) Cooperative Projects Program: 1. Authorize the General Manager to combine the Water Conservation Cooperative Projects Program with the City Infiltration/Inflow Cooperative Projects Program. 2. Approve increase in the Fiscal Year 1998-99 combined Cooperative Projects Program budget, CORF Budget, Section 8, Page 230, from $300,000 to $5,000,000. 3. Recommend adoption of Resolution OCSD 98-XX supporting in general water reclamation and water use efficiency. (Ed Hodges -10 minutes) 4 (15) INFORMATIONAL PRESENTATIONS a. FAHR98-71: (16) CLOSED SESSION Year 2000 (Y2K) Date Change Compliance Project. (Patrick Miles\Rob Thompson -20 minutes) September 9, 1998 During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, 54957 or 54957.6, as noted. Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these sub·ects, the minutes will reflect all required di~closures of information. a. Convene in closed session. 1. Confer with District's Negotiator re Pending MOU Labor Negotiations with Supervisory and Professional Employees (Government Code Section 54957.6). 2. Reconvene in regular session. 3. Consideration of action, if any, on matters considered in closed session. (17) OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY (18) MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING (19) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT (20) FUTURE MEETING DA TES The next Finance, Administration and Human Resources Committee Meeting is scheduled for October 21, 1998. Notice To Committee Members: For 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: Committee Secretary: George Brown Lenora Crane (562) 431-2185 (714) 593-7551 -------------,----------'-~ .... 14_.)_9_62_-_3_954___,~FAX ___ .__ ___________ __. H:\WP.DTA\FIN\210\CRANE\FAHR\FAHR98\SEPT\9-98AGENDA.OOC t I DRAFT MINUTES OF FINANCE. ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING Wednesday, July 15, 1998, 5:30 P.M. A meeting of the Finance, Administration and Human Resources Committee of the Orange County Sanitation District was held on Wednesday, July 15, 1998, at 5:30 p.m., at the District's Administrative Offices. ROLL CALL The roll was called and a quorum declared present, as follows: Committee Directors Present: George Brown, Chair John J. Collins, Past Board Chair Barry Denes Burnie Dunlap, Board Chair Norman Z. Eckenrode John M. Gullixson Mark Leyes Mark A. Murphy William G. Steiner Committee Directors Absent: Thomas R. Saltarelli Peer Swan, Board Vice Chair Other Directors Present: None APPOINTMENT OF A CHAIR PRO TEM No appointment was necessary. Staff Present: Don McIntyre, General Manager Mike Peterman, Director of Human Resources Gary Streed, Director of Finance Michelle Tuchman, Director of Communications Doug Cook, Chief Operator Mark Esquer, Engineering Supervisor Tom Flanagan, Training Supervisor Terri Josway, Safety & Emergency Response Manager Jerry Jones, O&M Maintenance Manager Steve Kozak, Financial Manager Greg Mathews, Principal Administrative Analyst Rich Spencer, Human Resources Training Assistant Lisa Tomko, Human Resources Manager Simon Watson, Maintenance Supervisor Ryal Wheeler, Foreman Mike White, Controller Lenora Crane, Committee Secretary Others Present: Tom Woodruff, General Counsel Craig Hoshijima, Public Financial Management, Inc. Enrique Melcer, Public Financial Management, Inc. Mark Conway, FHI Insurance Minutes of Finance, Admin. and Human Resources Committee Page 2 July 15, 1998 PUBLIC COMMENTS No comments were made. APPROVAL OF MINUTES The minutes of the June 10, 1998, meeting of the Finance, Administration and Human Resources Committee were approved as drafted. REPORT OF THE COMMITTEE CHAIR • Committee Chair George Brown announced that Director Jan Debay has left the FAHR Committee and will be the new Chair of the Planning, Design and Construction Committee (PDC). • There will be a Planning Advisory Committee meeting (PAC) tomorrow morning from 9:00 a.m. to 12:30 p.m., with lunch. • The regularly scheduled PDC Committee meeting for August has been cancelled. REPORT OF THE GENERAL MANAGER • General Manager Don McIntyre updated the Committee on the situation in Kern County regarding biosolids. Their Board of Supervisors is expected to pass an Ordinance restricting application of biosolids to Class A only, which we do not provide. Processing of biosolids from Class B to Class A will require additional treatment. This will necessitate a change of equipment or perhaps stockpiling biosolids so they organically heat themselves. Blake Anderson has met with Judy Wilson of the City of Los Angeles and Jim Stahl of the Los Angeles County Sanitation District. All three agencies are committed to applying biosolids in Kern County. Blake and Jim Stahl are going to Bakersfield tomorrow to talk to their Board of Supervisors about this issue. The District may have to make small economic concessions to them, or we may end up spending a lot more money to haul biosolids. A full report will be made to the Board on July 29th. REPORT OF THE ASSISTANT GENERAL MANAGER The Assistant General Manager had no report. REPORT OF THE DIRECTOR OF FINANCE • Director of Finance Gary Streed reminded the Committee that two weeks from tonight is the Board meeting and the public hearing on the proposed rate structure. • New phone calls and correspondence regarding the rate changes have decreased significantly. We are having continued dialogue with some property owners who have more involved questions, however, most people are satisfied and understand the reasons for the increases and are mostly concerned about the amount of the changes. Staff is reviewing the user fee data and will be proposing a few decreases in a couple of the rates. No increases are proposed. Minutes of Finance, Admin. and Human Resources Committee Page 3 July 15, 1998 REPORT OF THE DIRECTOR OF HUMAN RESOURCES The Director of Human Resources Mike Peterman introduced Mark Conway, our benefits broker. REPORT OF THE DIRECTOR OF COMMUNICATIONS Michelle Tuchman updated the Committee on the Toilet Exchange Program to be held on August 1 and 2 in the District's parking lot. We are working with the Metropolitan Water District of Orange County and CTSI, the unit manufacturers. CTSI will provide the product and the staff for the exchange program, and the District and MWDOC will be underwriting the cost of the low- flush units. Each of the products will be for sale for $20, with an additional $15 refundable deposit when they bring back their old product. The Unit exchange will take place on August 15 and 16. Ms. Tuchman updated the Committee regarding the District's exhibit at the Orange County Fair. She reviewed some of the questions people who have stopped by the District's booth have asked. Posters with pictures of the District's display and mascot, "Clean Water Willie," were circulated to the Directors. Ms. Tuchman invited those Directors interested in attending the Fair to pick up free passes in her office. REPORT OF GENERAL COUNSEL Tom Woodruff reported on a situation that is turning into a fairly significant dispute concerning connection fees. The attorneys for Trammell-Crow, owners of the commercial property known as Park Place One which is adjacent to the 405 Freeway at Jamboree and Michelson Street, are requesting a refund of approximately $600,000-$800,000 in connection fees they paid in 1990 for connection to the District's Michelson Street Pump Station. The Pump Station, which was almost at maximum capacity in 1990, was redesigned and moved to an underground parcel of land deeded to the District through agreements with Trammell-Crow to accommodate the expected increased flow from their proposed new development. The District paid the $1.5+ million reengineering costs for the pump station, and Trammell-Crow deeded the land the pump station was built on to the District and paid for the landscaping. Though the agreements signed by Trammell-Crow in 1990 indicated that they were required to pay connection fees, they are now disputing the fact and threaten to attend the user fee hearing on July 29th and call into question the conduct of the District. CONSENT CALENDAR ITEMS 1. FAHR98-52: RECEIVE AND FILE TREASURER'S REPORT FOR THE MONTH OF JUNE 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. FAHR98-53: Receive and file Certificates Of Participation (COP) Report. 3. FAHR98-54: Receive and file Employment Status Report Minutes of Finance, Admin. and Human Resources Committee Page4 July 15, 1998 MOTION: ACTION ITEMS 4. FAHR98-55: END OF CONSENT CALENDAR Moved, seconded and duly carried to approve the recommended actions for items specified as 1 through 3 under Consent Calendar. Series "C" Certificates of Participation: A. Authorize staff to proceed with competitively bidding, selection, and execution of a debt service reserve fund Investment Agreement for the Series "C" COP. B. Authorize staff to execute agreements with Public Financial Management, investment advisor, in an amount not to exceed $25,000, and Orrick, Herrington & Sutcliffe, bond counsel, in an amount not to exceed $7,500, for professional services in connection with a debt service reserve fund Investment Agreement for the Series "C" COP. Motion: It was moved, seconded and duly carried to approve staffs recommendation to proceed with competitively bidding, selection and execution of a debt service reserve fund Investment Agreement for the Series "C" COP. It was moved seconded and duly carried, with Director Gullixson abstaining, to authorize staff to execute agreements with Public Financial Management, investment advisor, in an amount not to exceed $25,000, and Orrick, Herrington & Sutcliffe, bond counsel, in an amount not to exceed $7,500, for professional services in connection with a debt service reserve fund Investment Agreement for the Series "C" COP. 5. FAHR98-56: Annual Renewal of Investment Policy: A. Review and approve the District's Investment Policy Statement for 1998-99. 8 . Renew the delegation of investment authority to the District's Director of Finance/Treasurer for 1998-99; and C. Recommend that the Board of Directors adopt Resolution No. OCSD- 98-XX for adoption of the District's Investment Policy Statement, and renewal of investment authority for 1998-99. The Committee determined from Mr. Kozak that no changes have been made to the Policy since their review of the Policy in September 1997. The changes requested by the Committee at that time have been incorporated into the Policy. Minutes of Finance, Admin. and Human Resources Committee Page 5 July 15, 1998 Director Leyes expressed his opposition to including Section a:13 regarding reverse repurchase agreements in the Policy. · Motion: It was moved, seconded and duly carried, with one no vote, to approve staffs recommendation. 6. FAHR98-57: Receive and file this information-only report re Retiree Health Insurance. During discussion on this item, Director Gullixson requested staff to investigate the possibility of Board Members paying into and joining the insurance plan. Motion: It was moved, seconded and duly carried to receive and file this information-only report. 7. FAHR98-58: Recommend approval to Broadband Executive Management and Division Manager classifications and pay ranges, and flat rate Assistant General Manager's Salary. Action: The Directors expressed their opinions about the proposed salary ranges for Executive Management and Managers, and requested that this item be sent back to staff and the Consultant, Barry Newton, for rework and brought back to the Committee at a future meeting. A few of the Directors advised they have never reviewed Mr. Newton's original study on broad banding and would like to be able to do so prior to making a decision. 8. FAHR98-59: Recommend approval of Resolution No. OCSD-98-XX, authorizing the General Manager to enter into separation agreements with District employees in specified circumstances. Motion: It was moved, seconded and duly carried to approve staffs recommendation. 9. FAHR98-60: Recommend approval to establish a Defined Contribution (401a) Pension Plan for the General Manager only, and direct the General Counsel to prepare such a plan and an amendment to his contract of employment with the General Manager. During discussion, Mr. McIntyre advised the Committee that payments to the Pension Plan, if he decides to use it, would come out of his salary with no additional cost to the District. Mr. Woodruff clarified that the Defined Pension Plan would not be an additional benefit, but an amendment to Mr. McIntyre's employment contract. Mr. McIntyre and the other department heads who Minutes of Finance, Admin. and Human Resources Committee Page 6 July 15, 1998 have signed "at will" contracts are considered regular, full-time employees. Their contracts serve as their MOUs to determine what their benefits are and to give them some latitude to change their compensation, but do not make them "contract employees." Motion: It was moved, seconded and duly carried to approve staffs recommendation. INFORMATIONAL PRESENTATIONS 10. FAHR98-61: DART Reinvention Report and Implementation Plan Mark Esquer, Engineering Supervisor, sitting in for O&M Director Bob Ooten, introduced the DART team members who were in attendance to give verbal reports and a slide presentation on the results of Phase Ill of the District's reinvention process. The DART report has focused on the maintenance management and adaptive work force elements of the Operations and Maintenance reinvention. Simon Watson, Maintenance Supervisor, reviewed the Reinvention and Implementation Plan and Work and Business Practices; Rich Spencer, H. R. Training Assistant and Adaptive Work Force Leader, reviewed Reinvention Tools; and Jerry Jones, O&M Maintenance Manager, reviewed the Cost Benefit Analysis. The total cost of implementation of the DART recommendations are estimated to be $3,219,400. The reinvention cost/benefit payback shows that reinvention cost will be offset by reinvention savings early in the fourth year of the five-year reinvention implementation plan. The total savings during the five-year implementation period will be $3,290,600. The savings generated during the implementation period will offset the DART to-date reinvention development cost of $550,000 which consisted of labor, overhead and consultant services. 11. CLOSED SESSION The Chair reported to the Committee the need for a Closed Session, as authorized by Government Code Sections 54957.6, to discuss and consider the item that is specified as Item 11 (a) on the published Agenda. The Committee convened in closed session at 7:45 p.m. Confidential Minutes of the Closed Session held by the Finance, Administration and Human Resources Committee have been prepared in accordance with California Government Code Section 54957.2, and are maintained by the Board Secretary in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. No action was taken re Agenda Item 11 (a). At 8:00 p.m., the Committee reconvened in regular session. \ Minutes of Finance, Admin. and Human Resources Committee Page 7 July 15, 1998 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, September 9, 1998, at 5:30 p.m. ADJOURNMENT The meeting was adjourned at 8:01 p.m. Submitted by: ~~ Finance, Administration and Human Resources Committee Secretary H:\WP.DTA\FIN\210\CRANE\FAHR\FAHR98\JULY\7-98MIN.DOC FAHR COMMITTEE Meeting Date To Ba. 09/09/98 AGENDA REPORT Itern Number Item Number 13 Cb") Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Steve Kozak, Financial Manager SUBJECT: CERTIFICATES OF PARTICIPATION (COP) MONTHLY REPORT - JULY AND AUGUST 1998. (FAHR98-63) GENERAL MANAGER'S RECOMMENDATION Receive and file Certificates of Participation (COP) Monthly Reports for July and August 1998. SUMMARY Since June 1995, the daily rate COP program remarketing agents have been PaineWebber for the Series "A" and the 1993 Refunding COPs, and J.P. Morgan for the Series "C" COPs. Most fixed rate Series "8" 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. D This item has been budgeted, but there are insufficient funds. D This item has not been budgeted. ~ Not applicable (information item) ADDITIONAL INFORMATION One tabular and two graphical reports are attached for the months of July and August 1998. 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 "swap." H:\wp.dtallin\210\crane\FAHR\FAHR98\Sept\FAHR98-63.doc Revised: 1/5/98 Page 1 The second bar chart entitled, "Comparative Daily COP Rate History Report, n 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 Comparise:ms," 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. In follow-up to a discussion at the June FAHR Committee meeting about the comparatively higher rate performance of the Series "C" COPs, staff and J.P. Morgan, the remarketing agent, have initiated steps to improve rate performance. As a result, the rate performance of the Series ''C" COPs, as compared to the rate performance for the Series "A" and the 1993 Refunding COPs, has shown some modest improvement (lower rates). Specifically, for the combined months of July and August, the comparative average rates were 2.65% for the Series "C" COPs, and 2.62% for the Series "A" and 1993 Refunding COPs; a difference of 3 basis points. In previous months, the difference in rates has averaged 4 basis points. 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 -Comparative Daily COP Rate History Report 2. Graph -CSDOC COP Daily Rate History Report 3. Tabular -Daily COP Rate Comparison GGS:SK:lc H:lwp.dtalfinl210\crane\FAHRIFAHR98\Sept\FAHR98-63.doc Revised: 115/98 Page2 Prepared by Finance, 9/1 /98, 11 :51 AM COMPARATIVE DAILY COP RATE HISTORY REPORT AUGUST, 1998 6.00 ~----------------------------------------. 5.00 +-------------------------------------------1 4.00 -~ ~ ~ 3.00 ct ci::: 2.00 1.00 0.00 DATE I'-I'-I'-I'-co co co co co co co co O') O') O') O') O') O') O') O') O') O') O') 0, ci ..;-> r.S c .c ..: ..: ,;.. c :i t:» a, CJ 0 a, m a, m Q. m ::, ::, en 0 z 0 -, lL ~ c{ ~ -, -, c{ IICSDOC • COMPOSITE INDEX G :\excel .dta\fi n\2 2 20\geggi\Fi nance \dailycopi ntrate .xis G) 7J ii' C ii "C ~ )> m RATE(%) ii !2. --1 a. ~ m ~ :Si c:, ..... N w ~ OI a, .,, :, s· 1G 0 0 0 c:, 0 0 c:, m "' :, "' c:, c:, c:, c:, c:, c:, c:, 0 0 _ID c6 01-Oct-97 a, (I) ~ (Q (Q ~ co s· 15-Oct-97 _a, m ul :, c.i 0 (I) _,,. ;a 29-Oct-97 7J • s:: -i m :I: I 12-Nov-97 cii -i 26-Nov-97 + I I I J. I l I ; I I io 0 -.J en 10-Dec-97 t I ~ * I • I I C 0 24-Dec-97 t I I I ;> I f I ' I I 0 07-Jan-98 + I I~ * • I I 0 0 21-Jan-98 ""C +f C 04-Feb-98 )> ~ )>""CJ -m C: r-G)-· 18-Feb-98 ::::, G) -< (/)<D ~~ ll)(D 04-Mar-98 c:~ C" C" (D C/J -f -, 18-Mar-98 -f m -I, 01-Apr-98 U) :I: ++ U) - 15-Apr-98 co en -f Cl>'-0 0~ 29-Apr-98 ("). G)s:: ~ r:i,o ::J-, 13-May-98 ~ ~::::, ;a ll) ;"'C 27-May-98 m 10-Jun-98 t I I i::;;i. I * I • I I ""C 0 24-Jun-98 + I ~ I ; I + 1 1 ~ 08-Jul-98 22-Jul-98 05-Aug-98 19-Aug-98 Prepared by Finance, 9/1/98, 11 :52 AM Sep-97 Oct-97 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 AVERAGE DAILY COP RA TE COMPARISONS (%) SEPTEMBER, 1997 -AUGUST, 1998 CSDOC $100M $98.SM $46M Series"A" Series"C" Series 93 Ref PaineWebber J.P. Morgan PaineWebber 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 2.50 2.60 2.50 2.77 2.80 2.77 3.52 3.59 3.52 3.56 3.60 3.56 3.28 3.30 3.28 2.80 2.86 2.80 2.43 2.44 2.43 3.16% 3.21% 3.16% ESTIMATED ANNUAL INTEREST PAYMENTS PER $100M PAR AMOUNT $ 3,159,167 $ 3,205,000 $ 3,159,167 * 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* 3.60 3.38 3.68 3.33 3.10 2.53 2.80 3.55 3.57 3.27 2.79 2.40 3.17% $ 3,166,667 . 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 .. ~ FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Mike Peterman, Director of Human Resources Originator: Jeff Reed, Human Resources Analyst Meeting Date 9/9/98 Item Number 13 (c) SUBJECT: EMPLOYMENT STATUS REPORT AS OF AUGUST 17, 1998 (FAHR98-64) GENERAL MANAGER'S RECOMMENDATION Receive and file the Employment Status Report. SUMMARY Total FTE headcount at the Distr'ict as of August 17, 1998 is 526.25. 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. ~ Not applicable (information item) ADDITIONAL INFORMATION To Bel. of Dir. Item Number The District has a full-time equivalent (FTE) headcount of 526.25 as of August 17, 1998. The actual number of employees is 537. The current FTE count is equivalent to a 4.1 % reduction from the beginning Fiscal Year 98/99 projection of 549 positions. The District budgeted for 542.5 positions for Fiscal Year 98/99. The current FTE count is equivalent to a 3.0% reduction from the budgeted 542.5 positions. There was one new employee hired during the month of July: • Director of Information Technology (Information Technology Administration) \lradonldata1\wp.dtalfin\210\crane\FAHRIFAHR98\Sep\\FAHR98-64.doc Revised: 6/30/98 Page 1 There were two promotions for the following positions: • From: Intern (Environmental Compliance & Monitoring) To: • From: Environmental Specialist II (Environmental Compliance & Monitoring) Associate Engineer II .(Source Control) To: Associate Engineer Ill (Design & Planning Engineering) ALTERNATIVES None. CEQA FINDINGS None. ATTACHMENTS 1. August 17, 1998 Employment Status Report. 2. Performance to 5-Year Staffing Plan. PS llladonldata1'1Np.dtallin\21~rane\FAHRIFAHR98\Sepl\FAHR98-64.doc Revised: 6/30/98 Page2 Employment Status Report Run Date: 17-AU!1•98 . Regular Regular Total Vacant Positions , Regular Pan-time Part-time FTE Positions FTE FTE FTE FTE wlln 6 yr plan .. --Full-time 20hours 30hours Contract Intern LOA Count FY911-99 98-99 99-00 """"1 01..02 (FY99.00J 11 O -General Management Admin 4.00 0.00 0.00 0.00 0.00 0.00 4.00 1.50 5.50 5.50 5.50 5.50 1.50 Total General Management 4.00 0.00 0.00 0.00 0.00 0.00 4.00 1.50 5.50 5.50 5.50 5.50 1.50 21 o • Finance Administration 4.00 0.00 0.00 0.00 0.00 0.00 4.00 0.00 4.00 4.00 4,00 4.00 0.00 220 -Accounting 18.00 0.00 0.00 0.00 0.00 0.00 18.00 0.00 18.00 17.50 16.00 14.50 -0.50 230 -Purchasing & Warehousing 12.00 0.50 0.00 0.00 0.00 0.00 12.50 3.50 16.00 15.00 15,00 15.00 2.50 Total Finance 34.00 0.50 0.00 0.00 0.00 0.00 34.50 3.50 38.00 36.50 35.00 33.50 2.00 310 -Communications 8.00 0.00 0.00 0.00 0.00 1.75 9.75 0.00 9.75 9.75 9.75 9.75 0.00 Total Communications 8.00 0.00 0.00 0.00 0.00 1.75 9.75 0 9.75 9.75 9.75 9.75 0.00 41 O -General Services Admin 5.00 0.00 0.00 0.00 0.00 1.00 6.00 0.00 6.00 6.00 6.00 6.00 0.00 420 -Collection Facilities Mtce 16.50 0.00 0.00 0.00 o.oo 0.00 16.50 2.00 18.50 18.50 18.50 18.50 2.00 430 -Plant Maintenance 35.50 0.00 0.00 0.00 0.00 0.00 35.50 3.00 38.50 28.50 28.50 27.50 -7.00 Total General Services 57.00 0.00 0.00 0.00 0.00 1.00 58.00 5.00 63.00 53.00 53.00 52.00 -5.00 510 -Human ResourcesAdmin 5.00 0.00 1.50 0.00 0.00 0.00 6.50 0.25 6.75 6.75 6.75 6.50 0,25 520 -Education & Training 3.00 0.00 0.75 0.00 0,00 o.oo 3.75 0.25 4.00 4.00 4.00 3.00 0.25 530 -Safety & Emergency Response 4.00 0.00 0.00 0.00 0.50 1.00 5.50 0.00 5.50 5.50 5.00 5.00 0.00 Total Human Resources 12.00 0.00 2.25 0.00 0.50 1.00 15.75 0.50 16.25 16.25 15.75 14.5 0.50 61 O -Technical Services Admin 2.00 0.00 0.75 0.00 0.00 0.00 2.75 3.25 6.00 5.00 5.00 5.00 2.25 620 -Environmental Compliance & Mon 17.00 o.oo 0.00 0.50 o.oo 0.00 17.50 4.00 21.50 18.50 18.50 18.50 1.00 630 -Environmental Laboratory 29.00 2.00 0.00 0.00 0.50 1.00 32.50 -2.50 30.00 29.00 29.00 28.00 -3.50 640 -Source Control 34.00 0.00 0.75 0.00 0,00 0.00 34.75 2.00 36.75 35.75 34.75 33.75 1.00 Total Technical Services 82.00 2.00 1.50 0.50 0.50 1.00 87.50 6.75 94.25 88.25 87.25 85.25 0.75 710 -Engineering Administration 3.00 0.00 0.00 0.00 0.00 0.00 3.00 0.00 3.00 3.00 3.00 3.00 0.00 720 -Planning & Design Engineering 28.00 0.00 0.75 0.00 0.50 0.00 29.25 2.25 31.50 31.50 31.50 31.50 2.25 730 -Construction Management 35.00 0.00 0.00 0.00 0.00 0.00 35.00 2.50 37.50 36.50 36.50 36.50 1.50 Total Engineering 66.00 0.00 0.75 0.00 0.50 0.00 67.25, 4.75 72.00 71.00 71.00 71.00 3.75 810 -0 & M Administration 2.00 0.00 0.00 0.00 0.00 0.00 2.00 0.00 2.00 2.00 2.00 2.00 0.00 820 -0 & M Process Support 8.00 0.00 0.00 1.00 0.50 0.00 9.50 0.75 10.25 9.25 8.25 8.25 -0.25 830 -Plant 1 Operations 37.00 0.00 0,00 0.00 0.00 0.00 37.00 0.00 37.00 35.00 35.00 35.00 -2.00 840 -Plant 2 Operations 42.00 0.00 0,00 0.00 0.00 1.00 43.00 ,2.00 41.00 37.00 37.00 37.00 -6.00 850 -Mechanical Mice 52.50 0.00 0.00 0.00 0.00 0.00 52.50 -2.00 50.50 47.50 46.50 44.50 -5.00 860 -Electrical & Instrumentation Mice 58.50 0.00 0.00 0.00 0.00 0.00 58.50 0.00 58.50 57.50 56.50 56.50 -1 .00 870 -Cogeneration 10.00 0.00 0.00 0.00 0.00 1.00 11.00, 2.00 13.00 13.00 13.00 13.00 2.00 880 -Air Quality & Special Projects 8.00 0.00 0.00 0.00 1.00 0.00 9.00 -1.00 8.00 7.00 7.00 7.00 -2.00 Total Operations & Maintenance 218.00 0.00 0.00 1.00 1.50 2.00 222.50 -2.25 220.25 208.25 205.25 203.25 -14.25 910-IT Admin 2.00 0.00 0.00 0.00 0.00 1.00 3.00 1.00 4.00 4.00 4.00 4.00 1.00 920 -IT User Support 6.00 0.00 0.00 0.00 0.00 0.00 6.00 1.00 7.00 8.00 8.00 8.00 2.00 930 -IT Network Support 5.00 0,00 0.00 0.00 0.00 0.00 5.00 0.00 5.00 6.00 6.00 6.00 1.00 940 -IT Programming 6.00 0.00 0.00 0.00 0.00 0.00 6.00 0.00 6.00 7.00 7.00 7.00 1.00 950 -Plant Automation 7.00 0.00 0.00 0.00 0.00 0.00 7.00 1.00 8.00 8.00 8.00 8.00 1.00 Total lnfonnation Technology 26.00 0.00 0.00 0.00 0.00 1.00 27.00 3.00 30.00 33.00 33.00 33.00 6.00 !Total Staffing -507.®I --2.501 4.501 1.501 3.001 7.75 528.25 22.75 549.00 521.50 515.50 507.75 -4.75 g:\exceLdta\hr\510\sleeves\EMPOIV9!1-99 Performance to 5-Y ear Staffing Plan 570 -r--------------------------------, 560 ··-. -. ··--·-·-·------.. 550 • 540 I _/ ~ T :-. ..... "• • < • '· I ....... ... 530 • ., • • ... • 520 •' 510 .,__ FfE Headcount ---•--5 Year Staffing Plan 4-; 500 -~~--~~~-~~~~-~-~~-~~~-~~~~--~---1 J A S O N D J F M A M J J A S O N D J F M A M J I FY 97-98 I FY 98-99 ..... FAHR COMMITTEE Meeting Date ·09/09/98 AGENDA RE PORT ~tem Ni.-mber .. 13 (d) . Orange County Sanitation District FROM: Gary Streed, Director of Finance Originator: Steve Kozak, Financial Manager SUBJECT: QUARTERLY INVESTMENT MANAGEMENT PROGRAM REPORT FOR THE PERIOD APRIL 1 THROUGH JUNE 30, 1998 (FAHR98-65) GENERAL MANAGER'S RECOMMENDATION Receive and file the Quarterly Investment Management Program Report for the period April 1 through June 30, 1998. SUMMARY Section 15.0 of the District's Investment Policy includes monthly and quarterly reporting requirements for the District's two investment portfolios. These two funds, the "Liquid Operating Monies," and the "Long-Term Operating Monies," are managed by PIMCO, the District's external money manager. The ongoing monitoring of the District's investment program by staff and Callan Associates, the District's independent investment advisor, indicates that the District's investments are in compliance with the District's 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 District to meet its operating expenditure requirements for the next six months. The District's portfolios do not include any reverse repurchase agreements or derivative securities. 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. ~ Not applicable (information item) \ltadon\data1'wp.dta\fin\21Ckrane\FAHRIFAHR98\Sep!IFAHR98-65.doe Rellised: 115198 Page 1 To Bel. 09/23/gs 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 District's portfolios, as of March 31, 1998, and June 30, 1998. 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 District's portfolios managed by PIMCO for the period April 1 through June 30, 1998. Portfolio Performance Summary Quarter Ended June 30, 1998 Liquid Operating Monies(%) Long-Term Operating Monies(%) ;i!J£1~~"~ot•R~tl!l!ra) il1!m@[ru!P~irr ·, ~itEllii~"lfti\mfr' , ·.;.~" l. .. f,L"'~' ~~;11t:111EL~-;~·I~~ ~ ,, ~j .]f\Ll!; 3 Months 1.4 1.8 6 Months 2.7 3.6 9 Months 4.2 5.5 12 Months 5.6 8.2 Since Inception 30 ~ej:ll. 95 5.6 7.0 ~,t1ncfirn.~~/,t -:[ m· .. ;cl!: ,;p;,• .• ··--····;r~;tr!!· w=-JLr Jia,, .,~n'.-.:u~r "!itmJmlit .E:. .. .t! ]i~U!! 1 ···; 3 Months 1.3 1.7 6 Months 2.6 3.2 9 Months 3.9 5.2 12·Months 5.2 7.5 Since inception 30 Sept. 95 5.3 6.6 Market Value per PIMCO 30 June 98 $18.1M $311.5M Average Quality "AAA" "AAA" Estimated Yield to Maturity 30 June 98 5.6% 5.7% Quarterly Deposits (Withdrawals) Estimated Annual Income $1 .0 $19.7 Market Recap The second quarter of 1998 saw interest rates decline across the board based on renewed concern about the Asian economic crisis. This brought continued investor movement toward the relative safety and quality of U.S. dollar- denominated assets. With continued low inflation, and with some expectation of slower economic growth ahead, short-term interest rates were left unchanged by the Federal Reserve in the second quarter. llradanldata1'oNp.dlallinl210'cranelFAHRIFAHR98\SepM'AHR9S.65.dac Revised: 115198 Page2 As depicted in the attached comparative graph of the "Historical Yield Curve," the Treasury yield curve flattened significantly during the second quarter, with longer rates dropping sharply. The benchmark 30-year Treasury rate declined approximately 30 basis points when compared to the end of the first quarter, 1998 (5.62% vs. 5.93%). Shorter rates showed modest changes. The 3-month Treasury rate declined 3 basis points (5.09% vs. 5.12%), and one-year rates declined 1 basis point (5.36% vs. 5.37%). However, intermediate rates (from 1 to 10 years) declined significantly; up to 21 basis points in the second quarter (5.44% vs. 5.65%). As a result, relative returns were lower across the yield curve. For the Long-Term Operating Monies portfolio, PIMCO maintained a weighted maturity or duration, slightly above the duration index (2.5 vs. 2.3 years), emphasizing holdings in high-quality mortgage backed securities, and investment grade corporate bonds. These investments contributed incremental yield to the portfolio when compared to the all-Treasury benchmark yields. The portfolio outperformed its benchmark (1.8% vs. 1.7%) for the second quarter. For the Liquid Operating Monies portfolio, PIMCO maintained an at-index duration posture (approximately 72 days}, and continued emphasizing U.S. Agency discount notes and high-quality corporate commercial paper in the portfolio. These investments added incremental yield to the portfolio, which outperformed its benchmark (1.4% vs.1.3%) for the second quarter. Portfolio Market Values Comparative marked-to-market quarter-end portfolio values are shown in the table below, and in the attached bar chart. ALTERNATIVES N/A Quarter Ending 30 June 97 30 Sept. 97 31 Dec. 97 31 March 98 30 June 98 \lradon\data1\wp.dtallin\210\crane\FAHRIFAHR98\Sept\FAHR96-65.doc Revised: 1 /5/98 Long-Tenn Liquid Operating Operating Monies Monies ($M) ($M) 17.1 321.3 17.4 298.5 17.6 301.1 17.8 306.0 18.1 311.5 Page3 CEQA FINDINGS N/A ATTACHMENTS 1. PIMCO Report 2. Callan Report 3. Three Comparative Bar Charts 4. Historical Yield Curve Graph SK:lc \lladonlda1a1\wp.d1allin\210\cranelFAHRIFAHR9S\SepN'AHR98-85.doc Revised: 1/5198 Page4 Prepared by Finance, 8/3/98, 11 :16 AM $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 CSDOC Investment Management Program Quarter End Portfolio Values (Marked-to-Market) 30 Jun 97 30 Sep 97 31 Dec 97 31 Mar 98 30 Jun 98 lo Liquid Operating Monies If! Long-Term Operating Monies I G:\excel.dta\fin\2220\geggi\Finance\investmgmtprogram .. Prepared by Finance, 8/3/98, 11 :21 AM CSDOC Liquid Operating Monies Portfolio . lnvestme~t Diversification 1 100100 100 90 80 70 .....-... ~ 60 I 0 .__... I ~ I 1D3/31/98 +"" C 50 Q) ~ I t216/30/98 0 I-40 Q) a.. 30 20 10 0 0 0 0 0 0 0 0 0 0 0 Govt Mtg Corp Non US$ Other Net Cash Equivalent G:\excel.dta\fin\2220\geggi\Finance\Portfolio short term Prepared by Finance, 8/3/98, 11 :22 AM CSDOC Long-Term Operating Monies Portfolio Investment Diversification 100 ~---------------~ 90 ---------------- 80 -t----------+-'~-------------------1 70 I =VL:i----------------------1 ~--~ .-.. ~ 60 ..... ~ 50 0 m 40 a. 30 20 10 21 10 0 0 0 0 0 I ---F««• ·--· ·--· Govt Mtg Corp Non US$ Other Net Cash Equivalent G:\excel.dta\fin\2220\geggi\Finance\Portfolio long term graph D 3/31/98 ~6/30/98 Prepared by Finance, 8/3/98, 2:56 PM I HISTORICAL YIELD CURVEI 6.5 1--------------------------, 6.0 -~ C ..J LIJ > 5.5 5.0 +----+-~-+-----,---+--~---~---.--+-~-+----+--~---~---+--~--+-----I 0 0 E E .. .. .. .. .. .. .. .. .. >->->->->->->->->-.... N cw, ~ II) ,.._ 0 0 0 cw, co .... N cw, -+-31-Dec-97 -ll-31-Mar-98 -30-Jun-98 I G:\excel.dta\fin\2220\geggi\Finance\Historicalyieldcurve INVESTMENT MANAGE'MENT P,ROGRAM ' ,County Sanitation o ·istricts of Orange , County STRATEGY REVIEW FOR THE PERIOD I APRIL~ 1 -JUNE 30, 19918 (. FINANCE, ADMINISTRATIO~ & HUMAN RESOURCES COMMITTEE S5PTEtytBER 9, 1998 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 111 CU RR ENT OUTLOOK / STRATEGY PACIFIC INVESTMENT MANAGEMENT COMPANY RATES FELL IN THE SECOND QUARTER YIELDS TRENDED LOWER OVER THE QUARTER YIELDS ON SHORTEST MATURITIES DECLINED SLIGHTLY OVER THE QUARTER 7.0 6.5 t-•• ·, ,..., " . ~ 0 ;-6.0 oi >= 5.5 5.0 ~ fil, C "' 6 -20 ,_ -30 2Q '97 -24 TREA'5UR y YIELD MOVEM1ENIS -, •. r • .7! r -- 30-Yr. T-Bond ~-I ·---•J "··· 1--~ •--,••r' \,•• •--~ ~•\ I . ~ . . ... . ~ .. ' 2-Yr. T-Note · ·.,---., \····· ...... .......... 3Q '97 4Q '97 lQ '98 •iisftS,~Z:.iVt<l~i1~t~tt~~~LF .... -30 5.63% ·.·•-.--·1 s.so% 2Q '98 ~ I :I ,1 I -31 -30 -40 '---------------------------------' 3 Mos. 1 Yr. 2 Yrs. 3 Yrs. 5 Yrs. 10 Yrs. 30 Yrs. SOURCE: Bloomberg I• 2ND QTR. ~ lST HALF I PACIFIC INVESTMENT MANAGEMENT COMPANY STRATEGY RECAP -SECOND QUARTER LONG-TERM OPERATING FUND Period Ended June 30, 1998 DURATION • MATURITY MIX • SECTOR/ ISSUE • POKtfOl,10 ST,itUCTU R-E, ABOVE INDEX BROADER THAN INDEX EMPHASIZED CORPORATE SECURITIES CONTINUED EXPOSURE TO AGENCY SECURITIES MAINTAINED MORTGAGE EXPOSURE 2 RHATW_E IMPACT ~efQND, 9YA.RJE S. .... :t 11ti!!,11ll 1~f}B lH[", • SLIGHT POSITIVE • SLIGHT POSITIVE • POSITIVE PACIFIC INVESTMENT MANAGEMENT COMPANY STRATEGY RECAP -SECOND QUARTER LIQUID OPERATING FUND Period Ended June 30, 1998 DURATION • MATURITY MIX • SECTOR / ISSUE • f'OR'TFOUO STrRUCT4JRE AT INDEX EQUAL TO INDEX EMPHASIZE AGENCY DISCOUNT NOTES AND COMMERCIAL PAPER 3 '" ,, •• ,RiLA-1;1VE :IMPACT SECOND QUARTER .. 1998 ' .... ;,;, ;::;;1 ,,,, • NEUTRAL • NEUTRAL • POSITIVE PACIFIC INVESTMENT MANAGEMENT COMPANY REVIEW OF PERFORMANCE Through June 30, 1998 • Long-Term Operating Fund 6/30/98 Market Value $311,534,085 • Liquid Operating Fund 6/30/98 Market Value $18,092,436 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 7.8 8.2 1.8 6.6 7.2 7.5 1.7 Since* Inception 9/30/95 2 Yrs.* 1 Yr. 3 Mos. 5.6 5.6 5.6 1.4 5.3 5.3 5.2 1 .3 PACIFIC INVESTMENT MANAGEMENT COMPANY CURRENT OUTLOOK SECULAR GLOBAL DISINF'LATJ.ON· U ,S. GROWTH S.l.!OWS''TO SUSTAlNABlE f!ACE LONG TREASURY YIELDS TO RANGE BETWEEN 4½ -6½% CONSUMER STRENGTH TEMPERED BY ASIAN CRISIS i DURATION MATURITY MIX SECTOR INTEREST RATES!TR'END LQWER · ·· INFLATION CONTAINED • Declining import prices • Reduced commodity demand • Benign unit labor costs FED EASE INCREASINGLY LIKELY • • • i ,~:TR~·T~~ )( SLIGHTLY ABOVE INDEX BROADER THAN INDEX PICK UP YIELD THROUGH AGENCY AND CORPORATE SECURITIES. CONTINUE TO LOOK FOR VALUE IN THE MORTGAGE SECTOR 5 i PACIFIC INVESTMENT MANAGEMENT COMPANY 7 l I l I i \ j' _J J j J Callan Associates Inc. Investment Measurement Service Quarterly Review County Sanitation Districts of Orange County June 30, 1998 The following stati tical analysis was prepared by Callan Associate Cnc. utilizing econdary data from tatements provided by the plan tru tee and/or custodian CAI computer software and selected information in CAI database. This report may al o contain return and valuation from outside ources as directed by-the client. CAI assumes no re ponsibility for the accuracy of these valuations or retum methodologies. Rea onable 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 thi report. Copyright L 998 by Callan Associates Inc. 7 l l ! I -} J J .-J ' .J I .J Capital Markets Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Active Management Overview Foreword ................................................................ 9 Domestic Fixed-Income ..................................................... 10 Asset Class Risk and Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Investment Manager Asset Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Investment Manager Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Manager Analysis PIMCO-Liquid Operating Monies ............................................. 14 PIMCO-Liquid Operating Fund .............................................. 15 Bond Portfolio Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Portfolio Characteristics Detail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 r I l ', ( ) l J j 1 } I _J CAPITAL <ETREVIEW A PUBLlCATION OF CALLAN ASSOCIATES INC. AND THE CALLAN INVE.STMENTS INSITfUTE -------------ii Second Qumter 1998 I~----------- Yin Meets Yang in Second Quarter In 1998's first half, a strong U.S. economy's output grew hotter while its inflation remained cold. Studying this patient of split personalities, the stock market analysts seemed to conclude over the last quarter's session that the economy's temperature was just fine. By quarter end, the Callan Broad Market, which represents the 2,000 largest U.S.-traded stocks excluding ADRs and other foreign shares, had paid investors a modest 2.07% gain, including dividends. Looking underneath this tepid return, though, market pundits wrung their bands over the conflicting, almost schizophrenic, signals about the economy's future behav- ior. Even though first quarter's GDP reached a blistering 5 .4% growth rate, weaker Asian economies cooled demand for U.S. exports, causing the Ameri-Contents can trade deficit to Foreign Stocks .............. . Foreign Bonds ............... . Alternative Investments .. . Real Estate .................... . soar. Furthermore, 3 cheaper Asian im- ports due to a stron- ger U.S. dollar dampened con- sumer prices. How- ever, with the un- 3 4 4 employment rate during the second quarter falling to 4.3%, its lowest level since 1970, shrinking labor supplies challenged the ability of companies to control wage costs. For stock market ob- servers, overheating labor markets coupled with fragile pricing power meant potentially squeezed corporate prof- its ahead. As uncertainty over corporate wealth grew last quar- ter, investors clearly stated that size, with the stability it implies, mattered. Covering the 150 largest stocks, the Callan Large Cap Index (+5.13%) continued to be the continued on page 2 "Safe Haven" Buying Drives Bonds Forward Fixed income markets had a strong quarter as the U.S. bond market benefited from the economic troubles in Ja- pan, Asian emerging markets and Russia. In the first two months of the quarter, the market was caught in a tug-of- war between the bears, with their worries about potential inflation pressures and possible Fed tightening, and the bulls, who focused on the Asian crisis as well as the de- creasing Treasury supply. In the fmal month, the bulls hand- ily won when troubles in Japan and various emerging mar- kets drove global investors to the safety of the U.S. bond market. Alan Greenspan boosted the market in mid-June with his comments that inflation's long-term outlook is good, the Asian crisis could help to slow the economy, and productivity gains could be offsetting inflationary pressures to a larger degree than he bad previously acknowledged. The 30-year bond promptly reached its lowest yield since the Treasury began issuing them in 1977. For the quarter, the Treasury curve flattened considerably, as yields fell across all maturities from two years out. The Lehman Brothers Aggregate Index gained 2.34% and the Lehman Brothers Government/Corporate Index returned 2.61 %. During the second quarter, Treasuries were the best per- forming fixed income sector due to their decreasing sup- ply and their status as the preferred "safe haven" vehicle. Early in May, the Treasury announced that at the end of the month it would stop issuing 3-year notes (issued since 1976), and that 5-year notes would be sold quarterly rather than monthly. This move reflects the smaller fiscal deficits and the government's lower borrowing needs. Longer ma- turities saw the largest gains for the quarter. Yields in the middle of the curve (2-10 year) also fell somewhat and actually ended below the Federal Funds Rate of 5 .5 %, cre- ating a slight inversion at that part of the curve. The bench- mark 30-year Treasury yield, which started the quarter at 5.93%, ended the quarter at 5.62%. The Lehman Broth- continued on page 2 Waiting for the Other Shoe to Drop The U.S. economy clocked a robust 5.4% rate of GDP growth during the first quarter, fueled by booming construction activity, record inventory accumulation, and supremely confident consumers. An unusually mild win- ter drove construction and retail activity in the first quarter, providing a further boost to GDP. Second quarter growth is expected to slow to 2%, as exports weaken and construction activity tops out. The concensus among forecasters expects the collapsing Asian economies to slow final demand and then hammer corporate earnings as the year progresses, but the evidence of a slowdown in the economy remains elusive. Thus far, the only indication of slowing activity is coming from the manufacturing sector. The Purchasing Managers Index fell to 49.6 in June, the third consecutive monthly decline, and the first time below 50--the dividing line between expansion and contraction-in two years. The index for new export orders, where the Asian problems should show up first, fell to 47 in June, its sixth straight below-SO reading. Manufactur- ing employment has flattened in 1998, slowed by sharp declines in demand for high tech products. The GM strike will be reflected primarily in the July employment numbers, particularly if the strike extends past the annual continued on page 4 SAN FRANCISCO MORRISTOWN CHICAGO A'ILANTA DENVER 71 STEVENSON ST. SUITE 1300 SAN FRANCISCO CALIFORNIA 941Cl.5 415.974.5060 FAX 415.512.0524 hllp://www.callan.com l J _j ] j I _.J U.S. Equities from page 1 manic driver of the current bull market. Since the Broad Market's last nega- tive quarter 3-1/2 years ago, this sub-index of mega-cap companies bas · almost tripled (+182.88%). How- ever, for the next 350 larg- est stocks in the Callan Medium Cap Index (-0. 78% ), investor confi- dence last quarter was weak. Despite their gener- ally lower trade exposure to the gloomy Pacific region, smaller U.S. stocks were U.S. Equity Returns for Quarter Ended June 30, 1998 Broad Market CAI Broad Large Cap S&P500 CAI Large DJIA Mid/Small Cap S&P MidCap 400 CAI Med CAI Small CAI Micro Exchange Indices NYSE AMEX NASDAQ Convertible Index FBConvSec Last Quarter 2.07 3.36 5.13 2.15 -2.22 --0.78 -3.97 -4.88 1.45 -2.51 3.32 -1.50 notably burl by tbemarket's retreat to quality. The Callan Small Cap Index, whlcb represents the Broad Market's bottom 1,500 stocks, fell 3.97%. As measured by the Callan Micro Cap In- dex, the next 1,000 largest stocks beyond the Broad Market suf- fered the worst headache (-4.88% ). Dichotomies in market performance last quarter also applied to the Broad Market's economic sectors. Consumer-oriented in- dustries fared best, while producer-oriented ones were generally very unstable. Providers of commodity-like goods struggled with the primary deflationary forces in the latest quarter. Falling oil prices pinched the Energy sector (-2.61%). Weak or declining commodity price levels in the Basic M.aterials sector (-4.25%) also distressed stockholders. Within this sector, gold & precious metals mining stocks (-14.07%) suffered from amnesia, as they for- got to provide t11e.ir usual comfort in nervous markets. Following its first quarter 19.31 % jump, the Technology sector ( + 7 .11 % ) led the market again in the second quarter. The Health Care sector ( +5.88%) also performed well last quarter, with the ge- neric drug industry ( + 10.66%) reaping the highest return. With threats of Clinton's health care reform fading into repressed memories, drug companies lately have been asserting more pricing power. Rising costs of drugs and other health care products, though, hurt other groups in the Health Care sector.For example, the hospital ma,uige- mentindustry (-7 .64%) needed its own convalescing by quarter end. Last quarter's investment styles revealed a Jekyll and Hyde per- U.S. Treasury Yield Curves: Second Quarter 1998 6.0 ________ .... . _____ ... ____ ... -------------------·· ._.----Jr. "ti 5.5 cii ' ' > .......,__ Ending 2nd Quarter --.t.--• Beginning 2nd Quarter 5.0 +----+----+----+-----11----t------l 0 5 10 15 20 25 30 Maturity (Years) Economic Sector Performance -CAI Broad Second Quarter 1998 Technology Health Gare Consumer Cyclical Finarcials Comumer Staples Utilities Energy capital Goods .,,,,;,:;:;:;;,,, ... 17.11% =·-,:.:,:. 5.88% H 4.55% Gonvrunlcation Services Buie Materials ·2.61% •3,15%1,:;:;•s.•, -3.70% .::::'"'":- -4.25% : ''''"'""" .,.,12.93% ~2.46% -0.32% ~ -8% -6% .4•,1, -2% 0% 2% 4% Return Capitalization Sector Performance Second Quarter 1998 6% 8% 6% ~----------------========-=-=--=--::. -----,1 ~~ :.~~; :::% ~ 3% C 2% ~ 1% a:: s 0% 0 ... ,1% -2% +------------------ ~% +-------------------4%+------------------~%.L------------------------= 0% 20% 40% 60% 80% 100% Percent of Total Market Capitalization sonality, too. Stocks with growth temperament, particularly across larger capitalizations, were perceived as benevolent investments, but those with "cheap" attributes remained out of favor. Within the combined Callan Large/Medium Cap universe, the growth subindex moved ahead 5.61 %, while its value counterpart (+1.23%) seemed stuck in a strait- jacket. In the troubled small cap universe, growth suffered less than value (-2.76% vs. -5.21 %). -CMR- U.S. Bonds from page 1 ers Treasury Index returned 2.66% for the quarter. The first quarter's rush of cor- porate issuance continued into the second quarter with a slew of huge deals. At times, this corporate rush dragged prices down as the mar- ket tried to digest the issues, but demand remained generally quite strong, especially for higher quali- ties. Despite the enormous amount of new issues that hit the market this quarter, corporates performed very well, with the Lehman Brothers Corporate Index returning 2.58% for the U.S. Fixed-Income Returns for Quarter Ended June 30, 1998 Last Quarter Lehman Bros LB Aggregate LB Govt/Corp LB Govt/Corp Inter LB Govt/Corp Long LB Govt LB Corp LB Mortgage Salomon Bms SB Broad Inv Gr SB Hi Grade LT Merrill Lynch ML Treas 1-3 ML Hi Yid Mstr 2.34 2.61 1.88 4.25 2.63 2.58 1.72 2.31 3.37 1.53 1.68 quarter. High yield bonds lagged their higher quality counterparts, with the Merrill Lynch High Yield Master Index posting a return of 1.68% for the quarter. Mortgages lagged somewhat, with low rates continuing to prompt worries of refinancings. Nevertheless, the Lehman Brothers Mort- gage Index still gained a respectable 1.72% for the quarter .. q,,R- Callan Associates Inc. 2 l 1 J J 1 J Europe Continues Climb While Pacific Falters International equity markets, as measured by the MSCI-EAFE Index, rose a slight 1.06% (in dollar terms, unless otherwise noted) during the second quarter of 1998. European equity markets contin- ued their advance, though slowing their torrid pace from the first quar- ter, gaining 5.14%. Worries over Japan and Southeast Asia sparked a sharp drop in the MSCI-Pacific Index (-8.82%). Europe Optimism over the Euro- pean Monetary Union (EMU) helped prolong European markets' advances, as core EMU countries were among Europe's best performing eq- uity markets. Signs of accel- erating economic growth in Gerniany and France sparked double-digit returns in those markets (+16.72% and +11.16%, respectively). The strongest performing Euro- pean markets were Finland (+23.50%) and Belgium Non-U.5. Equity Returns for Quarter Ended June 30, 1998 .EA.EE. U.S. Dollar Local Currency EAFE Europe U.S. Dollar Local Currency EAFE Pacific U.S. Dollar Local Currency Emerging Markets U.S. Dollar Last Quarter 1.06 1.31 5.14 3.80 -8.82 -4.90 -23.60 (+21.59%). Returns across Europe were aided by strengthening cur- rencies, as most European currencies advanced approximately 2-2.5% against the dollar. Europe's biggest disappointment was a 2.00% de- cline in the UK, where a falling Sterling magnified the local currency return of -1.64%. Waning optimism over the UK's economic pros- pects, rising interest rates, inflation fears, and earnings downgrades all contributed to the slide in performance. Pacific Basin Pacific Basin markets did an about face from the positive perfor- mance exhibited in the first quarter by dropping 8.82%. The first quarter's strongest performer, Malaysia, was this latest quarter's weak- est; Malaysia plummeted 45.93%. Singapore and Hong Kong also posted dismal returns for the quarter: -32.56% and -26.87%, respec- tively. Ignoring its currency decline (-6.62%) against the dollar, Australia's equity market was the Pacific's best performer in local currency terms, declining a slight 0.36%. Lack of confidence in Japanese authorities' resolve to complete necessary reforms helped push the MSCI-Japan Index down 4.56%. Despite intervention by the US Federal Reserve and the Bank of Ja- pan, which briefly helped support a free-falling yen, the yen declined 3 .92 % versus the dollar. Whether or not the Japanese government will take the steps necessary to build confidence in its economy will be watched closely in the upcoming months. Emerging Markets Emerging markets, as measured by the MSCI-Emerging Mar- kets Free Index, experienced their worst three-month performance since 1990, declining 23.60%. Asia's markets led the decline, as high- lighted by the 32.09% loss in the MSCI-Emerging Markets Far East Index. •CHR- Governments Gain on Asian Anxiety Renewed turmoil in Asia last quarter fueled a flight to quality, with government bonds in Europe and the U.S. the primary beneficiaries. The Salomon Non-U.S. Government Bond Index trailed the Lehman Brothers Government/Corporate Index with a return of 1.67% ver- sus 2.61 %. As the best performing bond markets, France and Den- mark were tied with a return of 4.40% in dollar terms. The worst mar- ket was Australia (-4.93% ). Weakness in the commodity markets hurt returns in both Australia and Canada. The Canadian dollar remained weak over the quarter, depreciating an additional 3.30% against the greenback. The dollar took a break in its rise against European curren- cies while continuing to strengthen versus the yen. Europe Lowinflationexpectations, Global Fixed-Income Returns for moderate growth and an antici-Quarter Ended June 30, 1998 pated smooth transition to EMU led to gains in most Eu- ropean bond markets. Eleven countries, as expected, have qualified to enter EMU. Re- flecting this expectation, yield convergence across these countries has already taken SB Non-U.S. Goyt U.S. Dollar Local Currency SB World Goyt U.S. Dollar Local Currency Last Quarter 1.67 1.76 1.99 2.06 place. Yield curves came down across core Europe by an average of 15 basis points. The German Government Bond Index gained 4.23% in dollar terms with help from a 2.46% gain in the German mark. Ger- man government bond yields declined marginally while the yield curve flattened. The French Government Bond Index also put in a good show- ing returning 4.40% and 1.87% in dollar and local currency terms, respectively. As a result of increasing inflation and evidence of economic weak- ness, the gilt yield curve in the UK continued to invert, as short-term rates rose and long-term rates fell. Sterling ended the quarter about where it began at $1.67 per pound, after going as low as $1.62 in mid- May on rumors of an official desire for a weaker currency to jump- start the faltering export sector. The UK Government Bond Index rose a modest 1.38% (+l.75% in local currency). The Bank of Italy lowered its discount rate by 0.50% in April, reducing the gap between German and Italian money market rates. Italy and Spain, on the assurance of their inclusion in the first round of EMU, posted gains of 4.38% and 4.21 % in dollar terms, respectively. Asia Political and economic uncertainty continued to prevail in Japan. Weak economic news in the form of rising unemployment and falling industrial production helped to support the bond market. Japanese government bond yields dropped further, with one-year yields ending the quarter at approximately 0.50% and 15 year yields around 2.00%. The SB Japanese Government Bond Index returned a respectable 1. 72% in local currency terms but a loss of 2.26% in dollar terms. The yen weakened again versus the dollar, as the government's commitment to real reform was questioned and demand for Japanese and other Asian securities fell. Emerging Markets Economic and political upheaval in Russia undermined the JP Morgan EMBI+ Index, which declined 5.97% during the quarter. Russia was the worst performing market with a loss of 20.46%. The Latin American component, representing 78% of the index, returned -4.20% compared to a -12.10% return for the non-Latin component. -CHR· Callan Associates Inc. 3 ) l j j J U.S. Economy from page 1 shutdown; the strike will shave 0.5% off GDP growth in the second quarter. There is little sign of slowing elsewhere in the economy. The non- manufacturing portion of the Purchasing Index has held close to 60 for the past year. Consumers are certainly not holding back, and why should they? Unemployment remains near a 25-year low; interest rates for homes, cars, and consumer credit are low; inflation is non-exis- tent; and the stock market has created substantial gains in wealth. The Conference Board's index of confidence rose to a record-high 137 .6 in June. Low mortgage rates and rising real incomes have electrified the housing market; home sales set a record in March and came close to this record in May. Fueled by incentives, second quarter auto sales notched their best performance since 1986. The Federal Reserve is standing pat, worried about wage inflation yet fearful of an Asian-induced recession. Much of the Fed's work is being done by other forces. Hourly wages have finally begun to r.ise, but inflation has yet to show up. In fact, inflation continues to deceler- ate, thanks to falling import prices, weak petroleum and commodity prices, and nearly flat finished goods prices. Falling inflation has re- ally meant de facto tightening by the Fed over the past year, with real interest rates at their highest levels since 1990. The trade deficit is ballooning, as exports to Asia shrink and imports rise, creating the slowdown that the Fed might otherwise have to arrange. The risk of an Asian-induced recession in the U.S. is increasing. The outlook for Japan is growing gloomier, as both its recession and its banking problems are more serious than anticipated. Japan's in- creasing woes mean deeper recessions across the rest of Asia. -CMR• Real Estate Corner The Two Faces of Real Estate With the second quarter's close, private real estate values contin- ued to increase while publicly traded real estate investment trusts (REITs) suffered more declines. The competition for assets resulted in higher sales prices (and higher appraised values) pushing the private real estate market upward. The REIT market, however, suffered net outflows for the quarter. Industry observers expect the private real estate market to con- tinue its upward trend, with office and retail properties outperforming multifamily and industrial. Coupled with the increase in prices, prop- erty level net operating income is climbing, as rents increase and va- cancies decrease in most markets. Can this continue? According to the Urban Land lnstitute's 1998 Real Estate Forecast, markets can expect to slow by the end of 1999 and throughout 2000 when overbuilding and overpricing come into play. Prior to then, if the economy remains strong, demand for quality assets will remain high. During the second quarter, the REIT market did not enjoy the same suc- cess as private markets. Continuing its first quarter downturn, the NAREIT In- dex lost 4.63% in the latest Real Estate Returns for Quarter Ended June 30, 1998 Callan Real Estate (Mean) NAREITTotal Return Last Quarter 4.36* -4.63 quarter. A few key actions • Preliminary can help explain the poor performance: (1) equity offerings have been held up or withdrawn, (2) the prospects for lower than expected 1999 earnings have increased, (3) REIT acquisition programs have slowed as potential acquisitions are not accretive, and (4) momentum investors exited the market at the sight of pending legislation to change the UPREIT structure. Nev- ertheless, REITs are still attractively valued relative to the broader equity market and have strong internal growth potential. -CMR- Alternative Perspective 1998 Private Equity Fund Raising Six months into 1998, a record pace is being set for fund raising in both dollars and partnership figures. The $38 billion raised year-to- date is 50% greater than at the same time last year. Monthly dollar totals are greater than comparable totals in previous years, with June's closings alone topping $14 billion. Funds Closed January 1 through June 30, 1998 Strategy # of Funds $ Amt (mil) % Venture Capital 59 7,304 19.1 Acquisition/Buyout 51 23,185 60.6 Subordinated Debt 4 499 1.3 Restructuring 2 710 1.9 Other 19 6,530 17.1 Totals 135 38,228 100.0 Source: The Private Equity Analyst and Buyouts The current funding levels include a 70% ( or $3 billion) increase in dollar allocations to Venture Capital, a 57% funding increase for Buyouts and a 100% increase in the Other category, which includes fund-of-funds that raised $5.5 billion in 1998's first half. Buyout's Buying Power Recent reports (e.g., "Buyout Firms Find Bargains Scarce" from The Wall Street Journal, July 9, 1998) have focused on the current investing environment for buyout funds and the $90 billion in avail- able capital. Concerns include increasing deal prices and decreasing IRRs. For example, the average acquisition price of deals greater than $500 million during 1998 's first quarter was 8.59 times EBITA com- pared to 8.33 and 7 .24 in 1997 and 1996, respectively. Also, many buyout funds are informing investors to expect returns around 25%, a more modest figure than the 35% returns achieved in the early 1990s. However, buyout general partners point out a couple of differenti- ating factors between their current funds and those of the past. These factors include the new funds' "buy and build" strategies, instead of buying more established growth companies and taking them public. Also, less leverage is used, with funds obtaining three times as much equity in a company than a decade ago. These factors presumably make the investments more resilient to economic downturns. -CMR- The Capital Market Review is published quarterly for members of the institutional investment community, both domestic and international. The Capital Market Review focuses primarily on the latest quarterly perfor- mance of market indices and Callan style groups for each of the major asset classes used by institutional investors. Capital Market Review con- tributors are as follows: Janet Becker-Wold, Non-U.S. Fixed Aaron Jones, U.S. Fixed-Income Sean Keene, Real Estate Jay Kloepfer, Economy Jim McKee, U.S. Equity Jeffrey Reed, Alternative Investments Justin Toner, Non-U.S. Equity Callan Associates Inc. is a privately-held and 100 percent employee- owned firm whose sole business is strategic asset management consult- ing as an independent, objective third party. Headquartered in San Fran- cisco, Callan also has regional offices in Chicago, Morristown, Atlanta and Denver. © 1998 Callan Associates Inc. Callan Associates Inc. 4 l I j J I J J ffll CAPITAL MARKET REVIEW liil A PUBLICATION OF CALIAN ASSOCIATES INC. U.S.EQUITY APPENDIX A SECOND QUARTER 1998 Style Median and Index Returns* for Periods Ended June 30, 1998 Last Last2 Last Last3 Lasts Last 10 Quarter Quarters Year Years Years Years Large Cap Equity Large Cap-Broad Style 2.56 15.94 28.67 28.18 21.68 18.27 Large Cap-Growth Style 5.27 21.19 34.16 28.69 22.01 19.22 Large Cap-Value Style -0.88 10.00 21.24 25.25 20.60 17.32 Aggressive Growth Style 1.21 13.29 22.42 19.72 17.14 20.21 Contrarian Style -1.10 12.07 20.96 24.80 20.47 16.19 Core Style 3.42 17.61 30.56 29.65 22.24 18.53 Yield Style -0.86 9.90 23.36 26.39 20.45 17.23 CAI Broad Market Index 2.07 15.86 29.07 28.35 21.55 17.70 CAI Large Cap Index 5.13 20.91 33.23 32.96 24.53 19.24 S&P500 3.36 17.77 30.23 30.30 23.07 18.55 NYSE 1.45 14.08 27.27 28.25 21.16 17.42 Dow Jones Industrials 2.15 14.12 18.69 27.81 23.36 18.75 Mid Cap Equity Mid Cap-Broad Style -1.48 10.07 23.14 23.21 19.72 18.15 Mid Cap-Growth Style 0.18 13.67 24.86 21.74 18.46 18.38 Mid Cap-Value Style -3.25 7.90 21.39 25.93 20.75 18.16 CAI Medium Cap Index -0.78 10.12 26.92 24.56 18.72 16.54 S&P MidCap 400 -2.22 8.55 27.06 24.02 18.46 18.36 Small Cap Equity Small Cap-Broad Style -4.31 6.27 19.29 23.49 18.93 18.08 Small Cap-Growth Style -3.44 8.16 15.58 19.36 18.60 19.12 Small Cap-Value Style -4.42 5.91 22.48 24.84 18.94 16.70 CAI Small Cap Index -3.97 7.60 18.68 20.28 16.87 14.98 CAI Micro Cap Index -4.88 6.88 17.56 21.48 17.96 14.29 Russell 2000 -4.66 4.93 16.51 18.87 16.06 13.58 NASDAQ 3.32 20.89 31.92 27.22 22.72 18.31 CAI Broad Market Sectors** Basic Materials -4.25 5.81 1.86 10.48 12.17 10.64 Capital Goods -3.15 9.74 15.12 26.03 19.80 14.86 Communication Services -3.70 14.18 43.80 Consumer Cyclical 4.55 23.61 39.53 24.95 17.27 16.09 Consumer Staples 2.46 13.18 26.62 29.60 24.60 21.73 Energy -2.61 2.38 10.95 22.34 15.79 14.16 Financials 2.93 14.54 40.11 41.38 27.84 21.94 Health Care 5.88 22.98 32.94 Utilities -0.32 5.02 28.79 19.72 12.42 14.10 Technology 7.11 27.79 31.45 29.16 27.36 17.33 Transportation -6.59 4.62 16.07 21.72 15.30 15.05 • Returns less than one year are not annualized. •• The economic sectors were reorganized to eliminate the Miscellaneous sector in performance measurements after June 30, 1996. As part of this reorganization, two new sectors, CommuniC!lti0n Services and Health Care Services, were created. Consequently, sector comparisons of time periods beginning prior to June 30, 1996 with time periods beginning after that date may not be valid. U.S. Equity Index Characteristics as of June 30, 1998 Callan Callan Callan Callan Callan S&P Broad Large Medium Small Micro 500 Cap Range ($MM) 53-296,073 10,882-296,073 1,052-22,728 53-8,490 18-1,277 688-296,073 # Issues 2,000 150 350 1,500 1,000 500 % of Callan Broad 100% 60% 22% 18 % NIA NIA Wtd Avg Mkt Cap $57.0 B $89.0B $8.6B $2.1 B $0.3 B $70.6B Price/Book Ratio 725% 855 % 570% 497% 389% 762% PIE Ratio (forecasted) 24.9 27.2 21.2 21.5 19.3 25.5 Dividend Yield 1.3 % 1.3 % 1.4% 0.9% 0.6% 1.4% 5-Yr Earnings (forecasted) 15.3 % 14.7 % 15.2% 18.6% 20.8% 14.3 % Callan Associates Inc. 5 III CAPITAL MARKET REVIEW APPENDJXB A PUBLICATION OF CALLAN ASSOCIATES INC. SECOND QUARfER 1998 U.S. FIXED INCOME Style Median and Index Returns* for Periods Ended June 30, 1998 Last Last2 Last Last3 Lasts Last 10 Quarter Quarters Year Years Years Years Broad Fixed-Income Active Duration Style 2.63 4.22 11.19 7.98 6.88 9.24 Core Bond Style 2.46 4.15 10.81 8.10 7.06 9.31 LB Aggregate 2.34 3.94 10.54 7.88 6.88 9.07 LB Govt/Corp 2.61 4.17 11.28 7.86 6.88 9.10 LB Corp 2.58 4.15 11.39 8.41 7.55 9.78 LB Govt 2.63 4.18 11.24 7.69 6.66 8.87 SB Broad Investment Grade 2.31 3.96 10.59 7.88 6.91 9.11 l Long Term Extended Maturity Style 4.10 5.91 17.97 10.65 9.08 11.31 LB Gov/Corp Long 4.25 5.74 18.12 10.21 8.83 11.14 LB Gov Long 4.25 5.82 19.18 10.25 8.82 11.23 l LB Corp Long 3.54 4.85 15.40 9.96 8.75 10.92 SB High Grade 3.37 5.11 15.55 9.65 8.38 10.72 Intermediate Term 1 Intermediate Style 1.94 3.66 8.89 7.18 6.36 8.54 LB Gov/Corp Intermediate 1.88 3.47 8.54 6.92 6.12 8.25 LB Gov Intermediate 1.85 3.39 8.38 6.74 5.91 8.05 LB Corp Intermediate 1.99 3.70 9.05 7.49 6.87 9.01 l Short Term Defensive Style 1.61 3.14 6.98 6.45 5.68 7.63 Active Cash Style 1.47 2.86 5.95 5.88 5.34 6.61 J Money Market Funds (net of fees) 1.25 2.52 5.16 5.10 4.64 5.40 ML Treasury 1-3 Year 1.53 3.01 6.80 6.27 5.61 7.22 90-day Treasury Bills 1.30 2.62 5.31 5.32 4.96 5.62 High Yield CAI High Yield Style 0.86 5.07 12.93 13.66 11.92 12.77 ML High Yield Master 1.68 4.51 11.40 11.67 10.49 11.70 First Boston High Yield 1.26 4.30 10.96 11.85 10.44 11.59 Mortgage/ Asset-Backed CAI Mortgages Style 1.97 3.73 9.53 8.27 7.15 9.46 j LB Mortgage-Backed Securities 1.72 3.39 8.94 7.96 6.91 9.02 LB Asset-Backed Securities 1.85 3.61 8.08 7.03 6.33 Inflation Consumer Price Index 0.76 1.08 1.60 2.18 2.41 3.20 Producer Price Index 0.24 -1.57 -1.88 -0.13 0.87 1.53 • Returns less than one year are not annualized. U.S. Fixed-Income Index Characteristics as of June 30, 1998 Yield Modified Adj. Average %of %of Lehman Brothers Indices To Worst Duration Maturity LBG/C LB Aggregate LB Aggregate 6.08% 4.47 8.70Yrs. 100.00 % 100.00% j LB Govt/Corp 5.88 5.46 10.25 100.00 68.83 Intermediate 5.77 3.33 4.30 68.77 47.34 Long Term 6.10 10.16 23.35 31.23 21.49 LB Govt 5.64 5.21 8.95 69.96 48.15 LB Corp 6.41 6.04 13.26 30.04 20.68 LB Mortgage 6.56 2.27 5.34 30.22 LB Asset-Backed Securities 6.04 3.14 3.73 0.95 Callan Associates Inc. 6 1 l 1 } j J a CAPITAL MARKET REVIEW APPENDIXC APUBUCATION OF CAILAN ASSOCIATES INC. SECOND QUARTER 1998 INTERNATIONAL EQUITY Style Median and Index Returns* for Periods Ended June 30, 1998 Last Quarter International Equity Global Style 1.00 Non-U.S. Style 1.31 Core Style 2.19 Top Down Style 1.99 Bottom Up Style -0.15 MSC! EAFE--Unhedged 1.06 MSC! EAFE-Local 1.31 MSC! EAFE ex Japan-Unhedged 2.68 MSC! EAFE ex Japan-Local 1.88 MSCI World-Unhedged 2.03 MSCI World-Local 2.23 Pacific Equity Pacific Basin Style -12.24 Japan Style 4.26 Pacific Rim Style -24.54 MSC! Pacific-Unhedged -8.82 MSC! Pacific-Local -4.90 MSC! Japan-Unhedged -4.56 MSC! Japan-Local -0.67 Europe Equity Europe Style 5.75 MSCI Europe--Unhedged 5.14 MSC! Europe-Local 3.80 Emerging Markets Emerging Markets Database -19.02 MSC! Emerging Market Free -23.60 * Returns less than one year are not annualized. Return Attribution for EAFE Countries for Quarter Ended June 30, 1998 Country (by weight) Total Local Currency United Kingdom -2.00% -1.64% -0.36% Japan -4.56 -0.67 -3.92 Germany 16.72 13.92 2.46 France 11.16 8.47 2.48 Switzerland 3.76 3.24 0.51 Netherlands 7.01 4.42 2.48 Italy -2.10 -4.54 2.55 Spain 4.21 1.60 2.57 Sweden 7.45 7.19 0.24 Australia -6.96 -0.36 -6.62 Belgium 21.59 18.59 2.52 Hong Kong -26.87 -26.86 -0.01 Denmark -3.70 -6.06 2.51 Finland 23.50 20.73 2.29 Norway -6.32 -5.71 -0.65 Portugal -2.39 -4.80 2.53 Ireland 2.97 0.30 2.66 Malaysia -45.93 -38.40 -12.22 Singapore -32.56 -29.45 -4.41 Austria 6.47 3.92 2.46 New Zealand -18.64 -13.35 -6.11 Last2 Last Last3 Lasts Last 10 Quarters Year Years Years Years 13.85 13.87 18.42 16.32 13.85 15.60 8.27 14.91 13.98 11.29 16.26 8.29 14.39 13.06 11.29 17.70 8.25 15.09 12.20 10.99 15.08 8.14 14.43 14.40 11.10 15.93 6.10 10.69 10.04 6.79 17.85 14.79 20.74 12.27 7.05 22.15 24.84 22.06 20.25 15.22 22.63 29.75 27.64 20.74 15.73 16.64 17.03 19.23 15.64 11.17 17.65 21.81 25.01 16.73 11.22 -10.20 -35.99 -9.02 -1.48 2.78 -0.20 -33.28 -12.43 -7.66 -0.89 -19.37 -49.86 -14.33 -0.10 8.22 -5.92 -34.60 -11.27 -6.03 -3.11 -0.48 -21.29 2.14 -1.53 -2.61 -2.61 -31.84 -11.64 -7.40 -4.35 3.95 -17.34 4.09 -2.20 -3.98 27.94 37.06 27.76 23.74 18.05 26.48 37.05 26.89 22.97 16.37 26.80 40.34 32.88 23.25 16.85 -14.67 -31.55 -2.25 3.51 17.79 -18.87 -39.09 -9.33 0.44 12.16 Country Weights-EAFE For Quarter Ended June 30, 1998 New Zealand 0.2% Austria 0.4% Singapore 0.5% Malaysia 0.5% Ireland 0.6% Portugal 0.6 Norway 0.6o/o Finland I .O'll Denmark 1.0% Hong Kong 1.7% Belgium 1.9% Switzerland 7.9% France 9.6% Callan Associates Inc. 7 7 I l j l J j J m CAPITAL MARKET REVIEW Kil A PUBLICATION OF CAILAN ASSOCIA1ES INC. APPENDIXD SECOND QUARTER 1998 INTERNATIONAL FIXED INCOME Style Median and Index Returns* for Periods Ended June 30, 1998 Last Last2 Last Last3 Lasts Last 10 Quarter Quarters Year Years Years Years Global Fixed Global Style 2.03 3.53 6.25 5.50 6.87 9.58 SB World Govt-Unhedged 1.99 2.79 4.31 2.84 6.32 8.35 SB World Govt-Local 2.06 4.27 10.06 9.21 8.08 9.09 Non-U.S. Fixed Non-U.S. Style 1.66 2.69 2.30 2.80 6.72 9.21 SB Non-U.S. Govt-Unhedged 1.67 2.09 0.89 0.44 6.36 8.15 SB Non-U.S. Govt-Local 1.76 4.31 9.41 9.98 8.62 8.96 Emerging Markets Fixed SB Brady Bond Index -4.38 0.84 5.60 22.72 15.53 * Returns less than one year are not annualized. Return Attribution for Non-U.S. Government Country Weights-SB Non-U.S. Govt For Quarter Ended June 30, 1998 Indices for Quarter Ended June 30, 1998 Country (by weight) Total Local Currency Japan -2.26% 1.72% -3.92% Germany 4.23 1.73 2.46 France 4.40 1.87 2.48 Italy 4.38 1.79 2.55 United Kingdom 1.38 1.75 -0.36 Canada -1.79 1.56 -3.30 Belgium 3 .6% Spain 4.21 1.61 2.57 Netherlands 4.25 1.73 2.48 Belgium 4.22 1.66 2.52 Netherlands 4.4% Denmark 4.40 1.84 2.51 Sweden 3.36 3.11 0.24 Austria 4.32 1.82 2.46 Australia -4.93 1.81 -6.62 Finland 3.96 1.63 2.29 Switzerland 0.09 -0.42 0.51 Ireland 3.96 1.27 2.66 OTHER ASSET CLASSES Japan 26.9% Italy 11.0% Style Median and Index Returns* for Periods Ended June 30, 1998 Last Last2 Last Last 3 Lasts Quarter Quarters Year Years Years Balanced Accounts Asset Allocator Style 2.26 11.04 19.78 19.29 14.32 Domestic Balanced Database 1.84 10.03 19.39 19.01 15.00 Global Balanced Database 2.29 12.13 14.26 15.31 12.88 60% S&P 500 + 40% LB G/C 3.06 12.31 22.51 21.03 16.46 Convertibles Convertibles Database 0.13 9.64 18.06 18.37 14.24 First Boston Convertible Securities -1.50 6.59 13.97 14.95 12.46 Real Estate Callan Real Estate** (mean; net of fees) 4.36 7.05 17.17 11.55 8.83 NAREIT Total Return -4.63 -5.49 6.02 18.73 13.23 • Returns less than one year are not annualized. •• Preliminary Last 10 Years 13.66 14.04 12.16 14.82 14.60 12.39 4.42 10.07 Germany 13.7% Callan Associates Inc. 8 7 l J 1 l j J j MARKET OVERVIEW ACTIVE MANAGEMENT VS INDEX RETURNS /I Market Overview The charts below illustrate the range of returns across managers in Callan's Separate Account database over the most recent one quarter and one year time periods. The database is broken down by asset class to illustrate the difference in returns across those asset classes. An appropriate index is also shown for each asset class for comparison purposes. As an example, the first bar in the upper chart illustrates the range of returns for domestic equity managers over the last quarter. The triangle represents the S&P 500 return. The number next to the triangle represents the ranking of the S&P 500 in the domestic equity manager database. 15% IO¼ V, 5% - - Range of Separate Account Manager Returns by Asset Class One Quarter Ended June 30, 1998 a B (34)[] (22)-;_ (39)1,! (48'ft • (l) i::i::: 0% (5';{,) ( IO'T) I 0th Percentile 25th Percentile Median 75th Percentile 90th Percentile Index " 40% 35% - 30% -(28) 25% - V, t:: .... 20% - ;:I .... 15% (l) i::i::: - 10% - 5% - 0% (5';{,) 10th Percentile 25th Percentile Median 75th Percentile 90th Percentile Index " (51) a (74) Dome tic Non-US D1imestic Non-OS Real Cash Equity Equity Fixed-Income Govt Bond Estate Equivalents vs vs vs VS vs vs S&P 500 MSCI EAFE LB Aggr Bd CAI Intl. FI NCREIF Index 3 Mon T-Bills 5.22 5.53 2.76 2.97 11.89 1.54 3.18 2.89 2.49 2.27 5.04 1.47 0.10 1.31 2.12 1.66 2.25 1.40 (3.43) (0.62) 1.78 1.34 1.61 1.30 (5.51) (2.16) 1.51 1.07 1.35 1.22 3.36 1.06 2.34 1.67 4.05 1.30 Range of Separate Account Manager Returns by Asset Class One Year Ended June 30, 1998 IA (48) .1.. (45)§ (69)" I I (81) . I {1,1)) .. Domestic Non-US Domestic Non-US Real Cash Equity Equity Fixed-Income Govt Bond Estate Equivalents vs VS VS vs vs VS S&PSOO MSCI EAFE LB Aggr Bd CAI Intl. FI NCREIF Index 3 Mon T-Bills 35.25 17.87 12.56 7.92 29.56 6.46 30.84 14.21 11.22 3.16 23.04 6.21 25.71 8.27 10.17 2.30 16.75 5.86 19.69 5.43 8.66 0.54 11.56 5.40 14.16 (0.64) 7.02 (0.21) 8.94 5.17 30.23 6.IO l0.54 0.89 17.50 5.31 County Sanitation Districts Of Orange County 7 7 1 l 7 l l 1 J DOMESTIC FIXED-INCOME Active Management Overview Active Management vs the Index Fixed income markets had a strong quarter as the U.S. bond market benefited from the economic troubles in Japan, Asian emerging markets and Russia. As a result, during the second quarter of 1998, all fixed-income style groups continued to post positive median returns. The median Core Bond fixed-income manager, with a return of 2.46%, outperformed the Lehman Aggregate Index which returned 2.34%. Core Plus managers, with their slight exposure to international bonds, returned a median of 2.42% which was slightly below the Core median but still above the benchmark. The Extended Maturity Style Group offered the largest gains for the quarter. In contrast to the previous quarter where it led all style groups, the High Yield Style Group lagged behind the rest of the groups. Short Duration vs Long For the quarter the Treasury curve flattened considerably, as yields fell across all maturities from 2 years out. Longer maturities saw the largest gains for the quarter. Yields in the middle of the curve (2-10 year) also fell somewhat and actually ended below the Federal Funds Rate of 5.50%, creating a slight inversion at that part of the curve. The benchmark 30-year Treasury yield, which started the quarter at 5.93%, ended the quarter at 5.62%. lortgages and High Yield The fir t quarter's rush of corporate issuance continued into the second quarter with a slew of huge deals. At times this corporate rush dragged down prices as the market tried to digest the issues , but demand generally remained strong, especially for higher qualities. Despite the enormous amount of new issues that hit the market this quarter, corporates performed very well. Mortgages lagged somewhat, with low rates continuing to prompt worries of refinancings. Separate Account Style Group Median Returns for Quarter Ended June 30, 1998 Lehman Aggregate: 2.34% 5% ,-----------------------------t__L_e_h_m_an_G_ov_tJ_C_o_rp_: __ 2_._61_'7i_o_, ----------------- 3% ------------------------------------ 2% 1% 0%~-- Active Defensive lntcrmed Cash Core Bond Core Plus 4.10% Extended Active Mortgage High Maturity Duration Backed Yield Separate Account Style Group Median Returns for One Year Ended June 30, 1998 Lehman Aggregate: 10.54% 25% r------------------------------1__L_c_h_m_an_G_ov_1J_C_o_rp_: __ 11_.2_8_'¼_0 _. 20% --------------------------------17.97% ----------------------- 15% 10% ----------------~ ... - 5% 0%~-- 6.98% Active Defensive lntermed Cash County Sanitation Districts Of Orange County Core Bond Core Plus --------------2.93% ____ _ 11.19% Extended Active Mortgage High Maturity Duration Backed Yield II 7 7 1 1 7 } l .J J Asset Class Risk and Return /I The charts below show the two and three-quarter year annualized risk and return for each asset class component of the Total Fund. The first graph contrasts these values with those of the appropriate index for each asset class. The second chart contrasts them with the risk and return of the median portfolio in each of the CAI Total Asset Class Databases. In each case, the crosshairs on the chart represent the return and risk of the Total Fund. "' a := .... (I) ci::: "' E := .... (I) ci::: 7.0'i'c 6.8¼ 6.6¼ 6.4¼ 6.2¼.· 6.0% 5.8% 5.6% 5.4'i'o 5.2¼ 5.0% Two And Three-Quarter Year Annualized Risk vs Return Asset Classes vs Benchmark Indices I Total Domestic Fixed-Income I '\I. .,.. I Lehman Brothers l -5yr GovtJCo[]) I Merrill Lynch l-3yr GovtJCorp r• ! Mj,50/C ! ~ 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6'7,, 1.8% 2.0% 2.2¼ 7.0'lo 6.5% 6,0¼ . 5.5% 5.0</o 4.5¼ Standard Deviation Two And Three-Quarter Year Annualized Risk vs Return Asset Classes vs Asset Class Median . I Total Domestic Fixed-Income ( Defensive Fixed-Income Style ....... ---1 Mr,ncy Market Median I . (l.0% 0.2% 0.4¼ 0.6% 0.8% l.0'7o 1.2% 1.4% 1.6¼ 1.8% 2.0% Standard Deviation County Sanitation Districts Of Orange County 7 7 7 ) _J -l J _J J J J J Investment Manager Asset Allocation The table below contrasts the distribution of assets across the Fund's investment managers as of June 30, 1998, with the distribution as of March 31, 1998. Asset Distribution Across Investment Managers Domestic Fixed Income Long Term Operating Fund Liquid Operating Monies Total Fund County Sanitation Districts Of Orange County June 30, 1998 Market Value Percent $329,145,752 100.0% 311,053,742 94.5% 18.092,010 5.5% $329,145,752 100.0% March 31, 1998 Market Value Percent $323,489,102 100.0% 305,647,372 94.5% 17.841.730 5.5% $323,489,102 100.0% Bl 7 7 l 7 l j _I j _J J /j Investment Manager Returns The table below details the rates of return for the plan's investment managers over various time periods ended June 30, 1998. Negative returns are shown in red, po iti ve returns in black. Returns for one year or greater are annualized. The first set of returns for each asset class represents the composite returns for all the fund's accounts for that asset class. Returns for Periods Ended June 30, 1998 Last Last Last Last 2 2-3/4 Quarter Year Years Years Domestic Fixed Income 1.75% 7.75% 7.39% 6.78% Long Term Operating Fund 1.77% 7.87% 7.51% 6.85% Liquid Operating Monies 1.40% 5.64% 5.53% 5.60% Liquid Operating Monies ( 1) 1.36% 5.48% 5.37% 5.44% Market Indicators Lehman Brothers l-5yr Govt/Corp 1.67% 7.75% 7.31% 6.67% Merrill Lynch 1-3yr Govt/Corp 1.55% 6.85% 6.75% 6.36% Merrill Lynch 1-5yr Govt/Corp 1.67% 7.53% 7.19% 6.58% Treasury Bills 1.30% 5.31% 5.31% 5.30% Total Fund 1.75% 7.75% 7.39% 6.78% (1) Net of Fees. County Sanitation Districts Of Orange County 7 . I J .J 00 a 3 (]) 0:: (]) ;> -~ PIMCO-LIQUID OPERATING MONEY BJI PERIOD ENDED JUNE 30, 1998 /I Investment Philosophy The Money Market Funds Database consists of actively managed short term funds. These funds invest in low-risk, highly liquid, short-term financial instruments. Quarterly Summary and Highlights • PIM CO-Liquid Operating Money's portfolio posted a 1.40% return for the quarter placing it in the 1 percentile of the Money Market Database group for the quarter and in the 5 percentile for the last year. • PIMCO-Liquid Operating Money's portfolio outperformed the T-Bls by 0.10% for the quarter and outperformed the T-Bls for the year by 0.33%. Quarterly Asset Growth Beginning Market Value $17,841 ,730 Net New Investment $-3 Investment Gains/(Losses) $250,283 Ending Market Value $18,092,010 Performance vs Money Market Database 7% 6% 5% - 4'7o 3% - 2% 1% - 0% 10th Percentile 25th Percentile Median 75th Percentile 90th Percentile PIMCO-LJquiu Operating Money • A Net of Fees • 0 T-Bls • (24),dl • A(I) l 8<5) Last Quarter 1.34 1.30 1.25 1.20 1.14 1.40 1.36 1.30 Relative Return vs T-Bls (30) 8(14) ~A(5) Last Year 5.53 5.35 5.16 4.93 4.71 5.64 5.48 5.31 0.20% --....... ------~------..-----, 00 C .... ;::l ti 0:: (]) .::: ~ ~ 0:: (]) (21) 8(15) ~A(5) (22) B(10) ~A(I) Last 2 Years Last 2-3/4 Years 5.44 5.44 5.27 5.27 5.07 5.07 4.86 4.86 4.63 4.66 5.53 5.60 5.37 5.44 5.31 5.30 Cumulative Returns vs T-Bls 1.0%- 0.8%--PIMCO-Liquid Operating Money -Money Market Database 0.4%- 0.2% - 0.0% (0 21;:i- ~ 0.00% .:::; ~ (l).4';,-)· "3 (0.10%)-1----+-------+----------~ 1995 1996 1997 I • PIMCO-Liquid Operating Money I County Sanitation Districts Of Orange County 1998 s ;::l u (0.6',)· (o.w;;,J-_____ , ___ ( l.O'A) 1995 1996 1997 1998 7 7 7 l ) J PIMCO-LONG TERM OPERATING FUND PERIOD ENDED JUNE 30, 1998 /j Investment Philosophy I Defensive Style managers aim to minimize interest rate risk by investing predominantly in short to intermediate term securities. The average portfolio maturity is typically two to five years. Quarterly Summary and Highlights • PIMCO-Long Term Operating Fund's portfolio posted a 1.77% return for the quarter placing it in the 17 percentile of the Defensive Fixed-Income Style group for the quarter and in the 15 percentile for the last year. • PIMCO-Long Term Operating Fund's portfolio outperformed the ML15 G/C by 0.10% for the quarter and outperformed the ML15 G/C for the year by 0.34%. Quarterly Asset Growth Beginning Market Value $305,647,372 Net New Investment $-153 Investment Gains/(Losses) $5,406,524 Ending Market Value $311,053,742 Performance vs Defensive Fixed-Income Style !0% 9'7c - 8¼ 7¼ 6% - (21)~(15( - - 5% - 4% 3¼ - 2% - 1% - 0% I 0th Percentile 25th Percentile Median 75th Percentile 90th Percentile PIM CO-Long Term Operating Fund • ML15 G/C .& (29:j I -~(17) Last Quarter 2.02 1.70 1.61 I 52 1.38 1.77 l.67 Relative Return vs ML15 G/C Last Year 8.52 7.34 6.98 6.54 5.95 7.87 7.53 0.30% -..---..-------...... ------..---...... 0.20%- rn 0.15%-S ~ 0.10¼ - 0:: (I.) 0.05%-.::: 'c:; 0.00% ~ i:i::: (0,()5';;.) ----' (0.20',, J -!---+----------------- 1995 l996 [997 ] • PIMCO-Long Term Operating Fund I County Sanitation Districts Of Orange County [998 en s ~ a) i:i::: (I.) .::: ~ ~ i:i::: (I.) > .E :l s ~ u (22) l ~19) (39)~(25) 1.0% 0.0% Last 2 Years 7.93 7 14 6.95 6.67 6.25 7.51 7.19 Last 2-3/4 Years 7.26 6.84 6.42 6.27 5.86 6.85 6.58 Cumulative Returns vs ML15 G/C -PIMCO-Long Term Operating Fund -Defensive Fixed-Income Style (1).5';,) -!-, --------+----------- 1995 1996 [997 1998 7 7 l ] J -) LONG TERM OPERATING FUND PORTFOLIO CHARACTERISTICS SUMMARY JUNE 30, 1998 Portfolio Structure Comparison 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 58% Global Bonds 0% . ,;-.. . Asset Backed 3% Cash 1% CMOs 2% Corporates 17¼ Long Term Operating Fund Duration Distribution Sector Allocation Treasuries 69'7o Corporates 20% Lehman Government/Corporate 1-5 Weighted Average Duration 30'7o ,-------,-------.-----,,------,----{ • Long Term Operating Fund: 2.50 D Lehman Government/Corporate 1-5: 2.36 .9 ;§ t:: 0 p... 4-< 0 c V u .... V 0.. 20% :---------- IO'i'o 0% <1.0 1.0-1.5 1.5-2.0 2.0-2.5 2.5-3.0 3.0-3.5 3.5-4.0 4.0+ Years Duration Quality Distribution Weighted Average Quality 100% -------------------~--! • Long Term Operating Fund: Aaa D Lehman Government/Corporate 1-5: Aaa Aaa+ Aaa -----------,-----,----.-----,--~ 0.1% 1.7%0.9% 3.5% 3.0% 3.5% Aal Aa2 Aa3 Moody's Rating Al 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 97% of the secunties in the portfolio (by market value) were recognized and priced. County Sanitation Districts Of Orange County LONG TERM OPERATING FUND II PORTFOLIO CHARACTERISTICS DETAIL 7 JUNE 30, 1998 I -7 Weighted Average Portfolio Characteristics j Total Fund, By Asset Class and By Sector Ending Percent -7 Market of Effective Effective OA OA Sector Value* Portfolio Coul!on Maturity Yield Duration Convexity Qualitv Total Fund $363,370,479 100.0% 6.75 5.02 5.67 2.50 (O.OJ) Aaa 7 Asset Backed $9,177,472 2.5% 5.90 7.74 5.82 0.27 0.00 Aaa Agencies $32,702,880 9.0% 6.06 2.63 5.70 2.01 ((J.15) Aaa+ CMOs $6,044,355 1.7% 6.27 26.81 5.97 2.79 0.17 Aaa+ Corporates $62,297,152 17.1% 6.70 1.76 5.86 l.57 0.05 Al ~ 1 Global Bonds $1,503,210 0.4% 6.20 4.74 6.20 4.00 0.19 A2 Mortgages $37,161,235 10.2% 6.84 16.65 6.72 l.98 (I.I I) Aaa+ l Treasuries $212,562,675 58.5% 6.93 3.61 5.40 3.()4 0.15 Aaa+ Total Fixed-Income $361,448,980 99.5% 6.76 5.04 5.67 2.51 (0.03) Aaa Cash Equivalents $1,921,499 0.5% 5.47 0.25 5.47 0.25 0.00 Aaa 5 Largest Holdings l Ending Percent Market of Effective OA OA Issuer Name Issue Name Sector Value Portfolio Yield Duration Couvexitv Quality United States Treas Nts Nt 6.875% 8/31/1999 Treasuries $53.592.000 14.7% 5.52 1.09 0.02 Aaa+ ] United Stales Treas Nts Nt 7.50% 11/15/2001 Treasuries $29,285.087 8.1% 5.55 2.95 0.11 Aaa+ United States Treas Nts Nt 6.50% 05/31/2002 Treasuries $29.085.993 8.0% 5.54 3.41 0.14 Aaa+ United Slates Treas Nts Nt 6.375% 09/30/2001 D Treasuries $22,361.819 6.2% 5.55 2.87 0.10 Aaa+ Fhlm Pool #g50476 Mpt 7% 02/01/03 Mortgages $17,978.395 4.9% 7.03 1.71 (0.81) Aaa+ 5 Lowest Rated Holdings (Moody's Rating) Ending Percent 1 Market of Effective OA OA Issuer Name l.· ue Name Sector Value Portfolio Yield Duration Convexity Quality Lehman Brothers Hldgs Inc Tranche# Tr 00196 Dtd Corporates $5,182,611 1.4% 6.06 2.IO 0.06 Baal Heller Finl Inc Fltg 6/01/2000 Corporates $4,022,172 1.1 % 5.99 1.76 0.04 A3 Heller Finl Inc Sr Nt Fltg Rate Dtd 04 Corporates $3,041,436 0.8% 6.05 0.77 0.()1 A3 Household Fin Corp Medium Fltg Rt 06/24/2003 Dd Corporates $4,028,466 1.1% 6.00 4.21 0.21 A2 Bear Stearns Co. Inc -Glo 6.200 3/30/2003 Corporates $1,526,718 0.4% 6.20 4.00 0.19 A2 5 Longest Duration Holdings Ending Percent Market of Effective OA OA I Issuer Name rs:sue Name Sector Value Portfolio Yield Duration Conve.xitv Quality United States Treas Nts Nt 3.375% 1/15/2007 Treasuries $10,091,853 2.8% 3.78 7.22 0.61 Aaa+ -J United States Treas Bds Deb 13.25% 05/15/14 Treasuries $4,063,782 1.1% 5.71 6.82 0.63 Aaa+ United States Treas Nts Nt 7.50% 2/15/2005 Treasuries $18.160,749 5.0% 5.54 5.14 0.33 Aaa+ I Fhlmc Gold Tba Fhl 6.5% 30yr Tba Mortgages $5.484,490 1.5% 6.59 4.43 (2.69) Aaa+ Household Fin Corp Medium Fltg Rt 06/24/2003 Dd Corporates $4,028,466 1.1% 6.00 4.21 0,21 A2 j J 5 Holdings with Highest Effect Yield Ending Percent Market of Effective OA OA Issuer Name Issue Name Sector Value Portfolio Yi.eld Duration Convexitv Qualitv l Fhlm Pool #g50476 Mpt 7% 02/01/03 Mortgages $17.978,395 4.9% 7.03 1.71 (0.81) Aaa+ Fhlmc Gold Tba Fhl 7.0% 30yr Tba Mortgages $2,791.250 0.8% 6.75 3.54 (3.72) Aaa+ c...J Fhlmc Gold Tba Fhl 6.5% 30yr Toa Mortgages $5.484.490 1.5% 6.59 4.43 (2.69) Aaa+ Gnma Gtd Pass Thru Ctf Mpl 7% 06/20/2027 Mortgages $5,061.660 1.4% 6.46 0.80 (0.23) Aaa+ J Gnma Ii #008684 Gn2 08/20/2025 Mortgages $1 ,877,144 0.5% 6.42 0.19 (0.13) Aaa+ * Market Value shown does not include payables and receivables. All Statistics shown on the page are dependent on the securities in the portfolio being recognized (by their Cusip) I and priced. In this case 97% of the securities in the portfolio (by market value) were recognized and priced. d County Sanitation Districts Of Orange County FAHR COMMITTEE Meeting Date 09/9/98 AGENl)A REPORT Item Number 14 (a) Orange County Sanitation District FROM: Don McIntyre, General Manager Originator: Greg Mathews, Assistant to the General Manager SUBJECT: FY 1997/98 END-OF-YEAR OPERATIONAL REPORT (FAHR98-66) GENERAL MANAGER'S RECOMMENDATION This is an information item only. SUMMARY The Critical Goals Workplan and budgetary Performance Objectives are annual planning tools designed to assist staff in reaching best-in-class status. Staff and District-wide performance is compared to pre-set benchmark standards or milestone targets as reflected in these tools. This comparison is designed to show how well we have completed duties and responsibilities compared to our expectations. The FY 1997 /98 Workplan, developed as a separate product and distributed to the Committee at the beginning of last fiscal year, details projects, programs, objectives and tasks designed to achieve District-wide Critical Goals. Milestones were identified that represented successful completion of a major task. Completion of these task milestones was identified as important to the success of the agency. Contained within the attached report is a matrix of the FY 97 /98 Critical Goals. The budgetary performance objectives identify division-wide specific and measurable functions that staff are expected to perform. These objectives, detailed in the 1997/98 Budget, are indicative of major day-to-day or special project functions. Actual performance is measured against established benchmarks, and staff are held accountable for the results achieved. The FAHR Committee and Board have been kept apprised of quarterly progress regarding the workplan and performance objectives in the Financial & Operational Reports. At the end of the fiscal year, the Finance Department prepares a Comprehensive Annual Financial Report (CAFR) that is presented to the FAHR Committee in November. As the CAFR replaces the financial component of the Financial & Operational Report, a stand-alone, end-of-year operational report is provided for the Committee's review. H:lwp.dtalfin\210'crane\FAHRIFAHR98\Sept\FAHR98-66.doc ReYised: 1/5198 Page 1 ToJt. Bds. 09/23/98 Item Number PROJECT/CONTRACT COST SUMMARY Not Applicable. 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. [gJ Not applicable (information item) ADDITIONAL INFORMATION Divisions and departments overall achieved 75% of their year-end budgetary performance objectives. Although this is slightly below the 80% benchmark expected, it represents significant accomplishments. During a Board Budget Workshop last Spring, several Directors urged staff to elevate many departmenVdivision performance objectives to best-in-class status. Staff complied with this request. As a result, however, some objectives have been missed as little room for error was provided. Regardless of our collective inability to achieve the 80% overall benchmark, staff believe we have generally performed very well, given the best-in-class performance expectations. Through FY 1997 /98, the District completed 381 of 464 workplan tasks--82%. The District exceeded the 80% completion benchmark established, and although we were behind schedule on many tasks throughout the year, we were able to complete many delayed projects before the close of the 4th quarter. Many of the missed workplan milestones were related to re-engineering efforts. The DART process has taken longer than expected and thus many workplan milestones associated with this effort were delayed. Efforts required for unplanned work, · such as El Nino preparation, also contributed to delays in planned tasks. Moreover, the accelerated downsizing program placed us well below our end-of- year target of 549 FTEs and impacted our ability to complete tasks based on original workplan schedules. The attached report provides details related to performance objectives and workplan tasks. Staff will be available to answer questions regarding the content of this report. ALTERNATIVES Not Applicable. \lradon\data1wp.dtallin\210\crane\FAHRIFAHR98\Sept\FAHR98-66.doc Revised: 1/5/98 Page2 CEQA FINDINGS Not Applicable. ATTACHMENTS 1. End-of-Year Operational Report GM \lnldonldata11wp.dtalfinl210\crane\FAHRIFAHR98\SepflFAHR98-66.doc Revised: 1/5198 Page3 I FAHR COMMITTEE Meeting Date To Bel. of Dir. 09/09/98 09/23/98 AGENDA REPO RT Item Number Item Number 14(b) Orange County Sanitation District FROM: Gary Streed, Director of Finance SUBJECT: SOURCE CONTROL PERMIT USER FEES (FAHR98-67) GENERAL MANAGER'S RECOMMENDATION Approve the revised rates for flow, BOD and suspended solids for Class I and Class II Source Control Permit Users. SUMMARY Up to the 1991-92 fiscal year, Source Control Permit User Fees were revised each year based upon actual costs for the prior year and adopted by the Boards of Directors. Between 1991-92 and this year, the fees have been unchanged. The original reasons for retaining the existing fees were based upon staff's desire and the Directors' decision to delay fee increases and discretionary work during the recession and funding shortfalls in the member agencies. More recently, adjustments have been delayed while the Rate Advisory Committee process was completed and a revised rate structure was approved for all users. PROJECT/CONTRACT COST SUMMARY Approximately $8 million each year is paid by Class I and Class II permittees. An analysis of the top 20 users ir:idicates the proposed rates will be relatively neutral, and total revenues will remain the same. BUDGET IMPACT ~ 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) \lradonldata1'wp.dtalfin\210\crane\FAHRIFAHR98\Sept\FAHR98-67.doc Revised: 8110/98 Page 1 ADDITIONAL INFORMATION Please see attached staff report. ALTERNATIVES 1. Adopt a different fee schedule. 2. Retain existing fee schedule. CEQA FINDINGS Not applicable. ATTACHMENTS 1. Staff Report 2. Source Control User Fees \lradonldata1\wp.dtalfinl210\crane\FAHRIFAHR98\SepflFAHR98-S7.doc R8'1ieed: 8110196 Page2 September 9, 1998 STAFF REPORT Source Control Permit User Fees One provision of the Clean Water Act and the 1979 Revenue Program adopted by the Boards of Directors to comply with the Act is user fees for significant industrial dischargers. These dischargers are issued permits by the Source Control Division, are sampled each quarter, and are billed based upon the actual strength and quantity of their wastewater. Up to the 1991-92 fiscal year, these fees were revised each year based upon actual costs for the prior year and adopted by the Boards of Directors. Between 1991-92 and this year, the fees have been unchanged. The original reasons for retaining the existing fees were based upon staffs desire and the Directors' decision to delay fee increases and discretionary work during the recession and funding shortfalls in the member agencies. More recently, adjustments have been delayed while the Rate Advisory Committee process was completed and a revised rate structure was approved for all users. In fact, the methodology used for the RAC proposal is the same as that previously used for the Source Control Permit Users' rate calculations. Now the rates for flow, BOD and solids can be the same for all types of users, whether or not they have a permit. This single or unified structure will make the fees much easier to explain and will eliminate confusion over the basis of our user fee program. Total fees from this program approximate $8 million each year. The existing rates, adopted in 1991-92, and the proposed rates are shown below. The proposed rates include the assumptions that all property tax revenue continues to be used for COP service and that future capital improvements are shared 50:50 between borrowing and pay-as-you-go. 1991-92 Rates Proposed Rates Flow BOD Solids Domestic Flow BOD Solids Domestic % Change Zone per MG per per Equivalent per per per Equivalent 1000# 1000# MG 1000# 1000# Domestic Equivalent 1 205.49 162.25 206.10 79.48 271 .08 223.04 213.39 96.41 21% 2 206.94 146.58 186.20 73.77 208.07 171.19 163.79 74.00 - 3 265.28 145.67 185.04 78.82 212.28 174.66 167.11 75.50 (4)% 5 297.30 154.63 196.42 85.12 237.59 195.48 187.03 84.50 - 6 167.11 130.42 165.67 64.07 222.13 182.76 174.86 79.00 23% 7 339.87 147.38 187.21 86.34 168.70 138.81 132.80 60.00 (30)% 11 278.33 136.56 173.46 76.62 224.94 185.07 177.07 80.00 4% 13 400.94 103.36 131.30 75.57 281 .17 231.34 221.34 100.00 32% OCSD • P.O. Box 8127 • Fountain Valley, CA 92728-8127 • (714) 962-2411 Source Control Permit User Fees Page 2 of 2 September 9, 1998 The columns with "Domestic Equivalent" in their headings are the calculated annual user fees for wastewater strength and quantity equivalent to the single-family-residential discharge. It is shown for comparison only. Because of changes in the underlying assumptions, this calculation matches the 1998-99 fees, but varies widely for the 1991- 92 fees. Generally, the impact on permit users will be a shift of costs to flow and solids and away from BOD discharges. These changes are due to reallocations of operating costs and capital projects to more properly reflect the impact of each of these parameters in accordance with the Carollo Engineers and Camp, Dresser & McKee work during the RAC process. The attached schedule, Sample Impact of Proposed Rates, shows the current and proposed changes and the impacts for twenty of our largest dischargers based upon the actual quantity and strength of their wastewater. In most cases, the charges are not significant and are less than the charges adopted in each of the past two years for the user fees collected as a separate line item on the property tax bill. Staff recommends adoption of the proposed Class I and II Permit user rates for 1998-99, consistent with the rates adopted for general sewer service user fees. GGS:lc \\radon\data 1 \wp .dta \fin \21 O\crane\F AH RIF AH R98\Sept\StaffReportPermitUF .doc 8/19/98 5:06 PM Sample Impact of Proposed Rates Class I and Class II Permit Users Company Zone Flow BOD ss 1991-92 Charges Proposed Charges Increase % MG/yr mg[! mg[! Flow BOD ss Total Flow BOD ss Total {Decrease) Change Cherry Textron 1 18.50 98 178 $ 3,802 $ 3,372 $ 5,860 $ 13,034 $ 5,015 $ 3,372 $ 5,860 $ 14,247 $ 1,213 9.31 % El Metate 1 3.90 663 46 801 4,810 319 5,930 1,057 4,810 319 6,186 256 4.32% El Toro Meat Shop 1 3.28 2,482 522 674 15,143 3,047 18,864 889 15,143 3,047 19,079 215 1.14 % L&N Uniform 1 7.98 472 334 1,640 7,006 4,743 13,389 2,163 7,006 4,743 13,912 523 3.91 % Adohr Farms 2 67.70 2,777 981 14,010 268,416 90,722 373,148 14,086 268,416 90,722 373,224 76 0.02% Anaheim Citrus 2 55.54 462 674 11,493 36,635 51,135 99,263 11,556 36,635 51,135 99,326 63 0.06% Coca Cola 2 26.50 3,517 421 5,484 133,065 15,240 153,789 5,514 133,065 15,240 153,819 30 0.02% Disneyland 2 374.70 206 219 77,540 110,203 112,094 299,837 77,964 110,203 112,094 300,261 424 0.14% Kimberly Clark 2 578.33 127 269 119,680 104,863 212,511 437,054 120,333 104,863 212,511 437,707 653 0.15 % Precision Anodizing 2 20.29 9 634 4,199 261 17,572 22,032 4,222 261 17,572 22,055 23 0.10 % Cargill 3 9.30 580 289 2,467 7,857 3,746 14,070 1,974 7,857 3,746 13,577 (493) (3.50)% Georgia Pacific 3 6.62 3,573 99 1,756 34,455 913 37,124 1,405 34,455 913• 36,773 (351) (0.95)% Lucky Stores I Crm 3 8.90 2,153 915 2,361 27,912 11,350 41,623 1,889 27,912 11,350 41,151 (472) (1.13)% Lucky Stores Milk 3 32.73 1,695 610 8,683 80,812 27,826 117,321 6,948 80,812 27,826 115,586 (1,735) (1.48)% Pepsi Cola 3 66.52 1,647 302 17,646 159,590 27,998 205,234 14,121 159,590 27,998 201,709 (3,525) (1.72)% Fairview Dev 6 35.79 354 168 5,981 19,311 8,769 34,061 7,950 19,311 8,769 36,030 1,969 5.78% West Newport Oil 6 75.17 373 41 12,562 42,737 4,495 59,794 16,698 42,737 4,495 63,930 4,136 6.92% Maruchan 7 15.73 2,516 204 5,346 45,817 3,554 54,717 2,654 45,817 3,554 52,025 (2,692) (4.92)% McGaw 7 153.18 123 51 52,061 21,812 8,652 82,525 25,841 21,812 8,652 56,305 (26,220) (31 .77)% Torch Operating Co 11 50.08 137 88 13,939 10,590 6,508 31,037 11,265 10,590 6,508 28,363 (2,674) (8.62)% Total $ 362,125 $ 1,134,667 $ 617,054 $ 2,113,846 $ 333,544 $ 1,134,667 $ 617,054 $ 2,085,265 $ (28,581) (1 .35)% G:\excel.dta\fin\210\streed\old d copy\OLD_D\STRATPLN\use fee permits 98-99.xls FAHR COMMITTEE Meeting Date To Bd. of Dir. 09/09/98 AGENDA REPORT Item Number Item Number --~ 14 (c) Orange County Sanitation District FROM: Mike Peterman, Director of Human Resources Originator: Dawn McKinley, Senior Human Resources Analyst SUBJECT: BROADBAND EXECUTIVE MANAGEMENT AND DIVISION MANAGERS' CLASSIFICATIONS AND PAY RANGES (FAHR98-68) GENERAL MANAGER'S RECOMMENDATION Approve a compensation and classification program for Executive Management and Division Managers that is based on the principles of a broadbanding pay program as shown in Attachment 1. SUMMARY For the past two years, Staff has been working with the District's Assessment and Reinvention Team (DART), the Labor Management Committee (LMC), and Mr. Barry Newton, a human resources consultant, to develop a new Compensation and Classification Program that will support the District's new culture. The new program has been designed and is based on the principles of broadbanding. Broadbanding is a salary management system designed to flatten organizational hierarchies, encourage employees to broaden skills, and support a team-oriented workforce. Management is currently in the process of negotiating the new program with the bargaining units. The Executive Management Team (EMT) and Division Managers however, are not part of any bargaining unit. It is recommended, therefore, that the EMT and Division Managers' classifications and pay ranges be broadbanded in accordance with the new compensation and classification program. By broadbanding EMT and Division Managers, three Executive Management pay ranges are collapsed into two pay bands and six Division Manager pay ranges are collapsed into two pay bands. By banding employees with similar contribution levels together and consolidating classifications where efficiencies can be gained, employees within the same band can move between roles, divisions and departments without the need for promotional or demotional reclassifications. Employees are rewarded for increases in responsibilities through performance based merit increases or through the distribution of equity adjustments. The total increase in salaries for a given year is controlled by the budget through a Board approved Merit Fund and a Board approved Equity Fund. \lradonldata1lwp.dtalfin\210\crane\FAHRIFAHR98\Sept.FAHR98-68.doc Revised: 6/30198 Page 1 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. [gl Not applicable (information item) ADDITIONAL INFORMATION Background On July 15, 1998, staff presented the Finance and Human Resources (FAHR) Committee with a recommendation that Department Heads and Division Managers be broadbanded under a new compensation and classification program. It was determined at that meeting that additional information regarding the new program, specifically the principles of broadbanding and salary cost containment, was required before a recommendation to implement the new compensation and classification program for Executive Management and Division Managers could be approved by FAHR. Before a discussion on Staff's proposed Compensation and Classification Program can begin, a brief summary of the District's curmnt compensation and classification program is required. Current Compensation System The District's compensation and classification program is traditional in nature. Narrowly defined job classifications are grouped into functional job families (e.g., the Accountant job fami'ly). Each job family is made up of several hierarchical levels (e.g., Accountant, Senior Accountant and Principal Accountant). As a result, few real differences in job d1:Jties exist between levels within a job family. Job classifications are placed in pay ranges with narrow widths. The width of the pay range represents the difference between the minimum and the maximum of the pay range. The pay range widths for management jobs are 75%; 47% for professional jobs; and,, 25% for non'\"exempt jobs. Non-exempt pay ranges are divided into 5 steps with the top step set at market. Managemeht and professional pay ranges are designed with the middle of the pay range, or midpoint, set at market. llradonldata1\wp.dtallin\210\crane\FAHRIFAHR98\Sepl\FAHR98-88.doc Revised: 6/30/98 Page2 In the current compensation and classification program, management and professional employees receive across-the-board increases comparable to a cost of living adjustment. In addition, employees who perform above the Meets Expectations performance level receive performance-based merit pay. Merit pay is distributed in the form of a non-base building cash bonus. The amount of merit pay an employee receives is directly related to how well the employee performed throughout the year. Non-exempt employees receive automatic step increases equal to 5.5% on their anniversary review dates until their salaries reach the top step. This typically occurs within three-and-a-half years after the employee enters the pay range. In addition, non- exempt employees receive a negotiated contract increase, similar to a cost of living increase. Increases are based on seniority and are equally distributed regardless of performance level. Currently, salary increases are controlled through the budget process and the union negotiation process. Management and professional employees receive performance based increases from a Board approved "Merit Increase Fund." Non-exempt employees receive negotiated contract increases, as outlined in their Memorandum of Understanding (MOU), and those who are not at the top step of their pay range receive additional 5.5% step increases. Salary growth can not exceed the level approved by the Board through the budget process or the negotiation process. The compensation and classification program discussed above was designed to support a culture that District's management is working to change. The current program is hierarchical, seniority based, and focused on job specialties. Employees spend their professional careers working to advance vertically up a specific job progression ladder. Functional boundaries are drawn around job families and these boundaries inhibit employees from taking assignments or positions in other divisions or departments for fear that they will lose ground in their movement up the ladder. As a result, employees have become very specialized and there is little flexibility in moving employees between functions. Proposed Compensation System The District's business strategies and culture are changing. Management's goals are to develop a flexible workforce, to promote, where appropriate, the generalist versus specialist concept, and to encourage meritorious performance by rewarding employees for individual performance. The compensation program must be flexible and must change to support the organization. Staff has developed a new Compensation and Classification Program that will support the District's new flexible, team oriented, performance driven culture. The program was designed to flatten hierarchies, eliminate divisional boundaries, respond to change, and increase the skills of the workforce so that the District can reach its goal of being "Best in Class" while effectively meeting the reduced staffing numbers. \lradon\data1\wp.dtallin\210\crane\FAHRIFAHR98\Sepl\FAHR98-68.doc Revised: 6/30/98 Page3 The new Compensation and Classification Structure was designed based on the principles of broadbanding. Broadbanding is a salary management system in which several narrowly defined job classifications are collapsed and combined into fewer broad job classifications and several narrow pay ranges are combined into a few wider pay bands. The pay bands are similar to pay ranges in that they have minimums and maximums; however, the widths of the bands are larger to encompass more jobs. With broadbanding, the pay band spread for management jobs is typically 100-300 percent; 100-300 percent for professional jobs; and, 50-100 percent for nonexempt jobs. By grouping classifications together, employees can move from position to position, within one band, without requiring a promotional or demotional reclassification. Employees are financially rewarded for increases in responsibilities through methods other than promotions. One method is through performance based merit increases, another is through competency based increases. The new compensation and classification program that Staff has developed includes four pay bands for Management. Two bands were created for the Executive Management Team (EMT) and two bands were created for Division Managers. The EMT pay bands were designed with 100% pay band spreads ($60,000 -$120,000 & 77,099 -$154, 198) and the Division Managers' pay bands were designed with 100% pay band spreads ($52,584-$105,168 & $56,616 -$113,232). These widths are conservative in relation to the typical broadbanding structure as discussed earlier. The bands were developed based on the "value added contribution level" of the employees that are classified in the band as well as the average market rate for the classifications in the band. A contribution level describes, in general, the nature of the duties and responsibilities of the classifications within a particular band. For example, all employees in the "Executive Bands" are expected to develop, implement and coordinate District wide policies and programs in support of District's operating objectives and in compliance with applicable local, state and federal regulations. Incumbents report to the General Manager or Assistant General Manager as well as to the Board of Directors. The executives drive the formulation and development of the organization's business strategies and vision. Each executive performs at his or her own level and is paid according to market for his or her own job, based on qualifications. However, all executives have the same types of responsibilities and are, therefore, placed in one of two Executive Management bands. The proposed titles and pay bands are shown in Attachment 1. The objective of the new program is not to move employees to the maximum of the pay band. The objective is to group classifications together based on contribution level and market rate so that employees can move between roles, divisions and departments, within the same band, without the restrictive controls that the current structure provides. The pay band minimum and maximum simply reflect the range of salaries that employees performing at comparable contribution levels are paid. \lradonldata1\wp.dlallin\210\crane\FAHRIFAHR98\Sept\FAHR98-88.doc Revised:~ Page4 There are two methods by which the EMT and Division Mangers' salaries will increase in the new compensation and classification program. The first method is the performance review system. Each year, in July, management will receive pay increases. The increases will be partly base building and partly non-base building. The base building portion of the increase will be distributed as an across-the-board increase comparable to a cost of living adjustment. The non-base building portion of the increase will be distributed as a lump sum cash bonus. The amount of bonus the employee receives will be based on the employee's performance. The second method by which the EMT and Division Managers' salaries will increase is through the distribution of equity adjustments. On occasion, unusual salary disparities, or inequities, can develop between employees and the external market. The field of Information Technology is one area in which inequities may occur between employees' salaries and the external market. Inequities may also occur between supervisors and their subordinates. An employee's salary may become inequitable when he or she acquires new responsibilities, such as taking on a new division. Pay inequities that can not be remedied with the performance review system may be corrected with equity adjustments. Salary increases will be controlled through the budget process. As with the current policy, the Board will approve a "Merit Increase Fund," based on Staffs recommendation, from which to distribute merit increases each year. The "Equity Fund" will be controlled by the same method. Each year, the Board will approve an "Equity Fund," based on Staff's recommendation, from which to distribute equity adjustments. The "Equity Fund" will be separate from the "Merit Increase Fund." The overall amount paid out to employees in a given year will not exceed the combined fund amounts. Actual salaries will not increase more than the cost of living adjustment and equity adjustment, if any, combined. Staff will conduct a market salary survey every two years to verify that the District's salary structure (minimums and maximums) and actual salaries are not outpacing the market. The market data will be used to determine how much, if any, the salary structure and salaries should be adjusted based on the movement in the external market. If it is determined that the District's salary structure or actual salaries are significantly higher than market, steps will be taken to bring the structure or salaries back in line with market. A zero percent increase in pay band structure or a zero percent increase in salaries may be required for a given year. The new Compensation and Classification Structure fosters a flatter organization and creates a more broadly skilled workforce which in turn encourages teamwork and supports career development opportunities. Streamlining titles and pay ranges supports the District's desire to provide flexibility to respond to changing business needs, break down barriers to teamwork and encourage lateral job moves. \lradonldata1 lwp.dtallin\21 0'cranelFAHRIFAHR98\Se~AHR98-88.doc Revised: 6/30/98 Pages Frequently Asked Questions 1. The pay bands are very wide. Won't everyone move to the top of the pay band? No. The "Merit Increase Fund" and the "Equity Adjustment" fund control salary increases. Total salaries can not exceed the amount approved by the Board through the budget process. 2. How do we ensure that individual salaries are not higher than market? Every two years Staff will conduct a market salary survey to determine how much external salaries have moved. In addition, private sector salary surveys published by human resources consulting firms will be used to spot check salaries to ensure that the District does not outpace the market. If the data shows that the District's pay band structure or actual salaries are significantly higher than market, steps will be taken to bring the structure or salaries back in line with market. A zero percent increase in pay band minimum and maximum or a zero percent increase in salaries may be required for a given year. 3. Have other public sector agencies tried Broadbanding? Broadbahding entered the arena of salary administration systems about fifteen years ago, however, most of the implementation has occurred over the last few years. Research shows that broadbanding is used by various types of organizations including government and utilities. In 1994, the Municipality of Metropolitan Toronto -Water Pollution Control Division implemented a form of broadbanding in the operations and maintenance divisions. Toronto estimates that it will reduce the staffing level 15%, reduce the salary budget 8%, and save the division 4.5 million dollars per year within ten years. In 1993, the New York Regional Office (NYRO) of the Veterans Benefits Administration, Department of Veterans Affairs, implemented broadbanding in its effort to reinvent itself to improve performance to customers. In 1994, Vice President Gore presented the agency with the first National Performance Review Hammer Award. This award recognizes measurable improvement in customer service. In 1997, the Wastewater Treatment Division of the Department of Natural Resources of King County, in Renton, Washington, implemented the Job Progression Program. The Job Progression Program is a compensation and classification plan similar to broadbanding in that levels within job families are banded together and then employees are able to advance through the broader pay range based on the acquisition and demonstration of new competencies. \lradonldata1\wp.dla\fin\2101crane\FAHR\FAHR98\Sepl\FAHR98-68.doc Revised: 6/30/98 Pages The International Personnel Management Association (IPMA) and the American Compensation Association have joined forces to develop a series of eight one-day compensation and benefits management seminars for the public sector. Demand for information on broadbanding in the public sector was so great that they developed one seminar entitled, "Managing Classification/Compensation in a Broadbanding Environment". According to the IPMA, public employees share a common need for effective compensation programs that meet organization needs and are acceptable to stakeholders. ALTERNATIVES N/A CEQA FINDINGS N/A ATTACHMENTS 1. Recommended Compensation and Classification Program Structure. DM \\radonldata1\wp.dtalfin\210\crane\FAHRIFAHR98\SepN=AHR98-68.doc Revised: 6/30/98 Page? Attachment 1 Recommended Compensation and Classification Program Structure For Executive Management and Division Manager Jobs Current Proposed Current Classification Classification Pay Range Min/Max AGM AGM 127,200 Director En ineerin Director En ineerin 130 488 Director O&M Director O&M 130 488 Director, GSA Director GSA Director, Technical Director, Technical Services Services Director Finance Director Finance $80,892 -$129,972 Director, Information Director, Information $71,376 -$113,520 Technol Technol Director, Human Director, Human Resources $71,376 -$113,520 Resources Director, Communications $51,936 -$77,940 ~ " ' . ' . Controller Accountin Mana er Finance Mana er Contracts & Purchasing Mana er Plant Automation Manager $69,576 -$102,348 1~- Safety & Emergency Response $63,144 -$92,880 Mana er Human Resources Manager $51,936 -$77,940 Maintenance Manager $63,144 -$92,880 0 erations Mana er GSA Manager Environmental Compliance & $73,080 -$107,436 Monitoring Manager 73,080 -$107 436 73 080 -$107 436 $73 080 -$107 436 $73 080 -$107,436 ;,'m:,-' .... ·,~ ,~ F.AHR COMMITTEE Meeting Date To Bd. of Dir. 9/9/98 AGEN.DA REPORT Item Number Item Number 14 (d) Orange County Sanitation District FROM: Michelle Tuchman, Director of Communications Originator: Michelle Tuchman, Director of Communications SUBJECT: REPORT ON DISTRICT'S PUBLIC OUTREACH EFFORTS (FAHR98-69) GENERAL MANAGER'S RECOMMENDATION Receive and file this information only report. SUMMARY The Communications Department developed a comprehensive public outreach plan last fiscal year to increase awareness of the District and to support the agency's 1997-98 Critical Goals. This report is a summary of that plan, the results of our efforts and our action plan for the current fiscal year. PROJECT/CONTRACT COST SUMMARY N/A BUDGET IMPACT [?;;] 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 Since the formation of the Communications Department during FY96, emphasis has been given to internal communications. The reason for this was three-fold: 1) To support the District's changing culture from top-down management to employee-driven; 2) To improve the flow of information to employees; and 3) Following the workplace investigation of October 1996, to help ease the aftereffects of that investigation. To that end, new internal communications programs have been implemented and existing ones have been refined to better meet the information needs of employees. The results of regular communications audits suggest we have made, and continue to make, progress in this area. H:\wp.dtalfin\210\crane\FAHR\FAHR98\Sept\FAHR98-69.doc Revised: 8/20/98 Page 1 While internal communications is still a high priority at the District, the primary focus of the Communications Department during FY98 was to develop an effective and cost- efficient external communications program to increase awareness of our agency, our strategic planning efforts and one which supported our Critical Goals. Target audiences included state and local government officials, ratepayers, environmentalists, the business community, the media and our Board of Directors. In Support of the Strategic Plan A survey was conducted among members of the Rate Advisory Committee (RAC) to gauge the effectiveness of our presentations and the process we used to obtain public input on our Strategic Plan. Of the 18 RAC members surveyed, 13 gave an "excellent" rating to the written materials and verbal presentations. A similar survey was conducted among the Planning Advisory Committee (PAC) members in July with the similar results. City and County Officials, and State Legislators The District hosted our first Legislators' Day in May 1997. The event was a success with four State legislators, representatives from the county and representatives from every city in our service area attending. We had planned to hold a second Legislators' Day in May 1998, but scheduling conflicts necessitated that the event be held later in the year. We are currently investigating the October/November time frame. Consolidation --The beginning of Fiscal Year 1997-98 found the District completing its Sacramento-focused consolidation efforts. Our special legislation had passed unanimously through both the Assembly and the State Senate, and we were awaiting the Governor's signature on AB 769. While we had conducted a consolidation- awareness campaign to familiarize cities with our efforts, we continued to answer questions from county representatives and State legislators. General Public/Ratepayers Tour Guide Program One of the most effective ways of communicating our mission of excellence in wastewater systems to the general public is through plant tours. More than 900 visitors toured Plant 1 during FY98. Virtually all of our guests learned about our tours through word-of-mouth; we did no formal advertising or marketing of the program during the last fiscal year. As we saw the frequency of our tours increase, we determined the need to establish a Tour Guide Program that involved District's staff from outside the Communications Department. Some 40 employees from throughout the District volunteered to be tour guides. A formal training program was established. We worked with representatives from Operations and from the Safety and Emergency Response Division to establish a tour route that met all safety requirements while still giving visitors a realistic view of our wastewater treatment system. G:lntglobal\Agenda Draft Reports\FAHR\998FAHRAgenda Reportdot Revised: 8/20l98 Page2 I Speakers Bureau With the Tour Guide Program well established, our focus during FY99 will be to develop a strong Speakers Bureau that, like the Tour Guide Program, relies on the expertise of District staff to meet the information needs of our various audiences. OCSD as a Meeting Location One of the most cost-effective components of our public outreach program is making our meeting rooms available free of charge to outside groups, such as the Orange County Council of Governments and the Local Agency Formation Commission. During FY98 both of these groups regularly used the District as a meeting location. Orange County Fair The District continues its tradition of participating in the Orange County Fair. Visitors to our booth this year were more familiar with the District than in previous years and more aware of the need for water conservation and water reclamation. It's also interesting to note that many visitors had either been on a tour of the plant, know someone who had been on a tour or had been to the District for a meeting. Groundwater Reclamation System The Communications Department assumed the lead in Phase I of the Groundwater Replenishment System public outreach efforts. We worked with Adler Public Affairs and the Orange County Water District to conduct four focus groups, a telephone survey of 500 Orange County residents and scoping sessions. Media briefings with the Orange County Register, the Times and the Daily Pilot were conducted to introduce the project. These efforts resulted in positive media coverage. Business Community Working with the Technical Services Department, Graphic Services designed and produced several brochures for distribution to Orange County businesses. During FY99 we will be working with Technical Services to develop on-line information through our Internet site. Schools and Universities Elementary Schools The District now has a mascot, Clean Water Willie. Willie was introduced with great success during the Orange County Fair. He, along with "Operator Joe" (a staff member), will be the nucleus of our outreach program to elementary schools during the current fiscal year. H:lwp.dtalfin\21 0lcrane\FAHRIFAHR98\Sept\FAHR98-69.doc Revised: 8/20/98 Page 3 Universities We will continue our outreach to local colleges and universities during FY99, providing information packets, plant tours and speakers as requested. The Media Media relations is a critical component of our external communications program, and the Communications Department has worked diligently over. the past three years to build a strong working relationship with reporters. All media inquiries are answered within one hour, or sooner, if the reporter is on deadline. In addition, reporters who we work with frequently are provided 24-hour access to the Director of Communications via pager and home phone number, both of which have been used. This was done to show the District's willingness to work with reporters and provide the information they require to meet their deadlines. ALTERNATIVES N/A CEQA FINDINGS NIA ATTACHMENTS None. MT:dl G:lntglobal\Agenda Draft Reports\FAHR\998FAHRAgenda Reportdot ReYised: 8/20198 Page4 , FAHR COMM-I TTEE Meeting Date ToJt. Brd. 09/09/98 09/23/98 AGENDA REPORT Item Number Item Number 14 (e) Orange County Sanitation District FROM: Edwin E. Hodges, Director General Services Administration SUBJECT: COOPERATIVE PROJECTS PROGRAM (FAHR98-70) GENERAL MANAGER'S RECOMMENDATION 1. Authorize the General Manager to combine the Water Conservation Cooperative Projects Program with the City Infiltration/Inflow Cooperative Projects Program. 2. Approve increase in the fiscal year 1998-99 combined Cooperative Projects Program budget, CORF Budget, Section 8, Page 230, from $300,000 to $5,000,000. 3. Recommend adoption of a resolution supporting in general water reclamation and water use efficiency. SUMMARY At the June 1998 OMTS Committee, staff presented the concept of a Cooperative Projects Program with the agencies in our service area. The OMTS committee directed staff to make some modifications to the City Infiltration/Inflow Cooperative Projects Program package and to bring those changes back to the July OMTS. The changes were made and presented to the July OMTS who in tum recommended approval of the program to the Board. The purpose of the City Infiltration/Inflow Cooperative Projects Program is to: reduce or eliminate inflow and infiltration of water into local sewer lines, identify illegal connections to local wastewater systems, and repair or replace aging infrastructure. This program could co-fund up to 50% of the total project cost by providing a grant, a low interest (1- 3%) loan, or a combination of a grant and low interest loan. Additionally, the Boards have approved $200,000 for the District's participation in a Water Conservation Cooperative Program. This program allows the District to contribute to the Municipal Water District of Orange County's (MWDOC) ultra low flow toilet (ULFT) retrofit program. The $200,000 budget was based on replacement of 20,000 toilets per year. In the first three months of 1998-99, MWDOC will have distributed 14,875 ULFT's with participation from the District. Of the $200,000 budgeted for 1998-99, an estimated $106,200 has been expended through August. H:lwp.dtaVin\210'cranelFAHRIFAHR98\Sept\FAHR98-70.doc Revised: 6/16/98 Page 1 At the July OMTS it was discovered that the budget for -fiscal year 1998-99 contained $100,000.00 for the City Infiltration/Inflow Cooperative Projects Program. The Committee felt that this was insufficient to conduct this program and instructed staff to bring a request forward to the Board to increase this year's amount from $100,000.00 to $5,000,000.00. Staff now believes that the District should combine the Water Conservation Cooperative Projects Program and the City Infiltration/Inflow Cooperative Projects Program into one combined Cooperative Projects Program. Both of these projects will be administered under the direction of the General Services Administration Department. Additionally, staff believes that increasing the budget to $5,000,000 will provide sufficient funds to handle the needs of both programs. Lastly, staff believes that the Board should consider adopting a supporting in general water reclamation and water use efficiency (a copy of which is attached). In short, the resolution states: that the Board supports a policy that all promising methods of water use efficiency and reclamation of wastewater should be jointly investigated and studied; that the Districts will make all reasonable efforts to jointly implement water use efficiency and reclamation projects at the earliest possible date; and that the Board will receive and review reports from staff and provide direction and advice in furtherance of this goals of this policy. The attached resolution was authored by MWDOC. It is anticipated that each of the Cities/ Agencies listed on the last page will be bringing this resolution forward for adoption at the next City Council/ Agency Board meeting. Ed Hodges, Director of General Services Administration, will be available to report on this item, if desired. PROJECT/CONTRACT COST SUMMARY Staff has budgeted $100,000.00 in the fiscal year 1998/99 CIP budget for the City Infiltration/Inflow Cooperative Projects Program and $200,000 for the Water Conservation Cooperative Projects Program. Staff is requesting that the total combined first year amount increase from $300,000.00 to $5,000,000.00. It is expected that $10M per year will be budgeted thereafter. H:lwp.dlalfin\210\crana\FAHRIFAHR98\Sapt\FAHR98-70.doc RB\lised: 6116198 Page2 BUDGET IMPACT D This item has been budgeted. [gl This item has been budgeted, but there are insufficient funds. (Line item: Section 8, page 11) D This item· has not been budgeted. D Not applicable (information item) ADDITIONAL INFORMATION A study of the benefits that can be realized by the District through cooperative programs such as these is included in the Strategic Plan. The study shows that the District can realize significant savings in capital and O&M costs by implementing such programs. ALTERNATIVES 1. Do not increase the Cooperative Projects Program amount per the OMTS recommendation. CEQA FINDINGS N/A ATTACHMENTS 1. Resolution declaring a policy with regard to water reclamation and water use efficiency. EEH: fw H:\wp.dtallin\210\crane\FAHRIFAHR98\Sept\FAHR98--70.doc Revised: 6/16/98 Page 3 RESOLUTION NO. OCSD 98-XX DECLARATION OF POLICY WITH REGARD TO WATER RECLAMATION AND WATER USE EFFICIENCY A RESOLUTION OF THE GOVERNING BODIES OF THE COUNTY OF ORANGE, MUNICIPAL WATER DISTRICT OF ORANGE COUNTY, ORANGE COUNTY WATER DISTRICT, ORANGE COUNTY SANITATION DISTRICT, CITY OF ANAHEIM, CITY OF FULLERTON, CITY OF SANTA ANA, COASTAL MUNICIPAL WATER DISTRICT, ALISO WATER MANAGEMENT AGENCY, SOUTH EAST REGIONAL RECLAMATION AUTHORITY, (THE AGENCIES) DECLARING A POLICY WITH REGARD TO WATER RECLAMATION AND WATER USE EFFICIENCY WHEREAS, the Agencies adopting this resolution participate either directly or indirectly in providing potable water and waste water service to all residents and businesses within the County of Orange, CA; and WHEREAS, Orange County population projections show an increase of 500,000 new residents by the year 201 O; and, WHEREAS, Orange County's economy is ranked as the 32nd largest in the world and generates an annual gross product valued in excess of $80 billion; and, WHEREAS, there exists a continuing and growing need for useable water in Orange County; and, WHEREAS, conservation is a cost-effective method of stretching available supplies; and, WHEREAS, the Memorandum of Understanding regarding Best Management Practices for urban water conversation is a proven and acceptable framework in which to proceed with implementation of water use efficiency programs; and, WHEREAS, another of said sources is the implementation of water use efficiency programs to maximize the efficient use of existing potable and reclaimed sources; and, WHEREAS, all Agencies have and do individually support and implement water use efficiency and/or water reclamation programs; and, WHEREAS, the above-named public Agencies-have the respective powers and authority and to jointly determine the feasibility and implement such projects water use efficiency and reclamation projects. 1 NOW, THEREFORE, the governing bodies of the Agencies; DO HEREBY RESOLVE, DETERMINE AND ORDER: Section 1 : That the Agencies hereby reaffirm the long-standing declaration and support of a policy that all promising methods of water use efficiency and reclamation of wastewater within Orange County should be jointly investigated and studied. Section 2: That if such studies determine new water use efficiency and reclamation programs to be feasible, that appropriate public agencies make all reasonable efforts to jointly implement said water use efficiency and reclamation projects into effect at the earliest possible date. Section 3: That designated Standing and Ad Hoc Committees of the Boards of Directors are hereby authorized and directed to receive and review reports from staff and provide direction and advice, as needed from time to time, in furtherance of the goals of this policy. PASSED AND ADOPTED at a Special Meeting held: Agency: AWMA Anaheim CMWD County of Orange Fullerton MWDOC OCSD OCWD Santa Ana SERRA SOCCRA Date: Executive Officer: 2 Secretary: \ f FAHR COMMITTEE AGENDA REPORT Orange County Sanitation District FROM: Patrick Miles, Director of Information Technology Originator: Rob Thompson, Plant Automation Manager Meeting Date 9/9/98 Item Number 15 Ca) SUBJECT: YEAR 2000 (Y2K) DATE CHANGE COMPLIANCE PROJECT (FAHR98-71) GENERAL MANAGER'S RECOMMENDATION To Bd. of Dir. Item Number Receive and file a report on the progress of the Year 2000 Date Change Compliance Project. SUMMARY Y2K (Year 2000) refers to the inability of computer dependent systems to effectively deal with the date roll over to the new millennium. For various reasons computer programmers and users have used date formats like 12/25/80 for years. For instance, 1980 would be entered as 80. That works fine in a computer program until the year goes from 99 to 00. At that point unpredictable things can begin to happen, depending on how the computer code was written. Data might not sort properly. Some equipment, like hospital instruments or cars, have microprocessors that make sure they are calibrated or serviced on a regular basis. These pieces of equipment might shut themselves off if they think they haven't been calibrated or serviced in one hundred years. Many companies are spending considerable time and resources making sure their systems will work properly. In fact a leading Information Technology think tank estimates $600 Billion will be spent world wide to correct these problems. No one is immune from this problem. Public utilities, engineering companies, laboratories, process plants, transportation systems, financial institutions, communication services, electrical generation systems, and regulatory agencies are all vulnerable. Consequently, the District is working to ensure that its systems will remain functional and is preparing for the contingency that outside suppliers may have problems too. The District's consultant estimates $2.4 million may be necessary to ensure the compliance of District systems. District staff will seek additional funding when more definite estimates can be made. A multi-step, industry standard, project execution strategy is being applied. The first step is to raise the awareness level of every Department within the District to the risks that may be present. This includes a comprehensive inventory of District systems utilizing microprocessors and our dependence on external services. The next step is assessment. This is where staff methodically check equipment, supplies, and service providers. Where problems are discovered, staff will decide how to correct the H:\wp.dtalfin\21 0\crane\FAHR\FAHR98\Sept\FAHR98-71.doc Revised: 8/10/98 Page 1 problem either through hardware or software upgrades, work-around plans, or removing equipment from service. Also in the assessment phase, staff will develop contingency plans for external situations beyond District control, e.g. short-term interruption in the supply of telephone service, electricity, natural gas, laboratory supplies, and chemicals. The next step is remediation and testing. This is where staff add, replace, upgrade, or remove equipment, and test the result according to the plan developed in the previous step. Rigorous testing of critical systems will be done, where possible, to ensure that the changes cure the anticipated problems, but also that they don't introduce new, unanticipated problems. After thorough testing, the last step is deployment. This is where changes to the live system are installed. An important thing to remember is: This is not just an Information Technology problem. This is a District-wide problem. Eaeh department is the subject matter expert for what they do. A District wide Y2K Steering Committee is beirig ,formed with a Y2K Project Manager from every department. Assistant General Manager Blake Anderson will chair the committee. This effort is not unlike our response to El Nino last winter, which required a wide spectrum of cooperation across Departmental boundaries. This is a manageable challenge that requires diligence. PROJECT/CONTRACT COST SUMMARY NIA BUDGET IMPACT t8l This item has been budgeted. (Line item: Special Project, 2q) 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 None. ALTERNATIVES No action. CEQA FINDINGS Not applicable. ATTACHMENTS 1. Slide presentation 2. USA Today Article H:\wp.dtaVinl210'c12ne\FAHRIFAHR981Sept\FAHR98-71.doc Revised: 8110/98 Page2 Year 2000 Project atOCSD Gayn B. Winters, Ph.D., Bristol Systems Inc. mples • Facilities: Elevators, HVACs, fire alarms and security systems, time locks, card readers, routers, bridges, servers, PBX, FAX, voice mail, call routing, facility management • Electric power substations • Pipeline valves, pumps and meters • Gas and diesel engines cades • Disasters (like airline crashes) are usually caused by a "cascade" of unfortunate events • The Year 2000 (Y2K) merely increases the probability of such events .at is the Year 2000 (Y2K) blem? • The "year" 00 can mean: 2000, 1900, 1980, 1970,2038, 1999, or??? • Date calculations can fail or "crash" the computer • Input of 00, 99, 9/9/99, etc. causes problems • Output overflows (reports and parts numbers) • Happens to ALL computers in ALL languages mples (cont'd) • Labs: Heart monitors, radiology equip., blood analyzers, pacemaker servers, gas chromatographs, infusion pumps • Process control and instrumentation, PLCs, SCADA, telemetry and remote control, bar code readers and writers cade Example • Y2K causes blackout and natural gas stops • CenGen and OOBS cannot operate • Foster Station pumps cannot handle loads • Inadequate generators for pump stations • Spills in field, pollution in river • Even after power restored, EPA permits violated 1 'D Y2K Strategies • KEEP WATER FLOWING Risks: Black/ brown-outs, loss of natural gas or water; no backup generators for OOBS; pump station outage • Concentrate on pump stations, headworks, OOBS • MAINTAIN ENVIRONMENT• Focus on process Risks: Untested process controls, lab, supplies controls, chemical shortages irect Problems '4,r;. • Other companies' Y2K problems can disrupt our business • Electrical power, natural gas, water • Lab and plant chemicals • Banking system • Parts, fuel, etc. • Government agencies • County tax office? Other? • EPA? Water Quality Control Board? Other? es o/Credit • What if Account Receivables go from 40 to 180 days? • Will your bank extend your line of credit? • 11/12/97 Federal Register Board Y2K warning • Cash availability always an issue -??? • Cement bank relations 'D Y2K Strategies <,.,., .• ) • OPERATIONAL • Focus on network, EFFICIENCY SCADA, monitors, Risks: Complexity telephones, facillties • FINISH ON TIME • Create sense of Risks: Apathy, lack urgency, get projects of understanding, going now, promote too many 'crises' parallelism 'D Y2K Program Phases Dir • Entire Dislricl • Critical Projects • Ri•k Abatement Jan 97 -t{i ... .• r( 10% ~··1--:t•-~ ~f-.\~_:,il._1-'~~• · l! •.r 0% Jan 98 Jan99 es of Credit (canl'tl} 10% Jun 99 • 12/17/97 FFIEC warns to reduce credit risk now for companies not Y2Kready • We have already responded to one bank 2 ranee Issues • First Party insurance doesn't cover Y2K • The year 2000 is not an "act of God" • Business Interruption insurance typically does not cover computer failures • Errors and Omissions insurance often excludes year 2000 liability • Professional liability doesn't cover your business decisions cess Quality (cont'd) • Processes (engineering • It must pass legal + business) must be review "best in class" • Outside expert should • In addition to Bristol validate the process Systems Inc. • Frequent written and • Monthly to EMT and oral progress reports Board of Directors to top management • We are executing against a plan • All internal systems will be ready by July 1999 • Risk abatement for external problems extends IERP and is ongoing • We don't know all costs yet cess Quality • Each phase must be thorough (especially testing I) • People working on each phase must be competent • Top management should be deeply involved • ltwill be • Need top people assigned and available • EMT involvement, senior person in each department git Cost Estimates Internal External Labor Costs Total Assess 200K 500 K $0.7M Repair 500 K 500 K $1.0 M Test 500 K 200K $0.7M Total 1.2 M 1.2 M $2.4M Questions 3 Y 2.A.: A race agamst time Get a free Web store for life! l. rffl Cll<k here to !!CU get youu. Inside Tech FAQ/Tips Web Column Hot Sites Tech News Tech Reviews flJSA 1CDAY Teefech Report 01/18198-Updated 04:14 PM ET The Nation's Homepage Y2K: A race against time W ASIIlNGTON -Inside a suburban home darkened by a power outage from a summer thunderstorm, the top bureaucrat hired by President Clinton to make sure the nation's computers survive past 2000 was just trying to survive the evening's muggy weather. Lightning had knocked out electricity to the neighborhood, leaving John Koskinen and his wife without air conditioning. Inside, with flickering candles casting the only light, the temperature and humidity climbed. Answer Desk "You know," Koskinen recalls Game Zone telling his wife, "this could be Shareware Shelf what it's like on Jan. 1st, 2000." Web Potholes Web Resources John Koskinen. chairman of the President's Council on Year 2000 Conversion (AP). Tech Front With just 500 days remaining, the coming 2000 looms almost mythically, largely because of a decision made decades ago by BUY n NOW • computer programmers. Left uncorrected, the Year 2000 computer flaw, commonly Marke1Plae8 referred to as Y2K, could threaten the world's electrical grids, Hardware Accessories Software its financial markets, its water supplies and its air-traffic control systems. It probably wont affect the computer chips in your television or VC~ and your car or pickup probably will Resources start, but the traffic lights or the subway might be fouled on the way to work. Index Search Feedback What's hot About us Jobs at USA TODAY "Over the last 20 years, we've grown more and more reliant on information technology," said Koskinen, chairman of the President's Council on Year 2000 Conversion. 'We're able to produce all sorts of stuff for less than we used to, but it comes with a risk. Everything is interconnected." Heart of the problem The roots of the problem date back to the earliest days of the http://www.usatoday.com/life/cyber/tech/ctd294.htm Page 1 of5 8/19/98 Y2K: A race against time W Cilek I& ITTJP high-tech industry, when every byte of computer code counted because information storage costs were super-expensive. Mostly to save money, early programmers represented each year by its last two digits rather than by all four -1972 became 72. Trouble begins when computers try to add or subtract dates using that two-digit format and the world approaches the Year 2000, or 00. A few examples of what could go wrong if computers are not fixed in time: • A telephone call that begins just before midnight Dec. 31, 1999 and ends minutes later on Jan. 1, 2000, could be billed as a 99-year conversation. • Many ATM machines will refuse to spit out money. • A credit-card bill owed on Jan. 7, 2000, could be mistaken as 99 years past due. • Social Security computers might refuse to issue a check to a woman born in 1912 because it might appear she hasn't been born yet. • Computers that regulate the flow of electricity through power grids could become confused, producing widespread blackouts, while similar problems could disrupt telephone service and shut off water supplies. • Some coffee makers won't brew. • Even some of America's weapons systems might not work. Contrary to one popular rumor, weapons systems susceptible to the Y2K problem will tum themselves off rather than tum themselves on, explained Koskinen. "The chances for world peace on Jan. 1st, 2000," he said jokingly, "may be better than ever." Then again, he added, defense failures in foreign countries could cause tensions to escalate: "What happens with Russia when its warning systems go black?" Tests of computers that do all sorts of jobs show the problem is real enough. For example, when Chrysler rolled its clocks forward to simulate 2000 at one of its Michigan assembly plants, computerized security gates wouldn't let anyone in or out. http://www.usatoday.com/life/cyber/tech/ctd294 .htm Page2 of5 8/19/98 Y2K: A race against time But just what will go wrong when the calendar flips to the year 2000, and whether society will face a disaster or a mere inconvenience, is anybody's guess. What happens will depend on how many computers are fixed in the next S00 days and what is controlled by those computers that aren't fixed in time. Momentous task The size of the job is staggering. In the United States alone, there are 157 billion software functions that need to be checked according to Capers Jones of Software Productivity Research, a software consulting firm in Burlington, Mass. And the 30 most industrialized countries of the world have an estimated 700 billion. The larger, old mainframe computers still used by government and big corporations for many vital functions are particularly vulnerable. But the problem isn't limited to them. The electronics industry has found that some microprocessors - tiny chips used on circuit boards in everything from coffee makers to oil tankers -are susceptible and must physically be replaced. The government figures that only 1 % to 2% of all those chips might be faulty, but there are billions of them, and you can't tell which ones will fail without checking every one of them. "You don't know which of those chips, and you don't know where they are," said Sen. Robert Bennett, R-Utah, chairman of the Senate's Year 2000 committee. Estimates of the cost of fixing the Y2K problem in America alone range from $40 billion to $200 billion, and worldwide estimates are as high as $600 billion. "The costs of fixing the Year 2000 problem appear to constitute the most expensive business problem in human history, 11 Jones said. The Securities and Exchange Commission considers Y2K so significant that, on Aug. S, it required public companies, investment companies and state and local governments to disclose their preparedness and contingency plans and to describe how the problem will materially affect them. While many companies, such as AT&T, and some government agencies, including the Social Security Administration, are reportedly well along in fixing their computers, others are far behind and some are just beginning to analyze the problem. http://www.usatoday.com/life/cyber/tech/ctd294.htm Page 3 of5 8/19/98 Y2K: A race against time More than 80% oflarge U.S. firms are behind schedule in fixing their computer bugs, according to a survey by the Cap Gemini America consulting firm. Because industries and government agencies rely on one another to do business~ those that fix their own computers still could run into trouble. For example, Social Security computers might all be working, but Social Security checks are actually issued by the Treasury Department's Fmancial Management Service, which is reportedly far behind on Y2K. Manufacturers could fix their computers and still be confounded by the computer problems of their suppliers. If power grids fail, even fixed computers won't work Earlier this year, a Senate panel surveyed 10 of the nation's largest utilities serving 50 million people and found that none had a complete contingency plan for computer failure. One didn't know how many lines of computer code it had, making it impossible to know how difficult or time-consuming its Y2K problem will be to solve. Because electricity is distributed on a grid with many suppliers, a failure at any one of them could lead to widespread disruptions. Thus, the uncertainty about what will befall us 500 days from now. A range of views fllll Lord, who wrote a book about the problem and publishes a bimonthly Y2K newsletter, predicts the government will have trouble getting out Social Security checks and food stamps and warns: "If you're dependent on a check in any way, you might not get it." Alex Patelis, an associate economist at Goldman Sachs, predicts economic disruptions comparable to the trouble caused by a major natural disaster such as a hurricane - damaging but not enough to create panic or throw the country into a rece~sion. Edward Y ardeni, chief economist and global investment strategist at Deutsche Bank Securities, on the other hand, warns of the likelihood of major disruptions to the global economy. Still others, fearing economic collapse and civil disorder, are laying in supplies of ammunition, water and canned goods - preparing for Y2K as they might for a nuclear attack. http://www.usatoday.com/life/cyber/tech/ctd294.htm Page4 of5 8/19/98 Y2K: A race against time Drew Cutter, who lives in a farming community in northwestern Ohio, says his neighbors and family "are kind of pooh-poohing it." But he says he's not taking any chances. He bought a pair of 55-gallon drums to store water, and he plans to buy a generator. "You're going to have glitches that may last a day or a week," he predicts. "I don't take it, like, head-for-hills stuff. I don't get that radical, where I buy a gun, but I just want to be prepared. It's better to know now than, say, next summer." Koskinen, who has been criticized by some for his optimism, says the biggest danger is overreaction. "If everybody decides to take their money out of the stock market, there won't be a stock market. If a few people do it, it's not a problem. When a few million people do it, it's a self-fulfilling prophecy." "Civilization as we know it is not going to end," Bennett says. "I'm not yet ready to build a shelter in the backyard. But it might not be a bad idea to have a little extra food and water." By The Associated Press Copyright 1998 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. buy softw Front page, News, Sports, Money, Life, Weather, Marketplace CX:OPYRIGHT 1998 USA TODAY, a division of Gannett Co. Inc. http://www.usatoday.com/life/cyber/tech/ctd294 .htm Page 5 of5 8/19/98 September 9, 1998 General Manager's Quarterly Purchasing Report Information Finance Department & Clerical Operational Review Award Action General Liability Insurance Program Multi-Year Renewal i' Proposal Action ,:1,;,1----------------------------t-------- 1,:llu I __ ,in Semi-Annual HR Policies & Procedures Review ::. I Connection Fee Structure · ::1 Future Bargaining Unit Strategy Development None Scheduled Due to Veteran's and Thanksgiving Day Holidays 1997-98 Comprehensive Annual Financial Report Information Action Information Action Action }i, t,~!i,.,_~: ..,.ii.-':!!; 1997-98 First Quarter Financial & Operational Report .. =uece.~.uerr 'Jt--------------------------+---------------1 i.j'7 .. . I Adopt DART Adaptive Workforce Compensation Program Action Strategies for Meet and Confer Process Information CSDOC e P.O. Box 8127 e Fountain Valley, CA 92728--8127 e (714) 962-2411